Search funds: the solution to Singapore’s succession woes

Singapore stands at a crossroads. Built on the entrepreneurial grit of first- and second-generation business owners, the city-state now teems with iconic brands and family-run companies faced with a looming challenge: succession.

A growing number of business owners – once the architects of Singapore’s economic miracle – are reaching retirement age. Yet, for many, finding someone to “take over” their legacy is proving elusive.

This issue isn’t new, but its urgency underscores the importance of entrepreneurship through acquisition (ETA) – a practical pathway that allows aspiring business leaders to buy into established firms rather than creating one from scratch.

Image credit: Timmy Loen

It offers a win-win solution for outgoing founders and budding entrepreneurs alike.

ETA, which has its roots in the search fund model, originated and was popularized in the 1980s by Irving Grousbeck, then a professor in Harvard Business School.

See also: Cultivating the search fund model in SEA

Essentially, the search fund is an investment vehicle where an individual entrepreneur, or a group of them, backed by investors, would go search for, evaluate, and acquire an existing business. They would subsequently step in as CEOs to manage and grow the company, with plans to exit some years later.

Over the years, the ETA model has evolved into a setup where the seller can also be the investor by providing a seller loan. This loan is recovered through a share of the company’s future earnings over a one- to two-year period, making sure that the seller has skin in the game to help the new owners succeed.

When most people think of entrepreneurship, they picture starting a company from scratch, building it with sweat and tears. This narrow and romanticized view of putting up a business should not be the only route to entrepreneurship.

For example, buying an existing business that has already achieved product-market fit with recurring revenue is a much safer and faster way for young Singaporeans to be their own boss.

A legacy at risk

Singapore has no shortage of legacy businesses struggling to find successors.

Take for instance, Song Fa Bak Kut Teh, a household name synonymous with pork rib broth. While the brand continues to thrive and expand, many traditional eateries have disappeared because the original owners couldn’t find the right buyers or successors.

For many, the absence of a ready successor highlights how crucial it is for businesses to create viable pathways such as ETA to ensure that they can continue to thrive.

Why ETA matters

A national imperative