Following.

I'm not doing a self-funded search, but I would think one where there is enough profit for you to at least pay yourself the salary you'd like to earn. If you'd use outside equity capital to fund the deal, whatever is big enough to pay your investors their require rates of return on top of your salary.

I agree with ^[redacted]‌. When I first started evaluating companies I was looking in the $500k - $750k SDE range. What I found was that with the structure I planned to use (a few small investors, some of my own funds, & highly leveraged with an SBA loan), I couldn't afford to pay myself the salary I needed to maintain an acceptable standard of living. Or you could flip it around & say that I could pay myself but then there wasn't sufficient cash flow to cover the debt service. Through trial & error I found that in the $750k - $1m SDE range, I could make the math work. It will be different for everyone based on how you plan to finance the deal & how much you need in annual draw.

It really does come down to your overall strategy and personal situation as indicated by Alyssa and James. And those can be different for everyone. The major short-run tradeoff usually centers around standard-of-living.

Anonymous from Indiana - Thank you for your post! Tagging a few self-funded Searchers that might be able to contribute to this very interesting question. I'm certainly curious to see what everyone will say.

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To our self-funded friends with knowledge and/or opinions on the smallest possible self-funded search, THANK YOU for helping to make Searchfunder a collaborative community! Be sure to take full advantage of your UNLIMITED access to IBISWorld (Searchers only) & BVR Deal Stats, now available under the INDUSTRIES & VALUATIONS tabs at the top of this screen. Here are the direct links:

www.searchfunder.com/ibisworld

www.searchfunder.com/bvr

Searchfunder is currently working on partnerships with DataAxle & ZoomInfo to help with your proprietary outreach. If you have additional suggestions for partnerships that would benefit the Searchfunder community, please PM me.
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With Best Wishes, ^[redacted]‌

Thanks for the mention, Luke!

I agree with Alyssa Denning and James Kruse. It is really dependent on what your investors are looking for and what you would find to be an acceptable lifestyle you'd be putting yourself into.

That said I think one thing you should really consider is the elbow grease, so to speak, you'll need to put into one of these very small businesses. As the smaller they are the less financially sophisticated they tend to be. You'll inevitably change a lot of things to make them more organized and systemized. Whereas with larger businesses a lot of this work is already done for you. Thus leaving you more free to focus on your other duties as the owner-operator..

Not much more I can add to what Alyssa, James & Will have contributed. This is going to be totally dependent on your personal situation (are you married? Do you have children? MBA debt?, etc. all will contribute to needing a higher SDE range) and the deal dynamics (Raising significant outside equity? Wanting to avoid a PG? Then you should probably go bigger on the SDE to make the equity structure enticing enough for you to do the deal).

As a rule of thumb, anything under $250-$300K is going to be very tough to pull off financially in my personal experience of looking at such deals (assuming 10% down on SBA. Minimal to no outside equity). $400-$500K definitely doable with minimal family / financial obligations. But as James said. I think $750K - $1MM is a solid sweet spot to account for likely lower-than-actual SDE that diligence will uncover anyway. Gives yourself some breathing room to earn a healthy salary right from the get-go. However, as Will alludes to, the real dollars are in the equity upside not the initial comp...Hope this helps!

Thank you, ^[redacted]‌ for the mention.
I think it's been well answered already. The only thing I can add is to look into why you'd want to go for the smallest deal
Small deals can take just as much time, energy and money as larger deals so having the context of the question might help with the answer. Are you looking for a small company that's potentially "easy" to run? A small deal that might take minimal effort and close quickly? Or, are you trying to minimize the search time and costs?
As Frankie and Edward mentioned, smaller companies usually don't have the sophistication (systems, people, processes) that larger companies have so you'd be putting in a lot of work from the start.
In the end, you're really the only person who can answer this question after you've taken the time to run the numbers and determine what you want out of the deal.
Good luck!

I agree with the others who have commented. I am on the opposite path of James in that I started looking at $750+ but drifted lower because there is less competition and better multiples under $500. I am willing to take some salary risk in the short term in order to keep 100% equity but understand that not everyone is able to do that

For me the smallest search worth doing is one that gets me in to a business that has growth potential and returns the amount of money I need to replace my current salary after debt service. I agree with some of the comments about going after deals with an sde below $750k. It allows you to focus on deals that traditional funds may overlook.

