In a quiet Mumbai office, a former private equity executive reviews the books of a family-run engineering firm in Pune. The ageing founder, whose children have chosen global careers, is not just looking for a buyer, but for a steward to carry his business forward. This increasingly common scene in India’s SME landscape is being bridged by a model born at Stanford in 1984: the search fund.
Search funds back experienced operators to acquire and lead profitable small and mid-sized businesses. Globally, the model has built a strong track record over four decades. In India, the ecosystem is still early but gaining momentum, as a wave of succession across family-owned SMEs creates fertile ground for operator-led ownership transitions.
At its core, the model offers a simple proposition: dignified exits for promoters, ownership opportunities for operators, and attractive, aligned returns for investors.
The Search Fund Model Emphasizes One Operator, One Company, and Outsized Returns
Source: INSEAD Knowledge
The search fund model centres on backing one or two experienced operators to pursue, acquire, and lead a single small-to-medium-sized enterprise. Launched at Stanford in 1984, it provides a structured pathway for proven professionals to transition into ownership and operational leadership, combining the discipline of private equity with the accountability of a founder-CEO.
At its core, the model is deliberately simple. Instead of building diversified portfolios, a group of sophisticated investors backs a single operator to acquire one company and run it over a multi-year period. This creates deep alignment, concentrated execution, and a clear focus on long-term value creation.
Source: Stanford GSB Search Fund Case Study 2024
The process typically unfolds in two stages:
1) Search Stage (18-24 months): A syndicate of 8-15 investors commits modest search capital, typically $400,000-$600,000, to fund a full-time search. This covers the operator’s stipend, travel, research, and due diligence. Early investors receive preferred economics, often including a step-up on their capital that converts into additional equity at acquisition.
2) Acquisition and Operation Stage (5-7+ years): Once a suitable company is identified, the operator raises $5-15 million of equity, often with senior debt, to complete the acquisition. The operator then assumes the CEO role and leads the business through a multi-year value-creation journey before exit.
What A Typical Search Fund Target Looks Like
Most search funds pursue companies with a consistent and predictable operating profile:
Revenue: $5-30 million (global median ~$7-12 million at acquisition)Profitability: Positive cash flows with 15–30% EBITDA marginsEnterprise Value: Typically $10-50 millionCapital Structure: $5-15 million equity with 2-4x EBITDA leverageOwnership Context: Founder or family-owned businesses facing succession or growth transitionsIndustry Profile: Fragmented sectors with scope for pricing improvements, digital adoption, talent upgrades, geographic expansion, or bolt-on acquisitions
Post-acquisition, the operator typically earns 20-30% equity over time, vesting over 4-5 years based on performance, while investors retain the majority stake with preferred returns.
Why The Model Produces Concentrated Outcomes
One Operator, One Company: Full managerial attention on a single assetDeep Alignment: Operator wealth is directly tied to long-term exit valueOperational Value Creation: Growth driven by execution, revenue expansion, margin improvement, and professionalizationLonger Holding Periods: Value is compounded over 5-10+ years, not through quick financial engineeringSource: Stanford GSB Search Fund Case Study 2024
Search funds deliberately target the “sweet spot” of mature, cash-generative SMEs, companies too small for conventional private equity and too established for venture capital. The structure offers operators meaningful ownership without the risks of starting from scratch, while giving investors concentrated exposure to an operator-led value-creation story.
In markets like India, where succession challenges intersect with fragmented industry structures, this focused, operator-centric approach provides a compelling pathway for both ownership transitions and sustained growth.
Global Track Record Proves That Search Funds Have Outperformed VC and Traditional PE Models Over Four Decades
Source: INSEAD Knowledge
For over forty years, search funds have quietly built one of the most consistent performance records in private investing. What began as a Stanford experiment in 1984 has evolved into a mature asset class with hundreds of acquisitions across North America and a growing global footprint.
