Search Funds 2003: What Has Changed Since 2001?
H. Grousbeck, Mu Li. (2003)
Stanford GSB Case E-162, 11 pp
Dated June 24, 2003. Sample: "a total of 52 first-time search funds that agreed to participate"; of 51 completed funds, 13 still searching, 20 operating an acquisition, 18 "had either failed to make an acquisition, sold, or closed down their acquired firms"; return analysis covers 36 funds "that had either terminated or had been in operation for at least one year" (p1). Headline: "the blended pre-tax internal rates of return (IRRs) for individuals investing an equal amount in each of those funds was 33.4% or 34.7%" (p1); "about 39% of the funds ... resulting in complete or near complete loss of investor capital. Over half of these situations involved the failure of search funders to identify or execute an acquisition" (p7); Exhibit (p10) median purchase price $5.4 M, median purchase price / EBITDA 5.3x. Has an explicit section "Research Methodology and Potential Biases": selection bias "is limited to the selection bias of the 2001 study, where 46 out of a universe of 62 search funds elected to participate" (p4); excludes serial search funders and funds that became start-ups (p5); financials self-reported and often unaudited (p10).