Go Do Deals

Key Principle: Business operators don’t make cash - business owners do. Operators often break even until a liquidity event, typically through selling the business.

Critical Focus Areas:

• Position yourself as a shareholder early
• Sell your company as soon as possible
• Focus on liquidity events
• Remember: Businesses fail from lack of cash, not lack of profits

Finding Deals

Target Success Rate: New investors hit roughly 1 in 20 deals. You need a constant stream of targets.

Avoid These Situations:

• Working with brokers (conflicting incentives)
• Competitive bid situations (wastes time, drives up price)
• Sellers with high expectations
• Sellers who’ve mentally checked out
• Already-bankrupt businesses (too late)

Best Ways to Source Deals:

1. Network actively - introduce yourself as a business investor
2. Work existing contacts
3. Listen for complaints about businesses/companies
4. Target businesses not officially for sale

Acquisition Targets

Tactical/Distressed/Bolt-on:

• $500K - $5M in revenue
• Avoid smaller (owner-centric or single-customer firms)

Strategic:

• $500K - $5M in profit
• Must have consistent profit history
• Should be debt-free
• Useful for entering new markets/territories

Deal Structure & Negotiation

Core Principles:

• Focus on motivation, not money
• Structure beats price - acquire without capital for pure upside
• Don’t rebrand acquired companies (expensive, risky, no upside)

Effective Deal Timeline:

1. Fact-finding call and rapport building
2. Strategic analysis
3. Face-to-face meeting at their office

Key Question to Ask: “If you could wave a magic wand that solved all your problems, what would that look like?”

Deal Components (Deal Pie)

1. Cash (including business’s current cash)
2. Deferral (payments over time)
3. Earn-out (linked to future performance)
4. Debt (borrowed money)
5. Shares (in company or holding company)
6. Creditors (debt-for-equity swaps)
7. Commissions (supplier kickbacks)
8. Merger ($1 distressed purchase + merger)
9. Private placement (for large solvent businesses)

Warning: Never use invoice financing to cash out previous owners - creates future cash flow problems.

Advanced Strategies

Buy-in-buy-out Method:

• Offer service for company equity
• Let owner buy you out after service completion

Agglomeration Strategy:

• Roll up multiple sector businesses
• List on public market
• Benefit: Public market valuations can be 10x greater