According to the 2024 Stanford Search Fund Study (681 funds in the US and Canada), the model has delivered:
35.1% aggregate pre-tax IRR4.5x return on invested capital42.9% IRR for funds achieving partial or full exits
Importantly, returns remain in the high-30s to low-40s IRR range even after excluding top outliers, highlighting the model’s structural strength.
Source: Stanford GSB Search Fund Case Study 2024
Internationally, the 2024 IESE study tracked 320 funds across 40 countries, reporting 18.1% IRR and 2.0x MOIC, with top outcomes exceeding 30x, demonstrating the model’s portability beyond mature markets.
Compared with traditional asset classes, search funds have historically delivered stronger risk-adjusted returns:
Venture Capital: ~15-20% IRR for top-quartile funds, with high failure ratesTraditional Private Equity: ~13-20% IRR across buyout benchmarksSearch Funds: ~30%+ IRR over long-term datasets
These outcomes have persisted across economic cycles, driven by a simple formula: acquiring stable, founder-led SMEs at reasonable multiples, installing a highly aligned operator-CEO, and compounding value over five to ten years.
India Faces a Generational Succession Wave Promising Massive Value Unlock in The SME Sector
India’s SME sector, over 70 million enterprises employing 320+ million people, is approaching a quiet but significant inflection point. These businesses contribute 30%+ of GDP, 35% of manufacturing output, and nearly half of exports, yet many first-generation founders are nearing retirement while their heirs choose alternative careers.
Family-owned enterprises dominate the landscape, accounting for 70-80% of GDP in some segments, but succession readiness remains limited:
Only ~7% of heirs feel a strong obligation to join the business27% of promoters cite lack of next-generation interest36% of family businesses lack a formal succession plan52% report resistance to leadership transition
This creates a leadership vacuum across thousands of stable, cash-generative SMEs, especially in manufacturing, specialty services, and regional B2B sectors. Many founders now seek dignified exits that preserve jobs, culture, and legacy.
At the same time, India is targeting sustained high growth, while many SMEs operate below potential due to limited capital and founder-centric processes. The succession wave, therefore, represents not just a challenge, but a large value-unlock opportunity, creating fertile ground for operator-led models like search funds to bridge the gap between retiring promoters and new owners.
India’s Search Fund Ecosystem Has Accelerated With First Acquisitions and Rising Capital Commitments
India’s search fund ecosystem, though still early, has moved quickly from concept to execution. What began with a handful of experimental efforts is now evolving into a more structured asset class, backed by global search investors, Indian family offices, and experienced operators returning from private equity and corporate roles.
As of early 2026, roughly 8-12 search funds are active across India at different stages. The ecosystem includes early platforms such as 720 Fund, Milestone Search Capital, Cicero Capital, Okintek Capital, and Vystra Capital.
Momentum is building. India has already seen its first traditional search-fund acquisition, while newer vehicles are raising larger capital pools in the ₹100-300 crore range. Global search investors are also partnering with Indian capital, bringing proven playbooks and governance structures into the market.
Though still small relative to mature markets, the ecosystem is entering its formative phase. Early acquisitions and rising capital commitments are laying the foundation for broader adoption of the search fund model in India.
High-Growth Fragmented Sectors Offer Prime Targets for Search Funds in India
Source: Stanford GSB Search Fund Case Study 2024
Search funds globally have gravitated toward industries that combine three traits: fragmented market structures, predictable cash flows, and clear operational levers for growth. These sectors typically consist of founder-led businesses with loyal customers, but limited institutional capital, professional management, or consolidation.
International data shows a consistent concentration in services, software, healthcare, and tech-enabled services, reflecting the model’s preference for asset-light, recurring-revenue businesses.
India offers a similar, and potentially larger, opportunity set. Several sectors combine strong growth with deep fragmentation and a large SME base:
Specialty Manufacturing: Precision components, industrial consumables, export-oriented engineeringB2B Services: Testing, maintenance, facility management, niche logisticsHealthcare Services: Diagnostics, specialty clinics, outsourced medical servicesTech-Enabled Services: Vertical SaaS, IT services, workflow automationConsumer Essentials: Regional brands in food, personal care, and home products
These sectors often feature stable margins and repeat customers, but operate below potential due to informal processes, limited technology adoption, and constrained capital.
