We Turned $5M Into $419M Buying Cashflow Businesses ft. Jeremy Giffon

We Turned $5M Into $419M Buying Cashflow Businesses ft. Jeremy Giffon

Humble beginnings at Tiny Capital (00:00:00)

  • Jeremy Giffon, the first employee at Tiny, shares his insights on how they transformed $5 million into $419 million by acquiring cashflow businesses.
  • Tiny began as a successful services business (an agency) that generated excess profits.
  • They used the excess profits to purchase a business and grew it into a $500-600 million public company within 8-10 years, starting with an initial capital of $5-6 million.
  • The key to their success was using the free cash flow from their agency to fund the acquisition of cash-flowing businesses.
  • Giffon emphasizes the importance of bootstrapping a business that generates millions in free cash flow before attempting to build a company like Tiny.
  • Instead of abstractly starting a fund or holding company, they identified a specific business opportunity, Dribble, as a potential acquisition due to its potential and their familiarity with the co-founders.
  • Giffon stresses the significance of having a concrete and real starting point rather than a vague idea of building a holding company of technology businesses.

Tiny’s first acquisition (00:04:40)

  • Jeremy Giffon and Andrew Wilkinson started with $5 million in equity for their first acquisition.
  • They used a non-binding Letter of Intent (LoI) as a term sheet to move quickly in the acquisition process.
  • Not being familiar with the process allowed them to be friendlier and build trust with sellers.
  • People have reached out to Jeremy and Andrew to share that they have built million-dollar businesses from ideas they heard on their show.
  • HubSpot has created a free business idea database with over 50 ideas from the show.

50X return on Dribbble (00:08:17)

  • Dribbble was an amazing investment with a 50x return.
  • There were obvious levers to improve the business, such as advertising.
  • The deal was negotiated fairly.
  • They never expected such a high return, they aimed for 20-30% cash per year.
  • Discounted cash flow models are often just comfort blankets with made-up assumptions.

Skip the cash flow statements (00:10:14)

  • The more quantitative analysis done on a business, the more commoditized the analysis becomes.
  • Example: Facebook's IPO valuation was off by an order of magnitude due to incorrect terminal growth assumptions.
  • Quantitative analysis is often table stakes and doesn't provide an edge.
  • The edge in quantitative analysis lies in the two sigmas, Jane streets, and MIT phds.
  • For small bootstrap businesses, focus on spotting levers to improve the business.

How to spot the opportunity (00:11:57)

  • Key factors to consider when evaluating an investment opportunity:
    • Potential for increasing revenue (e.g., raising prices, reducing expenses, launching new products).
    • Purchase price compared to potential earnings (e.g., would you pay $3 million for a business making $1 million?).
    • Importance of considering "soft" factors such as trustworthiness, honesty, and speed of execution.
    • Aim to get a price that is a "no-brainer" rather than relying solely on being smarter than others.

Chris’s superpower (00:14:00)

  • Chris's superpower is being able to modulate Andrew's high pace and energy.
  • Chris and Andrew had an interesting partnership structure where they could also do things on their own, which provided a release valve for any disagreements.
  • Andrew is good at sales and creating a new vision, while Chris is good at negotiating and structuring deals.

Stomaching aggressively low offers (00:16:20)

  • In the early days when Tiny had no money, they would make aggressively low offers on deals.
  • Chris would present the offers, and Andrew would often negotiate for an even lower price.
  • It was rare for sellers to lose their temper or refuse the offer.
  • Chris would use the "my manager's killing me" tactic to gain sympathy from sellers.

Make an offer and stop talking (00:17:46)

  • When making an offer, avoid saying anything else as people will negotiate against themselves.
  • Use silence as a tactic to make the other party uncomfortable and more likely to accept your offer.
  • This tactic is effective in various settings, including retail and negotiations involving high-stakes matters like convincing someone to commit treason.
  • Negotiation can be seen as a contest of who can endure discomfort longer.
  • No relevant information to summarize.

It’s not you vs. them (00:19:36)

  • Reframe negotiation as working together to solve a problem rather than an adversarial game.
  • Instead of focusing on winning, seek to understand the other party's needs and find mutually beneficial solutions.
  • This approach can be applied to various situations, including business negotiations and personal relationships.

What would need to be true to make this deal? (00:22:06)

  • Ask the question "What would need to be true for this deal to happen?" to identify the key sticking points and potential solutions.
  • This approach can be used in various situations, such as business negotiations, fundraising, and trip planning.
  • It encourages collaboration and helps uncover hidden opportunities for agreement.

How to crush the cold email (00:23:03)

  • Cold emailing is an underutilized strategy despite its potential for success.
  • To be successful with cold emailing, one must have value to offer and be prepared to deliver when the opportunity arises.
  • There is a scarcity of talented individuals, and people are always looking to meet interesting and knowledgeable people.
  • Cold emailing can be especially effective for students or young professionals looking to connect with experienced individuals.
  • It is important to be well-prepared and have thoughtful questions when following up on cold emails.

Worst deal -- ignored red flags, lost everything (00:25:15)

  • The worst deal was with a dishonest person who ignored red flags due to greed.
  • Some red flags to look out for include:
    • Flashy individuals
    • Requests for drugs or illegal activities
    • Negative feedback from others
  • Despite warnings from friends and experts, the speaker ignored these red flags and lost all their investment in the deal.

Best deal: Mealime (25X return) (00:27:00)

  • Tiny bought Mealime, a meal planning app, in 2018 for $4.45 million.
  • The app had unique features such as using the iPhone sensor to navigate the app while cooking.
  • Tiny got all of its investment back within the first couple of years.
  • Two major grocery retailers became interested in Mealime and Tiny sold it for a huge revenue multiple, making over 25 times their investment.
  • The original team is still there and happy with the outcome.

Weirdest deal ($36.00 acquisition) (00:29:16)

  • Bought a company with two business units for $36.
  • The Fortune 500 company that bought the business only wanted one of the units and had to divest the other quickly.
  • The acquired business was generating $10 million in recurring revenue but was shrinking due to being built on a declining platform.
  • They were able to borrow all the money to buy the business and pay back the loan in 3-4 months, essentially getting it for free.
  • The company came with a valuable domain worth $1-2 million.
  • They were able to make a great update to their investors about acquiring a new business without raising capital.
  • KPMG listed the cost basis as $36, showing that you don't need to put a lot of money down to acquire a business.
  • They knew a board member of the Fortune 500 company and understood that money was not the most important factor in the deal, which gave them an advantage.

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