Skip to content
    Two aircraft contrails crossing in a clear blue sky
    Research Briefs

    How a search fund works, and what changes in India

    November 4, 2026 · Article · 8 min read

    Angelo WilsonFinancial Analyst

    Who backs the hunt for one company, and what the searcher earns for running it. How often searches end in a purchase, and why exchange law, lending and tax shape an Indian deal.

    Summary

    • A search fund is two raises around one person. Investors first pay for a search for one business; once it is found, they and lenders fund the purchase. The searcher then runs it as chief executive.
    • The searcher draws a salary while looking, then earns a share of the company over several years. Most searches that conclude end in a purchase, but some find nothing, and a few large wins lift the average return.
    • India has only a handful of search funds, and none had completed a purchase by the end of 2025. Foreign investors bring exchange-control limits, and bank acquisition loans are out of a first-time searcher's reach.

    A searcher is a person who sets out to buy one established, profitable business and then run it as chief executive. The seller is usually an owner ready to step away.

    A is one way to pay for that. It is well studied in the US and Canada and almost untried in India, where some of the rules it was built around do not hold. If you are weighing the role yourself, read our guide to becoming a searcher in India.

    Who is involved in a search fund, and what does each want?

    • The searcher wants to run a company and hold a real share of it.
    • The search investors pay for the search. They want the chance to invest in whatever business the searcher finds, if the price and the plan convince them.
    • The owner who sells has usually built the business and has no child or manager ready to take it over.
    • The lenders put up part of the purchase price and want it repaid from the company's own cash.

    Many Indian owners cannot count on a child to take over. In an HSBC report on Asian family businesses, covered by Business Today in May 2025, only 7% of Indian heirs said they felt obliged to take over the family business.

    Expect an Indian owner to weigh more than the price. Family members may be on the payroll, and the company may lease its premises from the family. A sale has to settle who stays employed, and whether the lease continues at a fair rent.

    Those arrangements show up in the books as well. Our piece on what makes a good business to buy in India covers the Indian records to read first.

    What does the first raise pay for?

    The first raise is called search capital. It pays the searcher's salary and the running costs of the search until a business is found.

    It is a small sum next to what follows. IESE Business School's 2026 study of search funds outside the US and Canada puts the 2024-25 median at $502k, from a median of 15 investors.

    IESE's median for searchers outside Europe and Latin America, the group that includes India's, is $360k per searcher.

    Raising search capital took a median of six months. Spread across 15 investors, each cheque is small, so a search that finds nothing is a loss each investor can carry.

    At this stage there is no company to examine, so the investors are backing the searcher alone. This investor-backed version is called the traditional model.

    How is the purchase paid for once a business is found?

    When an owner agrees terms in principle, the searcher signs a letter of intent, or LOI. It sets out the price and main terms, and is signed before full diligence.

    Once diligence holds up, the second raise begins, and it is far larger. The price is met from three sources:

    • : new money for shares in the buying company, from the search investors and others who join for the deal.
    • Loans, secured on the business and repaid from its cash flow.
    • Money the seller leaves in. That can be a seller note, part of the price lent back and repaid later. Or it can be an earn-out, a payment that depends on how the business performs after the sale.

    For scale, a July 2026 analysis by Stanford Graduate School of Business puts the median US and Canadian search-fund purchase in 2024-25 at $16m. IESE's international median for the same years is $10m.

    Search capital converts into shares in the purchase at a premium, often 150% of the sum invested, according to summaries of Stanford's 2026 Primer on Search Funds.

    How is the searcher paid?

    During the search, the searcher draws a salary from the search capital, sized to cover living costs.

    After the purchase, the searcher earns a share of the company. A 2025 guide from the University of Virginia's Darden School of Business puts it at up to 25% in a traditional search fund.

    According to summaries of Stanford's 2026 Primer on Search Funds, the stake is up to 25% for one searcher and 30% for a pair. It is earned in three equal parts:

    1. The first part vests at closing, when the purchase completes.
    2. The second vests over time, typically across about four years of running the company.
    3. The third vests only when the investors' returns pass agreed hurdles.

    What does the record show outside India?

    In the US and Canada, Stanford's 2026 figures show that 58% of concluded searches bought a company. About half of the searches launched from 2021 to 2024 have bought one so far. Finding a deal took about 20 months.

    Outside the US and Canada, IESE's 2026 study counts 73% of concluded searches ending in a purchase. Of the 492 funds it covers, 216 had bought a company, 179 were still searching, 80 had ended without one and 17 had left the model.

    IESE's median time from the start of a search to a purchase is 21 months, and 20 months for deals in 2024-25.

    New funds keep arriving. IESE counts a record 96 international launches in 2024 and 82 in 2025, the first year that international launches outnumbered those in the US and Canada.

