In Europe I think it depends on the size of the economy. They seem to accept a focus on a country - check out Ambit partners on linkedin, they've got 3 examples they've recently funded in Germany + Czech republic and Slovakia (joined).

Tagging a few investors that like traditional Searchfunds in Europe who should be able to comment on this one:

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Daniel is correct - depth of the SME market probably matters most. If it is a bigger market, with plenty of potential (on target) sellers, a single country makes sense. If a little smaller, a regional play can work too. But that region should still be a cohesive sub-set of countries like you suggest (for example, we've backed and/or liked searchers in Czech & Slovakia; Spain & Portugal (Iberia); Latvia, Lithuania & Estonia (Baltics); and, outside of Europe, the same applies (e.g., Ivory Coast, Senegal & Ghana in West Africa strategy. Importantly, these regional clusters often share deep economic ties, similar business cultures, and common currencies, which allows for some fluidity across borders during the search (and for regional expansion during the operations phase).

That said, perhaps the biggest consideration is legal & tax structuring for the Search Fund. You want to make sure that there are no insurmountable structural issues created by domiciling in one jurisdiction, while intending to search / transact / operate / exit in another. If your selected markets are too "unharmonised", it may be worth considering a "neutral" domicile (e.g., in Europe, Luxembourg, or another) that affords flexibility across markets. All of this adds complexity to your strategy, however, so the regional play better make more sense than a slightly more complicated structure.

Understanding the searcher's background and experience and seeing how that matches with the target geography/geographies is important. Traditionally have backed candidates in Europe with single country focus (and geographically agnostic within that country). While shared or similar languages may be present in some of the regions you specify, there are still some cultural differences. If a candidate has a background in multiple European countries, then that profile could be interesting and one that we may consider for a multi-country approach.

Generally, investors prefer to see searchers focused on the country they are from and know best. So, for instance, if you are French, why would you add Belgium even though the language is the same? France is a big country, Belgium is different culturally and how business is done, so why would you look outside of France? If, however, you are in the Flemish-speaking region of Belgium (Dutch speaking), then it is too small and you should look at the Netherlands too. The same is true for Germany (no need to look elsewhere, unless you accidentally find something in Switzerland or Austria) and Austria/Switzerland (smaller, so you may need to look at Germany too.) What increases complexity in Europe is also how one nation feels towards the other one. Sometimes they don't like each other or look down upon each other. P.S. There are always exceptions to these rules e.g. a Spanish/Portuguese duo covering all of Iberia etc.

This is great input for us. Thanks all. Do you know anyone who is experienced in battling the legal setup for a broader search? For instance, managed the fund from a lux entity ? We are considering Sweden as legal home, but are considering other options that are more “neutral” such as Luxembourg.

Europe’s business weakness is its diversity on too many grounds but be targeted as one or packs of countries for a search fund, in my opinion. A searcher as two main challenges, first is to become an entrepreneur and successfully step into a CEO’s shoes, second is to be financially successful with a leveraged MBI on the long run. All added complexity (different cultures, legal specificities, social laws, etc.) may add risk and unnecessary stress to the searchers ’operations. I would keep it as simple as possible in a well-known environment for searchers’ sake.

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Lots of good comments above. There's not a perfect answer to all these questions. I'd say ideal legal structure, search strategy, etc. will depend very much on the specifics of your project, incl. personal preferences and priorities.
We've invested in ~40 search funds in Europe (including a number of software companies), in pretty much all countries (some of them being #1-2) and using different structures, dm if you want to talk.

I think practically from the perspective of a search fund investor who is already writing a blank check in terms of deal size and specific sector, adding another country vs. a single geography more likely detracts from the value proposition and adds structural complexity to the deal.