Macro

Episode 4: Acquiring Small Private Service Businesses with Deven Soni of Kingmakers Ops

Ben Lakoff, CFA
August 24, 2020
59
 MIN
Listen to this episode on your favorite platform!

I’m a big fan of investing in already established stable service businesses, and Kingmakers is doing just this.

Deven Soni is a co-Founder at Kingmakers Ops. Kingmakers acquires, systematizes and grows residential services businesses (with a focus on HVAC and plumbing).

Kingmakers acquires, systematizes and grows residential services businesses (with a focus on HVAC and plumbing).

As a company, they’re looking to become a operating holding company of a number of ~1M EBITDA HVAC/Plumbing businesses.

With stock market multiples as high as they are, acquiring and operating a portfolio of Stable, downturn resilient service businesses – and with an estimated 60% of Small Business Owners looking to retire in the next 10 years, there are opportunities if you look in the right places. We’re talking about 1-4x EBITDA multiples. How about that for value?

We talk about investing in private service businesses – how to find deal flow, valuations and multiples, and then how to “systematize and grow” once you’ve purchased them – then exit strategy for Kingmakers as a business.

Enjoy this conversation with Deven Soni of Kingmakers

“Buy, Operate and grow recession-resistant companies, e.g. local plumbing companies. Partner with them and modernize their systems, improve their marketing and help take their companies to the next level.”

“We Buy Great Businesses and Improve Them With Our Proprietary Playbook”

“60% of all small businesses in America are owned by individuals that plan to retire in the next 10 years. This plus the Covid-19 pandemic is accelerating the need for these business owners to transition out of their businesses.”

Show Notes

Time   Topic
0:01:45   Welcome and context
0:02:12   What is Kingmakers?
0:07:01   Scaling Wired investors to Kingmakers
0:10:30   How did you end up picking home services for digital marketing?
0:13:35   Kingmakers business models and markets
0:16:36   What types of businesses you usually work with?
0:17:19   Differences between Kingmakers Inc. and Kingmakers Ops
0:19:55   What is your scoring system?
0:24:18   Using Business broker sites
0:26:26   Key risks when acquiring a new company
0:29:44   The why now factor
0:34:26   The importance of getting the right people into the right seats
0:37:41   What is the biggest thing thing you can change initially?
0:41:20   What is your ideal customer avatar
0:43:02   Exit Strategies
0:46:44   Biggest risks with your current business model
0:48:36   Kingmakers Crowdfunding
0:51:26   What happens if you don hit your cap?
0:53:27   Are there other companies like Kingmakers out there?
0:55:16   Where can people find out more about Kingmakers?
0:55:50   The type of person that should invest in Kingmakers Ops

Show Links

Kingmakers – https://kingmakers.co/
Wired Investors – https://wiredinvestors.com/
Wefunder – https://wefunder.com/
Flippa – https://www.flippa.com/
Empire Flippers – https://empireflippers.com/
BizBuySell – https://www.bizbuysell.com/
Invest in Kingmakers Ops – https://wefunder.com/kingmakersops


Episode Transcript

Ben: [00:00:00] Welcome to the alt asset allocation podcast, exploring alternative investment opportunities available to the everyday investor.

Here’s your host Ben Lakoff. Hello and welcome to the Alt asset allocation podcast. Today’s interview is with Deven Soni. Who’s the cofounder at kingmakers ops. I’m a big fan of investing in already established service businesses.

I’ve been talking about this with a number of friends for awhile. Now in kingmakers ops is doing just this.

They acquire systematized and grow residential service businesses. As a company, they’re looking to become an operating holding company of a number of about a $1 million EBITDA, HVAC and plumbing businesses.

Boring businesses are actually quite exciting. And the thought of acquiring and operating a portfolio of these stable downturn, resilience, service businesses. I really like it. So why now did you know that an estimated 60% small business owners are looking to retire in the next 10 years? So they’re definitely opportunities.

If you look in the right places, we talk about investing in private service businesses, overall, how to find deal, flow valuations in multiples, and then how to systemize and grow once you’ve purchased them. And then for kingmakers ops, obviously an exit strategy. So what do they want to do with these companies after they’ve held them for a number of years, you can see all about [email protected]

Also don’t forget to subscribe to our podcast. You can find it anywhere you digest your podcasts or on YouTube. And this really, really helps. There you go. Please enjoy this conversation with Deven Soni of kingmakers. Morning, everybody. I am here with Deven sone. Who’s the cofounder of kingmakers ops, which owns and operates a portfolio of small residential businesses.

