Dinner with the founders of KKR

An important note before we jump in…

Too many people playing small.

They’re playing not to lose.

Yourself as well.

But not the founders of KKR ($500B AUM); Henry Kravis & George Roberts, the tycoons of private equity.

Listen this:

They were also uncertain and insecure when entering into deals with which they had no prior experience. Size wise. Experience wise.

They did it anyway.

The difference between you, me and them? No matter how much uncertainty they had – they did it anyway.

Today, years later, this is the headquarters of KKR in NYC, not sure how many floors they have under contract but it is huge.

Lesson here:

“Everybody is just making it up as they go anyway.”

Take 95% of successful people and their interviews about their journeys, most of them said there were so many times of uncertainty:

• Lack of funding

• Blocked credit cards

• Bank account frozen

• Loss of key customers

• Lack of product market fit

• Multiple failed businesses

• Losing 90% of the revenue

• Betrayal from a business partner for six fig

• Exceptional deals failed on the last moment

No matter what happened.

They did it anyway.

And some even look very confident while doing it.

But deep down they too have many questions, fears and doubts.

If only you knew all this about these super successful folks.

Take a scenario where Mr. Kravis and Roberts invite you to dinner upstairs in their office.

Put a hand on your shoulder and say:

"You know Mikk, John, Steve, whatever your name is, I was insecure AF too, and I still very much am ahead of every very large transaction."

Knowing this: Would you still be playing small?

Would you be playing not to lose?

Probably not. So don't be the one who does. And if you’re still scared, and your head is full of doubts.

“Everybody is just making it up as they go anyway.”

An interesting add on:

from @GuptaRK22 on convo with Henry Kravis when leaving KKR for Instacart...

Henry Kravis played to win and would give up everything he won just for the chance to play again.

Taking the risk and going all-in is the reward. The journey is the prize.

This is a true masterful leadership mixed with entrepreneurial craziness, curiosity and courage.

Exactly as it should be.

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CURRENT SITUATION: You run a traditional niche business with $2.7M in revenue and $410K in EBITDA

DESIRED SITUATION: You have a board level desire to grow 50-200% annually.

The marketing playbook on how to do it.

First of all, no two companies are the same.

Take, for example, an agricultural maintenance company.

A very boring business with let's say a board level desire to grow 50-200% annually.

You start by getting to know the business:

1. Analyzing the current state,

2. Mapping out the biggest growth opportunities.

In the initial strategy phase, you’ll run workshops with the team to identify the business goals and get to know the best customers by interviewing them.

The outcome of this phase is the VERY first version of a documented growth marketing strategy that will guide the future collaboration going forward.

You can do this by acquiring and then applying following skills:

• Email workflows,

• A/B testing,

• chatbot playbooks,

• technical SEO,

• CRO,

• optimizing product pages,

• building & testing landing pages,

• defining buying journeys, etc.

Things a lot of traditional business owners never heard of.

When it comes to implementing it…

It's rocket science in the truest sense of the word.

This is the opportunity.

If you're serious about growth, get in touch and let us know how we can help.

• SME with 2-10M USD annual revenue

• Marketing budget around 20K $/mo

• Board level desire to grow 50%+ annually

Note: I'm an investor in the business as well as a happy customer

- - - -

While meeting with traditional business owners. There are many cases very their kids are on the meeting as well.

Kids I mean a 38- year old gentleman who works in a fathers’ company.

A very rare but very awesome thing to watch:

Family businesses where father and son work closely together.

I am sure there is a mother-son; father-daughter teams too, but most often I've seen a father-son team.

Again, what an awesome dynamic.

—

You’re stuck and have a question about something specific?

Find a person and go ask that question.

9 out of 10, it leads to a better outcome.

Because if you do everything yourself and if you don’t ask questions, and you don’t share information…

You tend to make costly mistakes (which could have been avoided).

Which then leads to you losing confidence, losing trust, and even losing the relationship.

My whole investment thesis is built in this way: talking with smart people on podcasts, reaching out to meetings on Twitter. Not leaving out IRL meetings.

With one purpose in mind: to get smarter in order to avoid costly mistakes.

I have found when you really need help and you have a very specific question. The busiest people will take the time to get back to you.

Conversations like this:

Talked to a gentleman who manages a $90M fund in Europe.

Most diligence comes down to this 2 questions/facts:

1. Where and what is the risk you’re buying

2. And are you comfortable with that risk

- - - -

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

Having another meeting with this company this week:

Terms:

Price (without real-estate): $4m to $4.5m (Inventory** + 3x free cash flow)

$1m payment on the day when signing the deal.

The rest will be financed by the seller over the next 5 years.

**Important note number 1: The inventory (purchase price; NOT market value) is valued at $3 million. He said he acquired so much because he didn't want to keep the money in the bank. On average, he needs $1-1.5 million worth of inventory to be prepared for the next 2-3 months.

