Ideas and Validation April 27, 2020

💰 Trends #0012 — Micro Private Equity

dru_riley

Been a fan of Andrew Wilkinson lately. If you follow Andrew or Tiny Capital. You might be interested.

Would love to know what you think. Especially ways to improve these reports. Thanks! 😆

🔍 Problem

Founders want to cash out.

💡 Solution

Micro Private Equity buys businesses valued at or under $5 million.

These are not sexy, venture scale startups. Some are technology-focused. But they tend to be simple, cash flow positive companies with stable growth.

🏁 Players

Micro Private Equity Funds

Companies

Marketplaces

🔮 Predictions

☁️ Opportunities

  • Build a playbook to boost returns:
    • Raise revenue by raising prices
    • Raise revenue with conversion rate optimization
    • Raise revenue by negotiating better affiliate commissions
    • Lower customer acquisition costs by improving SEO
    • Lower costs with tax efficient business structures
    • Lower costs with tax credits
    • Lower costs with a remote team
    • Lower costs by automating workflows
  • Attract investment opportunities with content and events. Look at:
  • Make offers on abandoned projects found on the Chrome Web Store, Shopify App Store and Product Hunt. Which projects have not been updated?
  • Build a playbook around similar assets:
  • Buy businesses with similar customers, cross-sell and lower customer acquisition costs.
  • Invest across platforms and verticals. Amazon recently slashed affiliate commissions. Coronavirus took out many travel-related businesses. Concentrating on one platform or vertical carries a lot of risk.
  • Niche horizontally. Focus on a business characteristic instead of a vertical. Consider B2B SaaS, B2C SaaS or digital assets.
  • Start low and stair step up in deal size. Sure... Small deals have relatively high transaction costs. But fuck ups carry less risk at this level. Move up to bigger acquisitions as you learn.

😠 Haters

"You didn't include Tiny."
Andrew distinguishes between Tiny and PE. I won't contradict that.

"You didn't include SureSwitft Captial."
Kevin said that he doesn't like the term. Refer to Tiny. 👆

"Sometimes Micro PE buys majority stakes. Not whole companies."
Nuance. That's the purpose of this section.

"Is this investment advice?"
No.

🔗 Links

  1. Vroom Vroom Vroom & Mudbrick Capital — Mike Boyd is a great storyteller. Find out how he got started and why he loves digital assets.
  2. Buying cash-flowing internet companies, starting job boards and building no code projects — This was Andrew's first podcast interview in a while. Find out why he's bullish on no-code and podcast memberships.
  3. Billionaire Stephen Schwarzman on Private Equity, His Life and Blackstone — Stephen shares childhood stories and how he built Blackstone.
  4. Q&A with Andrew Wilkinson, Co-founder of Tiny — Andrew Wilkinson came back for an AMA. He fills in the gaps that weren't covered in the interview.
  5. The Snag of Selling to Private Equity — Find out how Sherry Deutschmann built a $40 million dollar company and why she insisted on profit-sharing.
  6. Trends #0005 — Bootstrap Funds — Micro PE and Bootstrap Funds have similar investment criteria. Bootstrap Funds invest earlier, founders sell minority stakes and stay onboard.
  7. The Berkshire of Software — This is a wide-ranging interview. Savneet and Patrick cover Spanish real estate, software sales, gold, crypto and a lot more.
  8. How a Passion for Craft Spirits Turned into a Six-Figures-a-Month Subscription Box Startup — Mack McConnell shares how he built Taster's Club and why he sold to SureSwift Capital.

You can also check out other trends 🙂

Thanks for checking it out!

  • Any thoughts?
  • What did you like?
  • How can this be improved?
  1. 4

    Great job, Dru. Easily the best 2 min education on Micro PE out there on the Internet. Thanks for showing the key distinction between venture scale and Micro PE. I'll remember that for a long time!

    1. 2

      Thanks for checking it out KP!

      And I think the distinction matters. Wrong model applied to wrong business. Won't work. Would love to dedicate a post it.

  2. 3

    Thanks, I follow Andrew on Twitter so this was a great introduction. I look forward to a post on expert formatting of Indie Hacker posts! ;)

    1. 1

      Thanks for checking it out Robin!

      For formatting tips (Check out the exchange between Courtland and I 👇)

      https://www.indiehackers.com/post/trends-0010-startup-studios-8723273bd6

  3. 2

    Buy businesses with similar customers, cross-sell and lower customer acquisition costs.

    love this

    1. 1

      Nice. Thanks for checking it out Kacper!

  4. 2

    I think your posts are my favorite posts on IH. So much great information, resources, and references. Your newsletter is one that I'm genuinely excited to read when it arrives.

    Keep up the awesome work!

    1. 1

      Thanks so much Dan! 🙏 I'll keep em coming