Search Funds vs. Private Equity: Where First-Time Buyers Win in 2025

For search fund entrepreneurs emerging from MBA programs and accelerators, the narrative is compelling: outpace private equity on returns, operate with founder-level commitment, and build companies that last. Yet when these first-time buyers enter real deal rooms, they face a credibility barrier that no amount of preparation fully dissolves.

Sellers see private equity as the safe default. Institutional capital, professional diligence, proven processes, and—perhaps most importantly—institutional reputation. But this apparent PE advantage masks a deeper tension: sellers fear what happens after the deal closes. The employee who's been with the company for twenty years. The family member in operations. The culture that took decades to build.

This is where search fund entrepreneurs have a genuine edge—not by outgunning PE's capital, but by addressing the credibility gaps that sellers actually care about.

Recent data from the Stanford 2024 Search Fund Study analyzing 681 qualifying search funds in the US and Canada found the aggregate pre-tax internal rate of return to be 35.1%, and the aggregate pre-tax return on invested capital to be 4.5x. Current market research reveals an instructive paradox:

The numbers suggest searchers are winning. In reality, the competition is more nuanced. Axial's 2025 data shows the lower middle market is defined as $2.5M–$250M TEV, with buyer demand concentrated in the $1M–$3M EBITDA range.

As Mark Hartmann, a seasoned M&A advisor with three Inc. 5000 honors, observes: "I don't see first-time buyers beating too many PE deals in the lower middle market. But in main street and legacy-driven deals, the story is different."

This distinction is critical. The market isn't monolithic. Search funds are especially focused in the $1M–$3M EBITDA range (97.93% of deal intents), while PE firms have the strongest interest in the $3M–$10M range. The overlap—from $5M–$20M—is where real competition happens.

But here's what matters: In deals where legacy, employees, and operational continuity outweigh pure financial engineering, searchers win consistently.

In these deals, sellers aren't asking: "Who has the most capital?" They're asking: "Who will steward this company the way I have?"

First-time buyers consistently encounter skepticism that breaks into four categories:

Seriousness. Are they committed to closing, or testing the waters? Have they been through a process before?

Deal Team Readiness. Do they have legal counsel, financial advisors, and operators who've executed transactions at scale?

Funding Certainty. Will lenders—particularly SBA banks—actually approve them? Will equity backers follow through when market conditions shift?

Post-Close Stewardship. How much training and operational support will sellers need to provide? Can they truly step away?

Without clear, credible answers, first-time buyers are dismissed before the real conversation begins.

Independent buyers cannot compete on institutional firepower. They shouldn't try. Instead, they win by leaning into what makes them fundamentally different:

Legacy and cultural continuity. Unlike institutional sponsors, searchers often commit to maintaining employees, organizational culture, and community ties. For family-owned businesses built over generations, this authenticity resonates in ways PE promises cannot.

Flexible structuring. Earnouts, seller financing, phased retirements, and shared governance—structures that PE rarely embraces—directly address seller priorities. When a founder wants to phase into advisory roles or ensure a longtime employee remains in leadership, searchers can accommodate.

Hands-on ownership and stewardship. Sellers investing in a relationship with an operator-owner, not a distant financial sponsor, know that decisions will be made with long-term value in mind, not quarterly returns.

These advantages aren't marginal. In succession-focused and relationship-driven transactions, they are decisive.

Research from Stanford, Wharton, IESE, and field experience from advisors who work with both searchers and PE firms point to concrete, executable strategies:

Sellers and brokers gain confidence when a searcher is visibly surrounded by seasoned advisors, institutional investors, or industry operators. A credible deal team—whether an operating partner with 20+ years in your target industry, a recognized investment partner, or a well-regarded advisor—signals that the searcher has professional backing and institutional knowledge.

This isn't about outsourcing decision-making. It's about demonstrating that professional networks validate your seriousness.

