Canada: Quinzhee Capital – And The Rise Of Search Funds In Canada

Popular in the U.S. since the 1980s, search funds are a new breed of private equity investment vehicles that have started to pop up in Canada.

We recently spoke with a pair of Canadian search fund entrepreneurs. Zack Newton and Gavin Cheung are the co-founders of Quinzhee Capital (QuinCap), a Toronto-based search fund formed in late 2013. Along with telling us about QuinCap, Newton and Cheung shared their ideas about this new niche market and the unique opportunity it offers to prospective investors.

What are search funds?

Search funds originated in the U.S. as a vehicle to invest in a single, small, privately-held business that is subsequently managed by the fund principals. Since 1984, there have been over 150 documented search funds, which have generally raised between $300,000 and $750,000 of initial capital for a dedicated two-year search period.

In Canada, there have been approximately half a dozen funds that have closed since 2010, with many more principals currently trying to start a new fund.

Search funds normally raise capital from an investor group that can comprise upwards of 20 investors, with all of them – usually including the principals – committing an initial $25,000 to $50,000.

Investment in the fund follows a two-stage approach – the first of which sees the initial outlay to the fund used by the principals' search initiatives for a suitable business. A second investment, which the initial investors are not committed to make, follows to finance the acquisition once the principals have identified a company that meets their investment criteria. Following the transaction, the principals will step in at the senior management level to run and grow the business.

The initial capital raised by the fund will cover administrative expenses associated with the company search, including salaries for the principals, office rent, business development, other overhead, and travel costs (there are no conventional private equity fees paid to the founders).

The principals use their time to find the right business to take back to their initial investors – typically with an enterprise value of between $4 million to $12 million. Once a target company has been identified, the initial investors have the option to participate in a second round of financing to secure it. However, regardless of whether investors choose to participate in the second round, they maintain their initial fund investment and benefit from a gross up to a preset multiple (usually 150%) of their initial investment.

The unique risk for search fund investors is the loss of their initial outlay if the funds dry up before an acquisition is completed. This risk is counterbalanced by the potentially significant returns on their equity stake at the exit phase. Exits can take the form of a private sale or IPO of the acquired business.

Of course, the investors also face risks commonly associated with the purchase of private companies, including whether the investment is able to generate adequate risk-adjusted returns upon its eventual sale.

From the principals' perspective, the investor pool is an invaluable resource in their search efforts. Investors often include sophisticated and experienced financial and business professionals. They can offer useful introductions and access to business networks, and provide guidance during the fund-raising, business growth and exit stages. Their expertise can be leveraged in other ways too. For example they may be suited to take seats on the board of the acquired company or provide insight during the pre-acquisition diligence process and in the post-acquisition operational phase.

Much like conventional PE funds, Canadian search funds are most often structured as limited partnerships, with the principals acting as GPs and the investors holding LP interests.

While structures may vary, a business acquisition is often financed with a combination of bank debt, subordinated debt, preferred shares and common shares. The principals typically receive a portion of the common equity, contingent on the achievement of milestones, which are negotiated between the principals and the initial investors in the first-round financing.

Prospective growth opportunities and cash flow generation are among the factors that will guide the fund principals in selecting a business to purchase. Search funds often focus on established companies, as opposed to startups or turnaround situations.

About QuinCap

QuinCap was formed to find, invest in and manage a Canadian business. Prior to co-founding the firm, Newton was an associate at Torys, with a practice that focused on advising business operators as well as private equity and venture capital funds on their investment activity. Cheung was an investment banker at National Bank of Canada, raising capital and providing financial advice for public and private companies in diversified industries.

Newton and Cheung have been close friends since high school, and in mid-2013, they decided that they wanted to collaborate on something more entrepreneurial.

We asked Newton why they chose the search fund opportunity over others.

Newton: From a market perspective, there are many retiring baby-boomers searching for a transition partner whose businesses are too small for conventional financial purchasers. Professionally, we were excited by the prospect of rolling up our sleeves and using our skill sets to take an operational role in a single business. On a personal note, it is gratifying to address a specialized need in the Canadian business community and know we can continue someone's legacy by working with an established company and ensuring it thrives in the future – especially if that company currently has no obvious succession plan.

Following its launch in mid-2013, QuinCap closed its fund in December with an all-Canadian investor base. Its principals' search efforts are now in full swing. We asked Cheung what types of selling companies are preferred.

Cheung: There is a wide range of seller profiles that are attracted to search funds, but two stand out in particular –retiring owner-operators that lack a clear internal transition plan, and entrepreneur-founders looking for liquidity. Every week we meet business owners who have built impressive organizations, and they want to know they are handing over the keys to someone who cares about the business and its employees. We provide that because we focus on a single business with growth potential that we can operate and add value to – as opposed to other strategies, such as product or employee rationalization.

From the investors' perspective, committing to a search fund can present an attractive business opportunity. In return for their up-front commitment, they can invest in opportunities that may otherwise be difficult to tap. We asked Newton to comment.

Newton: Traditionally, most search funds have been financed by a close-knit group of U.S. investors who co-invest in a portfolio of funds, including several recently closed funds in Canada. Our all-Canadian investor group consists of first-time (albeit extremely experienced and sophisticated) search fund investors who were excited by the number of compelling investment opportunities in our targeted size range. Outside of search funds, it can be difficult to cost-effectively find, acquire, operate and grow a company of the size we're looking at.

We also asked Newton and Cheung why they named their firm Quinzhee Capital.

Newton & Cheung: What is a Quinzhee? It's a shelter used in winter camping that's similar to an igloo but made of snow instead of ice. We are both camping enthusiasts who are proudly Canadian, and consequently wanted a quintessential Canadian name. Unfortunately we've had to consistently explain the name as we reach out to business owners!

While quinzhees may still require explanation (even among proud Canadians), the search fund model is attracting increased attention in the domestic market. With its growing prevalence, it's only a matter of time before the model will be better known to businesses and investors across the country.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.