Are Search Funds Only Viable Because Investors Accept Them?

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June 10, 2025

by a searcher from Karlsruhe Institute of Technology in Milan, Metropolitan City of Milan, Italy

I’ve been working on a succession-focused model in Germany, and a question has been on my mind lately: Are traditional search funds ultimately a vehicle that only exists because investors accept their logic – and does this filter out a large part of the market? Especially in Europe (and even more so in rural Germany), many succession opportunities are simply too small or “unscalable” to be a fit for investor-backed search funds. But these businesses are often profitable, rooted in their local economies, and worth preserving – just not according to the classic IRR-driven playbook. I’m wondering: • Have you come across alternative investment or financing models that allow more flexibility – e.g., revenue-based financing, seller notes, evergreen structures? • Has anyone tried to raise capital from non-traditional LPs like foundations, cooperatives, or impact investors? • What’s your take on the “investor pressure” dynamic – does it actually kill smaller but viable deals? Would love to hear your thoughts and experiences. I’m particularly interested in European or emerging market perspectives – but open to any views that challenge the default.
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commentor profile
Reply by a professional
from Universidad del PaĆ­s Vasco in Bilbao, Biscay, Spain
Hi! As you mentioned, smaller opportunities are usually not financed by search funds because the metrics or returns don’t fit their expectations, leaving many traditional businesses without a clear succession plan. I haven’t seen any alternative investment models widely used in the market yet, though I understand that in one-on-one deals other financing instruments are often used to manage the acquisition. What seems more challenging is finding funding for the actual search process itself. Regarding rural areas, I don’t think that’s the main issue, as most searchers I’ve spoken with are geographically open, at least in theory.
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Reply by an investor
from University of St. Gallen in Berlin, Deutschland
The kind of businesses you are describing are more suitable for a combination of seller financing and especially loans from the local banks. Those bank loans are sometimes subsidized by the federal KFW program which has special offers for succession situations: https://www.kfw.de/inlandsfoerderung/Unternehmen/Gr%C3%BCnden-Nachfolgen/F%C3%B6rderprodukte/.
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