Welcome

Deven: [00:01:58] Deven.

Thanks for having me.

Ben: [00:02:00] Yeah, absolutely. Thanks in this COVID time, you know, taking some time jumping on these calls, so I appreciate it. So I wanted to start just little background, who you are and a little bit more about your company.

Deven: [00:02:14] Sure. So, uh, my name’s Deven I’m here in the San Francisco Bay area.

And, um, you know, I always kind of been a finance nerd. So, you know, one of those kids that read, you know, Warren Buffett books when they were 12 years old and, uh, went to UC Berkeley here in the bear to study finance, I always thought I wanted to be being an investment banker. Um, I ended up getting, you know, working in investment banking, helping companies like Amazon and Google and Microsoft do MNA, um, re really enjoyed that.

But I kind of just felt more of an attachment to, you know, wanting to be closer to businesses, longterm versus being really transactional. Like, like bankers often are so, um, eventually move into, um, you know, private equity. Uh, at a bigger firm at Goldman Sachs, where basically I helped, um, you know, Goldman make a purchase of the businesses and investments directly off their balance sheet.

So they had about $6 billion allocated technology investments. And, you know, I helped invest in everything from, you know, early stage, you know, software companies, all the way to. No buyouts of semiconductor companies and things like that. And it was awesome. It’s got a really good perspective of, you know, kinda the entire investing landscape.

Um, and you know, it had a lot of success to the point where they increase their allocation on their balance sheet from like $6 billion, $20 billion, which basically meant that they could only really invest in. Really really big deals. You have to buy some, you know, a big public company. Otherwise, you know, the math doesn’t work on returns and I, at the same time while they were gravitating day, guys kind of grabbed her small, I guess, where I just kind of really liked the value, um, in smaller businesses.

And, you know, I think. Um, what can often happen in private equity is, uh, you know, they’ve had really good returns historically. And because of that, there’s been a lot of money flowing into this space. And because there’s a lot of money flowing into this space, there’s just a lot of competition because there’s not so many businesses out there that, that meet that criteria, uh, of, you know, profitable, large business at every single evaluations.

Um, so evaluations keep going up and up and up, and it turns into less of that, you know, kind of a value play anymore, which kind of, again, me being a, you know, Warren buffet, nerd kind of shied away from so, um, you know, eventually I decided to kind of branch out on my own. And, um, noticed, uh, while in the technology world that there was a ton of, you know, small unloved, um, you know, digital businesses.

So, you know, things, small software companies and small tools that people use, uh, you know, blog it’s about, you know, nearly anything wrong are there. And this is, you know, 2014, 2015, there wasn’t a very active market for these things. And they were very, very so, whereas, you know, a Goldman. We’re often buying things at, you know, 10, 12, 15 times even done.

I was gone. I was a great bargain. You know, we were, I was looking at things that like one or two times even die and I was like, Holy cow, what is this stuff? So

Ben: [00:04:54] gobble them up. Huh?

Deven: [00:04:56] Exactly. So you figured, uh, you know, let’s, let’s, let’s try it out. So, um, ended up partnering, um, with my current partner, Austin kingmakers started, we started buying, uh, you know, digital businesses.

Um, so mostly in the software as a service space. So we bought, um, between 20 and, you know, we kind of. And now you like to use it with kind of like the fat kid at the, like the buffet where, uh, you know, like, we’re like, okay, this looks delicious. It’s just pilot plates. We bought a lot of everything. We bought things in the SAS space.

We bought things in, in the services space. We bought things in, you know, kind of advertising driven affiliate, like almost every niche we could. Um, and you know, they had a lot of success with that. We, you know, returned, you know, 30% plus a year to our investors that we kind of raised capital from. Um, but you know, operationally, it was a bit of a nightmare because, um, it’s just really hard to systematize a ton tunnel businesses or operate them in a function in a way when each one has a different business model.

Ben: [00:05:46] So you, you were actually owning and operating all of these businesses.

Deven: [00:05:51] Oh, wow. So there were, they were too small, you know, usually when you go in like a large private equity firm will buy a business. It’s it’s, you know, they buy business that already has a CEO and a CFO in place here. You know, you may, you maybe have a customer service rep, a rep and a writer and a developer, but you don’t really have a management team like the owners and engine team.

