How is a search fund different from private equity?

Both involve outside investors paying for a company, so they are easy to confuse. The difference shows up after the sale. In one, a single new owner-operator moves in. In the other, a firm with a portfolio takes a position and manages it from a distance.

Who runs the business afterwards

In a search fund, the searcher becomes the chief executive and works in the business day to day. In private equity, the firm is usually the owner, and it either keeps the current management or brings in an executive team. The firm’s partners sit on the board but typically do not work in the company.

Number of companies and size

A search fund is built around one purchase, so the searcher looks for a company they can lead personally. A private equity firm spreads its money across several companies and may combine them. Firms often look at larger companies, though the lines blur in smaller deals and each fund sets its own range.

Time and decisions

Search fund investors often back a long hold with the searcher in charge. Private equity firms have a plan to sell at some point and may move faster on changes. Decisions in a search fund rest with one person and a small board. In private equity, an investment committee usually has a voice.

What it means if you are selling

Owners should ask any buyer who will run the company, who is funding it and what happens to staff. For the seller’s side of a firm purchase, see what selling to private equity means for you.