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ūüíį Micro Private Equity

Why it matters

You can make more money. You can't make more time.

Problem

Starting a business from scratch takes time.

Solution

Buy a business. Fast-forward to product-market fit. Then scale.

Players

Micro Private Equity Funds

Marketplaces

Brokers

Predictions

  • Financing options¬†will increase. Online businesses are becoming more understood. 3rd-party tools such as¬†Stripe,¬†Google Analytics¬†and¬†Jungle Scout¬†bring transparency and trust to transactions.
  • Multiples¬†will increase. Transparency reduces risk. Online businesses are becoming easier to value, model and finance. Premiums earned from navigating uncertainty are fading. Technological progress will remain. Even as¬†credit dries up.
  • Deal¬†velocity¬†will increase. Especially for platform players like¬†FBA¬†and¬†Shopify stores. Operations are standardized and 3rd-party tools help buyers trust by proxy.

Opportunities

Key lessons

  • Buy instead of building to save time.¬†Practice¬†acquisition entrepreneurship.
  • Start small¬†and level up. Prioritize learning over earning at first. Avoid the risk of ruin.
  • Know your¬†risks:
    • Competitor Risk -¬†How much competition do you have?
    • Execution Risk -¬†*How hard is it to operate this business?¬†*
    • Platform Risk -¬†How easy is it for a platform to harm your company?
    • Key-Person Risk -¬†How much does the business depend on one person?
    • Market Risk -¬†Does the business have revenue?¬†Or are you buying distribution?
    • Customer Concentration Risk -¬†Are a few customers responsible for most of your revenue?

Haters

"Multiples are only high because credit is widely available."\
Credit ebbs and flows. Transparency and friction reduction from technological progress is here to stay. This lowers risk and returns.

"More sellers will enter the market. Lowering multiples."\
The skillset to go 0 to 1 is scarcer than capital. More sellers will enter the market. This will not keep pace with capital.

"Multiples are not increasing. Prices are becoming more accurate."\
Both can be true. Accurate prices can mean higher prices. In fact, that's what's happening. Inefficiencies are evaporating. All arbitrages eventually fade.

Links

Related reports

Thanks to David Horne (Calm Capital), Ross Kinkade (Trash Panda Capital),Stefan Von Imhof (Alternative Assets), Rick Segal (CRAAG Angel Group), Nile Frater (Concrete Capital),  Natwar Maheshwari  (Engineering Brew), Mushfiq Sarker (The Website Flipping Newsletter), Jeremy Abraham (Spiffy), Ray Deck (Sustained Ventures), Lu Doan (OSBundle), Abhishek Verma (Samkhya) and Thomas Smale (FE International). We had a great time jamming on this report.

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  1. 1

    Dido on the great post. Question, how do you browse Product Hunt for popular, inactive projects? I am super interested in this.

  2. 1

    Great post!

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