I've heard that the success rate of search funds has been trending downward and is somewhere in the 60's now. Do we have any sense of whether that trend is more so do to the strong economy in the US (suggesting that deals tend to be too expensive like other securities have been until recent months) or whether the market is saturated with searchers all chasing the same thing?
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Searchfunder is an online community and toolkit for searchfunds. Over 80% of those involved in searchfunds maintain a Searchfunder.com account to help them network, problem solve challenges, and keep up with the industry.
We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.
We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.
At least from an international perspective, it was apparent at the last International SF Conference in Barcelona that the model is attracting more attention than the community infrastructure (SF investor thought leaders, mentors, international diversity) can really support at the moment. I think there simply needs to be more success stories to drive growth in the support base to keep up with demand.
1) Selection bias -- if you think of search funds as an attractive asset known only to the "informed", then once that information becomes more widespread and ubiquitous, that necessarily drives returns down. It must be noted that it is not a venture suitable for everyone. However, the way they are advertised and portrayed nowadays seems to suggest anyone can do it (like those house flipping infomercials). This is obviously an oversimplification, but if you look at searchers a decade ago, they were almost exclusively HBS, Stanford BS grads. Today, you see a much more varied background. Some of them, I would imagine, are underqualified for the job and thus fail.
2)Covenant heavy fundraising -- I took a look at probably about 50 websites of searchers. Something like 2/3 of them list the SAME INVESTORS on their investor page. I think the proliferation of these search fund seed investors are actually detrimental for overall success rates and returns, as they operate on a VC-type model (spray and pray) and therefore demand heavy covenants and outrageous preferred returns in order to justify their investment model. This puts undue pressure on searchers to perform. I think if you can run a self funded search using personal or friends/family capital, your success rate should be higher.