What makes search fund entrepreneurship different in Europe?

Abstract

Ownership transition is an increasingly relevant decision in small businesses because millions of owners in the largest world economies are reaching retirement age without a successor. As a result, entrepreneurship through acquisition—becoming an entrepreneur through the acquisition of an existing business and growing it much like a startup—is likely to accelerate in the coming years. In contrast to traditional entrepreneurship, where the entrepreneur comes up with an idea and then grows it into a company, the idea of entrepreneurship through acquisition is embedded in the acquired company. In this article, we share our findings from a research project that tracked first-time entrepreneurs looking to acquire businesses in four European countries. These entrepreneurs put in “sweat equity” and used the “search fund” model, whereby investors funded their search expenses and provided funds for an acquisition. However, implementing the search fund model, originally created in the United States, was not straightforward in Europe. Search funders faced novel challenges in investor-entrepreneur (i.e., principal-agent) relationships and the search process. Our study identifies these challenges, the responses from our search fund sample, the lessons learned, and a novel framework to conceptualize a search fund playbook specific to Europe. These experiences hold valuable lessons for those who pursue entrepreneurship through acquisition and help stimulate new research questions for scholars.