More entrepreneurs are pursuing business ownership through acquisition. Stanford has tracked more than 850 core search funds in the United States and Canada, with new launches remaining at historically high levels in 2024 and 2025. Across the long-running dataset, 58% of concluded searches resulted in a purchase.
A search fund allows an entrepreneur, or sometimes a pair of entrepreneurs, to raise money from investors while looking for a privately owned company to buy and manage.
The model is one form of entrepreneurship through acquisition, often shortened to ETA. Instead of developing a company from an idea, the entrepreneur starts with an operating business that already has customers, employees and a financial record.
Stanford Graduate School of Business published its latest Search Fund Study in 2026, using data through December 31, 2025. The findings explain why the route has gained attention, but they also show that buying a business is far from a guaranteed shortcut to becoming a chief executive.
How a search fund works
Under the traditional model, investors first provide enough capital to finance the search. That money pays for the entrepreneur’s living expenses and the professional work needed to identify and assess possible acquisitions.
If the searcher finds a suitable company, investors are then asked to provide the acquisition capital. The entrepreneur normally takes a senior operating position, often becoming chief executive, and can earn a meaningful ownership stake.
A 2026 Stanford primer explains that the precise terms can differ, but the core model combines outside investment with an entrepreneur who intends to run the company rather than remain a passive shareholder.
The businesses involved are usually well beyond the startup stage, although they are not necessarily large. The median purchase price for search-fund acquisitions completed in 2024 and 2025 was $16 million. Services, software and education were the most common target sectors.
Finding one typically took around 20 months. That period is spent contacting owners, comparing industries, reviewing financial records and negotiating with sellers. Many searches end without a deal.
Buying changes the risk rather than removing it
Starting from scratch gives a founder control over the product, brand and business model. It also means building demand, hiring a team and creating operating systems with little evidence that the idea will work.
An acquisition can remove some of that early uncertainty. An established company may bring recurring revenue, trained employees, supplier relationships and years of accounts that lenders and investors can examine.
The attraction becomes clearer when placed alongside the difficulty of surviving the startup years. US Bureau of Labor Statistics data show that 57.3% of establishments born in 2018 were still operating five years later.
That figure cannot be directly compared with search-fund results. The datasets measure different groups, and searchers generally target businesses that have already survived their earliest years. It does, however, show why an operating history can be attractive.
Buying a company introduces other risks. A large customer may account for too much revenue. Important employees may leave after the sale. Debt used to finance the purchase can become difficult to service if earnings weaken. The company’s reputation or supplier relationships may also depend heavily on the departing owner.
Due diligence, the investigation carried out before a transaction, is intended to identify these problems. It cannot remove them all. A buyer may understand the accounts and still misjudge the company’s culture, competitive position or ability to operate without its founder.
The returns are strong, but the averages need context
Search funds have attracted investors partly because their historical aggregate returns have been high.
As of the end of 2025, Stanford reported an aggregate internal rate of return of 33.9% and a return of 4.75 times the capital invested. Internal rate of return, or IRR, is an annualized measure that takes account of when money was invested and returned.
The study also calculated a public market equivalent of 2.88. This compares the cash flows from search funds with what the same pattern of investment and withdrawals would have produced in the S&P 500.
These are aggregate historical results, not a forecast for a new fund. A relatively small number of outstanding investments can pull the overall average upward. Some acquired companies lose money, while some searchers never complete a purchase.
Stanford found that about half of concluded funds launched between 2021 and 2024 had acquired a company. The acquisition rate across the full dataset was 58%.
For the entrepreneur, an unsuccessful search can mean spending roughly two years examining companies without ending up with one. Completing a purchase then brings an immediate management test: taking responsibility for an established workforce, customer base and set of financial obligations.
Business succession is part of the appeal
The model connects two groups with different needs. One contains entrepreneurs who want to run a company but do not want to build one from zero. The other contains owners who need somebody to buy the businesses they have spent years developing.
The US Small Business Administration notes that many owners eventually have to transfer their businesses. Options include an outright sale, a gradual sale or another ownership arrangement.
A search-fund buyer can be attractive to an owner who wants the company to remain an independent operating business. However, the buyer still has to determine how much of its performance belongs to the organization and how much depends personally on the seller.
The idea has also moved beyond North America. IESE Business School’s 2024 international study, which used data through the end of 2023, examined 320 funds in 40 countries. It recorded 59 new funds and 31 acquisitions during 2023, both then-record figures.
Stanford center director Deb Whitman described the broader lesson simply: “Search funds remind us that there’s more than one path into entrepreneurship.”
The route will not suit every prospective owner. It requires investor backing, patience, careful financial analysis and a willingness to walk away from an unsuitable company. But for entrepreneurs who are better at improving an operating business than inventing one, acquisition offers a practical alternative to starting with an empty office and an untested idea.
