Justin Mazeka Vogt
@J_M_Vogt
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CEO @ Evermore Industries where we invest in and help operate amazing small businesses // Notre Dame // Bain Capital // Stanford GSB
Austin, TX
Joined February 2020
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Stanford GSB alums have started 687 venture backed businesses since 2010
97 of those companies (14%) are valued at $100M or more
26 (4%) are valued at $1Bn+
Investing in the seed round of each business would have netted you a ~16x return to date
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How did we do proprietary outreach during our search process?
A combination of List Building Sites, Airtable, Virtual Assistants, Upwork, Reply. io and Pipedrive
A step-by-step guide 🧵🧵🧵
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So you want to start a Holding Company...
See Chenmark's description of "the early days of compounding" before getting too starry eyed
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Constellation Software acquired 785 businesses over the last 18 years
At a median value of $2.9M
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Stanford's latest Search Fund Study came out yesterday
Highly recommend giving the whole thing a read, or just scroll through my takeaways here...
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Will Thorndike, Trish Higgins & Brent Beshore
If you are interested in SMB Operating, Lower Mid-Market PE, EtA, HoldCos or Search Funds this is a must watch!
How does this interview only have 2k views?
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Operational talent is the limiting factor in SMB acquisitions, not financial capital.
Those who can reliably source, train, and retain talent will far outperform the savviest financial investors in the space
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Am I the only one?
I prefer newsletters that come sporadically. To me, it indicates that the author had a real reason to write it
If I receive a newsletter weekly, I am far more inclined to skip it
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Median EBITDA multiple for a $1 - $5M EBITDA business: 5.5x
Source: Pepperdine Private Capital Markets Project
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Holding companies and long-term holds have gained a lot of popularity in the SMB world. The best literature on the topic is from AJ Wasserstein.
My notes from his most recent paper: On the Nature of Long-term Holds: How Entrepreneurs Can Operationalize this Approach
A thread
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Too many searchers get hung up on financial modeling. Let me save you some time:
If you are paying <8x cash flow (not EBITDA) for a growing business, the returns are attractive.
<6x and growing, returns are great
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Yes, read the case studies on search funds generating 10x returns
But also seek out the case studies (written or through networking) where things do not go according to plan
I applaud Judd Lorson for telling his story here:
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I took 49 flights in 2022 and earned status on 0 airlines
Austin not having a dominant airline hurts
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We have done a lot of direct owner outreach in pursuit of acquiring an SMB
A thread on the lessons we have learned
🧵🧵🧵
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A thread of the threads I send to those considering or just starting a search fund...
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When you open a CIM, where does your attention go first?
Mine: EBIT Margins
Frames all remaining analysis:
Higher than expected = Interesting. Let's figure out if their advantage is sustainable
Lower than expected = Interesting. I wonder if there is opportunity to improve
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"Small businesses stay small for a reason." True.
But that reason is often, "Because it serves the needs of the owner."
I love when I get to meet SMB owners that have designed their businesses to optimize life. Not just the bottom line
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After signing an NDA with a potential acquisition
We ask for: P&L, Balance Sheet, Sales by Customer and Org Chart
We send: Short bios for all of our investors
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The stages of raising a search fund:
A thread 🧵🧵
1) Hear about the model through friends / colleagues / business school / twitter. Search funds are gaining popularity these days and considering you follow me, you have probably already achieved this step (well done!)
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New software-focused search fund study from Endurance Search Partners and Applied Equity
The results of the study
A thread 🧵🧵🧵
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Harvard's Entrepreneurship through Acquisition conference is coming up (10/30)
Highly recommend attending if you are considering EtA as a career path
Plus, yours truly will be speaking on the Alternative EtA Strategies panel. Please stop by and say hello!
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Are you a student that wants to explore Entrepreneurship through Acquisition?
Start or lead the EtA club at your school. Reach out to everyone in the community (~98% will be happy to help). Host events on campus. Publish what you learn.
