Search Funds & Main Street Investing: The Private Money Alternative You’ve Been Overlooking

When most private investors think about alternative investments, they look to real estate, private equity funds, or venture capital. But there’s a compelling asset class hiding in plain sight: Main Street businesses.

Through the vehicle of a Search Fund, accredited investors can back entrepreneurial operators in acquiring and growing profitable small-to-medium sized businesses — often with stable cash flow, strong local moats, and favorable financing options.

What is a Search Fund?

A search fund is an investment model where one or two entrepreneurs (known as “searchers”) raise capital from investors to find, acquire, operate, and eventually exit a single business. Most targets fall within the $1M–$5M EBITDA range, making them too small for traditional PE but too large for casual buyers.

Searchers are typically MBA grads or experienced operators who want to run a company but skip the startup phase. They’re incentivized with equity (often 20–30%) and performance-based upside. Investors provide the initial search capital and the acquisition capital, often receiving preferred returns, governance rights, and significant equity upside upon exit.

Why Invest in Main Street Businesses?

1. Cash-Flowing, Undervalued Assets:
   Many Main Street businesses trade at 3x–6x EBITDA and generate real, tangible cash flow from day one. These aren’t moonshots — they’re HVAC companies, medical billing services, B2B distributors, or niche manufacturing shops with repeat customers and local dominance.
2. SBA Financing Enhances Returns:
   One of the most powerful aspects of this asset class is the use of Small Business Administration (SBA) loans. Buyers can finance up to 90% of the purchase price with favorable interest rates and terms. That means equity investors get access to leveraged returns with a debt structure backed by the U.S. government.
3. Fragmentation = Opportunity:
   There are over 2.5 million small businesses owned by baby boomers nearing retirement. Most of them won’t transition to family and are too small for institutional buyers. This generational shift is creating the largest buyer’s market for small business in American history.
4. Risk Mitigation Through Control:
   Unlike blind-pool VC or passive real estate deals, search fund investors get transparency, influence, and often a board seat. The risk lies not in innovation but in execution — improving operations, customer experience, or sales processes.
5. Attractive Risk-Adjusted Returns:
   According to a Stanford GSB study, search funds have historically delivered IRRs of 25%+ and MOICs of 5x or higher when successful. Even modest improvements in operational efficiency or revenue growth can create significant equity value.

Search Funds vs. Other Alternatives

How to Get Started

If you're an accredited investor, there are a few ways to participate: