Every year, Stanford's Center for Entrepreneurial Studies publishes two documents that serious ETA operators keep bookmarked: the Search Fund Primer and the biennial Search Fund Study. According to the 2024 Stanford Search Fund Study, 681 core search funds have been formed in the United States and Canada since 1984. The data runs through December 31, 2023. The numbers are worth understanding before you raise capital, acquire a company, or pitch an investor.
What the primer covers
The Stanford Search Fund Primer is a reference document, not a cheerleading guide. It explains the model from both sides of the table: the entrepreneur who raises a search fund and the investor who backs one. The primer covers how funds are structured, how searchers get paid, what investors expect, and why the model works better for some businesses than others.
The core thesis is simple. A first-time entrepreneur with limited capital raises a small fund from investors to search for, acquire, and lead a privately held company. The fund covers living expenses and search costs during the search period. If the searcher finds a company and closes a deal, the searcher becomes CEO. Investors provide equity at the acquisition, and the searcher earns carried interest over time.
That is the loop. The primer explains what happens inside it.
The 2024 data
These numbers come directly from the Stanford 2024 study:
- IRR: 35.1%, down marginally from 35.3% in the 2022 study
- ROI: 4.5x, down from 5.2x in 2022
- Exited funds IRR: 42.9%, up from 36.8% in the prior study
- 94 new search funds launched in 2023, a record
- 63% of searches that concluded resulted in an acquisition
- Median purchase price: $14.4 million at a 7.0x EBITDA multiple
- Median EBITDA margin: 27%, median revenue growth rate: 25%
- $682 million in investor capital deployed across 2022 and 2023
Those headline returns look strong. 35% IRR across the full dataset since 1984 beats most asset classes. But the distribution matters more than the average.
What the distribution tells you
The 35.1% IRR is not the experience most searchers have. It is the aggregate, pulled higher by outliers. Stanford reports that 11% of companies achieved greater than 10x returns. On the other end, about 37% of searches do not result in an acquisition at all. Some searchers never find a company. Some find one and the deal falls apart. Some acquire and the business fails.
Eleven percent are home runs. Thirty-seven percent never swing. The middle is where most operators land: acquired a company, built it steadily, exited at a reasonable multiple, returned capital to investors, and kept their equity.
That outcome still beats most alternatives for a first-time operator without generational capital. But it is not the 42.9% exit IRR headline number. Know which number you are actually aiming for.
How the fund is structured
A traditional search fund raises money in two tranches. The first is search capital: typically $400,000 to $600,000 from 10 to 15 investors. Each investor buys the right to participate in the acquisition on favorable terms. If the searcher finds nothing after roughly two years, the fund winds down and investors recover a portion of their capital.
If an acquisition closes, investors get another opportunity. They contribute equity at closing. The searcher receives two equity grants: one for acquiring successfully, one that vests over time as CEO. That time-based grant is how the model creates long-term alignment between operator and investor.
The searcher's carried interest, called entrepreneurial equity, typically runs 20 to 30 percent of the equity after preferred return to investors. The 2024 data shows the average equity earned by operators still running acquired companies was $6.09 million. The median was $1.98 million per person. For those who had exited, the average was $5.7 million with a $2.25 million median.
The upside is real. So is the variance.
Compensation during the search
The 2024 study collected salary data from 152 searchers who launched in 2022 and 2023. The mean search salary was $139,000, up from $120,000 in the prior cohort. Most of that increase tracks inflation.
Once an acquisition closes, CEO compensation shifts. Median first-year CEO salary was $190,000 with a $25,000 target bonus. This is base compensation. The equity is the real compensation.
Operators who enter search fund acquisitions for the salary are solving the wrong problem.
What business characteristics the model targets
The primer is specific about what works. Search fund acquisitions cluster around businesses with these traits:
- Recurring or repeat revenue
- Low customer concentration (no single customer represents more than 20% of revenue)
- Simple, defensible business models that do not depend on one person
- Strong operating margins that survive a management transition
- EBITDA between $1 million and $5 million at entry
The 2024 study shows the median acquisition had a $14.4 million purchase price, 27% EBITDA margins, and 34 employees. That is a small business with a real earnings base, not a startup pitch deck.
