3. Set Up & Fund the Search
The Stage in Brief
A search is a small operation of its own: an entity, a budget with real runway, and a lean tool stack. It also needs a bench you can call: a deal attorney, accountant or QoE contacts, and two or three lender relationships, even provisional ones. What the stage costs depends on the path. Funded searchers spend it raising a search vehicle and answering to the investors who buy in. Self-funded searchers spend it making sure personal runway outlasts the median search. Someone searching inside a firm has the runway handed to them and spends this stage on the mandate instead. It is done when you can name your lawyer, your lender, and the month the money runs out.
Run the Runway Calculator
Living expenses plus transaction costs plus a buffer: the figure to have before starting.
Where the Paths Diverge
- Traditional
- This stage is the raise: standing up the search vehicle, the investor documents that govern it, and the units the backers buy.
- Self-Funded
- Setup stays lean, and the real work is making personal runway outlast a search that routinely runs longer than planned.
- Employed
- The firm supplies the entity, the budget, and the bench, so setup means learning its process and its approval path rather than building your own.
Questions to Answer Before Moving On
- What's my monthly search burn, and how many months can I sustain it?
- Which tools earn a place in my stack now, and which are procrastination purchases?
- Who are my deal attorney, QoE firm, and lenders, even provisionally?
- (Funded) Which investors am I raising from, on what terms?
- How will I know the search is working before a single deal appears?
Mistakes That Cost Searchers Months
- Over-tooling before there's a thesis for the tools to serve
- Budgeting six months of runway for what is routinely a much longer search
- Raising from investors misaligned on size, timeline, or industry
- Running the search around a full-time job, so weeks pass with no outreach
What the Data Says
Budget debt service on real numbers: SBA 7(a) acquisition loans priced at a median of Prime + 2.00% across the first two quarters of 2026 in SBA's own loan data, roughly 9.0% with prime at 7.00%, before a lender's own terms for your file.
Source: SBA 7(a) FOIA loan-level dataset (as of June 30, 2026)
The SBA's lending rulebook changed on October 1, 2026, for applications it receives from that day. An outright purchase still needs a 10% injection no lender can reduce. Coverage of 1.25 on the last fiscal year or a two-year average is now the program's own floor, and a deal priced at $3 million or more needs a quality of earnings report. Guides written before then can mislead you on deal structure.
Budget the runway against how long this takes and how often it ends without a deal. Stanford's 2026 study puts the median acquisition at roughly month 20 of the search, and 58% of concluded search funds have ever bought a company, closer to half for the 2021–24 vintages.
Source: Stanford GSB, Search Funds Keep Offering a Proven Path to Ownership
Know the floor before you budget: an SBA acquisition needs at least 10% equity injection, and no more than half of that can come from a seller note on full standby, other standby debt and minority investors' equity together. On a $4,000,000 project that is $400,000, of which at least $200,000 has to be unborrowed cash, such as savings or a gift, or another source the rule counts in full.
The Playbook
Stand up the boring entity stack once
An LLC to search from, a bank account, a clean email domain, and a calendar link: an afternoon of setup that makes every later interaction feel professional. Skip the temptation to over-engineer: holding-company architecture and brand exercises belong after a deal exists, not before.
Budget runway like a pessimist
Take your monthly personal burn, multiply by more months than feels fair, and ring-fence the deal war chest separately, because diligence, legal, and lender costs cluster in the final stretch when you're least able to walk away over money. That figure is your search runway, and it is the number every other decision in this stage is spent against. A search that must close by a certain month negotiates like it, and sellers can smell it.
Recruit the bench before you need it
The difference between a two-week LOI and a lost deal is often having a deal attorney and QoE provider who return your calls already knowing your name. Interview them during setup, when nothing is urgent: one conversation each with two attorneys, two QoE shops, and two or three lenders or a broker. You're not hiring yet; you're removing future latency.
Open lender conversations embarrassingly early
Lenders will tell you, for free, what they'd finance and what they'd flee, which is thesis feedback wearing a banker's suit. Early conversations also produce the pre-qualification that makes brokers take your inquiries seriously. Two or three relationships, refreshed quarterly, cost nothing but calendar time. Run the SBA Eligibility Pre-Check first: the gates from the SBA's own criteria, asked one at a time, so the first banker call starts past the disqualifiers.
Buy tools last
The productive version of this stage ends with a bench, a budget, and a working pipeline discipline, not a subscription stack. Start with the free tiers, add paid tools when a specific bottleneck names itself, and remember that the directory's pricing is verified precisely because tool spend creep is a documented searcher failure mode.
Tools for This Stage
Investors
Every capital firm, by the path it backs.
Worksheets & Checklists
The printable and spreadsheet versions.
Sources & Uses Builder
What the deal costs and who funds it.
Fund Tools
The numbers and the documents a raise needs.
Search Runway Calculator
The capital a search actually requires.
Search Fund Deck Worksheet
The raise deck, drafted in your own words.
Business Plan Worksheet
Draft the plan your lender will actually read.
Fund Outreach Templates
Intros, terms requests, and investor updates.
Resources for This Stage
Communities & Networks
Education & Programs
Valuation & Modeling
The Words This Stage Uses
Equity injection
The buyer's own cash in an SBA deal, the part no loan covers.
SBA 7(a) loan
The government-guaranteed loan most small acquisitions run on.
Accredited investor
Someone the securities rules let you raise from privately.
Anchor investor
The first sizable commitment in a raise, whose name pulls the rest in.
Blind pool
Money raised to buy a business that nobody has identified yet.
Board observer
A seat at the board table with every right except the vote.
Board seat
A voting place on the board that governs the company you bought.
Buy-sell agreement
What happens to a co-owner's stake when they die, quit, or want out.
Cap table
The record of who owns what share of the entity that is making the acquisition.
Capital call
A fund asking investors to wire part of what they pledged.
Carried interest (carry, promote)
The operator's share of profits, once investors are made whole.
Catch-up
The tier where the operator collects its share after the preferred.
A selection of the words this stage uses. The rest are in the glossary.