For search fund operators, this creates clear levers for value creation, pricing optimization, professional sales, digital adoption, geographic expansion, and bolt-on acquisitions, forming a deep pipeline of opportunities in India’s fragmented economy.
Search Funds Create Perfect Alignment for Promoters, Operators, and Investors Alike
Source: Stanford GSB Search Fund Case Study 2024
One of the defining strengths of the search fund model is the alignment it creates across all three stakeholders in a transaction: the exiting promoter, the incoming operator, and the investors backing the deal. Unlike traditional buyouts, where financial sponsors may prioritize short-term value extraction or family transitions that may lack professional leadership, search funds are built around long-term stewardship.
Source: Stanford GSB Search Fund Case Study 2024
For promoters, search funds offer a dignified succession path. Instead of selling to a large financial or strategic buyer, founders can transition their business to a committed owner-operator who is personally invested in the company’s future. This helps preserve culture, employees, and brand legacy while ensuring continuity.
For operators, the model provides a structured route to ownership. Rather than starting a company from scratch, they acquire a profitable, established business and earn 20-30% equity over time. Their financial upside is directly tied to long-term performance, creating strong incentives for disciplined growth.
Source: Stanford GSB Search Fund Case Study 2024
For investors, search funds offer concentrated exposure to an operator-led value-creation story. The structure combines cash-flowing businesses, moderate leverage, and deeply aligned management, resulting in attractive outcomes across cycles, with a significant proportion of investments generating meaningful gains over five to ten years.
In essence, the model replaces transactional exits with partnership-driven transitions, aligning incentives across promoters, operators, and investors around a single goal: sustainable, long-term value creation.
Mature Markets Have Revealed Realistic Risks and Effective Mitigation Strategies For Search Funds
Source: Stanford GSB Search Fund Case Study 2024
Four decades of search fund activity across North America and Europe have shown not only strong returns but also clearly identifiable risks, and the practices that mitigate them. Unlike venture capital, where outcomes are often binary, search fund performance is largely tied to execution, deal selection, and capital structure.
The primary risk appears in the search phase, where some operators do not complete an acquisition within the timeline. However, these outcomes are typically capital-light, with investors recovering much of their search capital, limiting downside.
Post-acquisition, underperformance is usually linked to a few factors: overpaying, excessive leverage, customer concentration, or poor operator–business fit. Mature markets have addressed these through disciplined playbooks, including conservative leverage, focus on cash-generative sectors, active investor governance, and performance-linked operator equity.
As a result, most acquisitions deliver positive outcomes, with only a small proportion resulting in full capital losses. The experience from mature markets shows that while search funds are not risk-free, their risks are well understood and manageable with disciplined execution.
India’s startup boom defined the last decade. The next may be shaped by something quieter: who owns and runs the country’s existing businesses.
Search funds sit at the intersection of a founder succession wave, a new generation seeking ownership, and rising pools of patient capital. If the model scales, it could transfer thousands of SMEs to new owner-operators and unlock growth across the mid-market. Not through unicorns, but through hundreds of profitable, quietly compounding companies, each built for the long term.
If you are a founder building in Education, Consumer, and Consumer-Tech and are looking to raise capital or explore M&A opportunities, please reach out to udayan@loestro.com. We’d love to have a chat.
LoEstro Advisors is an investment banking firm specializing in sell-side fundraising and M&A advisory, along with a strong consulting arm. Recognized as the #1 financial advisor in education in India, we are the advisor of choice to India’s blue-chip education businesses.
Over the last four years, we have grown to be one of India’s largest (in terms of M&A transactions) homegrown boutique investment banks, with $1.5 bn+ worth of combined deals closed across education, healthcare, consumer, and technology sectors.