Software acquisitions declined as a portion of the total in recent years. Services businesses (healthcare services, specialty distribution, industrial services) became a larger share of the portfolio. Multiples on software compressed. Services held up. The primer reflects that shift.
Partnered versus solo searches
Nineteen percent of searches in 2022 and 2023 were partnered, down from 41% in the prior two-year period. But the data favors partnerships on returns: partner searches have a 40.5% IRR in the aggregate.
The operational logic is clear. Two operators cover more ground during the search, negotiate from a stronger position at closing, and carry more management bandwidth after acquisition. The tradeoff is equity dilution and partnership tension. Two operators splitting equity means each earns less individually. And partnerships that fracture during the search create real operational problems.
The primer does not tell you whether to partner. It tells you what the numbers say. Decision-making is yours.
Why 2023's record launches matter
Ninety-four new search funds launched in 2023, a record number. Acquisitions that year dropped to 29, down 11 from the peak year of 2021. The supply of searchers is outrunning the supply of quality acquisitions.
More operators chasing fewer good businesses means more competition for the same deals, upward pressure on multiples, and longer search periods. The operators who succeed in this environment are the ones building proprietary deal flow, not waiting for investment bankers to send them the same packages every other searcher receives.
This is where military-trained operators have a real advantage. The discipline to work a cold outreach system for 18 months without visible progress, without external validation, without a scoreboard. That is not common in civilian search culture. Veterans who enter ETA understand sustained effort under ambiguity.
Where PGC fits in the model
Patriot Growth Capital operates in the same lower-middle-market that search fund acquisitions target. Our model differs on one dimension: we bring operator mentorship, deal structure experience, and a pipeline of veteran candidates alongside the capital. We are not searching for a company to operate. We are building a system for veteran operators to find, acquire, and run businesses they are suited to run.
The search fund primer describes a model that works. PGC applies it with intent. For veteran families evaluating the ETA path, understanding the Stanford primer and the 2024 data is the right starting point. See our analysis of search fund economics for a deeper look at how the carry structure plays out from both sides of the capital table.
The primer is not a strategy document
The Stanford Search Fund Primer is descriptive, not prescriptive. It tells you what others have done and what their results looked like. It does not tell you which industry to target, which business to acquire, or how to make the company better after you close.
That gap is where operators succeed or fail. The primer gives you the framework. Execution is yours to fill.
If you are serious about the ETA path, download the Stanford primer at the Stanford Center for Entrepreneurial Studies and read the 2024 study alongside it. Then ask yourself whether the return profile, the commitment, and the risk match your situation and your capital. The model is proven. Execution separates who wins from who does not.
Frequently Asked Questions
What is the Stanford search fund primer and where can I download it?
The Stanford Search Fund Primer is a practical reference guide published by the Grousbeck-Holloway Center for Entrepreneurial Studies at Stanford Graduate School of Business. It explains the search fund model from both the entrepreneur and investor perspectives. You can access it at the Stanford GSB Center for Entrepreneurial Studies website after completing a short information form.
What returns does the 2024 Stanford Search Fund Study report?
The 2024 study reports an aggregate IRR of 35.1% and a 4.5x ROI across all core search funds since 1984, with data through December 31, 2023. Exited search funds achieved a 42.9% IRR. These figures include funds that failed to acquire, which pulls the aggregate below what only acquired-and-exited funds show.
What types of businesses do search funds typically acquire?
Search fund acquisitions concentrate on lower-middle-market companies with recurring revenue, low customer concentration, and EBITDA between $1 million and $5 million. The median acquisition in the 2024 study had a $14.4 million purchase price at a 7.0x EBITDA multiple, with 27% operating margins and 34 employees.
How much do search fund operators earn during the search period?
The mean search salary in 2022 and 2023 was $139,000 per year. After closing an acquisition, the median first-year CEO salary was $190,000 with a $25,000 target bonus. Operators who exited reported average equity earnings of $5.7 million per person, with a $2.25 million median.