    Returns across all funds are high. Stanford reports an IRR, the annual rate of return, of 33.9% for the US and Canada, and 4.75 times the money invested. IESE reports 30% and 2.8 times internationally.

    Many searches end with no deal, and their investors lose the search capital. A few large wins also lift the average, although without IESE's top three funds international returns are still 25% and 2.6 times.

    For one investor backing one searcher, the typical outcome matters more than the average. The aggregate is earned by backing many searches.

    For one investor backing one searcher, the typical outcome matters more than the average.

    What changes when the search is in India?

    India is close to the start. IESE's 2026 study counts 8 search funds formed in India up to December 2025, joint second in Asia-Pacific with Japan, behind Australia's 14.

    IESE counts 11 search-fund acquisitions across Asia-Pacific: five in Australia, four in Japan, and one each in New Zealand and Singapore. None was in India by the end of 2025.

    So almost every figure above comes from other markets. Indian searchers work without local benchmarks, and so do their investors and the owners they approach.

    Where does the money come from, and what does FEMA require?

    With so few Indian funds, much of the money for an Indian search comes from abroad. One Hyderabad searcher told Moonbase Capital in 2024 that he planned to raise most of his capital outside India.

    Foreign money brings in the Foreign Exchange Management Act (). Under Rule 9(6) of the Non-debt Instruments Rules, up to 25% of the price can be paid later. It can be deferred, held in escrow or covered by the seller's indemnity, for up to 18 months.

    The limits apply where one side is outside India, or where the Indian buying company is owned or controlled by foreign investors. The RBI confirmed that second case in January 2025, as Trilegal's note on the RBI's clarifications explains.

    Earn-outs fall under the same limits. In strategic buys of founder-run Indian companies they usually run one to three years, according to Khaitan & Co's guide to private M&A in India. Beyond 25% or 18 months needs RBI approval.

    Can a searcher borrow from an Indian bank to buy the company?

    In the US, a self-funded searcher can borrow most of the price with a loan guaranteed by the Small Business Administration, as Darden's guide describes. India has no equivalent.

    The RBI's acquisition finance directions now let Indian banks lend up to 75% of the value of a controlling stake, as the bank assesses it. The acquirer needs a net worth of ₹500 crore and three years of profit, so a searcher's new company does not qualify.

    Indian searchers lean instead on equity, on non-banking financial companies (NBFCs) and private credit, and on money the seller leaves in. Our comparison of the four search fund models in India covers how each model is funded under these rules.

    How does the business change hands, and what comes with it?

    A searcher can buy the company's shares, and with them its whole history. Or the searcher can buy the business through a slump sale, sold as a going concern for one lump-sum price.

    Slump sales fall under section 77 of the Income-tax Act, 2025, formerly section 50B. The liabilities of the business usually move with it, unless the agreement leaves some out. Our piece on buying a good business in India weighs the two routes.

    Does a searcher-sized deal need competition approval?

    Rarely. The Competition (Minimum Value of Assets or Turnover) Rules, 2024 exempt a deal from notice to the Competition Commission of India when the target is small.

    Small means India assets of ₹450 crore or less, or India turnover of ₹1,250 crore or less.

    The exception, as Khaitan & Co's guide notes, is a deal worth more than ₹2,000 crore where the target has substantial Indian operations. No first-time searcher is buying at that size.

    Where does SRF fit in an Indian search?

    A search needs work SRF already does for Indian companies: due diligence on Indian books and a valuation of the business. We also set up the finance function a new owner needs in the first 100 days. Our due diligence lead, CA Mallavarjalla Mounika, has completed more than 100 due diligences, and SRF manages 40+ enterprise CFO offices. Our entrepreneurship through acquisition practice brings that work to searchers and their investors.

    Current as at November 2026. General guidance, not legal, tax or investment advice: take advice on your own situation.

    How useful was this article?

    One tap. It tells us what to write more of.

    Not usefulVery useful

    About the author

    Angelo Wilson

    Financial Analyst

    LinkedIn

    The next one

    Get what we publish next, by email.

    Working notes on raising, borrowing, protecting, growing and structuring capital in India. One email a week at most, and you can leave any time.

    We use your address only to send this. See our privacy policy.

    We store your address to send you these emails and nothing else. See our privacy policy.

    Related content

    The services behind this article

    What we do about it, for founders and finance teams. Each has its own page.

    • Entrepreneurship Through Acquisition

      ETA and search funds in India: advice for searchers buying a business to run, owners selling to a successor, and the investors who back a search.

    • Deal Advisory

      Shaping a transaction and testing what it is really worth, on either side of the table.

    • Business Valuation

      Business valuation for a sale, a purchase or a raise: three methods set against each other, and statutory reports signed by whoever each law names.