# Search Fund Model Build a search fund model for the entrepreneurship-through-acquisition pathway with search phase budgeting, acquisition sources and uses, operating forecasts, searcher equity step-ups, and investor return outputs. - Canonical: https://finamodel.com/templates/search-fund-model - Excel download: https://finamodel.com/templates/search-fund.xlsx - Category: Corporate Finance - Model type: Fund / Waterfall - Difficulty: Intermediate - Audiences: Founders & operators, Investors & analysts, Search fund operators, M&A professionals, Business buyers, Exit investors - Tags: acquisition, valuation, earnout, leverage ## Overview Evaluate search fund acquisition targets with transparent acquisition math, earnout mechanics, and operator equity scenarios. The model values a target at an agreed EBITDA multiple (typically 3.5-6.0x for $1-5M EBITDA small-to-mid-market businesses), structures the funding with SBA 7(a) loans (60-70% of capital), seller notes (10-20%), and investor equity (25-40%). It projects 5-7 year operating improvements (margin expansion, revenue growth), calculates operator returns under different exit multiples, and reconciles cash flow to debt covenants (DSCR > 1.25x). Post-acquisition, the model forecasts revenue growth (organic 3-8%, operational improvements 8-15% in early years), models COGS and OpEx by function, and includes capex and working capital dynamics. Debt schedule separates SBA mandatory amortisation from optional seller note repayment (often 1-2 year IO period). Returns analysis shows investor IRR and MOIC across a range of exit multiples and hold periods, and operator economics including carried interest (typically 20-30% above a preferred return hurdle). Indispensable for search fund investors, independent sponsors, and operators evaluating acquisition targets. Works with bank credit decisioning, SBA lending, and post-acquisition integration planning. ## What's included - Search phase budget and capital raise planning - Acquisition sources and uses with multi-tranche debt - SBA 7(a), mezzanine, and seller note debt schedules - Searcher equity vesting and performance step-ups - Returns analysis including IRR, MOIC, and preferred return - Target acquisition valuation and EBITDA multiples - Purchase price allocation and earnout mechanics - Debt financing structure and leverage ratios - 3-5 year operating improvements and margin expansion - Operator equity return scenarios by exit multiple - Investor return splits and carry calculations ## Search Fund Model: A Guide to Evaluating the Template For entrepreneurs and investors assessing a search fund model, this template captures the full search-to-acquisition-to-operating arc. It structures search phase budgeting, acquisition financing via SBA and seller notes, a seven-year operating forecast, and investor and searcher return mechanics. The guide below explains the key drivers and calculation flow so you can judge whether the underlying relationships match a typical search fund. Rates and financial results described here reflect illustrative model settings, not industry benchmarks. ### Operating Drivers That Shape the Forecast The operating forecast rests on a small set of drivers rather than line-by-line detail. Revenue builds from existing business growth or units-times-price mechanics, with an optional separate cross-sell or new-services line for post-acquisition improvements. - Costs split into variable COGS and operating expenses, where salaries, occupancy, and a searcher salary or management fee are the main levers. Working capital and capex assumptions translate accounting profit into cash. - Because these drivers feed the income statement, free cash flow, and balance sheet together, changing one input — say, post-close salary levels or a cross-sell rate — flows through to margins, debt service capacity, and returns, letting you stress-test the business case coherently. ### How Capital Structure and Interest Drive Debt Service Acquisition funding is modelled through a sources-and-uses schedule that balances SBA loan, seller note, and investor equity against enterprise value, transaction fees, and financing fees. Enterprise value is derived from LTM EBITDA times entry multiple, while the SBA loan and seller note are sized by leverage and percentage rules. - The debt schedule then applies PMT-based amortisation over the remaining term, with an interest-only gate on the seller note. Interest expense references the opening balance, so it declines as debt is repaid. - DSCR is calculated from EBITDA divided by total interest and amortisation, providing a covenant check that must stay above 1.25x in every period. ### Outputs: Returns, Checks, and the Searcher Waterfall The model produces a 7-year income statement, free cash flow, balance sheet, and debt schedule, all feeding a returns analysis. - Investor