What should be in a search fund step-up package?
A search fund step-up package is the packet the searcher sends existing search investors after the LOI so they can vote and take up their pro-rata at the step-up.
Stanford’s public 2016 Search Fund Study describes a 1.5x conversion: $30,000 of search capital becomes $45,000 of acquisition equity. The 2026 Primer is the current guide. Have deal counsel review the LLC agreement.
Search fund step-up package (definition). The indexed evidence file behind one acquisition, sent first to the investors who funded the search.
It proves the LOI is signed, the step-up math is in the sources and uses, and each search investor can take or pass on pro-rata acquisition equity.
A Drive folder of search-stage updates is not this packet.
What the step-up is, from Stanford’s public study
The Stanford Search Fund Primer is the current practical guide. The 2026 update sits behind a download form. What is public, and checkable without that form, is Stanford GSB case E-605, 2016 Search Fund Study: Selected Observations.
That study says initial search capital is commonly stepped up by a certain percentage (for example, 50 percent) in the acquisition round, whether or not the search capital investors decide to participate. Contributors receive the right, but not the obligation, to participate in acquisition capital. The worked example: $30,000 of search capital at a 1.5x step-up is worth $45,000 of equity in the acquired company (Stanford GSB, case E-605, 26 June 2016). Yale SOM’s 2025 note on search-fund legal documents describes the same conversion as 150 percent of actual invested capital into preferred equity at acquisition. Have deal counsel review the LLC agreement. This page is not a template.
What goes in the folder
The company packet is nearly the same as what should be in an independent sponsor deal package. The search-fund difference is the step-up line and the pro-rata notice to people who already have money in the vehicle.
| Put this | Why it is in the packet | Where the norm is written |
|---|---|---|
| Signed LOI | The clock for the investor vote starts here. | The searcher's purchase process, not the search-stage PPM. |
| CIM or company book | What the searcher is asking them to buy. | Sell-side CIM if there is a broker; otherwise the searcher's own memo. |
| Quality of earnings, or its scope | The number the acquisition equity is priced on. | The accountant's paper. Do not invent a finished report. |
| Model, sources and uses, with the step-up as a line | Search capital at the step-up multiple has to appear on both sides or the stack does not close. | Stanford E-605 1.5x example. The LLC agreement is the term. |
| Pro-rata notice | Each search investor's right, not obligation, to fund acquisition equity. | Stanford E-605. The LLC agreement is the term. |
| Acquisition LLC economics | Step-up conversion, searcher common equity, vesting. Counsel drafts this. | Yale SOM, April 2025; Stanford 2026 Primer exhibits |
| Debt term sheet | Senior, SBA 7(a), seller note, as actually offered. | The lender's paper. Self-funded searches often carry an SBA 7(a) and a seller note. |
First-look, confirmatory, keep out
| Folder | First-look | Confirmatory | Keep out |
|---|---|---|---|
| Vote | LOI, step-up math, pro-rata notice, current cap table of the search vehicle | Acquisition LLC draft, investor questionnaire | A hoped-for LOI. A step-up the LLC does not actually grant |
| Company | CIM or memo, management bios, QoE or its scope | Full QoE, customer contracts | The seller's banker room, copied wholesale |
| Capital | Sources and uses with the step-up line, debt term sheet | Commitment papers, SBA or senior commitment | Subscription documents, capital calls, K-1s, a wire |
A traditional search already has its investors. Email is fine until a second new investor is in the quality of earnings, or until the existing group wants a single indexed packet. Self-funded searches often have no step-up; their packet looks like the independent sponsor folder without that line. If they raise outside equity, the step-up is a negotiated term, not Stanford’s 1.5x traditional-search example. This packet does not form an SPV, take subscriptions, or move money. See What is Cashpian?, and pricing.
FAQ
What is a search fund step-up?
Search capital converts into acquisition equity at a premium.
Stanford's 2016 Search Fund Study describes a 1.5x example: $30,000 of search capital becomes $45,000 of acquisition equity.
Have deal counsel review the LLC agreement. The 2026 Primer is the current guide.
Do search investors have to fund the acquisition?
No. Stanford describes a right of first refusal on pro-rata acquisition capital, not an obligation.
The step-up on search capital still applies whether or not they participate in the new round.
Have deal counsel review the term.
Is the step-up package the same as an independent sponsor deal package?
Almost. Both carry the LOI, CIM, QoE, model, and sources and uses.
The search-fund packet also has to show the step-up math and the pro-rata notice to existing search investors.
Self-funded searches often have no step-up at all.
Does unspent search capital step up too?
The LLC agreement decides.
Stanford's public study does not publish a single unspent-funds rule.
Have deal counsel review what happens to cash still in the search vehicle at closing.
Sources
- Stanford Graduate School of Business, 2016 Search Fund Study: Selected Observations, case E-605, 26 June 2016, retrieved 2026-09-30. Search capital commonly stepped up (example: 50 percent / 1.5x). $30,000 of search capital becomes $45,000 of acquisition equity. Right, not obligation, to participate in acquisition capital.
- Stanford GSB, Search Fund Primer and 2026 Primer download, retrieved 2026-09-30. Current practical guide. Body is behind a form, so this page quotes the public study rather than the gated PDF.
- Yale School of Management, Exploring and Understanding the Various Legal Documents in a Search Fund Project, April 2025, retrieved 2026-09-30. Search capital converts on a stepped-up basis (150 percent of actual invested capital) into preferred equity at acquisition. Have deal counsel review.
If the files are already in a folder, grade which row they are on. Cashpian is a gated room for that packet. It is not a listing portal. It does not sell the company or run the deal.