Take Five #144: How to compare self-funded vs. PE deals using the Step-Up concept, and more
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Take Five #144: How to compare self-funded vs. PE deals using the Step-Up concept, and more
1. “The Hidden Power of Being Boring”
Pick your boring basics and get good at them. And then build systems that make showing up automatic:
If you're building an audience — Write for 30 minutes every morning before opening any browsers. Create five content pieces per week by creating a topical calendar. Schedule all your posts every Sunday for the week ahead.
If you're selling products — Block an hour at the same time every week for customer interviews. Create a standard feedback form after every sale. Review customer insights on the first day of every month.
If you're growing a service business — Create delivery checklists for every service tier. Set up automated follow-ups at 7, 30, and 90 days. Ask for referrals after every 5-star review using a templated outreach system.
The key isn't just doing these boring things, but also removing every possible barrier that might prevent you from doing them.
Read Justin Welsh’s post here.
2. Sellers are the customers in the search business
3. How to compare self-funded vs. PE deals using the Step-Up concept
Here’s our hypothetical scenario. You have $400k and two investment opportunities:
Deal A is self-funded search deal buying a company with $1mm of EBITDA for $4mm. The searcher is raising $400k of equity and offering 20% ownership in the company.
Deal B is a private equity deal buying an identical company ($1mm EBITDA, $4mm purchase price). The sponsor is raising $2mm of equity and charging 20% carry.
Assuming both companies perform identical (same financial performance, exit price, etc.), in which scenario are you better off as the investor?
Let’s start out by comparing the equity ownership your $400k investment gets you in each scenario. Deal A is obvious. Your $400k gets you 20% ownership in the company. For Deal B, the investors technically own 100% of the company, but since the sponsor is getting 20% carry, they really own 80% of the economics of the equity. Your $400k is 20% of the total equity investment of $2mm, so your ownership is 16% (20% of 80%).So despite the self-funded searcher receiving 80% carry and the private equity fund receiving 20% carry, the investors get more equity ownership for their $400k investment (10% of purchase price) in the self-funded deal. That’s exactly what the Step Up concept helps illustrate.
Read the rest of Buy Small Sell High’s post here.
4. What happens when a buyer brings investors into an acquisition
5. Podcast Interview: One acquirer’s ETA path, from US World Class Athlete to Afghanistan to ownership
Rick Ruback:
So, it's interesting. I think there's a similarity between the pursuit of high-end athletics and entrepreneurship, that there's a sense of being all-in, of focus. What do you think?
Nick Vandam:
Yes, absolutely. That is why I pursued ETA, because I found I do best when I'm all in. I want to be all in, I want to live, eat, breathe my company and pursue it like I did sport. I didn't find any fulfillment in really just being told what to do in the military, to even financial services, where I ended up after, to corporate America – it wasn't me. And Rick, to your point, there's a very tangible outcome, just like sport.
Listen to Think Big, Buy Small’s podcast episode here.
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