What is the proper classification of a search fund investment? PE or VC

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August 16, 2020

by a searcher from University of Dallas in Houston, TX, USA

Properly considered, Search funds mirror aspects of venture capital and private equity.

As an asset class, investing in small businesses is not a new phenomenon. SFs are just one way to go about the practice of acquiring a small business.

Returns, by contrast, seem to mirror venture capital more than they mirror true private equity. This seems to be virtually certain at this point. It appears that a smaller share of the total set of investments will account for the lion's share of the gains.

Therefore should SFs truly be considered PE investments or VC investments?

A poll among the community would be interesting on this topic.

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Reply by a searcher
from The University of Auckland in Los Angeles, CA, USA
Traditional SF model set out in the HBR Guide is super conservative - defensive-sector focus with the key criterion being 'enduring profitability'. Significant growth was not a requirement, consistency was key. Indeed, in the traditional model, rapid growth might actually be considered detrimental in so far as it implied volatility. In that sense traditional SF is very different from both conventional PE and VC.
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Reply by a searcher
from Comenius University in Bratislava in Singapore
I found this pretty precise: https://uploads.toptal.io/blog/image/126328/toptal-blog-image###-###-#### 7bd39c8c1e2f63f5458d4eedcd2c56ff.png However I would push the Search fund even lower parallel to Angel in terms of size.
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