In 2024, the top career choice for Harvard Business School graduates was “search funder.” So, what’s a search funder? They’re flooding business owners’ inboxes with unsolicited offers to buy their businesses, with polished and persuasive messaging—after all, they paid a pretty penny for that Harvard education. Search funders are enthusiastic about your business and the other 400 they’ve contacted, but here’s the kicker: They don’t have any money. Search funders are buyers with empty pockets.
Growing up on a ranch, we had a saying: “All hat and no cattle.” This phrase couldn’t be more fitting for search funders. This raises the question: why would such smart people make offers to acquire your company if they lack the necessary funds? Oftentimes, it’s because their school has an alumni network of wealthy investors who encourage them to pursue this career path, offering them access to capital they don’t personally have.
There’s also a Catch-22 in the deal process: Investors won’t commit until the search funder has signed an exclusive letter of intent (LOI). After spending months and a significant amount of money on legal fees, the search funder rushes back to present the LOI investors, who then decide whether they’re interested in the deal. Most of the time, they either don’t like it or want to change the terms, which are rarely favorable to the seller. At this point, the search funder hasn’t even approached lenders yet. Plus, they often have no clue how to conduct due diligence, let alone run your business.
Contrast this with professional private equity (PE) firms, which have dedicated funds and banking relationships. They also have formal approval processes requiring LOIs to be approved by an investment committee before being issued and accepted by the seller. PE buyers aren’t perfect either, and the road to closing can be bumpy, but at least you know they have the funds and necessary approvals.
Save yourself time and frustration by avoiding search funders altogether. They may be convincing, but remember, they have no cattle and have never been on a cattle roundup.
About the Author
Robert Hild, Chairman and CEO of ACT Capital Advisors, has over 25 years of experience in private equity. Before joining ACT Capital, he co-founded Invest West Capital, LLC, focusing on mid-market acquisitions, and served as CEO of five portfolio companies, handling over 20 M&A transactions valued at more than $200MM.
His leadership spans various sectors, including manufacturing and legal services. Previously, he was a senior manager in Corporate Finance at Ernst and Young. Mr. Hild holds a degree from Brigham Young University and an MBA from its Marriott School of Business, along with completing Stanford’s executive leadership program.
About ACT Capital Advisors
ACT Capital Advisors is a premier mergers & acquisitions firm representing lower to middle-market companies across all industries. ACT has a 40-year history of deal-making, closing 250+ transactions, and unlocking over $2.5 billion in wealth for its clients. For more information, visit https://actcapitaladvisors.com/.