So we really had to do was build a systematic way to. Uh, replace the manager or, or, you know, turn that manager roll into something that can be broken down into little pieces and kind of fragmented. So that’s kind of a lot of what we did. Um, what was really fine. People that can run the business or, you know, run a division across multiple businesses, like, like ad sales or something like that.

And then really try to. Yeah, kind of streamlined stuff, which again, great. In theory and practice, you know, when you have a lot of disparate things, it’s not the easiest thing in the world. So there was a lot of operational overhead, meaning, you know, we drove great return, but there was a lot of, uh, you know, white care and hair pulling associated with driving those great returns.

Um, so. Oh,

Ben: [00:06:45] absolutely. I worked in a very similar structure, the operational holding company, and I mean, 90 plus legal entities on their own little ball games. It’s a, and you just end up flaring layering on management on management and reporting gets a little messy.

So how long were you doing that with your partner and.

Did that evolve into kingmakers ops or, or how did you get to where you are

Deven: [00:07:09] now?

Exactly. So that that fund was called wired investors and we ran it, you know, pretty active in 2015 to about 2018. And we stopped making acquisitions in 2018. And, you know, I think the things that changed in 2018. Uh, we’re one, you know, I think that little secret we had of these digital businesses kind of got discovered a bit, um, and the valuations kind of went up dramatically, um, where, you know, things were buying for one or two times EBITDA, or, you know, we’re now, you know, expensive at like four or four and a half times.

We’re just kind of the market right now. And, you know, I think the second thing we learned was that, um, you know, these digital companies, they, um, they have their own baggage, their own risks. And, you know, we actually felt like three times he did die after, after I’m gonna hold five years of owning these things was actually like a pretty fair price because there’s a lot of platform, right?

Googling set you down one day in a Facebook and get you down one day, Amazon. Like these, these companies that are all encompassing and you don’t have a lot leverage as a digital business. So we felt that, you know, The fair evaluations rule are paying last year, not with the principal or this year.

Secondly, you know, there there’s so many like disparate niches, right? Like, you know, it’s great in theory to go salmon, roll up, you know, seven, you know, dog blogs. Right. But it’s another thing to say, we’re going to find seven dog blocks to roll up. They’re actually for sale and well run and the right price.

Um, so you, you know, at the same time we were kind of figuring out what’s next. And I think we’ve done really good at building systems. We don’t, you know, great at building, you know, systematic ways to do digital marketing across the portfolio and helps us there, but we’ve kind of wanted to be able to do it in a space that was, um, You know, more appropriate for more of a roll up where we can own a lot of companies in the same space.

And that’s kind of where it was. We started with Canadian filmmakers offs where, um, and King makers where we basically just holistically like, said like, look, let’s actually look at all the industries, you know, in, in, in, in, you know, in the U S out there and let’s figure out what ones that could make sense here.

And, you know, we looked at everything from, you know, the data that the small business administration in the U S publishers, which is, you know, how many businesses exist in a space. How many are funded every year. What are, what are default rates? What are, you know, loan default rates by industry and things like that and said, look, we want to find industries that have a lot of companies, you know, very few loan defaults, meaning they don’t go out of business when markets get tough.

Um, and then, you know, holistically beyond that, You know, me being a technology nerd was like, okay, well, let’s find industries that aren’t going to get changed by, by Amazon. And aren’t going to get taken over by the machines, right? Like in five or 10 years, you know, trucking may not be a great idea if they’re all driving themselves, et cetera.

So, um, you know, we kind of holistically fell into, uh, you know, residential home services. I’m with you. I just kind of define as businesses, like, like roofing, like, uh, like plumbing, like HVAC, like water damage restoration, just things like that. That, yeah, but the concept is, you know, you have a problem. You, you, you find someone to solve a problem usually online.

Um, so when it comes to your home, You know, fixing your problem and charge it, right. And then, and maybe you have a problem again, they need to call you back and maybe there’s a maintenance plan or something like that.

Ben: [00:10:09] That is a very different business model than buying online businesses. I mean, you said it correctly, like the platform risk, you know, a lot of these lead gen or whatever, if Google changes their algorithm, it just completely torpedoes your business model.

