Search Funds: Entrepreneurship Through Acquisition with Marshall Johnson

In this episode of The Transaction Abstract Podcast, Joe Hellman sat down with Marshall Johnson from Northspring Partners to explore the search fund model and how it provides opportunities for aspiring entrepreneurs and business owners looking to exit their companies.

What is a Search Fund?

"A search fund is when an aspiring operator wants to go find and lead a great company, and they raise money," Johnson explains. Individual searchers typically raise $500,000, while teams raise around $900,000 to fund an 18-month search for the right acquisition target.

The model has strong academic backing, with Stanford University publishing comprehensive search fund studies every two years, analyzing 40 years of transaction data.

The Typical Searcher Profile

Key characteristics of successful searchers:

• 5-10 years of operating experience in finance, accounting, marketing, sales, or consulting

• Often pursuing career transitions through MBA programs

• Looking for alternatives to traditional corporate paths

"Compared to when I did it 20-plus years ago, there are a lot of resources now online and through schooling," Johnson notes, highlighting how the ecosystem has matured.

Why Business Owners Should Consider Search Funds

Unique advantages for sellers:

• Maximum flexibility in deal structure and transition terms

• Buyers who genuinely want to continue the company's legacy

• Ideal for owners without succession plans

"The biggest thing is flexibility," Johnson emphasizes. "We sit down with the owner and say, You built an amazing business. What's the ideal scenario?"

This contrasts with private equity, which Johnson describes as "pretty cookie-cutter in equity terms" and typically requires owners to "roll equity and run that company for three to five years."

What Makes a Strong Searcher

Johnson notes that investors evaluate candidates on:

• Grit - Ability to handle challenging business endeavors

• “Superpowers” - Distinct strengths in sales, marketing, finance, or people management

• Model knowledge - Understanding the long-term commitment required

• Coachability - Willingness to accept advice from investors

• Drive to win - Treating this as a defining career opportunity

Advice for New Search Fund CEOs

Johnson's guidance is straightforward: "First-time CEOs ask me all the time, 'I don't know what to do at first.’ I say, don't do anything. You're buying a good business. Let it run."

His recommended approach:

• Learn from the founder how the company operates

• Visit with all employees and customers

• Identify where you can help before making changes

Preparing for Any Transaction

For business owners considering exits, Johnson stresses preparation: "I can't tell you how important it is to have your financial house in order if you're considering a transaction—an audit, all the key financial KPIs, sales pipelines. It'll save you time and money."

Listen to more episodes of The Transaction Abstract Podcast for additional insights on buying and selling businesses.