$8M netted $800M (yes, you read that correctly!)

Dear Friend, Company Builder, and Fellow Capital allocator,

A quick story before we jump in…

“You got to buy a ticket”

This is one of my all time favorite stories about entrepreneurs, business builders and high achievers - you have to create your own luck.

I read it 6-7 years ago and it still applies in everything I do.

This is from the late Sam Zell (real estate mogul):

“A story that I think is probably the most significant advice that I give young entrepreneurs. It’s the story about a Jewish man who lived in New York who started an appliance store in Brooklyn.

[He was] very successful, very observant.

He went to the synagogue every week, and life went on.

And then one day he went to the synagogue and after he finished his regular praying, he reached out to God and said 'God, I’ve never asked you for anything, I’ve always been traditional, I’ve always been observant, but I’ve really got a problem. And the problem is that the neighborhood is changing, the business is tanking, and God, I need to win the lottery.'

The next morning he gets up, checks the newspaper and he didn’t win. So the following Saturday he gets up, goes to the synagogue again and now business is worse. And he’s really getting worried again. He finishes regular prayers, reaches out to God again and says the whole bit: 'Business is worse, the creditors are calling every hour instead of once a week … I need to win the lottery, please. I’ve never asked you for anything.'

The next morning he gets up, looks at the newspaper… he didn’t win. So now it’s the third Saturday and now as he finishes his regular prayers he’s on his knees and he’s crying and [his business is] entering Chapter 11 proceedings. And he says 'God, I’ve got to win the lottery.' And at that point, from up high, comes a voice -- and it’s the voice of God — and He says 'Moishe, you’ve got to buy a ticket!'

I literally had an entrepreneur in here ten days ago and I told him this story. And I said: 'You've got to find a direction, you've got to find where you can excel. What’s your skill set, how do you react to things, and how do you identify an opinion, a view?' “

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I add here on thought: Decision Leverage

As an investor and business buyers your goal is to make a small number of correct decisions that will pay off for a long time. Partnering with exceptional operators is a sound way to do this.

“If you invest $1000 in a stock, all you can lose is $1,000, but you stand to gain $10,000 or even $50,000 over time if you are patient.” -Peter Lynch

“In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it's important to be bold. Big winners pay for so many experiments."-Jeff Bezos

Lastly…

‘You can’t win a game you aren’t playing’ -Ho Nam

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A lot of people want to own 100% of the business.

• “I don’t want to give away equity.”

• “I don’t want to share.”

• “I don’t want to be a partner with somebody – I want to do this on my own.”

But my question..

If you had a rockstar team and you gave away half your profits.

But they are amazing at what they did.

Could you do twice as much?

Could you do 5 times as much? Or 10 times as much?

Of course.

With the right people and the right systems to manage those people.

You could do 100 times more than you can do on your own.

—

So who cares if you give up equity?

Who cares if you give up 80% of your equity and you’re a 20% piece of a larger machine..

You’re still doing more and having a fun time doing it than if you were to do it on your own.

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A few investment reminders for you to remind yourself:

Risk is the function of price (Howard Mark is an amazing investment thinker.)

A great business can be a bad investment at the wrong price; and a horrible business can be a great investment at the right price.

Looking at 100s of companies…

Very often it seems like it’s an excellent business, and must be a great investment, well, it really depends on the price you paid.

The huge part of successful holdco builders is respecting the price they pay.

Yes, there are a lot of great companies, but they want 10x Ebitda.

You probably shouldn’t pay that, because you’re not here to make 10% a year.

Because if you do, that means you need to grow the heck out of it, and operate it way better than they did to make your returns.

MOST people should not have that confidence, and probably do not have the ability to do that.

Here’s much better idea:

Respect your price multiples and continue moving forward to chase those great deals.

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A sleepy industry that most investors didn't know existed.

So they decided to invest $8 million in the company which netted $800 million for their LPs.

It is a company called PageNet.

This is 100 times their money.

A comment from the folks who made it happen.

Here you can see the importance of analyzing the overall market first.

"When we looked into it, the industry made sense to us.

Industry revenue was growing 20% a year.

There was no dominant national player.

There were plenty of locally owned and operated, entrepreneurial companies that we could roll into one larger operation."

That done, they could share costs, distribute best practices, and have greater purchasing power - all the benefits of size in any marketplace."

The timing was so great that within 2.5 years they could have 60% of the market and they sort of started running the competition out of town.

“We quickly did seven acquisitions at PageNet, but then the prices got too high. People know we were buyers, so we decided to try start-ups. There was no reason to buy somebody for $10 million when you can start a company for $5 million, spend two or three years, and wind up with the same size company.”

Of course, you jump forward 10 years and the company got wiped out by cellular, but that was several years after they liquidated their position.

Cell phones pretty much killed the paging market.

Imagine being the buyer…

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This week’s podcast is very different:

I had a conversation with a gentleman who I believe is building one of the most interesting retail-funded private equity machines in America.

So far he and his team has done 20 acquisitions (while all deals oversubscribed); raised capital from 500+ investor network.

You'll learn (If you decide to listen):

• Why he fishes in second-tier cities

• Why he chose hundreds of retail investors instead of a fund, and so much more.

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