12x multiple and $17m mansion in Geneva

Just a quick note before we dive in…

Things are not going well??

Stick to it.

People just give up too soon.

What you do with your professional career starts showing some form of results in year 3, 4 or 5.

It's because you get better... and surprise, surprise, more experienced.

If you're lucky, it happens a little earlier (but very rarely!)

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When you look at the annual dividend list.

The top 25 people are all in their 50s, 60s and 70s.

• Real estate,

• shipping,

• finance

• chemical industry

• constructions

• logistics

• manufacturing.

95% of folks have been building in the same industries for decades.

There's a lesson here.

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I saw my finance teacher drink two beers before our class...

And then him getting BRUTALLY honest, sharing a lesson about why he COULD have run a $1b aum private equity fund and buy a $17m mansion…

But never did…

“Not having enough balls at the right time,” as he said.

So if you are thinking of taking the leap to become a GP at a private equity fund...

Or eventually start your own investment firm buying private $1M+ Ebitda businesses….

Here's a story that (I hope) will get you thinking.

That said...

1. Your time is running out… so go for something big.

As my finance professor said, he and his friend both had a six-figure finance job at a prestigious investment firm.

The next moment, his friend told him that he was going to start his own company...

My professor didn't have the guts to do that... but his friend did.

Wife and friends of this other guy: "You're crazy!! You have a good job!!! Don't leave!!"

He still did...

Today, 20+ years later, he's still in college and his friend runs a $1B aum PE firm with annual fees of ca 1.5-2 percent.

Both journeys are difficult with ups and downs.

One has a small regret (he told us!)

The other is the high of life (he told us this as well).

So…

Your time is running out.

Might as well go for something big.

That said, whether the goal is to one day become a GP at a private equity fund or start their own investment firm that acquires profitable companies – one has three or four shots at making a great investment or building a great company.

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Building a company and an investment firm comes down to two things.

1. Extreme action…

2. And then days, weeks, months and even years of waiting...

Being young and energetic makes the waiting part the hardest.

There are times when you can't do much and then you have to be careful simply not to touch things.

It's a skill I'm learning every day.

Yes, it is getting better, but there's still a long way to go.

- - - -

As an investor, capital allocator, make sure you don't fall in love with your investment thesis.

In two or three years, you may find evidence that your original thesis was wrong.

You have to be very objective about it:

Cut your losses as quickly as possible.

Easy to say, very hard to do.

When you see evidence that you were wrong; you must recognize it immediately and act accordingly.

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In the last 18 months, when sharing my journey, folks have gotten in touch to share their experiences.

Mainly about explaining to me why asset heavy companies are not good…

Some of these calls have quickly gone from 30 minutes to almost 3 hours.

After the meeting I said to myself: It's like seeing for the first time.

Forever grateful for them.

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A gentleman with a long career in private equity:

"If you start small, it is very hard to go big and if you start big, it is much easier to go small..."

- - - -

The older I get, the more I realize that the wealthiest folks in the business world are the ones who sell what people NEED, not what they WANT.

It’s not about solutions or technology or chemicals or lines of codes or artichokes. It’s about what people need and it’s about solving problems.

People buy 4 things and 4 things only. Ever. Those 4 things are time, money, sex, and approval/peace of mind. Everyone who tries selling something other than those 4 things…. end up failing.

Good old need to have vs. nice to have.

Take aspirin and vitamins. People always buy aspirin. They buy vitamins only occasionally and at unpredictable times. Wealthy people know they need to sell aspirin.

Unsuccessful ones keep buying into nice-to-have and the “if you build it, they’ll come” fairy tale…

While the wealthy folks ONLY sell stuff that customers absolutely NEED to have.

An example of a very successful company solving a very big problem:

Problem: Try to transport massive, heavy and complex equipment without packing it properly.

Very difficult or...  almost impossible.

That's all this company does: it specializes in packing goods and equipment.

Customers include ABB, Ericsson, Siemens and other conglomerates.

Those firms pay top dollar because this service company solves a huge problem for them.

Do you think ABB, Siemens, Ericsson would want to pay less – of course! But they can't because it's a service they MUST have in order to sell their products to customers worldwide.

The owner of the packaging company is sleeping like a baby. The demand will always be there.

On top of that, they are growing like crazy and making millions of dollars a year in net profit.

This week I gave another call to the owner to ask if he would be interested in discussing the sale of part of the business, "No way Mikk, would you sell the egg that lays the golden eggs??"

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Thanks to twitter I've been able to talk to 100's of private equity professionals, investors and serial acquirers, people who are doing very well financially…

And 2-3 things I took away from these conversations:

1. A true real excitement about investing and good deals

2. Love of the game. Regardless of their age, 99% of them want to do this until they die.

Of course, making a lot of money is somewhere on the list too, but still, you can't fake energy, excitement and curiosity.

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How has been the week in the small private equity world?

Consumer loan company

On Monday I was reading news that two of our VC-backed competitors are in a financial struggle…

Deep down we saw it coming...

• An office full of very expensive people (sorry, but who the hell is the head of happiness in the early years of a business?? While still being unprofitable)

• Quarterly parties, events…

• I've even heard that a private chef comes from time to time...

We decided to take the exact opposite approach…

• 100% bootstrapped

• Still a small team of 13 people instead of 35 to 40 people…

• We have paid below market wages, where I see they’ve paid themselves 2 and even 3x of that…

They’re still losing money but we turned profitable in January 2024

Parties and high salaries are all nice... but I’m afraid they forgot to keep the main thing... the main thing.

Our numbers in July 2024

347,374 € (worth of financed loans)

In July last year, we financed loans worth 218,697 €

Take care,

Mikk Markus / PrivatEquityGuy

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This week’s podcast:

You know, even when every 3rd and 4th person in finance dreams of starting their own private equity fund…

Only 0.01% give it a chance and far fewer succeed…

Here is my conversation with John Caple of Hidden Harbor Capital Partners who did all that.

• $260m fund I

• $465m fund II

• $800m fund III (just announced fundraising)

They invest in lower middle market industrial and business services companies, paying 4-8x EBITDA per deal, making them a true value shop.

“I don’t want to pay 5 times for 5 times business. I want to pay 5 times for a business that one day can trade for 8, 10, 12 times. Well, that’s what everyone wants to do… But how we do it is by buying founder and family owned businesses. We never buy from another private equity firm.”

As you can see, we had a blast. Enjoy!

Here are the links to Spotify, YouTube and Apple Podcast.

Thanks a lot for following the journey.