So I can see how you wanted something a little bit more resilient, um, and go into these home services. So. It sounds like you did a lot of work, a lot of leg work to come to arrive at this decision within home services. So I’m curious if you could expand on that. You, you did a little bit, but you know, what, what were the other contenders that you were looking at?

And then do you have a regional focus with these home surfaces or. Kind of all across the U S

Deven: [00:10:51] absolutely. So, yeah, you, you know, the other data points that we really used, um, where, you know, okay. Like what, you know, we kind of wanted to figure out, you know, we were very like, honestly ourselves and said, what are we actually put out?

You know, we’re, we’re very good at, you know, digital marketing to consumers. That’s kind of all we did with these businesses, with the digital businesses, right. More B to C or B to SMB. So you said what, what, you know, what our business can be grown very well with digital marketing, um, Yeah. The second thing was we wanted something that could be rolled up.

So, you know, what are industries that have, you know, more than 10 or 20,000 businesses and then kind of rent or strength, those right. And you look at. HVAC, which isn’t, you know, 120,000 HVAC companies in America, or you look at, um, you know, roofing with us 25,000 plus. And those were very appealing versus saying, Oh, I can, I can totally grow a brewery or a, you know, fish farming operation.

Right. But there’s like nine of those. So it’s like, okay, well, that’s gonna be a little difficult to roll ups that, that, you know, that was another, but that was another consideration. Um, you know, a lot of the industries, um, we’re we kind of want to, hi. Ish operating, operating margins. So which means, you know, the more revenue you have, the more of us, the bottom line.

And, you know, if you look at something like, you know, food, um, you know, with like five or 10% margins, or you look at something, um, you know, it’s highly regulated. Like paint classes are often like two, 3% margins. So we really liked the, you know, the, the 30% margins you can get in into HVAC or 40% margin you can get in roofing because that just means that more and more dollars flow to the bottom line from the success you have in growth.

So that was another reason. And then we will do a lot of space. Yeah. You know, you know, like other things like, uh, you know, tax preparation and, you know, CPA firms and things like that were all very interesting. Um, but you know, we just also felt that, you know, the churn on those businesses was a little kind of stranger, like E.

You really need to manage customer service very heavily, like over the life of someone, even though they may pay you just once a year. So we kind of wanted, we kind of liked that the transactional businesses a little more, just because you always know that no matter what happens, you know, there’s going to be, um, you know, a water heater leak or a air conditioner blowing out and things like that.

So again, again, maybe just being a little shy from digital where. Uh, given just gonna disappear overnight. We set up those sort of felt like these businesses are not going to disappear overnight so that the effort and carry put into hiring good people and building systems is not going to go to

Ben: [00:13:10] waste.

Absolutely. And I think after working in technology for so long, you realize how fickle some of these things are. And I, you know, I have some friends that are serial entrepreneurs, always turning up new, online businesses. And now they’re like, I just went out. I want to like operate a cafe on the corner and get back to my local community.

And I know it’s not scalable and I’m not going to make a ton of money, but I’m just, I want something tangible. Right. So I get it. So these residential services. Uh, so it sounds fascinating. I mean, how much work you were doing to arrive at this niche, but, uh, so, so I didn’t hear it. If you’re focusing

Deven: [00:13:49] globally,

Ben: [00:13:50] U S only nationwide,

Deven: [00:13:52] maybe it might make sense here just to kind of touch on the two business models we have, because I think they’re a little different in how we think about it.

So, you know, we started kingmakers inc, and, uh, which is basically, um, a company that actually, you know, It is more of a bit more of a passive investor, meaning we actually find, you know, companies that we think are really good businesses. And, and for that, it doesn’t really matter where they are. So it could be in New York or California.

Uh, and we say, Hey here, this is a great home service business that we would love to own or invest in. Um, and, and we think it’s at a fair evaluation. Let’s actually partner with someone who is kind of keen on running the day to day so that they have. You know, skin in the game, and then we have someone who’s a high quality, you know, high caliber, you know, kind of owner who can think about the business then shower, right?

Because like, if we own 300 these days, we can’t think about 300 companies in the shower and there’s always, you know, local nuance with any business. So, you know, with, with teenagers, inc, it was basically let’s. Find these businesses let’s use the same systems we use to, to source, to grow, to automate and, you know, open it up almost like Amazon web services opened up their own infrastructure.