That essentially means I can release about $1-1.5 million of cash from the business over the next year as I sell down the existing stock and don't replace it. That will give me a big cash cushion for debt service and seller's note repayment.

*Important note number 2: Management will remain and the owner will continue to run the business. One thing we will do, get much more aggressive on the selling side. They have been relying on old customers for a long time, it's time to improve that.

The $1m payment on the day when signing a deal – to get the down payment even lower, I will talk to the bank. Ideally targeting this to be $300-400k. I hope it’s doable.

Consumer loan company (modena.ee)

What’s new?

Few DD are going on with larger bonds tickets:

• One is interested investing $50,000 per month over the next 6 months.

• The other is a local fund, they’re interested in $1,000,000 investment.

From May 1 to 15. We issue bonds publicly. Come join us, even if it's $10,000 for a one-year commitment. We are now profitable!

Let me know if you'd like to read our investor presentation. More than happy to send it to you.

I recorded a 41 second video in our office: https://modena.ee/en/mod-investor-private (it is in Estonian, but I added subtitles) Also, I added a comparison table with other bond offers on the Estonian market.

- - - -

How to be happy and excited about your life in your 70s, 80s, 90s.

And not miserable like 95% of people…

The secret — become an investor and start your own PE or VC fund.

Whatt??

Yes, it’s a bold and a bit dumb statement but here me out (takes 2 minutes to read):

So… Investors and the founders of PE and VC firms are and will be the happiest 74-year-olds who ever lived.

And you choosing the wrong career today means your life from 65 to 90 is not as good as it could be. BIG ONE!

Btw and this is very softly said.

So why investors… VCs… PE fund managers will be much happier than average people in their 70s, 80s?

It’s because they can still work.

When the average person is tired, can't wait for retirement, or is already retired.

The VCs, investors and PE fund managers are at their peak.

They’re just getting started and are happy and excited AF.

Three reasons why:

1. What they do doesn't break bones.

2. It's 95% of their brain power/thinking and nothing else.

3. The older they get, the better they get because they have more experience. Remember that investing is mostly about research and decision making.

My grandmother, who will be 87 in October… is not running a PE fund.

Keeps telling me all the time that her friends are dead and she is lonely and bored. And she retired 27 years ago…

That being said, what if she would run her own private equity firm at age of 86?

Three things would be true:

1. She would be happy because she would still be working. (Remember, she's bored, so what else are you doing?)

2. She would be surrounded by young, energetic, talented people -- the absolute best thing that could happen to an old person.

3. She would be very good at it. (When you work at something for decades, you get good!) And when you're good at something, you want to play as long as possible.

Win - win - win! Right?

In conclusion,

Your future happiness depends on the decisions you make today – will you be happy or miserable...

Choose a career where it's all towards decision-making, brainpower and your experience in a specific field.

And something you can do for a very long time. (= decades)

And where you get better and better as you get older and grayer.

Thinking about the qualities and characteristics of a 10/10 investor:

• Decision-making

• Brainpower

• Experience

IMO being an investor and fund manager ticks all those boxes.

I hope this got you thinking.

- -

Written by 30-year-old Mikk, who made the decision 2 years ago (with all this in mind) to start his own PE fund.

- - - -

This weeks podcast:

One great acquisition can change the life of you and your children.

Forever.

As the smartest private market deal makers have said:

"The goal is to acquire $10 bills for $3 ... and again, that's only possible in the private markets."

My top 5 lessons on actively looking for exeptional $2-10 million revenue companies. (Pre-acquisition)

1. Being street smart will take you further than you can imagine. Cold calling. Being likable.

General soft skill, listening more than talking, asking great questions. Doing a follow up. Many don't want to do it, and most don’t know how to do it.

2. VC is sexy; but old-school folks who run a cogs and gears manufacturing biz in their 50s are much happier. They make money every single day. Days become weeks. Weeks become months and years.

95% of them are seriously happy with zero debt and not much stress. Time for a wife, time for kids, time for hobbies, time to travel. No Forbes but they could care less.

3. An hour-long meeting that will last 2-3 hours. Take time and listen. This is their life's work. Very rarely does anyone go there and appreciate the work they’ve done. It’s their baby. It’s the company they have built. Be that person who listens.

4. Without brokers, it takes years. Getting a person who does not want to sell their business to actually sell it, takes ages. You really have to enjoy the journey. If it's a great business, you play by their rules.

5. Soft-skills. Forget the Excel and EBITDA. They barely use CRM. Talk in plain language: "How much money did you make last year?"

That and 11 other lessons, hot takes on this week's podcast:

(Links to Spotify, Apple Podcast and YT can be found in the comment section below.)

Thanks a lot for following the journey.