Entrepreneurship Through Acquisition: A New Path to Business Ownership and Investment

Entrepreneurship Through Acquisition (ETA) is gaining traction as a compelling investment option in addition to traditional private investment models like venture capital (VC) and private equity (PE). By acquiring and operating established businesses, individuals and small teams can bypass the volatility of early-stage startups and instead focus on scaling profitable enterprises.

To explore the growing appeal of ETA—and why it’s capturing the attention of investors—we turned to one of the foremost experts in the field, Lester F. Alexander III, professor at the University of Virginia’s Darden School of Business. With deep expertise in private investment and business acquisition strategies, Alexander provides valuable insights into the current landscape of ETA.

“For private investors, the returns are actually really attractive right now,” he explains. “The 2024 Stanford study showed an IRR of 35% and a MOIC of 4.5x, which makes it a compelling investment case.” Unlike VC, where early-stage startups carry significant risk, ETA deals focus on acquiring profitable businesses with proven performance—offering investors a lower-risk, high-upside alternative.

ETA Performance Overview

Aggregate Search Fund IRR (2011 – 2024)

Source: 2024 Search Fund Study

This survey includes data from every known core search fund in the United States and Canada.

Both ROI and IRR were calculated on a cash flow basis, including both equity and investor debt that was invested as initial search capital and as acquisition capital. These include the losses from searches that ended without an acquisition, losses in equity upon exit, and losses in equity value reported while operating the company.

Understanding Entrepreneurship Through Acquisition

ETA involves acquiring small private businesses, typically those with $1 million to $5 million in EBITDA. These businesses are often run by owners looking to retire or exit, creating an opportunity for new leadership to step in and scale operations. Rather than building a business from the ground up, ETA allows entrepreneurs to step directly into a profitable, growing company.

The Search Fund Lifecycle 

Source: 2024 Search Fund Study

A key differentiator between ETA and other private investment models is the hands-on role of the searcher—the individual or team acquiring the business. They take over as CEO, making strategic decisions to drive long-term growth. According to Alexander, “ETA searchers are focused on building upon the existing foundation to create lasting value.”

The Investment Case for ETA

ETA offers a compelling financial profile. With strong historical performance data from acquired companies, investors gain a level of predictability not typically found in early-stage venture investing. Alexander notes, “Investors are starting to see that private companies provide more direct value creation than public markets, where stock prices often fluctuate daily regardless of performance.”

Institutional investors, family offices, and high-net-worth individuals are increasingly allocating capital to ETA. Some are drawn by the stability of investing in established businesses, while others see ETA as an opportunity to diversify their portfolios beyond traditional asset classes.

Investor Role, Risks & Mitigation 

While ETA presents attractive returns, it’s not without its challenges. The success of an ETA deal hinges on the operator’s ability to manage and grow the acquired business. Investors play a critical role in guiding searchers, particularly those with limited experience in deal structuring and business operations.

“Some investors have deep experience in acquiring small private businesses and can provide searchers with valuable guidance,” Alexander points out. Others may take a more passive role, simply seeking returns without operational involvement. Regardless of engagement level, mitigating risk in ETA often involves careful due diligence—assessing a target company’s financials, customer concentration, and scalability potential.

Success Factors in ETA Deals 

The key to a successful ETA acquisition lies in choosing the right business. Alexander emphasizes the importance of selecting businesses with recurring revenue models, diversified customer bases, and strong margins.

“Failure isn’t not closing a deal. Failure is buying the wrong business,” he cautions.

Conducting thorough diligence—such as quality of earnings assessments and legal reviews—can help prevent costly mistakes.

Additionally, searchers must be prepared to lead and scale a small business. Unlike corporate environments with extensive support teams, ETA operators need to be hands-on, working closely with employees to drive sustainable growth.

Market Trends & Emerging Opportunities

Several macroeconomic trends are shaping ETA’s rise. The ongoing retirement of baby boomer business owners—often referred to as the “silver tsunami”—is creating a significant supply of small businesses available for acquisition. Many of these owners prefer selling to individual operators rather than larger private equity firms, seeing it as a way to preserve their legacy.

“ETA provides owners with a transition plan that ensures their business continues to thrive” says Alexander. This dynamic is fueling investor interest, as they recognize ETA’s ability to generate strong returns while maintaining business continuity.

The Future of ETA: Scaling and Institutionalization

As ETA gains traction, it is evolving from a niche strategy to a more institutionalized asset class. Dedicated funds are emerging to support searchers, and more capital is flowing into the space.

Alexander sees parallels between ETA and the rise of independent sponsors in private equity. “Years ago, independent sponsors were a small industry. Now, PE firms see them as a business development tool. I expect ETA to follow a similar trajectory as more investors become comfortable with the model,” he predicts. Even with slight reductions in returns – from 35.3% IRR in 2022 to 35.1% in 2024, and 5.2x ROI to 4.5x –  ETA remains an attractive investment opportunity.

Liquidity remains a consideration, but financing options such as SBA loans and traditional bank debt are becoming more accessible for searchers. Lenders are growing more comfortable with the model, further expanding ETA’s potential.

Final Thoughts

Entrepreneurship Through Acquisition is reshaping the landscape of private investing, offering an alternative to venture capital and private equity. With strong returns, lower risk compared to startups, and an increasing number of acquisition opportunities, ETA presents a compelling case for both investors and operators.

As Alexander puts it, “This is a space with real opportunity. Whether you’re a recent MBA graduate or an experienced professional, ETA offers a viable path to owning and growing a business.”

With growing institutional interest and more entrepreneurs considering ETA, this model is set to play an increasingly important role in private markets.