What We're Hearing: The Value Curve
One of the conversations that came up most this month was about search fund companies, from both sides: the investment team and the CEO of the acquired company.
The pattern is familiar to anyone who has held the CEO seat after an acquisition. A company gets bought on the strength of its profitability and growth potential. Then the new CEO inherits a business that runs on the owner and a thin layer beneath them, and getting to the next phase of growth means funding a management layer that the previous owner never had to fund, which cuts into profitability. That is the first part of the value curve, and it can be daunting for CEOs and worrisome for search funds.
Stanford's 2026 Search Fund Study finds that the most recent acquisitions show lower returns, and describes this as typical: CEOs are early in their tenure and have yet to achieve substantial operational changes. Returns then grow with time. The 2021-22 cohort improved between the last study and this one, with ROI moving from 1.5x to 2.7x and IRR from 23% to 30%.
Hopefully this reframes the early period. The dip is where capability is being built, not evidence that anyone overpaid (so don't worry, early investors and entrepreneurs). The study also points at what to build first. Among long-duration enterprises, which raise committed capital upfront, Stanford reports that the first hire is typically a chief of staff or a finance and accounting role, and the second is finance and accounting or M&A.
The operators who plan furthest ahead fund the finance function early.
They hire finance early because everything else waits on it. A CEO cannot judge which customers are profitable, what the business can actually afford, or when it can carry another salary, until the numbers behind those questions hold up. In the long run it pays twice. Stanford associates recurring revenue with higher returns, largely because stable cash flow gives a CEO time to make operational changes instead of fighting fires. It also links debt at acquisition to higher returns, and the reason is specific: lenders underwrite profits that are understandable and predictable.
Clean financials are not housekeeping. They are what makes that capital structure available in the first place. This is what we mean when we say accounting should be a revenue center rather than a cost center. The headline figures across all search funds are 4.75x ROI and 33.9% IRR, but a small number of funds drive them. Excluding the top 10% by ROI, the numbers are 2.1x and 20%. That is the range most portfolios live in, and where operational execution decides the outcome.
Where we land: the question is not whether to invest in the finance function but which role to fund first and what it has to prove before the next one gets added. That conversation is what turns the curve from something you wait out into something you manage.
How We Would Think About It: Ten CFO Hours
Most of our clients buy a fixed block of senior finance time each month. The question we get asked most is how to spend it, and the honest answer is that the order matters more than the total.
1. Define the decision
Start by making the question answerable. "How are we doing" cannot be worked. "At what gross margin do we fund the next hire, and who signs off" can. Most of the value gets created here, and it is the step teams skip because it feels like talking rather than working.
2. Fix what sits underneath it
A CFO-level answer built on a close that does not reconcile is worth very little. Every hour spent analyzing bad numbers has to be spent again.
3. Push the recurring work down
We often hold the controller role and the CFO role at the same time, which makes this easy to get wrong. When the same team does both, routine work quietly absorbs the hours meant for decisions. Keeping them separate in how the work is staffed protects the value of the block.
4. Spend what is left on cash
Cash tells you sooner than the P&L does. Inventory builds, terms tighten, receivables stretch. A company can look fine on margin and still be short on cash, and that is the failure mode that actually threatens the business.
Modeling is the cheap part and deciding is the expensive part, so the hours should follow the decision rather than the spreadsheet.
Case Snapshot: Are We Burning Cash?
A company we support as controller and fractional CFO had just closed a capital raise, with roughly three quarters of a million dollars landing on top of it. Most of it was committed to paying down debt built up over several years, and it pooled in the same place as operating cash.
That made a basic question unanswerable: in a normal month, is this business generating cash or consuming it? The CEO was structuring upcoming contracts with no clean read to decide from.
The plan:
- Separate the debt paydown from operations. Monthly movement could then be read on its own.
- Build a monthly burn analysis. One question: net positive or net negative in a normal month.
- Fix the reporting underneath it. Their accounting system was not reconciling cash cleanly, so we found the cause rather than working around it.
- Hand the recurring version to their internal finance lead. The CEO gets it monthly without paying senior rates for it.
That is the same sequence, run on a live engagement. A CEO who knows their cash position can fund the next hire on evidence rather than nerve. That is what thinking like your CFO looks like.
Tell Us What to Dig Into
Have a topic you want covered next month? Email Troy at troy.goldenberg@sfpcap.com, or forward this to an owner it would help. If your company is working through questions like these, talk to SFP.