First quarter profit $437M

A quick note before we jump in…

As an old man in the construction business told me:

The real magic of staying in one industry starts to happen 10+ years later.

So hang around.

- - - -

As an entrepreneur and investor, your time is VERY limited. You have 3 to 4 bullets in life (if lucky) in which industry you pursue.

And if you want your wife to love you and your children to want to spend time with you when you are old.

Choose wisely.

Lessons from Australia's wealthiest families, from the meetings and conversations we had (I was lucky to get them).

In April 2016, I decided to move to Australia to start a business. I was 23, single, with no debt and responsibilities, ready to explore the world.

On the flight from Singapore to Melbourne, I googled the biggest Aussie entrepreneurs:

• James Packer (CROWN Casino, market cap $8.8b),

• Mike Cannon-Brookes (Atlassian, $10b+ back then),

• Lindsay Fox (Fox trucking, $3b),

• Anthony Pratt (packaging & paper company, $11b)

Being curious to see where such people live.

(Deep down hoping to meet them.)

Landed in Melbourne, headed for a walk in the suburb of Toorak (Australia's Bel Air)...

Magic happened!

I didn't meet the Packers, Cannons and Foxes, but I did meet the Smorgons and Abercrombies.

Having multiple conversations with them…

It isn’t so much about which opportunity someone would pursue – could be finance, manufacturing, real estate, insurance – but much more about HOW LONG that person would stick with it.

It’s 2024, thinking back, I really started to understand what they had to say 4-5 years ago.

More importantly, act on it 3 years ago, at age 27.

Over the years, when talking with 100s of traditional business owners. Many of them make millions a year.

The reason they were able to “make it” is 95% of the time because they stuck to one thing or one business model for a LONG TIME.

1/ Whoever started selling ventilation systems at the end of 1990 – he’s still doing it.

2/ Who started furnishing cattle farms in the early 2000s, he’s still doing it.

3/ Those who started writing software 25 years ago are still doing it today.

What they started doing in their 20s and 30s, they are still doing in their 50s, 60s, and 70s.

Even if they weren't the smartest when they started, they did one very smart thing, they kept going.

They often don't know the latest trends when you talk to them – yes, they use Gmail and probably read the same news we do.

But when it comes to website conversion rates, upsells, downsells and cross-sells.

They don't know these sexy terms, they focus on the bigger picture while doing things on autopilot.

That being said, when it comes to their industry, they can see through walls. They know absolutely everything and everyone.

Plus, they've seen three or four market cycles and recessions.

The reason I am writing this is because many of you are not aware of all this – you constantly change companies, professions and even industries. And NOT allowing knowledge, expertise and luck to combine and really happen.

So if you've been in business for years and you're struggling and frustrated and you feel like it's gotten boring; no growth; instead I should do it; I should do this…

Take Jimmy.

Jimmy has been selling cooling systems for large warehouses for the past 28 years. There are hundreds of different parts and pieces in the product range.

Jimmy knows every detail by heart...

Not only that, Jimmy knows by heart the 12-digit code on the back of each product. Not because he studied it, but because he has seen and written down that 12-digit product code for so many times.

Looking back on my 20s. Time flies and life is short.

So… less jumping and switching.

And more commitment and focus.

In the end, you want to be like Jimmy.

It also reminds me of a quote from billionaire art collector Larry Gagosian

“If you love what you do, the only exit strategy is death.”

Which is often the case with most of the people mentioned in this post.

- - - -

There are levels to this game.

Spoke to an European private equity firm focused on niche online platform companies.

• Online marketplaces

• SaaS

• Consumer apps

Portfolio of 10+ companies (all majority ownership!!)

Smallest generates about $2-3M EBIT, while the largest generates almost $20M EBIT.

When asked what next?

"Our goal is $100M EBIT in 5 yrs."

Most importantly, run by people who are very easy going, happy, polite and have a great sense of humor.

- - - -

Too much reading but not enough learning and implementing.

90% of great investors and business builders read and listen to a lot of podcasts.

Both things are necessary if you want to become a great investor or business builder.

Unfortunately, that is very often their ONLY way to learn new frameworks, ideas and mental models.

Another problem: reading happens at the table or on a comfortable couch, or in the case of podcasts, while taking a daily walk or working out at the gym.

Again, this is fine and may not even be a problem… but I believe that learning can be done MUCH better.

How?

Before getting into it:

How do you even know you've learned anything?

Here it is, I found it a while ago:

“If your behavior hasn’t changed, you haven’t learned.” –Alix Pasquet

Learning is a behavioral change.

To achieve better returns on invested capital or higher EBITDA margins, you have to do something better than your competitors, don't you?

