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Think entrepreneurship and what comes to mind? A hoodie-clad geek writing code for the next big internet product in their parents’ garage or an engineer tinkering with machines in a workshop? Perhaps go-getters studying spreadsheets and flow charts, looking for the minimum viable product?

How about this: An MBA student poring over databases and financial statements in search of a great business for sale.

This is not the stereotypical entrepreneur who develops the next Amazon and hopes it takes off. This belongs to a growing breed of entrepreneurs taking a different route to business ownership: buying existing companies rather than building them from scratch.

Known as entrepreneurship through acquisition (ETA), this pathway offers lower risk yet often better financial returns than the average start-up. Entrepreneurs, often recent MBA graduates, raise capital from investors to finance their search for an established company to acquire and operate.

A 2024 study by Stanford University shows that search funds formed in the United States and Canada since 1984 have achieved an average return on investment (ROI) of 4.5x. Outside North America, 59 new international search funds were created and a total of 31 companies were acquired in 2023 alone, according to a report by IESE Business School.Read More

At INSEAD, where I (Ivana) have been teaching ETA and search funds for nearly 10 years, we see a growing appetite among our graduates for this rewarding career path. More than 100 search funds and other ETA vehicles have been launched by INSEAD students and alumni in recent years, some of whom pioneered the first search funds in new geographies.

It is therefore timely that INSEAD has launched the ETA and Search Funds Hub to help entrepreneurs with connections, knowledge and resources to succeed in ETA, while supporting investors with access to this high-performing asset class. The Hub will also leverage INSEAD’s global network to advance education, research and value creation on ETA. Our next key event is the INSEAD ETA Conference* on May 10.

Buy and build vs. build from scratch

My students often ask: I want to be an entrepreneur, but should I do it through a start-up or ETA? The answer isn’t always straightforward, but I’ve noticed a pattern. Those who choose entrepreneurship through start-ups are typically passionate about a specific product or service and are mission-driven; those who take the acquisition path are passionate about managing and improving businesses, regardless of industry.

To make an informed decision about which path to take, aspiring entrepreneurs need to understand the rewards and challenges of each route. Here’s a quick roundup.

Start-ups: innovation-driven ventures

The traditional start-up model typically emphasises disruptive innovation and rapid scaling, often requiring significant technological advantage and financial capital in its initial phases. It appeals to founders driven by a mission to revolutionise industries and solve problems in the market.

To succeed, founders must not only develop a compelling solution but also convince investors – and eventually customers. Creativity, innovation and product-market fit are crucial.

Also read: The economics of sustainability

Start-ups are inherently high-risk ventures. They require patience, resilience and high risk tolerance, often relying on multiple injections of investment capital and guidance from investors. On the flip side, successful start-ups deliver outsized returns, often exceeding 10x, to their investors. Airbnb, for one, overcame regulatory hurdles and scepticism before hitting US$100 billion in market value by 2020, 12 years after it was created.

INSEAD alumnus Tobias Vancura (MBA’06J) is one entrepreneur who has experienced both start-up and acquisition. Vancura co-founded and later successfully exited Nanonis, a nanotechnology venture. “Our start-up was technology-based and came right out of university,” Vancura says. “You do something at university technology-wise, you push boundaries, and then you think that could be a market. We established the company, and that worked out well.”

Vancura is an outlier: 90 percent of start-ups fail by some estimates. Moreover, true product innovation is increasingly challenging. Even where start-ups have a viable product, they need founders who are versatile and able to pivot to succeed. Perseverance is also a must. “While we were starting to do sales, we were there Saturday, Sunday, everyday…” recalls Vancura.

Entrepreneurship through acquisition: optimising operations and strategy

As long as businesses have existed, there have also been businesses for sale, complete with established management, infrastructure, customers and cash flow. A contemporary version of this practice is the management buy-in (MBI), whereby external managers acquire a controlling interest in a company.

Consider the ETA ecosystem an evolution of the MBI. It has structures that are more accessible and appealing to a new generation of entrepreneurs and investors, not least because there is less uncertainty compared to........

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