ETA and Search Funds: The Future of Business Succession in Mexico

For decades, the dominant image of entrepreneurship has been that of a founder starting with little more than an idea.

Business schools, investors, governments, and the media have devoted enormous attention to innovation-driven startups. This model has generated extraordinary progress, but entrepreneurship does not always need to begin with a blank sheet of paper.

Across Mexico, thousands of companies already have customers, employees, suppliers, cash flow, operating knowledge, and a proven reason to exist. They manufacture components, distribute essential products, maintain industrial equipment, and provide specialized services that may never capture headlines but remain indispensable to the economy.

Their greatest challenge may not be demand, profitability, or innovation. It may be succession.

The Other Side of the Entrepreneurial Equation

The frequently repeated claim that 90% or 95% of startups fail should be treated cautiously. There is no universally accepted definition of either a startup or failure, and results vary by industry, financing model, time horizon, and investor expectations.

Official data from the US Bureau of Labor Statistics provides a more precise reference point. Approximately 1 in 5 newly created business establishments does not survive its first year. Of those created in 2013, 34.7% remained in operation 10 years later.

These figures are not an argument against startups. They reveal a strategic imbalance: entrepreneurial culture celebrates the creation of new companies while paying comparatively little attention to businesses that already work.

Entrepreneurship Through Acquisition, or ETA, offers a complementary path.

Instead of building a company from the ground up, an entrepreneur searches for, acquires, leads, and grows an existing business. The entrepreneur assumes responsibility for a functioning organization and applies new management capabilities, technology, governance, capital, and strategic discipline.

From Stanford to a Global Entrepreneurial Model 

The modern search fund model originated at Stanford Graduate School of Business in 1984, when Prof. H. Irving Grousbeck developed a structure through which an aspiring entrepreneur could raise capital to search for, acquire, and operate an existing company. 

Under the traditional model, entrepreneurs first obtain funding to conduct a systematic search. Once a suitable company is identified, investors evaluate the opportunity and may provide additional capital for the acquisition. The entrepreneur then becomes chief executive and ordinarily earns an ownership interest linked to long-term performance. 

Stanford’s 2024 study analyzed 681 qualifying search funds formed in the United States and Canada since 1984. It reported an aggregate pre-tax internal rate of return of 35.1% and an aggregate pre-tax return on invested capital of approximately 4.5 times.

IESE Business School began working with Stanford in 2011 to study search funds outside the United States and Canada. Its 2024 international study examined 320 funds across 40 countries. The model has since developed through professors, investors, former searchers, operators, and regional communities capable of adapting it to different legal and cultural environments. 

Within that process, IE University professor and search fund investor Newton M. Campos has contributed to the understanding of ETA across Spain, Brazil, and other markets. His work is relevant to Latin America because importing the model requires more than translating financial terminology. It demands an understanding of family ownership, founder dependency, informal governance, local financing constraints, and the human implications of transferring a company built over decades.

Succession Is Economic Infrastructure

Mexico’s economy has been built to a significant extent by privately held and family-owned companies.

A founder may reach retirement without a relative who is interested, qualified, or prepared to assume control. The next generation may have chosen another profession or developed a different vision. In other cases, several heirs may own the business without any of them having the capacity or mandate to lead it. 

Without a credible succession plan, an otherwise viable company can deteriorate. Investment is postponed. Key employees perceive uncertainty. Customers question continuity. Family disagreements affect management. Eventually, a profitable company may be sold under pressure, fragmented, or closed.

When a viable company disappears, Mexico may lose jobs, tax revenue, accumulated knowledge, supplier relationships, productive capacity, and economic stability. 

Succession should therefore be understood as economic infrastructure.

ETA allows an owner to obtain liquidity and transfer leadership while giving the company an opportunity to continue operating under a new entrepreneur.

Preserving a Legacy Without Preserving the Status Quo

Many established Mexican businesses have strong products, loyal customers, valuable employees, and attractive market positions. Yet, some remain constrained by informal governance, concentrated decision-making, manual processes, insufficient financial information, or outdated technology.

