Exploring Search Fund Entrepreneur Economics
Nikhil Goel, Niel Wyma, Ron Wexler, Brian O'Connor, A. J. Wasserstein. (2023)
Yale Case, no number printed, July 23, 2023
A spreadsheet model, not data. Base case: $2 million EBITDA bought at 5x with 50% debt, $500,000 search budget with 50% step-up, 25% equity pool, five-year hold, 7x exit. "If an entrepreneur proceeds through this scenario, they will deliver a 26% IRR and procure $2.6 million for their efforts over a two-year search and a five-year operating period." (p8). Reaching $10 million requires roughly $3 million starting EBITDA, 4.5x entry, 60% debt, 12% growth and a 9x exit together (p14). The only empirical anchor is Stanford's: "only 27 search fund companies out of 166 have delivered $10 million-plus windfalls to entrepreneurs" (2022 study, p1). Every dollar figure is conditional on assumed inputs, with two turns of multiple expansion built in and no failure scenario.