Hi #SMBtwitter. Long time reader, first time poster. We just bought a small business after a 5 months search and here is every tool or service we used along the way. Special shoutout to @guessworkinvest @girdley @steveressler and @NickHaschka

Probably just me and I should get off Twitter for a while, but people posting revenue numbers (especially for roll-ups) is getting super annoying. All it does is incentivize to chase top line to try to keep up. There should be a requirement to post organic EBITDA growth if you want to put a revenue number in a tweet. Oh you took revenue to $50mm but organic EBITDA is flat? Congrats, close to 0 equity value created. I want to hear more from people that were able to organically grow EBITDA by $2-10mm. That’s actual success.

Maybe the pricing model changes. I don't think the price will as much. Great example, executives hiring McKinsey to cover their ass on big decisions. You can have ChatGPT analyze the data and give you the same conclusion easily, but when it comes to high profile decisions service providers are the equivalent of insurance. I got a great example for legal. I used Gemini and co extensively to figure out whether LLC as a C-Corp was eligible for QSBS and once I was 95% sure paid a law firm a couple grand which sent the election form exactly how I thought it should be filled out. A good lawyer is insurance against tail risk for high impact decisions. It's not about the actual agreement. Unless you're actually going to let ChatGPT negotiate your purchase agreements, the value of the output of the law firm hasn't changed and so likely the price won't either. Today, that value might be spread over hours and different projects because it feels more palatable to pay $1,000 an hour than just at flat $100k to get the purchase agreement right.

@CycleHeavy @CTW_SMB Thanks. I'll DM you.

@SMBFinancingGuy @CTW_SMB They have expensive taste. Don't need PWC to charge me $200k to confirm our numbers are right. To be clear, there is 100% value in 3rd party verification of financials, especially when the operator isn't the main owner. This is a different situation.

Have you paid $100k for an audit out of your pocket for a firm you spend all your time working in when you have a 3rd party accounting firm and review all transactions every month? If so you need better accountants. Audits are for lenders and investors when to double check the financials are right. I’m 100% certain ours are, so this is check the box for our lender.

@patrickdichter @CTW_SMB Thank you 🙏

@Del_Griffith0 @CTW_SMB Would love to, but unfortunately don’t think the lender would approve.

@CTW_SMB Appreciate it!!

@thomasince @CTW_SMB Awesome. Thanks

Love your detailed analysis of how it’s a better business than it was before. Oh that’s right, it’s just Elon rich - must be good at all business. Plenty of the investors in the deal did it to get access to other deals he does. You give him X for the Twitter deal so you can get a 10X allocation in the next thing he does you really believe in (happened to be XAI). It’s literally a fact that without the transfer payment the EBITDA is lower today than it was when he bought it. Ignoring that is just being a fanboy.

The question was whether he made X a more valuable business by itself since people are touting his success in improving X profitability. And my point is he hasn’t. If I own two companies and send $1mm from A to B, A is not a better standalone business. X has certainly been a valuable tool for him and potentially was worth the price as a tool for him. My point is that nobody today would buy X for more than he paid for it. So he hasn’t made it more valuable.

I come from a PE background and have done 8 search deals. I think about these much more venture like. - The operators are going to do the best they can given they lose all their personal assets. So I don't have to worry about them slacking. - Given the leverage, it's an almost certain 0 if things go South, so real point of getting involved - Similar, you have a real chance at a 5-10x MOIC if the EBITDA grows by 2-3x - Do 10 of them, 3 go under, 4 do fine, 3 produce 5-10x and you get a 3-5x MOIC fund This is all old school financial arbitrage where the cost of debt is much lower than it should be and you get much more leverage than you should be able to get. Combine the two and just surviving spits out a 2.0x MOIC. In every PE deal you need real growth an/or multiple expansion to get above a 2.0x and the previous guy that ran the company probably new decently how to run a company. In these deals, you bet that a young, smart guy with all the eggs in one basket can figure out a way to do a little better than the guy that made $1mm for the last 20 years and hasn't had to push. You can absolutely dislike the bet. But given how little benefit it has to get operationally involved, most folks that invest in these don't do more than check their quarterly updates.

@dennis_unrein Also if you read the tweet you’d see that I 100% give him credit for his entrepreneurial track record. But if you look at Twitter alone he hasn’t created value so far.

@excel_ranger That’s even worse for the value of the business.