Stanford 2024 Search Fund Study: Key Findings and Takeaways

Stanford Graduate School of Business has published its most thorough search fund study to date, analyzing data from 681 search funds raised between 1984 and 2022. The study, which has become the definitive reference for the search fund industry, reveals both encouraging trends and important nuances for searchers and investors.

Headline Numbers

The study's aggregate return data continues to make the case for search funds as an institutional asset class:

• Aggregate pre-tax IRR: The study reports strong returns for investors, though with significant variance between funds. Top-quartile funds generate outsized returns while bottom-quartile funds can result in total loss of capital.
• Acquisition rate: Approximately 70% of funded searchers successfully complete an acquisition, a rate that has remained relatively stable over recent vintages.
• Average search duration: The median search takes approximately 20 months from fund raise to acquisition close.
• Fund sizes: Search fund raises have increased over time, reflecting both inflation and larger target acquisitions.

Important Trends

Professionalization of the asset class: The study shows increasing involvement of institutional investors and the emergence of repeat investors who have developed deep expertise in evaluating searchers and acquisition targets.

Sector concentration: Business services, technology-enabled services, and healthcare services continue to dominate search fund acquisitions, reflecting the industry's preference for recurring revenue, low capital intensity, and fragmented markets.

Internationalization: While the US remains the primary market, the study tracks growing international activity, particularly in Europe and Latin America.

What the Data Doesn't Show

It's important to note the study's limitations. The data set is subject to survivorship bias - funds that failed early may be underrepresented. The study also measures returns at a point in time, and many recent-vintage funds have not yet reached exit. Individual investor returns vary significantly based on which funds they invested in, and the dispersion of outcomes is wide.

Implications for the Market

The continued publication of rigorous academic research strengthens the ETA asset class's credibility. For aspiring searchers, the data provides benchmarks for search duration, acquisition criteria, and expected outcomes. For investors, it informs portfolio construction and return expectations.