Private Placement Memorandum (PPM) Template for Search Funds

Disclaimer: Educational purposes only. Not legal or investment advice. Consult qualified securities counsel before preparing a PPM.

What Is a PPM?

A Private Placement Memorandum (PPM) is the primary fundraising document used by search fund entrepreneurs to raise capital from institutional and individual investors. It describes the searcher, the investment opportunity, the economics, and the risk factors associated with investing in a search fund.

In the traditional search fund model, the PPM is used to raise "search capital" - typically $400K-$600K - from 10-20 investors who each contribute $30K-$50K in exchange for the right (but not the obligation) to invest in the eventual acquisition. According to the 2023 Stanford Search Fund Primer, the median search fund raises approximately $475K in search capital from 14 investors.

The PPM serves multiple purposes: it is a legal disclosure document (protecting both the searcher and investors), a marketing tool (convincing investors of your credibility), and a reference document (governing the relationship throughout the search).

Template: PPM Sections

The following outlines the standard sections of a search fund PPM. Bracketed items [like this] should be customized for your specific fund. This template follows the structure commonly used in US-based traditional search funds and should be adapted for other jurisdictions.

I. Executive Summary

Fund Name: [Search Fund Name] LLC

Searcher(s): [Searcher Name(s)]

Search Capital Raise: $[Amount] (target), raised in units of $[Amount] per unit

Number of Investors: [10-20] (target)

Search Period: [18-24] months

Target Acquisition Profile:

Revenue: $[X]M - $[Y]M
EBITDA: $[X]M - $[Y]M
Industries: [Target industries]
Geography: [Target geographies]
Business type: [B2B/B2C, services/manufacturing, etc.]

Legal Structure: [LLC / LP] organized under the laws of [State]

Securities Exemption: Regulation D, Rule 506(b) [or 506(c)]

Guidance: The executive summary should be concise (1-2 pages) and give investors a clear picture of who you are, what you are looking for, and how their capital will be used. Lead with your strongest credentials and differentiation.

II. Searcher Background & Qualifications

Professional Background

[Provide a detailed professional biography including education, relevant work experience, skills that are directly applicable to operating a small business, and any prior entrepreneurial or M&A experience. Include specific accomplishments with quantifiable results.]

Why ETA

[Explain your motivation for pursuing Entrepreneurship Through Acquisition. What led you to this path? Why are you the right person to find, acquire, and operate a small business?]

Relevant Skills

[Skill 1 with specific examples - e.g., "P&L management for a $10M business unit at [Company]"]
[Skill 2 - e.g., "M&A transaction experience - evaluated 30+ targets at [PE firm]"]
[Skill 3 - e.g., "Industry expertise in [sector] from [X] years of experience"]
[Skill 4 - e.g., "Operational improvement - implemented [system] reducing costs by X%"]

References

[List 2-3 professional references available upon request]

Guidance: This is the most important section for investors. Search fund investing is a bet on the jockey, not the horse (since the company hasn't been identified yet). Be specific about accomplishments. Avoid generic statements. According to the Stanford Primer, the most successful searchers tend to have 2-10 years of professional experience, often in consulting, private equity, or operational roles.

III. Investment Thesis & Search Strategy

Acquisition Criteria

EBITDA: $[1-5]M (target range)
Revenue: $[3-20]M (target range)
Industries: [List target industries with rationale]
Geography: [List target markets]
Business characteristics: Recurring/contractual revenue, low customer concentration, defensible market position, fragmented industry with buy-and-build potential
Excluded: [List industries or characteristics you will not pursue]

Search Strategy

[Describe your approach to finding acquisition targets: proprietary sourcing (direct outreach to business owners), broker relationships, industry networks, geographic focus. Be specific about your plan - investors want to see a systematic approach, not just "I'll look for good companies."]

Value Creation Plan

[Describe the types of improvements you plan to make post-acquisition: operational efficiency, digital transformation, sales process optimization, add-on acquisitions, geographic expansion. Ground this in your specific skills and experience.]

Guidance: Be specific but not so narrow that you have a tiny target universe. Most successful search funds target businesses with $1-5M EBITDA in fragmented industries with high barriers to entry. Your search strategy should demonstrate that you have thought carefully about how you will actually find and evaluate deals.

IV. Use of Search Capital

Search capital of $[Amount] will be allocated approximately as follows:

Category	Amount	% of Total
Searcher salary & benefits	$[Amount]	[X]%
Travel & deal sourcing expenses	$[Amount]	[X]%
Legal & accounting fees	$[Amount]	[X]%
Office, technology & overhead	$[Amount]	[X]%
Due diligence costs (QoE, environmental, etc.)	$[Amount]	[X]%
Contingency reserve	$[Amount]	[X]%

The Searcher's annual salary during the search phase will be $[Amount], which is below market rate for comparable roles, reflecting the Searcher's commitment and alignment of interests.

V. Economics & Investor Returns

Search Capital Conversion

Each unit of search capital ($[Amount]) entitles the investor to a pro-rata right (but not obligation) to invest in the acquisition. Search capital converts into equity in the acquisition vehicle at a [1.5x] step-up - meaning each $1 of search capital converts as if it were $[1.50] of acquisition equity.

