Greg Geronemus says traditional searchers grew from 10 in 2010 to 94 in 2023, with hundreds more in ETA.
Greg Geronemus concedes buying businesses is moderately harder amid competition from searchers, independent sponsors and private equity moving down market.
Greg Geronemus now expects committed capital vehicles to take significant share from traditional search.
Search Funds Grew Up and the Buying Got Harder
Entrepreneurship through acquisition has grown from a Stanford classroom curiosity into a crowded, institutional market. Searcher numbers multiplied and private equity moved down into small deals. Committed capital vehicles now offer a $15m to $25m pool with investor board oversight instead of a two-year search. Geronemus, who bought a tour operator in 2013 and sold it at nine times EBITDA, thinks buying is moderately harder and the acquisition rate will slip below half, though cheaper capital and better sourcing tools soften the competition.
Takeaways
ETA went from fringe to crowded. Stanford counted 10 traditional searchers in 2010 and 94 in 2023. Geronemus puts total ETA participation at several hundred once self-funded searchers and independent sponsors are counted, with about 20 MBA programs now teaching it.
Buying a business is moderately harder now. Competition now comes from other searchers and independent sponsors, and from private equity firms moving down into smaller platforms and tuck-ins. Better access to debt, more shared content and AI-assisted sourcing tools offset some of that pressure.
Traditional search acquisition rate may fall below half. The latest Stanford study found 57% of traditional searchers closed a deal. Geronemus guesses the 2026 study dips below 50%, partly because search became a career option rather than a calling, thinning grit.
Committed capital vehicles are taking share. Over the last six to twelve months Geronemus has seen a massive shift away from traditional search, and he now expects committed capital vehicles to take significant share. Those vehicles raise $15m to $25m for buy-and-build strategies.
Ruback and Yudkoff built the ETA canon. Geronemus and his partner turned a two-on-two independent study with Ruback and Yudkoff into a 40-person HBS course. Their book carried the model to people who never attended a search program.
Failure must be the only acceptable option. Geronemus treats a searcher who would be fine coming up empty as a near red flag, while the best ones treat failure as not an option. He cites Jalen Brunson and the Knicks' 29-point comeback.
Traditional versus self-funded search
Search capital buys two years of runway. Investors bear the risk that no deal is found and get a right of first refusal plus $1.50 of credit into preferred equity per dollar. Two or three join the board as coaches.
Traditional deals skew larger. Around half exceed $12m of enterprise value, and the searcher typically holds 25-30% ownership against 60-80% in self-funded search.
Self-funded search now means SBA loans with a personal guarantee. Typical targets run $3m to $8m of enterprise value, roughly $600,000 of EBITDA, bought for about $2.1m.
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On this episode 2
Show 1
Partner-search equity vests in three tranches, ten percent at close and the rest over a four-year time vest or against IRR hurdles starting at a 20% net IRR and maxing at 35%. Geronemus calls the belief that bigger ownership means bigger economics a fallacy.