Edward Silva grew up desirous to be a chief government.

In 2018, Mr. Silva enrolled on the Stanford Graduate Faculty of Enterprise with the purpose of beginning his personal firm. “I used to be going to reside the Stanford dream,” he mentioned. “I used to be going to seek out an engineer — we have been going to discover a enterprise capital agency and located a expertise start-up.”

Then a classmate informed him about one other path for budding entrepreneurs. As an alternative of beginning an organization from scratch — Mr. Silva had co-founded one earlier than enterprise faculty and even been its chief government — he might purchase one and run it. To take action, he’d have to lift a “search fund,” a pool of cash from buyers prepared to wager that an formidable younger particular person with no monitor report will make them cash.

Mr. Silva, 34, was intrigued. “I noticed you don’t must take care of V.C.s who’ve unreasonable expectations,” he mentioned. After elevating a search fund of greater than $30 million from a small group of buyers, Mr. Silva purchased MásLabor, a Virginia consulting agency specializing in employment visas, in July 2021. It was the proper goal firm: The homeowners, a pair of their 70s, have been able to retire and had no kids — simply 15 canine.

Search funds began out as a enterprise faculty experiment 4 many years in the past, however have gained reputation in recent times as persuasive newbies armed with M.B.A. levels entice buyers to make these area of interest bets with the promise of excessive returns. Throughout 2020 and 2021, practically $800 million was invested in search funds, about one-third of the whole quantity raised for such funds for the reason that thought emerged, based on knowledge from the Stanford Graduate Faculty of Enterprise.

“At first, it was only a sprinkle of college students,” mentioned H. Irving Grousbeck, an adjunct professor at Stanford. Mr. Grousbeck is credited with developing with the search-fund thought in 1984 when he was a lecturer at Harvard Enterprise Faculty and helped Jim Southern, a pupil in his entrepreneurship class, elevate cash to accumulate Uniform Printing, a printer of specialty insurance coverage paperwork.

“Jim was an early success story,” Mr. Grousbeck mentioned. In 1994, after 10 years as chief government, Mr. Southern bought Uniform Printing for a return of 24 occasions on the funding, based on a 2016 study on entrepreneurship by the College of Chicago Sales space Faculty of Enterprise.

After seeding the thought at Harvard, Mr. Grousbeck joined Stanford, the place he launched the search fund mannequin to generations of enterprise faculty college students. “Ultimately, the expertise, capital and alternative got here collectively to kind a real search fund neighborhood,” he mentioned.

At the moment, search fund programs are taught in practically each main M.B.A. program, together with on the Kellogg Faculty of Administration at Northwestern College and the Yale Faculty of Administration, though Stanford stays one of many greatest proponents and is the one establishment that has constantly tracked knowledge charting the expansion of the trade. Within the final decade, the variety of funds began has grown 5 occasions, rising to 105 in 2023 from 20 in 2013.

Whereas enterprise capital funding is down, tech hiring has cooled and salaries on Wall Road have stagnated, search funds have proved to be a lovely — if small — approach to make investments. The so-called common inside charge of return — the most typical approach for buyers to gauge the potential of an funding alternative — for all search fund investments from 1986 to 2021 was 35 p.c, far above the 15 p.c that personal fairness funds have returned over the previous twenty years.

Within the early days, buyers have been principally rich people who backed younger entrepreneurs — giving wherever from lots of of hundreds of {dollars} to a few million — however large buyers, together with non-public fairness corporations, have just lately began investing in search funds.

The everyday search fund technique goes like this: The entrepreneur raises an preliminary funding spherical to cowl his or her wage and journey bills whereas searching for an organization to purchase. Whereas there isn’t any recipe for a profitable acquisition, most share a couple of key substances: The corporate is worthwhile and in a fragmented trade (suppose HVAC, house well being care or waste administration), and its homeowners are approaching retirement with no obvious inheritor.

If the would-be chief government finds a goal, she or he will return to the buyers to attempt to elevate a second spherical of funding to purchase the corporate. Traders and entrepreneurs make a return if the acquired firm is bought or goes public for greater than it was bought.

Entrepreneurial M.B.A.s from main enterprise faculties have lengthy been in a position to elevate tens of millions of {dollars} from enterprise capitalists to fund their start-ups, and search funds have grow to be one other approach for a few of them to lift giant sums proper after their diploma. Nonetheless, they must persuade cautious buyers.

“Searchers are sometimes approaching a small enterprise from a elaborate faculty with no ton of expertise,” mentioned G.J. King, a search fund investor.

Mr. King seems for entrepreneurs who’re humble and collaborative and have gross sales pitch — three qualities he believes are important for overcoming skepticism from potential sellers and their workers. Solely when satisfied of these attributes does he determine to speculate. “Individuals are going to be rightfully skeptical of you,” he added.

Mr. Silva, who grew to become the chief government of MásLabor, mentioned he had written over 1,000 customized emails and positioned about 800 telephone calls earlier than discovering the correct goal — an organization in good monetary well being, with homeowners prepared to promote.

“I checked out their funds and was like, wow, there’s one thing actually particular right here,” he mentioned of MásLabor. Mr. Silva wouldn’t disclose how a lot he paid, besides to say it was greater than two occasions the median 2021 search fund buy worth of $16.5 million — which works out to greater than $33 million.

The deal took greater than 5 months to shut and concerned uprooting his eight-months-pregnant spouse and their toddler from California and transferring everybody to Virginia. (Mr. Silva shut down his earlier firm, Henlight, after struggling to increase the enterprise.)

As part of the deal, he additionally acquired AgWorks H2, a MásLabor companion firm. Mr. Silva intends to do extra acquisitions to construct the enterprise.

An acquisition-based development technique is gaining reputation, pushed partly by rising competitors amongst each buyers and searchers. “You make a land seize and purchase as many of those firms as you may and put them collectively,” mentioned Peter Kelly, a search fund investor and lecturer at Stanford’s enterprise faculty, of the trade’s rising mergers-and-acquisitions technique.

Kelsey Holland, a 2023 Harvard Enterprise Faculty graduate who raised a search fund final 12 months, mentioned she was properly conscious of the rising competitors. “Search has been discovered,” mentioned Ms. Holland, who had labored as a product supervisor at firms like Equinox earlier than enterprise faculty.

Like Mr. Silva, Ms. Holland at all times wished to be the chief government of an organization and assumed she would obtain her purpose by founding a start-up. Then, in her first 12 months of enterprise faculty, she discovered about search funds — a mannequin she mentioned she and her friends have been particularly interested in within the present financial local weather.

“In the event you’re plugged in, you examine all these start-ups that you just thought have been doing properly and are actually elevating down rounds, struggling and doing layoffs,” she mentioned.

In September, Ms. Holland, 33, started looking for a well being care firm to accumulate, having raised about half one million {dollars} from people and funding corporations as she searches for a corporation to purchase. She has despatched lots of of customized emails to enterprise homeowners and met with greater than 20 potential sellers.

Most of the homeowners she has met obtain frequent emails from different searchers and personal fairness corporations which can be additionally keen on buying their firm, Ms. Holland mentioned. If she finds an organization, she plans to return to her buyers to ask for wherever from $10 million to $100 million, relying on the dimensions of the goal.

Ms. Holland doesn’t suppose search funds are a surefire path to the nook workplace, given the more and more aggressive market, however mentioned she was assured she would discover the correct firm. “It simply takes extra creativity as of late.”