Whatever amount gets you excited. No one number is correct. Taking the leap and getting your first deal done is worth loads in my book.

I think a lot of searchers embark thinking in terms of getting one deal completed. This is one method but there are other strategies out there. There are several searchers that started with relatively small sized SDE companies under $300k only to acquire multiple unrelated future deals 2-3 years after their first deal. Utilizing SBA debt to acquire these “small” businesses with low multiples and increased deal diversification is whole different approach to the traditional search fund.

Good add Jonathan. Personally, it's what I'm eyeing to do (however not necessarily in an unrelated industry). However I'll caution this thinking in that the difficulty in running one (super) small business should not be understated, let alone acquiring 2-3 unrelated businesses every few years or so. Looks good in an excel model, but reality may get in the way. But I've definitely seen it done where there are these guys that treat their first acquisition foray as a quasi-holding company and just buy up small businesses like a micro-PE fund. It's doable.

One thing to be careful with as the deals get smaller is the seller transition period: can you manage his/her (sometimes their!) compensation + debt service + something for yourself? Something to consider.

Lots of good comments already posted. In my experience (I self funded a 650k SDE deal), another key consideration is WHY the business is currently a certain size, and the impact that answer has on growth / risk potential. Said another way, every business owner would like to make make more $$$. So why haven't they done that? Is the answer something you can solve without taking excessive risks?


I found that most sub $500k businesses had hit a natural upper limit because the seller was the "hero" of the business. They had their hands in every little detail but only had so many hours in a day. I didn't think the reward justified the risk in overhauling these businesses so they could eventually scale.

I was a self-funded searcher and I agree with Adam Crocker. I quickly learned that what I refer to as the ‘lower-lower’ middle market ($500-$1m SDE) is a great place to fish. Enough cash flow to take leverage but low enough you don’t get the competition. I’m more than happy to talk about my experience if you want. Good mentors saved me months of effort and probably lots of $$ in avoided mistakes.

Agree with the above, and I would stress that the multiple you pay on a business makes a difference on how small you should be willing to go. I would say 400k SDE with moderate growth potential is about the smallest worth considering if you can acquire at a 2 multiple, but likely not worth considering at a 3+ multiple. Run your after-tax cashflow numbers and see if there is enough after your debt service for this to be your best option when considering opportunity costs.

A business with 500k SDE at a 3 multiple where the owner is working 60 hours a week to keep the ship afloat and where you don't see any major low-hanging fruit for the P&L may be "too small" to be worthwhile. But a 400k SDE business at a 2 multiple that is running without owner heroics and has clear low-hanging fruit to significantly improve earnings within the first 1-2 years could be a terrific opportunity.

I am currently targeting in the microcap space because I love to find businesses with unrealized potential. I would consider a clean SDE of $300k if they have a strong manager (or potential one) to handle the daily ops with my guidance for growth. Ideally, my acquisitions complement each other so they can cross pollenate clients. If anyone finds some they think are too small but "could" be a good one, DM me. I'm happy to take a look and give appreciation if it works out.

I agree with everything that has been discussed above. In my experience I have found that nearly everything below $500k SDE won't support the debt service, capital for growth, and your salary. Anything over $1M and you start running into too much competition which in turn drives up the multiple you'll have to pay

I did a self funded search fund and my approach is different to answer this. Do not think what is minimum worth it. Think what is minimum size that has enough margin for mistakes & error to continue if you lose 5-20% of revenue after a seller leaves.

If you are $300k SDE as example, odds are you are probably $1.25-$2m in revenue. Pending business model and fixed vs variable cost, a hit of revenue or vendor issue could wipe out your equity and left with high seller financing or SBA servicing.

I recommend then, at least $400-$500k SDE so you have more meat on the business for error and as things change (ie ERP, work flow, manager hire or fire etc.).

Hope this helps.

^[redacted]‌ wrote a great article on this topic earlier this year. Nick has made 8 acquisitions in the[redacted]range while paying 2x since 2016.

I feel like I'm missing something with deals under $400k SDE not being able to support the debt service/growth. Could someone please explain where my back of the napkin math is off?

- 300K SDE at 2 turns is $600k purchase price
- If you put down 10% a 7% note, the yearly debt service is about $77k.
- Even after you pay yourself say $100k in total comp, you have $123k funds to invest in growth

Thanks all--appreciate hearing the nuances of these smaller deals.