The Stanford Search Fund Study

Choose your own adventure...

Is it Blue or Gold?

A couple of years ago, a debate raged online: Is this dress blue or gold? Depending on the person, the answer varied considerably. The blue vs. gold dress situation reminds us that people can look at the same information and come away with strikingly different conclusions. For instance, let’s look at the latest Stanford Search Fund Report. For those unfamiliar, the nice people at Stanford put out a great report that dives into the financial performance and characteristics of US and Canadian search funds. The study is intended to “support the search fund community including current searchers, CEOs, investors and entrepreneurs evaluating whether they want to pursue a search fund”. From the 2024 report:

“Adding data from the last two years, returns from all search funds since 1984 fell in line with those reported in recent studies, with a few notable variations. The internal rate of return (IRR) was 35.1%, compared to 35.3% in the 2022 study, and return on investment (ROI) was 4.5x in the 2024 study, down from 5.2x in###-###-#### Notably, the IRR for companies that have exited increased to 42.9% from 36.8% as several exits in###-###-#### achieved significant returns.”

Anecdotally, the graph on Search Fund Outcomes seems to get the most commentary:

What’s interesting is that one group of people look at this graph and conclude that the positive outcomes (i.e., acquiring a company and having a successful exit) are extremely promising (>10x ROI!). The other group looks at this graph and concludes that so many people either fail to acquire (37%) or experience losses (31%) that the rewards are not worth the associated risks.

So what do we think when we look at this graph? We think there is no right or wrong answer. We think it’s possible to hold two diametrically opposed, but valid, ideas in our heads at the same time. Yes, it’s true some will have resounding success in the search space. It’s also true that others will fail.

It’s important that every person figures out the approach that resonates with their personality, background, risk tolerance, and skill-set. For some, the traditional search path is the best route; for others, a CXO program (like Chenmark!), is the right fit. We think the best approach is to encourage people read the report and enthusiastically pursue their unique path, regardless of what the data suggests.

Have a great week,

Your Chenmark Team

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