Podcast 40: My Private Equity Rolodex

In this episode, Drew shares his favorite resources and private equity investment contacts.

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Highlights

  • A few names to file away and pull-out when you’re looking to sell

Links / Resources

Transcript

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Hey, everybody. It’s Drew Sanocki with the Nerd Marketing Podcast. We are talking about buying and selling businesses in this short web series if you will. This one, this episode, is the final one. Here I kind of want to open up my contacts to you and walk you through some people who are doing some interesting buying of businesses like yours, so these are … Just file it away. If you hope to sell someday, these are some of the people who may be interested in buying your business, whether you run a SaaS company or a direct-to-consumer brand.

I’m going to give you some resources here, and also just want to make it clear that it’s not what you know; it’s who you know. Part of fetching a good valuation and being able to sell your business or raise money for your business is knowing the kind of people who would love to own your business, right? Because these buyers, these funds come in a million different flavors. What we want to focus on here is not Robert Smith and Vista Capital. He’s going for the billion-dollar SaaS companies. I want to talk about people who are playing in our space, direct-to-consumer and for smaller companies.

First up is a friend of mine over in Brooklyn. His name’s Brian Colton. He runs Brooklyn Equities. Brooklyn Equities is his vehicle for buying just solid, good direct-to-consumer brands. He owns one called Sherrill Tree that I want to say he bought back when it was doing about $1 million in revenue and is now at $40 million in revenue. I mean, he’s just had a couple big success stories. Those numbers, don’t quote me on them. I’m just trying to give you a sense of what he buys. His typical checks are typically $5 to $15 million, so he writes checks that size in return for which he wants majority ownership of the company. He’ll take a board seat. He’s targeting growth-ready companies that are doing under $5 million in EBITDA.

I would also say I’ve seen him go after companies that are high in recurring revenue, often from B2B, so it could be an e-commerce company with a strong B2B play. I mentioned Sherrill Tree, so they do arborist equipment, so again, lots of B2B buyers, which means high recurring revenue, which means lower risk in the business as I went over a couple of episodes ago. So, his name’s Brian. He’s at brooklyn-equity.com. I am an operating partner with him on his funds, so feel free to reach out to me with any questions about Brooklyn Equities.

Number two would be Carson Biederman at Digital Fuel Capital. Carson’s up in Boston, another friend of mine. Great photographer and great … just really sharp digital marketing mind. Again, probably goes after deals of the same size. I would say Carson a little bit more likes companies with passionate customers where content can play really well. He’s got ski.com. He’s got a couple sports apparel companies where there’s a passionate user base. He sees that as a differentiator versus Amazon. He also owns Vermont Teddy Bear, which is a brand a lot of us are familiar with. I’ve certainly heard of them, growing up in the Northeast. Carson’s operation is a little bit different at Digital Fuel Capital because he is growing an internal team of operators and marketers, the idea being that he can get synergies among his portfolio if he buys a company and does a lot of the marketing for them. So, he’s at digitalfuelcapital.com. Reach out any time about Carson. Again, I consider him a really close colleague.

Let’s move on to another pick. Tom Clark at Convest. Tom and I have been working together for … I want to say five or six years. I’m an operating partner at Convest. I worked with them on a couple different deals. That’s where Karmaloop came from. Tom runs a bigger fund, so his check size is larger, so say like $50 million and up. Convest likes to write checks of that size. In return, they buy the company. His investment thesis is kind of interesting. He feels that bigger family-run businesses are often inefficient, especially on the digital side because they’ve got cousin Joe running accounting and cousin Steve is running operations and cousin Susie is running marketing, and it’s not always the most efficient use of human capital, right? He likes those businesses. They’re often offline businesses with an under-optimized online element. I worked with him on the Discount Mugs deal, so they ended up buying out discountmugs.com. That’s been a big success story for them. Robbinsbrothers.com is another one, Old Time Pottery, all brands that I’ve worked on. So, just another flavor of private equity investor. Obviously very different from Carson, very different from Brian.

To sort of paint a picture for you, Brian operates out of a coffee shop in Brooklyn and he does not have a fund, so when Brian needs money for a deal, he raises money from any number of passive investors he has. He has no problem raising those kinds of checks, whereas Tom and Convest is located in an apartment building … Sorry, “an apartment building.” In an office building in West Palm Beach. They have raised formal funds, so they’ve got X billion dollars under management. They don’t need to raise money deal-by-deal. They already got it in the fund. Just two data points as far as what these people could look like.

Another one I’ve worked with quite a bit, I was a venture partner with his fund for about a year, is Dominic Ang at Turn/River Capital in the Bay Area. Dom is one of the smartest guys I know. His focus is on SaaS. I’ve watched as Dom has started with … I think he started out with $50 thousand acquisitions, so kind of piecing things together, maybe not off a flip-up, but close to it. Today he’s on his third fund. This one, I want to say, is $150 million he raised. His deal size has gone way up. He writes $50, $70 million checks. He’s mostly interested in SaaS, so software companies. He is very bullish on high-velocity sales teams. His thesis is a lot of these SaaS companies are under-optimized on the sales side. He will acquire them, get the sales team cracking, get revenue up, and often re-merchandise them and sell them at a higher valuation to the big plays in the Bay Area. I worked with him on this company Sucuri, which is a WordPress virus security system software. We optimized that company and Turn/River sold that to GoDaddy, BookFresh to Square, and he’s had a number … He’s been very successful.

Again, you got to know what these people do because you wouldn’t pitch a direct-to-consumer retail brand to Dominic because he’s only interested in SaaS and only of a certain size. Conversely, you probably wouldn’t go to Brian Colton with a SaaS company, so this is the kind of homework you got to do before you think about raising money or trying to sell your business. You want to make sure you bring the right buyer to the table.

