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

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 dweisburd@gmail.com . #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 dweisburd@gmail.com . (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