A responsible acquisition can open a new stage of development. Corporate governance can reduce dependence on a single founder. Digital tools can improve productivity. Better financial controls can convert operational strength into sustainable profitability. A proven regional model may expand into new markets. Professional management can preserve institutional knowledge and create career paths for employees.

Sometimes the most valuable innovation is not reinventing the product, but improving how the company operates, measures, sells, and grows. 

Acquisition entrepreneurship is not the opposite of innovation. It can be the vehicle through which innovation reaches companies that already possess customers, infrastructure, credibility, and experience.

The Legal Infrastructure Behind the Acquisition 

No successful acquisition rests solely on an attractive valuation.

ETA requires legal and institutional infrastructure capable of determining what is being purchased, allocating risk, protecting continuity, and creating the conditions for future growth.

Due diligence must establish whether the company’s apparent value is legally, financially, and operationally sustainable. Depending on the target, this may require reviewing ownership, indebtedness, taxes, labor relations, contracts, permits, real estate, intellectual property, environmental exposure, cybersecurity, litigation, and dependence on key customers, suppliers, employees, or founders.

In family-owned businesses, advisers must also examine the relationship between the company, its founder, and the family. Assets may be used by the business without being legally owned by it. Commercial relationships may depend on personal trust. Decisions may never have been formalized. Personal and corporate expenses may have become intertwined.

These conditions do not necessarily make the company impossible to acquire. They make diagnosis, preparation, and transaction design essential.

Good legal advice does more than protect the buyer. It can help the seller prepare the company, preserve the transaction, facilitate financing, and design an orderly transition.

Mexico Must Build an Ecosystem, Not Copy One

The United States has the most developed search fund ecosystem, supported by decades of data, experienced investors, specialized lenders, business-school networks, and advisers familiar with the model.

Mexico should learn from that experience without reproducing it mechanically.

The country has many of the conditions that make ETA relevant: a substantial base of privately held companies, founders approaching succession, fragmented industries, qualified executives, proximity to the United States, and opportunities arising from North American supply-chain integration.

Mexico can also benefit from stronger connections among regional ecosystems. Spain has become an important European center for search fund activity. Brazil offers experience adapting ETA to a large Latin American economy with substantial family ownership. The United States contributes the most mature base of investors, operators, lenders, and historical data.

The relationship between IE University and IE New York College illustrates the type of transatlantic infrastructure that could connect these experiences. By linking academic and entrepreneurial communities in Madrid and New York, it may facilitate interaction among European expertise, US capital-market experience, and Latin American operators familiar with markets such as Brazil.

A stronger corridor among Spain, Brazil, the United States, and Mexico could support research, executive education, investor relationships, mentoring, and the exchange of practical acquisition experience. No single university or institution should control this ecosystem. The strongest model would be open and decentralized.

A Different Form of Innovation

ETA contains a compelling story: an executive who decides to become an entrepreneur; a founder preparing to transfer the company built over a lifetime; a family confronting the absence of a successor; employees uncertain about a new owner; investors evaluating not only projections, but also character.

Ultimately, it is the story of whether the right person can find, acquire, lead, and transform a real company without destroying the legacy that made it valuable.

Startups will remain powerful engines of transformation. Mexico should continue supporting founders who create technologies and build new markets. 

But innovation is not always the creation of something new.

Sometimes it is the ability to recognize the value of what already exists and prepare it for another generation.

Mexico’s next entrepreneurial opportunity may therefore be found not only in laboratories, incubators, accelerators, and technology campuses.

It may be waiting inside a profitable industrial workshop, a regional logistics company, a specialized distributor, or a family-owned service business whose founder is confronting a deceptively simple question: Who will lead this company after me?

Finding the right answer — and giving that person the capital, knowledge, legal structure, and platform required to succeed — could become one of Mexico’s most important engines of sustainable growth.