This is your biggest credibility lever. Uncommitted capital raises immediate red flags. Before serious conversations with sellers, secure one or more of the following:

The message: "Funding certainty is solved. Execution is the focus."

Many first-time buyers assume funding is secondary to deal selection. It's not. Sellers prioritize it because it directly impacts whether the deal closes. By demonstrating that capital is committed and ready, you shift the conversation from "Can you fund this?" to "Can you operate it?"

Bring materials to initial conversations that demonstrate professional rigor: detailed financial models, sample letters of intent, preliminary diligence checklists, and operational assessments. Sellers need to see readiness, not aspiration.

This is especially important for first-time buyers. A polished LOI template and a thoughtful diligence playbook signal that you've done this before—or learned from those who have.

Rather than forcing institutional deal templates, work backward from seller concerns. Does the founder worry about succession planning? Build it into earnout terms. Are family members employed? Create governance structures that protect their roles. Does the seller want an advisory relationship post-close? Structure that into the deal.

PE buyers work from a playbook. Searchers have the flexibility to write custom scripts—and sellers notice.

Thought leadership matters. By publishing insights on LinkedIn, contributing to ETA forums (Wharton, Stanford, IESE), and engaging in M&A communities, you become a recognized participant in your space before you enter a deal room.

This visibility translates directly to credibility. Sellers and brokers are more likely to take a call from someone they've encountered repeatedly in professional forums than from an unknown name on a cold outreach.

Hartmann's experience reflects a consistent pattern: while PE dominates competitive processes in certain deal ranges, brokers increasingly see sellers choosing independent buyers when certain conditions align.

Alignment is stronger. Searchers demonstrate genuine commitment to seller legacy, employee welfare, and cultural continuity—not just financial optimization.

Structuring is more creative. Independent buyers explore phased transitions, earnout structures, and shared governance models that PE rarely offers.

In short: searchers rarely beat PE in head-to-head auctions for institutional-scale deals. But in relationship-driven, succession-focused transactions where seller values matter as much as price, they win consistently.

The 2025 landscape favors smaller, agile acquirers. Nearly 1,000 new buyers joined Axial in the first few months of 2025, with demand increasingly concentrated in the $1M–$3M EBITDA range. Traditional PE deployment faces headwinds, but searcher acquisition rates—at 63% of active searchers concluding deals—remain robust.

Search funds are especially focused in the $1M–$3M EBITDA range (97.93% of deal intents), a signal that most searchers continue to prioritize businesses that are financially viable but operationally approachable for first-time operators.

SBA lending appetite remains strong for search funds (unlike traditional PE leverage). Founders increasingly prioritize stakeholder capitalism and cultural continuity over pure financial optimization. Deal velocity for institutional PE is slowing, but searcher acquisition rates remain robust.

Translation: The market environment is optimized for agile, founder-focused buyers right now.

The goal for search fund entrepreneurs in 2025 is not to outmuscle private equity across the market. It's to win selectively—where legacy, stewardship, and cultural fit tip the scales.

By surrounding yourself with credible partners, demonstrating funding certainty, preparing rigorously, and structuring deals around seller priorities, you transform skepticism into trust. You move from being an unknown first-time buyer to a credible steward of a multi-generational business.

The data supports this approach. Search funds are closing acquisitions at higher rates and generating superior returns precisely because they're playing a different game—one where relationships, values, and long-term thinking outweigh pure financial engineering.

That's not just a competitive advantage. It's the foundation for building companies that matter.

Research and Communities:

For Practitioners:

Stay Connected:

Subscribe to the Evermark newsletter for ongoing insights on search fund strategy, founder perspectives, and market dynamics. Connect with our LinkedIn community to engage with other searchers, investors, and operators building next-generation businesses.

Subscribe to Evermark's Newsletter | Join Our LinkedIn Community

Pre-Register for Evermark to access resources, data, and tools designed specifically for acquisition entrepreneurs.