How Self-Funded Search Aligns Incentives and Lowers Risk

In most investment models, there's an underlying tension: the entrepreneur wants growth, the investor wants returns, and the two don’t always move in sync.

Self-funded search is different.

Because of how it's structured, self-funded ETA creates a rare win-win—one where the incentives of entrepreneurs and investors are naturally aligned, and the risks are more thoughtfully managed.

At ETA Funding Partners, this is exactly the model we’re built around. Here’s why we believe it makes sense.

The Searcher Has Skin in the Game

Self-funded searchers don't draw a salary while they look for a business. Instead, they often spend 12–24 months sourcing, vetting, and negotiating a deal—on their own dime.

That’s a huge commitment. And it means that by the time they reach the point of raising capital, they’ve already:

• Personally invested time, energy, and money
• Turned down other jobs or income opportunities
• Lived and breathed the deal for months

This level of commitment naturally filters for serious operators. They're not just shopping around—they're all-in.

Capital Enters Only When a Deal Is Ready

Unlike traditional search funds, where investors commit money before a deal is identified, self-funded search involves no upfront investment from LPs. Capital is raised only after the deal is sourced, vetted, and ready to close.

That matters.

It means:

• Investors are underwriting a real business, not a hypothetical search
• Deal terms are clear and specific
• There’s no capital at risk during the search phase

It’s a model that favors discipline and accountability for both sides.

Smart Use of Debt Reduces Equity Risk

Most self-funded acquisitions are structured with a high percentage of debt—often through SBA 7(a) loans or other types of bank financing.

• The business itself pays back the loan through its existing cash flow
• Investors provide only a portion of the total purchase price
• Strong returns can be generated even without significant top-line growth

This structure makes capital more efficient, limits the amount of equity required, and creates a favorable setup for both investors and operators.

Deal Terms Are Structured for Alignment

Because capital in this market is still limited—and deals typically have short closing timelines—investors in self-funded search often receive well-structured, investor-friendly terms that reflect the market reality.

These may include:

• Preferred returns – Investors receive a minimum return before profits are shared
• Equity step-ups – Bonus ownership based on the amount invested
• Liquidation preferences – Investors are repaid before the entrepreneur shares in an exit

While every deal is different, these features are common in self-funded ETA and help align incentives across the board.

Everyone Wins When the Business Performs

In self-funded search, the entrepreneur typically owns 60–90% of the business post-close. That means their upside is directly tied to the performance of the company—just like the investor’s.

The incentives are simple and strong:

• Investors want responsible growth and consistent cash flow
• Operators want to build long-term value in a business they own

When the business performs, everyone benefits.

A Model Built for Disciplined Growth and Eventual Exit

Self-funded ETA isn’t about holding businesses forever. It’s about acquiring stable, profitable companies, improving and growing them, and creating value over a defined period—typically 5–7 years.

This model is well-suited to closed-end funds like ours. It allows for:

• Thoughtful growth without the pressure to “swing for the fences”
• Predictable timelines for return of capital
• Shared discipline around long-term decision-making

It’s a structure that’s practical, investor-aligned, and increasingly relevant in today’s market.