The search fund model has never been more popular. According to Stanford's 2024 Search Fund Study, 94 new search funds launched in 2023 alone. But here's the number that should stop you cold: only 29 acquisitions were completed that same year.
That means roughly three out of four searchers active in a given year didn't close a deal. The competition for quality businesses has never been fiercer. And if you're relying entirely on brokered deal flow, you're competing against every other searcher, private equity fund, and strategic acquirer who sees the same listings.
This is why proprietary search matters. It's not a nice-to-have. It's the difference between finding a deal on your terms and fighting over scraps at auction.
The Brokered Deal Problem
When a business hits the open market through a broker, the dynamics shift against you immediately.
Think of it like an iceberg. Brokered listings are the visible tip above the waterline. They represent only a small fraction of the total market. Below the surface sits the vast majority of potential deals: businesses whose owners are thinking about selling but haven't listed, owners who would consider the right offer but haven't been approached, and companies that will need to transition in the next few years but haven't started the process.
Proprietary search is about accessing that enormous pool beneath the surface. It's about starting conversations with owners before they ever talk to a broker.
Auctions Kill Returns
The economics of brokered deals are punishing. When multiple buyers compete for the same business, prices get driven up. The median acquisition multiple for search fund deals has climbed to around 7.0x EBITDA. In competitive auctions, it goes higher.
Every additional turn of EBITDA you pay at the front end compresses your returns on the back end. The math is unforgiving. A deal that generates strong returns at 5x might be mediocre at 7x and poor at 9x.
Proprietary deals, by contrast, are conversations, not auctions. When you're the only buyer at the table, you negotiate on terms that work for both sides. You're not bidding against a faceless competitor. You're building a relationship with an owner who chose to talk to you.
That doesn't mean you're lowballing anyone. It means you're having an honest conversation about fair value without the artificial pressure of a competitive process.
Legacy Matters as Much as Valuation
Here's something brokers rarely tell you: for many small business owners, the sale price isn't the most important factor in choosing a buyer.
These owners spent decades building something. They care about their employees. They care about their customers. They care about what the business looks like five years after they leave. When an owner sells through a broker, they often feel like a commodity. The process is transactional. Buyers show up with spreadsheets and term sheets, and the conversation revolves around multiples and deal structure.
Proprietary outreach flips this. You're reaching out to an owner as a person, not as a line item in a deal database. You can ask about their story, their concerns, their vision for the company's future. You can demonstrate that you understand what they built and that you're committed to preserving it.
This is how trust gets built. And trust is what closes deals that never hit the market.
Take Back the Process
Relying on brokers means you're reactive. You wait for listings. You respond to teasers. You compete in processes designed to maximize the seller's price, not to find the best fit.
Proprietary search puts you in control. You choose the industries. You choose the geographies. You choose which owners to approach and how to approach them. You set the pace.
This is especially important for search fund entrepreneurs who have specific investment criteria. If you know you want a B2B services company in the Southeast with $1M to $3M in EBITDA, you can build a list of every company that fits and start reaching out directly. You don't have to wait for one to show up on a broker's website.
The Returns Speak for Themselves
Stanford's data makes the case clearly. The search fund model has generated a 35% average IRR and 4.5x return on invested capital across its history. Those are exceptional numbers by any standard.
But those returns weren't built on auction deals. They were built by searchers who found differentiated opportunities, often through proprietary channels, and acquired them at reasonable prices. The searchers who outperform are the ones who source creatively, build trust with owners, and close deals before anyone else knows the business is available.
The model works. But it works best when you're not competing against everyone else for the same deals.
The Bottom Line
Proprietary search isn't just a strategy. It's a necessity.
With more search funds launching every year and more capital chasing fewer quality deals, the searchers who succeed will be the ones who build their own deal flow. They'll reach owners before the brokers do. They'll have conversations instead of auctions. They'll pay fair prices instead of auction premiums.
The opportunity is enormous. Millions of small businesses will need to transition ownership in the coming years. The question isn't whether deals exist. The question is whether you'll find them before everyone else does.
That's what proprietary search is about. And that's why it matters more now than ever.
