In this episode of The Transaction Abstract Podcast, Joe Hellman sat down with Marshall Johnson from Northspring Partners to explore the search fund model and how it provides opportunities for aspiring entrepreneurs and business owners looking to exit their companies.
"A search fund is when an aspiring operator wants to go find and lead a great company, and they raise money," Johnson explains. Individual searchers typically raise $500,000, while teams raise around $900,000 to fund an 18-month search for the right acquisition target.
The model has strong academic backing, with Stanford University publishing comprehensive search fund studies every two years, analyzing 40 years of transaction data.
Key characteristics of successful searchers:
"Compared to when I did it 20-plus years ago, there are a lot of resources now online and through schooling," Johnson notes, highlighting how the ecosystem has matured.
Unique advantages for sellers:
"The biggest thing is flexibility," Johnson emphasizes. "We sit down with the owner and say, You built an amazing business. What's the ideal scenario?"
This contrasts with private equity, which Johnson describes as "pretty cookie-cutter in equity terms" and typically requires owners to "roll equity and run that company for three to five years."
Johnson notes that investors evaluate candidates on:
Johnson's guidance is straightforward: "First-time CEOs ask me all the time, 'I don't know what to do at first.’ I say, don't do anything. You're buying a good business. Let it run."
His recommended approach:
For business owners considering exits, Johnson stresses preparation: "I can't tell you how important it is to have your financial house in order if you're considering a transaction—an audit, all the key financial KPIs, sales pipelines. It'll save you time and money."
Listen to more episodes of The Transaction Abstract Podcast for additional insights on buying and selling businesses.