Search fund returns and base rates: As of 2023, search funds have delivered a historical average IRR of 35.1% and a 4.5x multiple of investment, but roughly 1 in 3 (about 40%) fail to acquire a company, and ~25% of completed acquisitions lose money for investors

Capital structure: Search capital is typically ~$400k–500k per searcher (covering a ~2-year search), while acquisition capital ranges from $5M–10M; search capital usually converts to acquisition equity at a 150% step-up to compensate investors for early risk

Searcher economics: Solo searchers typically earn up to 25% common equity, partnerships up to 30%, vested in three equal tranches (acquisition, ~4-year time-based, and performance-based — usually starting at 20% net IRR and topping out around 35% net IRR)

Target company criteria: Sweet spot is $10M–30M revenue with $1.5M–5M EBITDA, EBITDA margins >15%, ROTC >20%, customer concentration <30%, with realistic liquidity options in 3–6 years; the average search takes ~20 months

Investor preferred equity: Most common is participating preferred with a 6–8% non-redeemable coupon (Structure 1, currently preferred), versus a split structure with 15–17% redeemable / 0% non-redeemable (Structure 2); a ~5% employee equity pool is standard, and "catch-up" provisions can effectively cancel the coupon if performance hurdles are met

Market sizing: Over 500,000 German companies are expected to change hands by 2027, with roughly half (~250,000) lacking a family or internal successor — a present, not future, problem

Why deals fail: Mittelstand succession deals rarely collapse over valuation; they collapse because the owner can't picture the buyer as a credible custodian of what they built over 20–40 years of operating

What owners actually evaluate: Three underestimated factors — (1) whether you ask about people with genuine curiosity vs. treating it as a DD checkbox, (2) whether you show intellectual humility instead of claiming to understand their business better than they do in week one, and (3) whether they believe you'll still be there in 10 years (generational, not the typical ETA 5–7 year hold)

Higher bids regularly lose: Owners consistently walk away from higher offers when a competing buyer better demonstrates understanding of the business as a community of employees, customers, and suppliers rather than a cash-flow machine

The relationship path is the fast path: Trust builds through repeated low-stakes contact (events, panels, coffees, follow-ups over months) rather than cold outreach volume — the searchers winning the best businesses in the next 5 years will be those owners look forward to calling back, not those who sent the most letters

Asset class returns: ETA Equity's portfolio (largely 2010s vintage) returned 38% IRR / 4.8x MOIC, beating but not crushing the Stanford-reported ~35% annualized average; outcomes split roughly 65% positive / 35% negative, with only a small portion going to zero — a risk profile between VC and traditional PE

Capital structure & investor base: Acquisitions are typically funded with 50–70% equity (less levered than 15 years ago) and 30–50% debt (senior bank, seller financing, sometimes private credit); searchers raise from 8–15 investors out of a universe of ~10–15 dedicated funds, family offices, and ~100 active individuals, with lead investors typically taking 20–30% of acquisition equity

Search activity benchmarks: Over a 2-year search (~730 days), the target is 1–2 signed LOIs per quarter, requiring ~100+ quality business owner conversations per LOI, ideally ~1 good owner conversation per day — making daily activity tracking essential since only one day (acquisition) is technically a "win"

Target profile: Sweet spot is $2–4M EBITDA businesses with high recurring revenue, high margins, low capex, low customer concentration, and critical/vital services; partnered searches outperform solo on both acquisition rates and IRR (covering >2x the ground); software has been too expensive recently, pushing investors toward blue-collar industrial services

Where the value is created: Most $2–4M EBITDA targets have near-zero formal outbound sales/marketing structure and only 1–2 basic service offerings, so post-acquisition value comes from basic blocking-and-tackling (sales structure, service line expansion, geographic expansion) plus operational professionalization (accrual reporting, standardized HR) that drives multiple expansion at exit to PE buyers