ETA: Buying a Business Instead of Starting One

Entrepreneurship through acquisition (ETA) means becoming a business owner by buying an existing company instead of starting one from scratch. You usually start with customers, staff and cash flow already in place, though none of them is certain to stay. You also take on the seller's contracts, liabilities and insurance. The buyer, often called a searcher, finds a small or mid-sized company, pays for it with some mix of personal cash, investors, a lender and the seller, and then runs it. This primer is for people thinking about buying a business or partway through a deal.

The short answer

ETA is buying an existing business to own and run, rather than building one from nothing.
There are several routes: a traditional search fund backed by investors, a self-funded search, a buyer using a Small Business Administration (SBA) loan, a deal-by-deal sponsor, or a holding company that keeps buying.
Published figures on how often searches end in an acquisition, and on investor returns, cover investor-backed search funds only. They do not describe SBA buyers or self-funded searchers.
Buying swaps start-up risk for inherited risk: customers who may have stayed for the seller, staff who may leave, and contracts, liabilities and insurance written for the old owner.
Insurance touches a deal at diligence, at closing, in the lender's requirements and in the first 90 days.

What does entrepreneurship through acquisition actually mean?

In plain terms, you buy a business that already has customers, employees and revenue, and you become its owner and usually its day-to-day leader. The idea grew out of the search fund world, where a person (the searcher) spends a year or two looking for one company to buy and run. Today people use it more broadly for anyone who chooses to buy rather than build.

Stanford Graduate School of Business says the search fund model was conceived in 1984, and calls it "the most direct route to owning a company that you yourself manage." Other routes, such as buying a small company with a bank loan, share the same basic idea even though the funding and the paperwork differ.

Two things set ETA apart from simply running a company. First, you are usually buying a smaller private company, sometimes from a founder who is ready to step back. Second, you are the buyer, the operator and often the person who signed for the debt, all at the same time. That mix is why the deal, the financing and the insurance all land on one desk.

What are the main ways to do it?

There is no single ETA recipe. This table maps the routes people talk about. The funding and control trade-offs are the main differences, and the routes can overlap.

Route	How it is usually funded	Plain-English summary	Where to read more
Traditional search fund	A group of investors funds the search, then funds the purchase	You raise search capital first. Investors then back the deal and usually sit on the board.	How search funds work
Self-funded search	You pay for the search yourself, then assemble financing once you find a company	More control and no early investors, with more of your own money at risk.	Self-funded vs traditional
SBA-financed buyer	A participating lender makes a loan that SBA partly backs, plus your own cash and sometimes a seller note	A route built around one loan program, with its own equity, guaranty and seller rules.	How SBA 7(a) loans work
Deal-by-deal sponsor (fundless or independent)	Generally described as equity raised from investors for each deal, often after a target is under letter of intent	Generally described as having no committed pool of money. You find the deal, then find the capital for it. Terms vary and there is no standard form, so ask deal counsel what a given sponsor offers.	Self-funded vs traditional (includes a short note on deal-by-deal sponsors)
Holding company or add-on buyer	The buyer's existing cash, debt or investors	Buy one company, then fold smaller ones in over time.	Add-ons and roll-up basics

Self-funded and deal-by-deal overlap, because both put financing together after a target is found. Ask anyone using either term how much of the money is theirs and how much comes from investors. A searcher can also start self-funded and bring in investors later, and an investor-backed company can still use bank debt. Treat the table as a map, not a rulebook.

What do the published numbers say, and what do they leave out?

Most public data comes from Stanford's Search Fund Study. It covers only traditional, investor-backed search funds in the United States and Canada. The 2026 edition, with data through December 31, 2025, reports:

Stanford's center has tracked over 850 of these funds since 1996.
About 58% of funds that have concluded their search have gone on to acquire a company, and acquisitions typically take around 20 months from the start of a search.
The median purchase price for companies acquired in 2024 and 2025 was $16 million.
Aggregate returns through 2025 were a 33.9% internal rate of return (IRR) and a 4.75x return on investment (ROI). These are pooled figures across many funds, before tax, partly based on estimated values for companies still owned, and carried by a minority of funds. They are not a forecast for any one buyer.

Read these with care. A $16 million median is a very different market from most small business sales: BizBuySell, a marketplace for small businesses, reported a median sale price of $350,000 across 2,132 closed sales in the third quarter of 2026, based on voluntary broker reports. Stanford's study does not cover self-funded searchers, SBA-financed buyers or deal-by-deal sponsors, and this guide knows of no comparable published acquisition rates or returns for them, so be wary of any article that quotes search fund figures for them.

Is buying a business safer than starting one?

No published number settles this. The best-known federal series, from the U.S. Bureau of Labor Statistics (BLS), follows newly opened business locations, not purchases. Across yearly cohorts that opened from 1994 through 2020, about 49% were still operating after five years on average, and about 34% of those that opened through 2015 were still operating after ten. A closed location may have been sold or retired rather than failed, and the series counts locations rather than owners, so it is not a failure rate for either path.

