A “Searchfund" is an entity set up for the acquisition of a single business. Searchfund principals move from dealmaking to operating roles once an company is bought, usually becoming CEOs. The search for a successful acquisition usually lasts 2 to 3 years.
As both dealmakers and future CEOs, searchfund principals are ideally positioned to address some of the interpersonal and legacy concerns that sellers of smaller, tightly-held companies tend to have.
Many credit the searchfund model to H. Irving Grousbeck who funded the first searcher in 1984. Today, searchfunds as an asset class are growing rapidly due to a very active investor community evangelizing the model at top MBA programs around the world. Most top business schools now have classes dedicated to "entrepreneurship through acquisition".
Searchers will raise capital from a group of investors to look for a company within a geography. These investors have the right of first refusal on any deals.
Searchers finance their own search efforts and only look for outside capital when a deal is found. The terms are negotiated on a deal-by-deal basis.
Searchers raise search capital from a single source rather than from a group of investors, sometimes even co-locating with their investor.