This article explains the definition and structure of search funds, the current state and outlook of the Japanese market, the practical preparation steps, and success stories from the perspective of an individual investor.
A search fund is a structure in which an individual searcher raises capital from multiple investors, acquires a small or medium-sized company, and becomes its operator. The model developed primarily around Stanford University from the 1980s onward. In Japan, awareness has spread since the latter half of the 2010s, and search funds have attracted attention as the number of companies without business successors has increased.
The key differences from conventional PE funds are that the principal is an individual searcher rather than a team at an investment firm, and that the objective is not to maximize investment returns but for the searcher to become an operator. Acquisition sizes are generally expected to range from tens of millions to several hundred million yen, with the searcher assuming the role of CEO and becoming directly involved in management.
The Japanese market is transitioning from its nascent stage into a development phase, and it is necessary to understand the differences between overseas models and the Japanese model. Against a backdrop of the shortage of business successors, expectations are rising for searchers as potential external managers of small companies, and the number of searchers beginning their activities increased from 2022 to 2024.
The search fund process consists of 4 phases: fundraising in Phase 1, the search period in Phase 2, acquisition negotiations and closing in Phase 3, and the transition to post-acquisition management and the development of relationships with investors in Phase 4. Key considerations at each stage include building trust, conducting due diligence, and stabilizing operations during the First 100 Days.
The article presents 4 preparation steps: organizing one's skills and experience from the perspective of an acquisition candidate, developing a network of potential investors and professional advisers, establishing deal-sourcing channels, and consulting experts to test one's hypotheses. As a success story, it cites the case of 27-year-old searcher Akiyama Shin'emon (秋山紳右衛門), highlighting his narrowing of the target market and business area by drawing on his previous experience, as well as his ability to make prompt decisions and leverage a strong network.