Acquisition Capital Structure (Illustrative)

Total enterprise value: $[Amount] ([X.X]x EBITDA)
Senior debt: $[Amount] ([X]% of TEV)
Seller note: $[Amount] ([X]% of TEV)
Equity: $[Amount] ([X]% of TEV)

Searcher Equity

The Searcher will receive [20-30]% of the common equity, vesting over [4-5] years, structured in [2-3] tranches:

Tranche 1 ([X]%): Vests upon closing of the acquisition
Tranche 2 ([X]%): Vests over [3-4] years based on continued service
Tranche 3 ([X]%, if applicable): Vests upon achieving performance targets (e.g., [X]x MOIC)

Distribution Waterfall

1. Return of invested capital to all investors (search + acquisition capital)
2. Preferred return of [X]% IRR to investors
3. Remaining proceeds distributed pro-rata between investors and searcher per equity ownership

Guidance: Economics are one of the most scrutinized sections. The standard structure per the Stanford Primer is: 20-30% common equity to the searcher, 1.5x step-up on search capital, and a preferred return (typically 8%) to investors before the searcher participates in distributions. Use the Cap Table Simulator tool to model different scenarios.

VI. Governance & Investor Rights

Board Composition

The acquisition entity will be governed by a Board of Directors consisting of [3-5] members: [1] Searcher/CEO, [1-2] investor representatives, and [1] independent director.

Investor Protections

Quarterly financial reporting (P&L, balance sheet, cash flow)
Annual audited financial statements
Board approval required for: capital expenditures above $[Amount], new debt, acquisitions, changes to searcher compensation, related-party transactions
Tag-along and drag-along rights
Anti-dilution protections
Information rights and facility access

Searcher Removal

The Board may remove the Searcher/CEO by [majority/supermajority] vote. Upon removal without cause, unvested equity shall be forfeited. Vested equity shall be subject to a [call option / buyback right] at fair market value.

VII. Risk Factors

An investment in [Search Fund Name] involves significant risks, including but not limited to:

No identified acquisition target. At the time of this offering, no specific acquisition target has been identified. There is no guarantee that a suitable acquisition will be found during the search period.
Loss of search capital. If no acquisition is completed, investors will lose their entire search capital investment. Based on the 2023 Stanford Primer, approximately 27% of search funds do not complete an acquisition.
Reliance on the Searcher. The success of the fund depends almost entirely on the abilities, judgment, and continued involvement of the Searcher.
Small business risks. Acquired companies are likely to be small, with limited management depth, customer concentration, and sensitivity to economic cycles.
Use risk. The acquisition will likely be partially debt-financed, increasing the risk of financial distress in adverse scenarios.
Illiquidity. There is no public market for the securities offered. Investors should expect to hold their investment for 5-7 years or longer.
Conflicts of interest. The Searcher serves in multiple capacities (manager, equity holder) which may create conflicts with investor interests.
Regulatory risk. Changes in tax law, employment law, or industry regulation could materially affect the acquired business.

Guidance: The risk factors section is legally critical. It protects both the searcher and investors by ensuring full disclosure. Do not minimize risks - sophisticated investors expect and respect thorough risk disclosure. Your securities attorney will help tailor this section.

VIII. Subscription Terms

Offering Details

Securities offered: [LLC membership interests / LP interests]
Minimum investment: $[Amount] per unit
Maximum units per investor: [X] units (to ensure diversified investor base)
Accredited investors only: This offering is limited to accredited investors as defined under SEC Rule 501 of Regulation D
Subscription deadline: [Date]

Subscription Process

1. Review this PPM and all accompanying documents
2. Complete the Subscription Agreement and Accredited Investor Questionnaire
3. Wire funds to: [Escrow account details - to be provided by counsel]
4. Receive countersigned agreement and unit certificate

Withdrawal & Termination

If the minimum raise of $[Amount] is not achieved by [Date], all subscription funds will be returned to investors without interest. The Searcher reserves the right to accept or reject any subscription in whole or in part.

IX. Legal Disclosures

Securities Law Compliance: This offering is made pursuant to an exemption from registration under the Securities Act of 1933, as amended, specifically Regulation D, Rule 506(b) [or 506(c)]. The securities have not been registered with the SEC or any state securities commission and may not be resold without registration or an applicable exemption.
Forward-Looking Statements: This PPM contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those projected.
Tax Considerations: Investors should consult their own tax advisors regarding the tax consequences of this investment. [The fund intends to be treated as a partnership for US federal income tax purposes.]

International Considerations

European Search Funds

In Europe, the PPM equivalent varies by jurisdiction. In the UK, search funds typically raise under the Financial Services and Markets Act 2000 exemptions for high-net-worth individuals and sophisticated investors. In France, fundraising often uses the "société en commandite simple" (SCS) structure. In Spain, the "sociedad limitada" (SL) is common. The IESE Business School's International Search Fund Study tracks European search fund structures and economics.

Key differences from US practice include: different accredited investor definitions, varying securities registration requirements, and local corporate governance norms. European search funds may also need to manage cross-border tax implications if the searcher and target are in different countries.

Key Metric Benchmarks (Stanford 2023)

For context, here are key benchmarks from the 2023 Stanford Search Fund Primer for traditional search funds:

Median search capital raised: $475K
Median number of investors: 14
Median acquisition EBITDA: $1.8M
Median acquisition multiple: 5.6x EBITDA
Searcher equity: typically 20-25% of common equity
Acquisition completion rate: approximately 73%
Median aggregate return to investors: 5.1x MOIC, 32.6% IRR