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After one day in VC Twitter due to this tweet, I will be happily returning to SMB Twitter for the foreseeable future
Stanford GSB alums have started 687 venture backed businesses since 2010
97 of those companies (14%) are valued at $100M or more
26 (4%) are valued at $1Bn+
Investing in the seed round of each business would have netted you a ~16x return to date
46
140
1K
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Have talked to several searchers recently that will be closing their search efforts and looking for their next step
Super motivated, extremely smart folks that want to be operators in the SMB world
Very appealing profile for those with more deals than operators in my opinion
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Kanbrick is the most interesting new investment firm out there
Run by Tracy Britt Cool formerly of Berkshire Hathaway and Pampered Chef
A recap of Kanbrick's Annual Letter 🧵🧵🧵
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Want to know how much outreach SMB owners are getting...
First 30 seconds of an owner call, "Before we get going, the databases are wrong. We only do $1.2M in revenue. Not the ~$15M that you probably saw."
He was right. Everything I saw said that the biz was doing $15M.
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Unexpected side effect of meeting tons of new people in an effort to acquire an SMB:
Discovering just how many people are genuinely kind and helpful by nature
These people are an inspiration and I hope to emulate them more each day
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We love maintenance and repair businesses
We hope to acquire & operate one or more in the coming year
Our investment thesis in Twitter thread form....
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Met up with 5 Stanford alums last night
Not one owned an NFT
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For those looking into SMB acquisitions without a financial background, I highly recommend at least dusting off an old accounting book
Cash vs Accrual based accounting can tell very different stories on paper...
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The GSB Search Fund club now has 258 members, ~25% of the active students
Only a small fraction will ultimately pursue a search, but I love to see the community growing!
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Know your audience!
When meeting small business owners I talk more about growing up in a rural, midwestern town and helping my dad run a flooring warehouse than I do my time as an investor at Bain Capital
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There are only ~100 traditional search funds looking to acquire a business and ~140 currently operating a business
This market is still in its infancy
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A profile of the median traditional search fund acquisition:
Enterprise Value: $16.5M
Revenue: $6.4M
EBITDA: $1.7M
Growth Rate: 17%
Employees: 35
CEO Salary: $200k
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Fun anecdote of the day
Searcher bought a business a few months ago and is already getting outreach from current searchers looking to buy the business from him
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Evermore Industries, our permanent capital holding company, is now up and running! As always, please let us know if there is any way we can be helpful to you. I owe much of my learning to so many of the folks here on twitter.
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Prospective searchers asking about the best CRM, email, calendar link etc.
Just pick one today. You will learn it fast and it will provide minimal value.
Then get on the phone with business owners. Learning to navigate owner calls is infinitely more valuable (and difficult).
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Source (with links to the case studies)
Pages 11 and 12 of How to Prepare for a Search Fund During Your MBA
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My first boss had this saying that I still think about
Don't be a Reporter, be a Journalist
Reporters simply collect the facts and present them. Journalists distill the facts into a story and form an opinion that they can defend
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Gold in this week's Chenmark newsletter...
"Right now we feel that there is a lot of focus on the “beginnings of things” in the EtA space. While there’s nothing inherently wrong with this, if you don’t share the same level of enthusiasm for the middle and end of your endeavor,
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How I got my 1st college internship:
1) Built a list of every finance firm I could find in NYC, Chicago and SF with <50 employees
2) Called ~300 & asked to work there for the summer
3) A restructuring advisory firm said sure and agreed to cover my housing costs for the summer
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Continue to follow up on SMB acquisitions that you previously "lost"
Only ~20% of signed LOIs actually close
So 80% of the deals you "lost" will come back to market with a more informed and likely more motivated seller
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SMB buyers acquire <1% of all businesses they evaluate
It is easy to be pessimistic about the potential of acquiring any given business that comes through the pipeline
Maintaining a bias towards optimism is essential to maintaining momentum and actually making an investment
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Checked one off the Austin bucket list today - happy to report that I saw
@theSamParr
Even if it is an awkward shout while crossing the street, I loved having the opportunity to say I think his work is great in person
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