$300k turned into $54m (180x gross MOIC)

Dear Friend, Company Builder, and Fellow Capital allocator,

Enjoying your work is a huge competitive advantage.

It is hard to grind your way to greatness.

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I was reading/studying about value creation from the 0.1% private equity firms.

It's interesting because the best ones - the ones which keep being significantly oversubscribed even in these market conditions - are operator-led, run by 2-3 GPs, all with a little investment banking but VERY strong operator experience.

And investors love it (read: always oversubscribed).

Size wise, they write up to $75mm equity checks.

There have been so many, but here are a few things I learned about what they do in terms of value creation:

They bootstrapped the purchase of an $80 million corporate carve-out and generated a $54 million gain on a $300 thousand investment for a 180x Gross MOIC.

To discuss how they did all that, I decided to invite him to the pod.

He just confirmed. We try to record in early January.

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An European PE firm acquired an SMB.

They wanted the founder to still work as the CEO and couldn't understand why he wasn't happy with a 60k salary (after making an 8 figure exit).

True story.

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Reading the About Us page of an investment firm.

It has a singular idea. I will sum it up:

They’re having a people-first investment approach ONLY because people are stable compared to markets, the economy, and often even business models.

And that exceptional people pull rabbits out of their hats.

And that long-term returns are driven by capital allocation. People allocate the capital.

The one idea?

People, people, people.

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- “…what Teledyne makes or sells is less important than the style of the man who runs it.” -Forbes on Henry Singleton

- Candor; Escaped the Institutional Imperative

- Often times… a little strange 

- Track record of business building.

- Extreme ambition + can pivot

- Clear, dispassionate thinking and communication

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If you believe the business will double over the next 5-7 years… selling 100% is often the real “leaving money on the table.”

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Smart to be “long-term greedy”.

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The older I get, the more I realize that the wealthiest folks in the business 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. 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, s3x, 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 successful company solving a very big problem for a very specific type of companies:

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

Very difficult or... impossible.

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

Customers include ABB, Siemens, Ericsson and other conglomerates.

Those firms need to 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 and then transport 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 still growing and making millions of dollars a year in net profit.

Each time I call 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 goose that lays the golden eggs?"

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Recently, I have been reading and studying the concept that there is no path in life (in the world of investing and acquiring companies, or working for a firm).

Before going down the route of:

1. Analyst

2. Associate

3. Vice President

4. Managing Director

5. Private equity job

6. Retire rich

Ask yourself:

• “Do I enjoy this?”

• “Am I actually good at this?”

• “Do I want this lifestyle?”

• “Is this even my game?”

Or what can happen, based on what a co-founder of a $12B PE fund has seen...

By age 35, many people were:

• burned out

• depressed

• divorced

• disillusioned

• resentful

• financially successful but emotionally bankrupt

That said… as said, I decided to do a research on a topic:

How Elite Investors Actually Build Their Lives, Careers, and Companies (Hint, again: There Is No Path)

Don't take it from me though...

But from the co-founder of Chase Capital Partners... a private equity platform inside JPMorgan that controlled over $12B and backed 6,000+ entrepreneurs across multiple continents, industries, and cycles.

And after four decades of watching winners and losers at scale, he concluded...

Here you can listen the whole thing:

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

That’s all for today.

Thanks a lot for reading and I’ll talk to you again next week.

Take care,

PrivateEquityGuy / Mikk Markus