The Case for Self-Funded Search: Your Path to Real Ownership

So, you’ve got the itch. The idea of running your own show, of taking the reins of an established business and steering it toward its next chapter, has taken root. It’s a powerful dream, one I know well. But as you venture into the world of Entrepreneurship Through Acquisition (ETA), you’re immediately faced with a confusing array of paths.

You’ll hear terms like “traditional search,” “independent sponsor,” and “self-funded search.” It can feel like a maze. My goal here is to give you a map.

I’ve walked this path myself, experiencing both the highs and the lows. And while every journey is unique, I want to make a strong case for what’s often called “self-funded” search. It’s a bit of a misnomer, as you’ll see, but I believe for many, it’s the most direct route to true entrepreneurial ownership.

The Three Flavors of ETA

Before we dive deep, let’s quickly define the main ways entrepreneurs approach buying a business. I’ve seen incredible successes and painful failures in all these models, so the “right” choice is deeply personal.

Traditional Search Fund: You raise a small amount of capital from a group of investors before you start your search. This money covers your salary and search expenses for about two years. Those investors then get the right to fund the majority of the acquisition when you find a company.
Independent Sponsor: You act as a deal-sourcer, finding a business first and then raising capital from investors on a deal-by-deal basis. Unlike the other models, you typically take a more strategic, advisory role post-acquisition rather than stepping in as the day-to-day CEO. This path usually targets larger businesses than a self-funded search.
Self-Funded Searcher: You fund the search phase yourself. This doesn’t mean you have to fund the entire acquisition with your own cash. You find the deal, secure financing (often with an SBA loan), and then bring in investors for the equity portion if needed. You are the CEO, the “boots on the ground” operator from day one.

I have the most experience with the traditional and self-funded models, so that’s where we’ll focus.

The Allure and The Pitfalls of Traditional Search

The biggest, most straightforward benefit of a traditional search fund is the salary. Raising money upfront to cover your living expenses for two years can feel like the only way to make a full-time search possible, especially if you have family obligations or significant debt.

It’s a powerful draw, and for some, it’s a necessary one. But I’d argue that if you can find a way to avoid taking that upfront funding, you should. Here’s why:

Inflated Deal Size: Traditional investors often need to see a path to a certain return, which means they push you toward bigger deals—typically companies with over $2 million in EBITDA. While plenty of these businesses exist, you’re stepping into a fiercely competitive arena.
Competing Against Private Equity: In that $2M+ EBITDA range, you’re not just competing with other searchers; you’re going head-to-head with established private equity firms. These are buyers with more experience, deeper connections, and, frankly, more money. You won’t find much low-hanging fruit here.
Pressure for High Growth: To generate the returns your investors expect, you can’t just buy a stable, “solid double” kind of business. You need a home run. You must find a company with the clear potential for substantial growth, and that is a small subset of the available market.
Unfavorable Deal Terms: In the traditional model, you agree to the terms of your eventual acquisition equity when you have the least bargaining power—right at the beginning. This means the terms are inherently less favorable than if you negotiated them with a specific, vetted deal already in hand. Ultimately, a traditional searcher might only end up with 25% equity in the business they run, and that is if they hit their performance metrics.
Misaligned Incentives: Your investors are backing a portfolio of searchers. They need home runs to make their portfolio math work, so they’ll push you to swing for the fences. But you only have one business. Your eggs are all in one basket, and a steady, profitable company that you grow over time might be a grand slam for your life, even if it’s just a “double” for them.
High Failure Rate: The data shows that this path is fraught with risk. According to one study, 31% of traditional searchers fail to acquire a company at all, meaning their investors’ search capital is a complete loss. Of those who do buy a business, 28% end up making nothing from the deal themselves.

The Self-Funded Advantage: Smaller Deals, Bigger Outcomes

The self-funded path, I believe, addresses many of these challenges while offering some powerful benefits of its own.

The SBA 7(a) Loan: Your Secret Weapon

If you’re a U.S. citizen, the SBA 7(a) loan program is a game-changer for buying a small business. This government-backed loan allows you to borrow up to $5 million for an acquisition, which typically caps the size of the business you can buy at around $2 million in EBITDA.

Because the loan is backed by the government, lenders are willing to finance a larger portion of the transaction as debt. In practice, this creates a powerful dynamic: instead of needing to rapidly grow the business to generate a return for equity investors, you can run a steady, profitable company, pay down the debt over time, and build significant personal wealth through equity.

”Self-Funded” Doesn’t Mean “No Investors”

Here’s the misnomer I mentioned. The search is self-funded, but the acquisition doesn’t have to be. While you’ll likely need to contribute 10% or more of the deal price as an equity injection, that equity can come from outside investors.

There is a robust and established network of investors who specifically back self-funded searchers. You can build the exact same kind of support network you’d have in a traditional search, but on your own terms, with a deal in hand, and with investors who are aligned with your vision for the company.

The Elephant in the Room: The Personal Guarantee

Now, we can’t talk about self-funded search and SBA loans without addressing the Personal Guarantee (PG). It’s real, and it’s serious. When you sign a PG, you are putting your personal assets - including your home - on the line. If the business fails and defaults on the loan, the bank can come after you personally. This has had devastating consequences for some entrepreneurs, and you should not take it lightly.

But like any risk, it can and must be managed. The PG forces a level of discipline that is ultimately healthy. You can mitigate this risk by:

Being Conservative: Don’t stretch on your Debt Service Coverage Ratio (DSCR). A ratio of 1.5x gives you a much healthier cushion than a passable 1.35x.
Structuring the Deal Smartly: Negotiate for contingent seller financing, where a portion of the seller’s payout is forgivable if performance dramatically declines.
Scrutinizing the Business: Ensure there’s minimal customer concentration, a strong track record of profitability, and a durable business model.
Trusting Your Gut: If you see any red flags with the seller or the business, be prepared to walk away.

A Final Thought for MBAs

If you’re in business school right now and dreaming of ETA, I have one piece of advice: start a self-funded search while you’re still a student. Your time is already de-risked because you’re not forgoing a salary. You can still go down the traditional path if that’s truly what you want to do, but there is no better time to start learning by doing, to see what’s out there, and to begin building the muscle memory of a buyer.

The path to ownership is a marathon, not a sprint. Choosing the right starting line can make all the difference.

Happy Hunting!

For more on this debate, I highly recommend listening to the Acquiring Minds episode on Self-Funded vs. Traditional Search and reading AJ Wasserstein’s case study on various search fund structures .