returns are true IRRs and MOIC computed over per-exit-year cash flows, including interim distributions. - Searcher economics use a PE-style waterfall — return of capital, an 8% preferred return, catch-up, and an 80/20 residual split — with the searcher's gross carry scaled by a vesting fraction built from close, time, and performance sleeves. - Validation checks enforce balance sheet balancing, sources equal uses, DSCR above 1.25x, positive cash, declining debt, and reasonable margin ranges, so errors surface rather than hide. ### Practical Use and Scope of the Template Use this template to evaluate whether a proposed search fund acquisition clears return hurdles for both the searcher and investor group. It is built for a single acquisition with an option for one add-on, not for comparing multiple targets or running a portfolio. - Because the public download is a values-only preview, it contains no live formulas or automatic recalculation — but the underlying structure shows the relationships you would need to rebuild or assess. The model reflects the standard two-phase search fund lifecycle, SBA 7(a) financing, and typical lower-middle-market target parameters. - As with any template, review assumptions against your own deal context and confirm that the documented driver logic matches the target business before relying on outputs. ## Built for the search fund lifecycle Use this model when you need to plan a search, underwrite an acquisition target, and present institutional returns to your investor base across the full search-to-exit path. ## Handles searcher-specific economics A search fund model should reflect the unique equity step-up structures, SBA lending terms, and investor dynamics that distinguish this asset class from a standard LBO. ## Better than adapting a generic acquisition model This gives you a purpose-built framework for ETA economics instead of forcing search fund dynamics into an LBO template that was not designed for them. ## Built for the search fund lifecycle Use this model when you need to plan a search, underwrite an acquisition target, and present institutional returns to your investor base across the full search-to-exit path. ## Handles searcher-specific economics A search fund model should reflect the unique equity step-up structures, SBA lending terms, and investor dynamics that distinguish this asset class from a standard LBO. ## Better than adapting a generic acquisition model This gives you a purpose-built framework for ETA economics instead of forcing search fund dynamics into an LBO template that was not designed for them. ## Features - **Earnout valuation:** Model earnout triggers, hold-backs, and working capital adjustments to understand true acquisition cost and seller risk alignment. - **Operational improvement scenarios:** Show impact of revenue growth, cost reduction, and margin expansion on exit value and operator returns. - **Return waterfall and carry:** Calculate operator equity returns net of debt, investor distributions, and carry to validate sponsor value creation. ## Use cases - **Deal screening and valuation:** Quickly evaluate whether a target valuation is reasonable given EBITDA multiples, leverage, and required operational improvements. - **Earnout negotiation:** Model how earnout terms, caps, and periods affect seller upside and buyer cash flow, helping you strike a balanced deal. - **Investor presentations:** Show potential investors the acquisition thesis, operational improvements, and return scenarios in a clear, auditable model. ## Frequently asked questions ### What is a search fund model? It is a financial model that covers the full search fund lifecycle from raising search capital, acquiring a small business, operating it, and eventually exiting to generate investor returns. ### What should a search fund model include? It should include search phase budgeting, acquisition sources and uses, debt schedules, operating forecasts, searcher equity mechanics, and investor return analysis. ### Who uses search fund models? Searchers pursuing entrepreneurship through acquisition, search fund investors, M&A advisors, and SBA lenders use them for planning, underwriting, and fundraising. ### How do searcher equity step-ups work? Searchers typically earn equity through a combination of time-based vesting and performance hurdles tied to investor returns, increasing their ownership stake as the business performs. ### Can I model SBA 7(a) loan structures? Yes. The debt schedule supports standard SBA 7(a) terms including fully amortising structures, current rates, and equity injection requirements. ## Related templates - [Leveraged Buyout Model](https://finamodel.com/templates/lbo-model) - [M&A Modeling & Valuation](https://finamodel.com/templates/ma-model) - [Exit Waterfall Model](https://finamodel.com/templates/exit-waterfall-model)