Let’s see. Who else? We’ve got Kingswood Partners. I bought AutoAnything through Kingswood Partners, or with Kingswood … on behalf of Kingswood Partners, more accurately. Kingswood is a couple people in Los Angeles. They are former Cerberus guys. They are very value-focused, so just like a value in a growth stock, if you think of that, Kingswood focuses on value plays. They like to get a great price on an asset. The dream deal for Cerberus … or, sorry, for Kingswood, would be finding the company that has more cash in inventory than the deal price. That happens. Maybe it even happens on the public markets that are … There are companies trading for below the amount of cash they have in the bank. That’s the dream value deal. Value investing is great investing. It’s boring investing because it’s the opposite of venture capital, you know? They’re not buying social networks. They’re just buying kind of these beaten down companies that have a very low valuation. The AutoAnything deal is sort of indicative because this was a divestiture. AutoZone wanted to get rid of this asset or divest itself of this asset. If you’re in the right place at the right time, you can get a good price, so that’s Kingswood.

Then I would mention me as a private equity investor you might want to know. Obviously those listening to this list know that I’ve done a couple deals myself. I do not have a formal fund. I am probably more what if you want to get into the game yourself, what you might want to model because for me it’s about if I find the right deal, I can try to raise capital for that deal. I deem that to be a lot less onerous than raising a fund. Raising a fund is hard and there are a lot of legal requirements around it, so it’s not something I’m as interested in. For me, it’s much more opportunistic and I want to support my lifestyle, but if I find the right brand I’m excited about, I’m not averse to owning it or trying to buy that asset.

Those are a couple of names you might want to know. I’m throwing myself out there. I am by no means the veteran private equity investor as those I’ve named in this podcast, but if you want to run a deal by me or have something that looks interesting, hey, I’m all ears. I’d love to take a look at it, so reach out any time, [email protected].

Those are some names of people who sort of play in direct-to-consumer. I think next I would like to just give you some resources. The first resource, I met this guy Chris Yates maybe six months ago. He runs Rhodium Weekend, and it’s kind of like this mastermind community around buying and selling businesses. He’s just a really nice, honest, good guy. I spent some time talking to him. I haven’t been to his event, but he’s got an online community and it’s a bunch of people sort of swapping stories about buying and selling companies. You might want to just check out Rhodium Weekend. I’ll put a link in the show notes to it. Chris Yates is the name of the guy who runs it. If you’re thinking about getting into the game, the game of buying and selling companies, Rhodium Weekend would be a nice thing to check out.

Empire Flippers. Justin Cooke. I’ve also known Justin for a number of years. He originally started flipping AdWords sites and I think he’s moved on to bigger things, bigger businesses. He runs Empire Flippers. I think it’s at empireflippers.com, but again, another resource. Both Chris and Justin, they’re just examples of where you can start today without a lot of personal capital. I mean, you’re not going to be putting together $10 million deals or $100 million deals, but how about a $1,000 deal or $5,000 deal? There are companies you can buy for that. Both Chris and Justin would know a lot more about that. Great resources.

You know, the brokerage sites are really good. I’ve been enjoying the Quiet Light Brokerage Podcast. Quiet Light does a lot of e-commerce work. In particular, their episodes two and eight, as I bring up the show notes for two and eight, in both episodes they highlight individuals who are building their own little private equity empire of, say, starting with five-figure businesses, moving up to like seven-figure businesses. They’re chipping away at it. They’re doing it one-by-one. They’re using the cash flow for their initial purchases to fund latter purchases. I just love the model. It takes some cojones, but I think once you get your head around it, it’s a great way to lever up your time and effort.

I encourage you to check out their episodes two and eight. One is called “How to Buy Multiple Businesses – Without Going Insane,” and Quiet Light talks to this entrepreneur Shakil Prasla, who has just bought one business after the next. In four years, I think he’s got eight companies, all self-financed, so really impressive, what he’s done. The other episode is called “Building a Portfolio of SaaS Businesses … The Right Way.” There they talk to a guy named Kevin, who started out with a $300 content site selling tattoos. He’s just moved on from there to own a portfolio of SaaS. It can be done. It can be done at all levels. You don’t need access to some of the people I discussed in this podcast to get started.

Just to kind of wrap up these few episodes on private equity, I started out by telling a story about how I sold my first business. It kind of convinced me that buying and selling businesses is where you accumulate the most wealth as an entrepreneur, at least for the kind of entrepreneurship I play in. As I’ve gotten more senior/older in my career, I’m in my mid-forties now, this is entrepreneurship in my forties and fifties. I have a family. I no longer want to work seven days a week, cranking on fixing a Facebook ad or trying to get my site back up. I could do that, but I feel like this is just a much … provides a much better lifestyle. If you buy an asset that has cash flow and customers, you can make the decision proactively when you want to work on that and when you want to kind of let it sit for a while and maybe move on to purchase the next one. It’s just a nice play for the next couple years. I encourage you to consider it.

I hope I’ve give you a nice overview of what goes into that process, how you might get started, how you might increase your valuation in these last few podcasts. You can find out more and listen to the whole webisode series at nerdmarketing.com/privateequity. Give it a listen. I’ve enjoyed kind of doing this overview. Where are we going to go from here? I’d like to get back into marketing and start drilling down on some of the things we’re doing at AutoAnything to increase profitability there. That’s to come, but for now I hope you’ve enjoyed this detour into the world of private equity. As always, leave any comments and I’d love to hear from you as far as any questions you might have or help you out in any way. My name’s Drew Sanocki. This is the Nerd Marketing Podcast. Thanks for listening.