While the number of search funds has grown rapidly over the past 10 years, search funds are still relatively niche. Identifying the right investor profile is key in raising funds, which starts by understanding the different mindset of minority and majority investors.

Minority investors are more focused on the home run, understanding that means striking out a bunch. Majority investors are more focused on finding good companies with incremental improvement opportunities. The lower upside means you can’t afford to lose as often and therefor want tighter control.

Despite coming from a private equity background and having a much broader network there, we raised the majority of our money from the minority investor crowd (start-up types, former self-funded searchers etc.). The idea of only receiving a 20-40% stake in the company despite funding most of the equity felt intuitively wrong to the private equity guys despite intellectually understanding the deal math and that they would receive appropriate upside. For the growth equity / start-up types on the other hand, the deal and structure felt intuitively right, even though we are buying a mature business.

That's why minority investors tend to be a better target audience for self-funded searchers and majority investors the better target audience for traditional searchers, despite the underlying businesses that are acquired through both models looking very similar.

You can read the full article here: Understanding Search Funds as an Asset Class