What you can compare is the shape of the risk. Buying swaps start-up risk for a different list:

What buying gives you	What comes with it
Customers and revenue already in place	Customers who may have stayed for the seller, not for you
Employees who know the work	Staff who may leave, and an employment history you did not create
Contracts and leases	Terms you must meet, including insurance requirements and limits on transfer
A track record you can examine	Financial statements that need testing before you rely on them
Existing policies and a claims history	Coverage written for the old owner, possibly in the old owner's name
Cash flow already in place at closing	Debt service from day one, and lender covenants to meet

For a closer look at that trade, see buying a business vs starting one.

Is ETA a good fit for you?

No quiz settles this, but these questions separate a real fit from a hopeful one:

Do you want to run a company day to day, not only own part of one?
Can you accept personal financial exposure (for example, a personal guaranty on a loan) or do you have investors who share it?
Can you stay patient through months of sourcing, rejected offers and diligence that ends in a "no"?
Will you work with deal counsel, an accountant, a lender and an insurance broker, and listen when they disagree with you?
Can you lead people who worked for someone else and may be wary of you?

Lenders and investors will test the same things. For example, a lender making an SBA 7(a) loan must describe the buyer's industry experience and management team in its credit file, so expect questions about your background.

What are the steps from searching to owning?

Every route follows roughly the same arc. Each step has its own primer in this series.

Decide what to buy and how to pay. Size the cash you need and the debt you can carry (how much cash you need).
Find businesses. Brokers, direct outreach and referrals each work differently (where to find businesses for sale).
Agree the main terms. A letter of intent (LOI) sets price, structure and a diligence period (what an LOI is).
Investigate. Test the numbers, contracts, people and insurance (due diligence checklist).
Arrange financing and sign. Lender, investors and seller terms meet the purchase agreement (what the purchase agreement covers).
Close. Money moves and ownership transfers (closing day).
Run the first 100 days. Stabilize people, customers, cash and insurance (your first 100 days).

Where does insurance fit in an acquisition?

Insurance is not the center of a deal, but it shows up at predictable points. Your deal counsel, accountant and lender own the structure, tax and financing questions. Insurance questions to expect:

Diligence. Ask for the seller's declarations pages and loss runs (a carrier's history of claims on a policy) before you sign. See what a loss run is and the pre-closing insurance checklist.
Closing. Whether the seller's policies continue or you need your own in force depends on whether you bought stock or assets. See asset purchase vs stock purchase. A quote is not coverage. Coverage exists only once a carrier binds it.
The lender. Loan documents usually spell out the insurance you must carry. See insurance after an SBA acquisition loan.
The board and investors. Outside investors raise directors and officers (D&O) questions. See D&O insurance for search fund boards.
The first 90 days. In states that follow the National Council on Compensation Insurance (NCCI) and have adopted its ownership change endorsement, the policy requires you to report an ownership change to your workers' compensation insurer within 90 days, and New York has a similar 90-day rule. Under current NCCI rules, an experience mod (the claims-history factor in your workers' compensation premium) recalculated because of an ownership change applies back to the date of the change, up or down, and failing to report on time can be treated as experience mod evasion. New York ties the start date to when the change is reported. California, the four state-fund states (North Dakota, Ohio, Washington and Wyoming) and others work differently, so ask your broker how your state handles it. The first 90 days guide has the checklist.

If you are still choosing a route, ask a broker for rough insurance costs before you lock your model. Morrow can review the policies you inherit and flag gaps, and it focuses on business insurance. For life, disability and benefits questions, ask a specialist in those lines.

Keep reading

Frequently asked questions

Is ETA the same as a search fund?

No. A search fund is one route into ETA, where investors back a searcher. ETA is the wider idea of buying an existing business to own and run, and it also includes self-funded searches, SBA-financed purchases and holding company add-ons.

Do I need a business degree or finance background to buy a business?

No single degree or background is required of every buyer. Some businesses can only be run by a licensed person, or limit who may own them (some trades and professional practices, for example), so check with deal counsel and the licensing authority before you commit. Lenders and investors also look closely at your experience. A lender making an SBA 7(a) loan must describe the buyer's industry experience and management team in its credit file, so ask your lender or investors what they expect.

How much cash do I need to buy a business?

It depends on the route. For an SBA 7(a) loan, the minimum equity injection is 10% of total project cost for a first-time purchase, and lenders can ask for more. Other lenders, sellers and investors set their own terms, so ask each of them before you assume a number.

What is the biggest risk of buying a business?

It varies by deal, but common ones are paying too much, losing a key customer or employee after the owner leaves, and inheriting liabilities. Diligence, a sound purchase agreement and a realistic view of debt service reduce these risks without removing them.

When should I talk to an insurance broker about a deal?

Before you sign, if you can. Loss history and insurance cost are part of diligence, and a broker can request quotes so your model uses realistic numbers. A quote is not coverage. Any new policy only exists once the carrier binds it, so ask early whether you will need new policies at closing or whether the seller's will continue.

References

Just bought a business? Get your insurance reviewed.

Send Morrow the declarations pages, loss runs and key contracts you inherited. Morrow can review them against the business you bought, flag gaps and request quotes where it makes sense. Any new terms depend on carrier underwriting.

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This article is general information, not legal, tax or financial advice, and not a coverage determination. Coverage depends on the actual policy wording, carrier underwriting, your purchase agreement and your contracts. Ask your attorney and accountant about deal and legal questions.

What Is Entrepreneurship Through Acquisition (ETA)?