In order to do more and better, you need to know more than they do.

The solution is:

Find a balance between reading a book/listening to podcasts with real-life interaction....

Something very far from your desk or the comfort of your couch – such as meeting with entrepreneurs, having conversations with fellow investors, and people who actually DO stuff.

This is the proof I got yesterday:

I was talking to a gentleman who owns a portfolio of 20+ companies (100+ million in revenue) but doesn't run ANY of them.

When asked how you do it all and what your day looks like?

"I'm looking for new deals, new operators for future businesses and spend time with my children."

My lesson:

He can ONLY make this level of success and lifestyle attainable by being a great delegator.

Period.

As entrepreneurship is often a game of constantly breaking your beliefs, mental barriers…

One 15-minute conversation took my own belief about delegation from 5.5/10 all the way to 8.7/10…

Seriously!

Because before it was just reading and listening, but hearing it from him while looking into his eyes was as real as it gets.

To sum up:

When it comes to learning and implementing...

Find a balance between reading, listening to podcasts, talking to real folks who are doing it, all the way to you then APPLYING everything you just learned yourself.

This, in my opinion, is the BEST way to learn and the ONLY way to achieve the desired IRR, ROIC, or whatever metric is important to you, your investors, and your partners.

- - - -

Turning 5% IRR folks into absolute superstars, into 33% IRR folks.

The goal is to build an investment firm where if the average person came to work there, they’d be an outperformer in that field.

And when they leave, they will underperform again.

It’s about building this system where you can plug and play relatively average people and you have better outcomes.

- - - -

You'll make much better decisions knowing that you have a fallback position than worrying about next month's rent or an over expensive lifestyle.

Period.

That said, the first big money or bonus you earn shouldn’t go to improving your lifestyle, but to building your own personal safety net.

-

What I've seen working best when starting was having 6-9 months of salary sitting on an account which I pretty much have no access to.

- - - -

It happened again. Had a meeting with an investor.

At the end of the meeting:

Btw, how old are you? You look like my two sons.

I’m 31, how old are your sons?

20 😃 

- - - -

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

Traditional companies

Working with one acquisition, preparing documents and talking to the bank.

The deal size approximately $4,000,000

I hope I can give you an overview next week.

Consumer loan company

A little story about the local banks here in Estonia:

While MANY businesses are struggling and can barely pay their bills…

Private equity managers have always loved this one particular industry.

Banks — be they small or big. They can be very profitable.

It has been blooming lately, so good that:

These 5 companies together made a profit of over $437 million in the first quarter of 2024.

• Swedbank

• SEB

• Luminor

• LHV

• Coop

Last year, they earned $960 million in profit…

All that in a small market with only 1.3 million people.

Years ago they all started with one client, then another, today they have tens, some even 100 thousand clients.

The few people who got on board—and who never sold a stock—are doing very well.

Even if they own 2.31% of it all.

That said, I'm not saying that what we're building will ever be a bank, but one day, it could be… like many banks did, we started out with unsecured loans.

NEWS: We received an offer to sell the majority of the company to a larger player in Europe (half a year of negotiations, they did DD about the quality of portfolio, etc; around $5M deal with 3 years of earn-out) but we decided NOT to move forward.

Two reasons:

1. There is too much going on in growing our business and portfolio;

2. The payment terms were not motivating for some of our co-founders (all the risk was on us and we cannot be sure that the buyer will do an IPO or sell to private equity in 3-5 years)

That being said (again), if you are someone (or know someone) who understands the consumer lending industry and would be seriously interested in equity + debt investments.

Send me a message by replying to the same email.

I am a small shareholder myself, I’ve made an investment in the early days and today I am responsible for investor relations.

I know this company, people, customers inside and out – in great terms, there might be an opportunity to invest.

FYI on Wednesday we financed 18,000 € worth of loans:

Important note: I'm not interested in selling my shares – I'm here for the long game – but I know people who need some liquidity.

Again, let me know again if you or someone you know would like to discuss this.

Take care,

Mikk Markus / PrivatEquityGuy

- - - -

This week’s podcast:

I did my research on mindset in investing but found it didn't add enough value…as I don't want to waste your time, I deleted it.

Next week’s podcast is already recorded — the guest firmly believes that cash flow is king.

So much so that he even calls the following his 10 second MBA:

Few notes from the podcast:

1. Adjusted EBITDA <> EBITDA <> cash flow. Look for cash flow.

2. Look for rich owners.

3. Look for businesses that have survived multiple economic cycles.

4. Make sure you are not in a commodity business.

5.  Everything is negotiable. We have done 90% seller financing three times.

Full 61-minute episode will be out on Monday-Tuesday.

Thanks a lot for following the journey.