In this inaugural piece of a four-part series, we explore Entrepreneurship Through Acquisition (ETA), an emerging global asset class that represents a fundamental shift in how ambitious professionals transition from corporate careers to business ownership.
This innovative model creates a unique value proposition for three critical constituencies:
- Aspiring entrepreneurs, operators seeking meaningful ownership opportunities
- Sophisticated investors pursuing attractive risk-adjusted returns
- Established business owners contemplating strategic exit pathways.
We will examine ETA’s origins, core mechanisms, and how this structured yet flexible framework challenges conventional wisdom about business acquisition while democratising access to ownership opportunities previously reserved for the most well-capitalised individuals.
Foundation of ETA: From Stanford classroom to global asset class
ETA represents a distinct and increasingly popular path to business ownership. In contrast to the conventional model of starting a venture from the ground up, ETA allows entrepreneurs to acquire and operate already established and successful businesses.
This approach fundamentally de-risks the entrepreneurial journey by bypassing the perilous early “zero-to-one” stages of product development, market validation, and initial customer acquisition. Instead of building from zero, the entrepreneur acquires a company with existing assets, including employees, proven products, processes, and, most importantly, cash flow, allowing them to focus on strategies for scaling, or operational enhancement.
The primary investment vehicle that facilitates this model is the “search fund.” This concept originated in academia, developed in 1984 by Professor H. Irving Grousbeck at the Stanford Graduate School of Business as an innovative way to connect talented, ambitious graduates with opportunities to run small businesses. What began as a classroom experiment has since evolved into a billion-dollar global asset class, providing a structured pathway for aspiring entrepreneurs to achieve ownership without starting from scratch. Today, there are hundreds of search funds active in the US.
The growing legitimacy of ETA is evidenced by its integration into the curricula of premier business schools worldwide. Renowned institutions such as IESE Business School and INSEAD now offer specialised courses, workshops, and student-led clubs dedicated to the search fund model.
Such institutionalisation has created a robust pipeline of high quality, ambitious talent, equipping a new generation of leaders with the specific skills required to source, acquire, and manage small and medium-sized enterprises (SMEs), solidifying ETA as a respected and viable career path for mid-career professionals and MBA graduates alike.
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How search fund works: A four-act play from search to exit
The search fund model follows a well-defined, multi-year lifecycle composed of 4 distinct stages. This structured process provides a clear roadmap for both the entrepreneur (the “Searcher”) and their investors, from the initial capital raise to the final exit. Searchers can be a solo founder or a partnership.
- Stage one: Raising search capital (only applies to traditional search fund)
This applies only to the traditional search fund. For self-funded search funds, they may choose to skip this stage and go directly into the search for companies.
The searcher starts by raising an initial pool of capital, typically ranging from US$350,000 to US$500,000, from a group of investors. This initial funding is designated to cover the searcher’s modest salary and all expenses related to the search process, such as travel, legal fees, and preliminary due diligence.
To secure this capital, the searcher develops a comprehensive Private Placement Memorandum (PPM), serving as a business plan for the search, outlining the searcher’s background, investment thesis, target industries, geographic focus, and the proposed terms for investors. This phase typically takes up to 6 months to complete.
- Stage two: The search and acquisition
The searcher actively sources potential acquisition targets, which can involve cold-calling, networking with brokers and industry contacts, and leveraging their investor network.
Once a promising company is identified, the searcher conducts exhaustive due diligence to validate the target’s financial and operational health. This stage involves complex negotiations on valuation and terms, culminating in a non-binding Letter of Intent (LOI).
Upon signing an LOI, the searcher returns to the initial investors, who have a pro-rata right, but not an obligation, to participate in a larger second round of capital required for the acquisition itself. If there is additional allocation, the searcher can open up to other investors to participate. This is often the most challenging and time-intensive phase, with a typical duration of 18 to 24 months.
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- Stage three: Operations and value creation
Following a successful acquisition, the searcher transitions to an operator, assuming the role of CEO of the acquired company. The major investors typically form a board of directors, providing governance and strategic mentorship. The focus during this stage, which can last from four to seven years or longer, is on long-term, sustainable value creation.
The new CEO implements growth strategies that may include optimising operations, introducing new technologies, expanding into new markets, or making strategic add-on acquisitions. This is where the searcher’s managerial acumen is tested as they lead the company into its next chapter of growth.
The final stage of the lifecycle occurs once the company has achieved significant growth in value and profitability. The searcher and the board explore various exit strategies to realise returns for themselves and their investors. Common exit paths include a sale to a larger strategic buyer, a sale to a private equity firm, a recapitalisation of the business or an initial public offering.
The ETA model’s structure is not just a financial strategy but also a sophisticated human capital development platform. It self-selects high-potential individuals, often with strong academic credentials and professional experience, and provides them with the necessary capital and a framework of mentorship from seasoned investors.
By placing this talent at the helm of a single company with a long-term mandate, the model functions as a structured apprenticeship for becoming a successful CEO. This focus on cultivating leadership means that the success of a search fund is as dependent on the selection of the right person as it is on the selection of the right target, a dynamic that shapes how investors evaluate prospective searchers and how business schools prepare them for the journey.
A win-win-win proposition: Unpacking the benefits
The enduring appeal and rapid growth of the search fund model can be attributed to its unique ability to create a powerful alignment of interests, delivering distinct and compelling benefits to its 3 primary stakeholders: the acquired company and its seller, entrepreneur, and the investors.
- For the acquired company and its seller
Particularly sellers nearing retirement without a clear family successor, a search fund presents an ideal solution to the challenge of business succession. It ensures a smooth ownership transition to a single, committed individual who is dedicated to preserving the company’s legacy, protecting its employees, and ensuring continuity for its customers.
Unlike a corporate or private equity acquirer who might consolidate operations or focus on short-term synergies, a searcher-led acquisition brings fresh energy, new ideas, and a long-term growth focus. The new leadership, backed by a network of investors, can also provide access to additional capital for growth initiatives that might have been out of reach for the previous owner.
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The model offers a structured and de-risked path to becoming an equity-owning CEO. It allows ambitious individuals to bypass the high-failure-rate environment of a startup and instead take the helm of an established, cash-flowing business. This provides immediate income and a solid operational foundation.
More importantly, the searcher gains access to an invaluable resource: a dedicated board of experienced investors and operators. This “brain trust” provides critical mentorship, strategic guidance, and governance support, significantly increasing the likelihood of success for what is often a first-time CEO.
Search funds provide access to a highly attractive, niche asset class across both private equity and private credit. They target profitable, stable SMEs that are typically too small for traditional private equity firms and thus operate in a less competitive M&A environment, often leading to more reasonable acquisition valuations.
Historically, the asset class has demonstrated strong returns, of beyond 20 per cent net IRR. Beyond the financial upside, the model offers investors a hands-on opportunity to mentor and shape the next generation of business leaders. Many derive significant personal satisfaction from serving on the board and contributing their expertise to the growth of both the entrepreneur and the company.
Having established the foundational framework and global context of ETA, our next instalment turns to Southeast Asia’s compelling investment landscape, where search funds and ETA models are poised for exceptional growth. We will examine the region’s dynamic small and medium enterprise ecosystem, analyse the unique market conditions that create fertile ground for ETA strategies, and explore why this traditionally Western investment approach may find its promising frontier in Southeast Asia’s rapidly evolving business environment.
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The post The new succession: Charting the rise of Entrepreneurship Through Acquisition (ETA) in SEA – Part 1 appeared first on e27.
