How they compare
| Search fund | Independent sponsor | PE platform | |
|---|---|---|---|
| Who runs it after | The searcher becomes CEO | Sponsor or hired CEO | Existing platform management |
| Capital certainty | Backers usually committed to the search, deal equity raised per deal | Raised after LOI - verify | Fund capital committed |
| Typical structure | Senior debt (often SBA or bank), seller note, investor equity | Debt + deal-by-deal equity; seller note or rollover | Cash, rollover, earn-out |
| Your role | Transition advisor | Varies | Often multi-year employment |
What to verify before signing an LOI
- Proof of equity commitments (names, amounts) and a lender term sheet.
- Who has closed deals before, and references from those sellers.
- Whether SBA financing is involved (then no earn-outs and strict seller-note rules - see SBA guide).
- A short exclusivity period with financing milestones - see LOI guide.
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Frequently asked questions
What is a search fund?
An investment vehicle in which investors fund an entrepreneur to find, buy and run a single business.
Are search fund offers lower than PE offers?
Not necessarily, but more of the price may be seller-financed or deferred. Compare guaranteed cash and certainty of closing.
What is an independent sponsor?
A dealmaker without a committed fund who signs a deal first, then raises equity from investors to close it.