Building a personal network can sometimes feel icky/transactional. But if you can focus on adding value over time, it really snowballs into a powerful tailwind in your life.

Our biz is launching a new service (vague to stay anon) and networking got us there — here’s how:👇 (1/X) During diligence on the biz, a coworker connected me to a former coworker who had been an investor in this sector.

He explained to me the basics of the new service, the unit economics, and why it’s worth pursuing. (2/X)

Saturday investing 🧵:

My first internship in finance was at an old school stock picking firm.

My mentor there explained to me (paraphrasing): “When you buy or sell a stock, you’re betting most of the market is wrong.”

(Yes, this’ll connect to private investing) 1/x A stock’s price is the midpoint between the lowest seller and the highest buyer — it’s literally the spot at which no one will transact. By choosing to buy, you’re reaching above the highest buyer to meet the lowest seller.

Everyone else thinks you overpaid or underpaid. 2/x

An advisory board member and my SO told me to carve out time on Mondays to set my weekly priorities.

Took me months to heed their advice, but wow what a productivity unlock. It’s easy to get distracted by a million little things - the priority list pulls me back to what matters. Combine with time on Fridays to 1) confirm you actually did what you said you’d do and 2) confirm if it was worth it / useful / etc.

As @RegZeller said recently — even a little time working on the biz every day/week can compound to awesome stuff over a few years.

Self-funded searchers who are raising money — consider using a HoldCo/OpCo structure in your set up.

You and all the investors are partners in HoldCo LLC (structured in Delaware or similar).

HoldCo LLC owns 100% of OpCo LLC, which is in the same state as your target biz. (1/X) Benefits:
- When you sell, there is just one signatory on sale docs (HoldCo LLC). Otherwise each investor would have to sign, logistics hassle. Also easier to receive funds to one spot, then distribute.
- OpCo is super clean, one owner, etc.

(2/X)

Quick re-intro thread after a random influx of new followers:

My background is middle market PE and distressed credit ($100-$250 million check sizes, >$1B but <$10B fund sizes).

After several years doing that, I decided to quit and buy a small business. My life as a professional investor provided core skills in terms of how I think about businesses, industries, people, and risk. I loved that job.

But, it became clear to me that our portco mgmt teams were the ones creating value. I needed to get out of "capital allocator role".

I’ve been waiting a long time to write this thread. I’ve officially closed on my acquisition of small business!

It’s a residential home services business (still debating how specific I plan to be online). It’s kind of surreal, but I’m a few days in and it’s starting to become more tangible (thanks to QuickBooks and AT&T being absolute nightmares to transition).

Been seeing a ton of SMB that saw 2-4x growth over the last 12 months. Looking to sell off that new baseline EBITDA.

Hard for a buyer because you worry about a reversion to pre-COVID levels.

Option A is to pass on those deals, but below is an Option B to price those deals: 👇 First, just to make the issue painfully obvious, let's look at implied multiples for a business that quadrupled EBITDA.

Let's say the business should trade for 4x EBITDA.

As you can see in the table below, 4x 2020 = 16x 2019, but 4x 2019 = 1x 2020; neither seems fair.

SMB acquirers are focused on maxing leverage (90% SBA debt) to minimize dilution from equity investors.

But if you're willing to take some dilution to de-risk the overall deal, I would recommend raising that extra equity as cash on the B/S, not an offset to debt. Math below. 1/ Let's say you're buying a biz for $5 million. The standard transaction is $4.5 million debt and $500K equity (90% debt / 10% equity).

That translates to annual debt payments of ~$600K as you can see below. 2/

THREAD: My current best PA idea with 8-10+ year horizon is Zillow Group $Z / $ZG in the $55 context

You own two value streams:
1) Core online marketplace - $30/share
2) $Z eating the RE transaction pie over time - $30/share from Homes + free option on other services

(1/x) Online Marketplace:
This is a 2-sided network at scale that is near-impossible to duplicate once established. Buyers and sellers are extremely fragmented and the existence of Zillow has meaningfully improved consumer lives.

Earn revenue from providing leads to RE agents. (2/x)