Search Fund vs. Independent Sponsor: Which Path Is Right for You?

The search fund and independent sponsor models both enable individuals to acquire and operate businesses. But they are structurally different in ways that matter enormously for your career, your finances, and your probability of success. This is not a "one is better" argument. It is a "know what you are choosing" guide.

The Search Fund Model

Structure: Raise $400K-$600K from institutional search fund investors to fund 18-24 months of full-time search. Investors get the right to invest in the acquisition at favorable terms (typically 1.5x step-up on their search capital).

Economics for the searcher:

• Salary during search: $100K-$120K per year (drawn from search fund)
• Equity stake: 25-30% of the acquired company (vesting over 4-5 years)
• No personal capital at risk during search
• No promote or carry structure — you earn equity through operations

Timeline: 18-24 months to find and close an acquisition. The clock starts when you raise the fund.

Success rate: Based on Stanford's data, approximately 70% of search funds result in an acquisition. Of those, the median return to investors has been 3-5x.

The Independent Sponsor Model

Structure: No committed fund. You source deals independently and raise acquisition capital on a deal-by-deal basis from family offices, PE funds, and high-net-worth individuals.

Economics for the sponsor:

• No salary during search (you are self-funding)
• Promote structure: typically 20-30% carried interest above a preferred return threshold
• May co-invest personal capital alongside institutional investors
• Economics are heavily back-loaded (you earn on the exit, not during operations)

Timeline: Variable. Some independent sponsors find deals in 3-6 months. Others search for years. There is no fixed runway forcing a decision.

Success rate: Harder to measure because independent sponsors are not tracked as systematically as search funds. Anecdotally, the success rate is lower because of the self-funding constraint and the credibility gap with sellers.

Key Differences

Risk Profile:

• Search fund: Lower personal financial risk (you are paid during the search), higher opportunity cost (18-24 months of dedicated time)
• Independent sponsor: Higher personal financial risk (no salary), but more flexibility (you can pursue other income while searching)

Control:

• Search fund: Investors have significant input on deal selection and governance. You have a board.
• Independent sponsor: You choose your capital partners deal-by-deal and can structure governance to your preference.

Deal Size:

• Search fund: Typically targets $1M-$5M EBITDA businesses (constrained by capital raise capacity and investor expectations)
• Independent sponsor: Can pursue larger deals if you have the capital partner relationships. Some independent sponsors execute $20M+ transactions.

Experience Requirements:

• Search fund: Designed for younger professionals (MBA students, early-career operators). Investors bet on talent and potential.
• Independent sponsor: Typically requires more experience and a track record. Capital partners want evidence you can close and operate.

Sourcing Implications:

Both models require systematic deal sourcing, but the economics differ. Search fund searchers can dedicate 100% of their time to sourcing because they have a salary. Independent sponsors often need to balance sourcing with income-generating activities.

Ted serves both models:

• For search funds, Ted accelerates the sourcing timeline, potentially compressing a 24-month search into 12-18 months by delivering a consistent pipeline from day one.
• For independent sponsors, Ted provides institutional-quality sourcing on a budget that makes sense when you are self-funding. The Scout plan at $3,000/mo is a fraction of what a dedicated sourcing analyst would cost.

Making the Choice

Choose a search fund if:

• You are early in your career and want structured support
• You value the mentorship and governance that experienced search fund investors provide
• You prefer a salary during the search phase
• You are comfortable with significant investor involvement in governance

Choose independent sponsorship if:

• You have meaningful deal or operating experience
• You want maximum flexibility and control over deal selection and governance
• You have a network of capital partners already
• You are comfortable with the financial risk of self-funded search
• You want to pursue larger transactions or specific deal structures that search fund investors may not support

Both paths lead to business ownership. The right choice depends on your experience level, risk tolerance, capital network, and personal circumstances.