Search funds, which work like small private-equity firms, are growing in number and popularity even though few have succeeded. The funds begin by one or two investors gathering $200,000 to $750,000 from friends and family and searching for a small business to buy. When they find one, the search fund's leaders raise a second round of financing to buy the company. The search fund's principals then take on the role of CEO in an attempt to expand the business and eventually sell it for a profit. "It was kind of just a little secret of Harvard and Stanford 10 years ago, but it's not a secret anymore," said one search-fund participant.

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