Do Searchers Ever Partner with PE Firms (As a Single Source)?

February 15, 2021

by a searcher from Indiana University, Bloomington/Indianapolis - Kelley School of Business in Indianapolis, IN, USA

Do searchers ever partner with a single private equity firm as their source of capital rather than partnering with a larger number of funding sources? Working in banking, I see the approach of entrepreneurs, sometimes called operating partners, working with private equity firms and taking economics on the deal when they acquire a company, then operating it for a few years. If this model is different fundamentally, could someone please help me understand why? If taking funding from 1-3 private equity firms f0r a single deal isn't common (or then disqualifies the vehicle from being a "search fund"), why is this? Would the terms be too stiff for the entrepreneur to have good economics? Would it difficult to achieve the partnership?

Reply by a searcher
from Harvard University in Palo Alto, CA, USA

The Operating Partner title is used in many ways. For larger PE funds, think of those folks as the in-house value creation team for the PE fund, comprising of many former operators and ton of ex-consultants, tasked with delivering specific value creation initiatives at portcos. Their return usually comes in the form of carry in the deal, similar to a member of the deal team. From what I've heard this is usually at a smaller percentage (i.e. an VP on the deal side will earn a carry greater than a VP on the operating side). For smaller PE shops, family offices, holding companies the Operating Partner/Entrepreneur in Residence program looks essentially like a in-house search fund, and from what I've heard may have similar economic strucure. A few that come to mind are Hunter Trust, Halstatt Legacy, NextGen Growth Partners

Join the discussion