FAANG, 8x return and getting lucky

A quick note before we dive in…

You can't fake curiosity and passion.

Be it building a portfolio of cash flow traditional businesses.

Or getting into venture capital or running a B2B enterprise software company.

You're competing against folks who live and breathe the craft, and if you're not… very difficult.

And even if you get lucky and achieve it, you will still not be where you wanted to be.

So the goal is to have a deep personal interest.

If you like doing what you’re doing you gotta put more effort into this as it’s not going to feel like work; it’s gonna feel like fun.

This should be YOUR personal passion and not your parents or friends.

It’s gotta be something you’re doing on your own.

And if you only run towards status and compensation but you don’t enjoy the thing…

You’re gonna burn out eventually.

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The work starts before the fund-raising

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Crazy how many business buyers would achieve higher returns if they 1) talked to more business owners and brokers; 2) be more selective about the deals they pursue; 3) play a longer game.

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Imagine this:

You're in your early 30s

$220k in your savings account…

With all the time and energy in the world.

What career to pursue?

Investing in profitable $5-25M businesses might be the way to go.

Yes, good money and prestige are one thing.

At least for 90% of the folks...

However, I look at it from a completely different view.

Which I believe are EVEN BETTER reasons than money:

1. This game can be played till old age

2. You'll never be lonely (which is probably the worst thing that can happen when getting old); as you're always surrounded by young & energetic people

3. The longer you play, the better you get (usually)

Lastly, make sure you rely heavily on your strengths and curiosity (otherwise very hard to get good at it).

And, be very patient as good deals are rare.

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Had a long  2 hour walk so I listened to Jeremy Giffon and Invest like the best; he said Peter Thiel has a great line about how the trade of the 2010s was just buying FAANG.

FAANG (the five most popular and best-performing American technology companies)

And if you wanted to be the best-performing hedge fund manager in the world, you just hold FAANG, and that's it, something like an 8x return over that period. But no one did that because it's boring and you don't get paid for that.

Is FAANG still a thing when it comes to those wild returns?

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Most of the $1.5-4mm EBITDA traditional businesses I've met have this one thing in common:

They've funded almost all of the expansion through reinvested earnings, with around 70-90% of the cash from operations going directly back into the company (inventory, machinery and in many cases also real estate).

In around 10+ years they have created a large amount of wealth.

Typical example:

Year 2014: Very small company with 3-5 employees

10 years of reinvesting cash flow while using conservative amounts of debt…

Year 2024: Sub $3mm EBITDA company; finally thinking about exit.

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There's a very traditional business that grew its equity from $2.8M to $20.4M in 10 years (21.99% per year)...not including dividends paid during that time.

It all started a little more than 10 years ago with the founder traveling to Norway to buy his first used truck.

All he had was a bit of savings, a pack of crackers, water and two cans of tuna.

You, me, we can all do it!

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Last week I asked for the best private equity/M&A and deal making books.

Can't get much better than this:

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Funny thing when cold calling to >$1-3mm EBITDA companies…

Writing this while looking at the list I'm going to call and introduce myself this week.

The more you do it, the better you get.

You never know if the next call will be a potential seller, or investor…

Or opens up the door to something completely new.

Smartest thing one can do is to stay in the game.

If you are in the game, luck may find you. When you quit, it's over.

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How has been the week in the small holding company world?

Traditional business

Additional information about the deal I’m pursuing:

The $12mm heavy equipment seller and rental company I’ve talked about – a month ago another buyer joined the conversation, but they said this guy is 20-25 years older than me.

They don't like it, although he is willing to pay more and with better terms (mostly cash compared to my complex structure of A and B shares and property sale leasebacks).

I received more information last week. We sent them a more detailed offer and they sent me a few questions regarding the taxes. I decided to hire a tax attorney and hope to get these questions answered this week.

I will share an update next week.

Fintech/Consumer loan company

We secured 10 million euros of debt-financing for the next two years from a Lithuanian credit fund.

We are trying to raise 600,000 to 1M euros as an equity investment.

UPDATE: I have a commitment for 500,000 euros.

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This week’s podcast:

Today’s story is a huge reminder to not cancel out the troubled kid or the teen who doesn't have it all together.

Here's Dustin's down-to-earth success story acquiring 4 companies and building a $20m one-man holdco.

Drama, obstacles, grit and persistence – we covered it all.

I hope you enjoy!

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

That’s all for today.

Thanks for reading and talk to you again next week.

Take care,

PrivateEquityGuy / Mikk Markus