March 11, 2025

E145: Is a 35% IRR Really Achievable? Exploring Search Fund Returns

21 minutes

In this episode of How I Invest, I interview Robert Cherun, an expert in search funds and small-cap investing. Robert shares his journey from launching his own search fund to building and exiting a highly successful business. We dive into the fundamentals of search funds, the economics of acquiring and scaling small businesses, and the key traits that make a successful searcher.

Highlights:

What Is a Search Fund? How search funds enable entrepreneurs to acquire and grow established businesses with investor backing.

Impressive Returns: Search funds have historically generated 35% net IRRs and 4.5x ROI, making them a compelling investment strategy.

Barriers to Institutional Adoption: Despite high returns, institutional investors struggle to deploy capital effectively in this micro-cap space.

Search Fund Lifecycle: A breakdown of how searchers raise capital, find businesses, and structure acquisitions.

Portfolio Strategy: How Robert constructs a diversified portfolio of search fund investments to maximize returns.

TAM & Growth of Search Funds: How the space has evolved from niche to mainstream, with billions invested in recent years.

Traits of a Successful Searcher: The skills and qualities investors look for in entrepreneurs, from financial acumen to leadership ability.

Lessons from a $150M Exit: Robert’s journey from acquiring a $5M security business to scaling it into an industry leader with 2,000 employees.

The Asurion Story: A legendary search fund deal that delivered 100x–1,000x returns to early investors.

Search Funds vs. Startups: Why search funds offer a lower-risk path to entrepreneurship compared to venture-backed startups.

Co-CEO Model: Best practices for managing leadership dynamics and decision-making between business partners.

Governance & Investor Relations: How search fund investors maintain oversight while giving CEOs operational control.

Biggest Misconceptions About Search Funds: Why experience isn’t everything and how young entrepreneurs can successfully run businesses.

Guest Bio:

Robert Cherun is a leading investor in search funds and small-cap businesses. As the co-founder of a successful security company, he scaled the business from $5M to $150M in revenue before exiting to a strategic buyer. Now, through his firm Legate Partners, Robert invests in and mentors the next generation of search fund entrepreneurs. Passionate about small business transformation, Robert specializes in identifying high-potential searchers and helping them build industry-leading companies.

Our Podcast now receives more than 300,000 downloads a month. Are you interested in sponsoring an episode? Please email me at [email protected].

#VentureCapital #VC #Startups #OpenLP #AssetManagement

Stay Connected:

X / Twitter:

David Weisburd: @dweisburd

LinkedIn:

David Weisburd: https://www.linkedin.com/in/dweisburd/

Robert Cherun: https://www.linkedin.com/in/robcherun/

Links:

Legate Partners: https://www.legatelp.com/

Questions or topics you want us to discuss on How I Invest? Email us at [email protected].

(0:00) Episode preview

(0:51) Overview of search funds and historical returns

(2:16) Capitalization and portfolio construction in search funds

(3:26) Growth of search funds and searcher profiles

(5:05) Comparing search funds with traditional startup models

(7:37) UCIT Online Security acquisition journey and deal economics

(10:22) Famous search fund deals and Legate Partners introduction

(11:33) Legate Partners' strategy and CEO selection criteria

(13:24) CEO profiles and co-CEO best practices

(15:55) Governance and decision-making in search funds

(17:44) Insights on search fund dynamics and governance

(19:11) Transitioning from finance to search funds and key lessons

(20:11) Final thoughts on team dynamics and search fund misconceptions

(20:58) Closing remarks

...more

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By David Weisburd

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