We kind of wanted to open up our infrastructure to, um, you know, primary owners and kind of give them the confidence. Cause you know, we think like buying a business is a fantastic career choice. Like you said, for. You know, someone that just kind of wants to get off the hamster wheel of corporate America or the hamster wheel of startups or venture capital.

This is a great way. And you know, you actually can like you quite well financially, right? In some of these businesses, um, you know, many people are making seven figures a year, a year in just by owning these things. Right. And you know, it’s really easy to finance them. So there’s a lot of benefits. So

Ben: [00:15:21] we said the more boring, the better on that.

Deven: [00:15:25] Yeah. The more boring, but the less competition often. Right. So. You know, w we, we were shouting from the rooftops, like we did this analysis and like, these things are amazing. Like more people should want to do this, right? So that we procure makers inc, to basically open up our infrastructure, to make it easier and give more conference people that want to be an owner and businesses.

And, you know, our business model there’s, we, we co-invest with in business similar to maybe an incubator accelerator. When you invest in the business and exchange kind of provide infrastructure and services and knowledge and experience.

Ben: [00:15:55] Gotcha. In his kingmakers, inc. At structured as an investment vehicle.

I mean, this is a fund that’s open to.

Deven: [00:16:03] It’s actually, it’s a holding company. So it’s, it’s kind of structured more like a, like a Berkshire Hathaway style or, you know, one of these like longterm holding companies and, you know, we can get into nuance of the taxes, but basically since 2018, you’re it makes a lot of sense.

Do you see corporations for, for almost anything? And that’s why we’re a C corporation. So we, you know, we are open to the acceptance of capital there and, you know, we have, we have around open. Um, but you know, it’s kind of like a regular startup know there’s a pre money and then taking money out and have evaluation.

And the goal is to, you know, pay out some dividends and you do roll ups and eventually I hope we can. Okay,

Ben: [00:16:38] awesome. So kingmakers inc. Is this

Deven: [00:16:40] passive

Ben: [00:16:40] investment vehicle holding company of a number of different businesses? Doesn’t specifically have to be residential. You probably still have some SAS companies in there

Deven: [00:16:51] that’s

Ben: [00:16:51] completely with wired, right?

Deven: [00:16:53] Exactly. Right. So there there’s a lot of different types of businesses, you know, we’ve kind of zeroed in, you’re not home services or that first niche that we really like, and we kind of both a lot of infrastructure for it, but we continually sort of expand on infrastructural building to make it more relevant for different types of businesses.

Right. And some stuff is like, you know, How to hire a great manager, how to set up your website to be locally optimized. All those things are very extensible housemate.

Ben: [00:17:20] Absolutely. I mean, how can you drive traffic to it? Yeah, it works for most things. Right. Okay. So that’s kingmaker inc. And then kingmakers ops is more, we’re going to wholly own this thing.

We’re going to drop in our management drive for synergies. Roll it up into divisions into this kingmakers ops, uh, operational holding company.

Deven: [00:17:41] Exactly. So, you know, I think with there’s ops, what we realized, especially kind of this kind of post COVID world, um, we found a few things. Um, one, you know, I think a lot of business owners were really.

Leading with, um, with fear, if that makes sense to date, you know, this happened and everyone just kind of froze up all of a sudden, and they weren’t, you know, many people weren’t investing in the businesses, a level that they should have seen the returns in the business. They weren’t, you know, being aggressive in hiring and adding new people whenever it also link people off.

Right. So at the end, I think it’s natural. It’s not like criticism. It’s just like you have people when, when there’s change, you tend to kind of freeze up a little bit. Uh, and at the same time we were sort of here, like watching our systems and saying, look, um, You know, it just got 80% cheaper to advertise on Facebook.

You got dramatically cheaper to advertise on Yelp. Like cause everyone turned around. The first thing you do when you, you get scared about the future is you try to your variable costs and advertising is like a variable cost and people just like throws it. Right. And all of a sudden that means all this inventory was there.

And we were like, this is ridiculous. You know, someone, someone needs to do something about this and, you know, you know, even the business that we had kind of partnered with people on, um, you know, oftentimes they had a very similar mentality, which is, you know, we’re, we’re just going to sit this out and see what happens.

And we’re like, you know, on the hidden bin, like this is like the best opportunity to, to be really aggressive. And that, that kind of accelerated our desire to really own our own portfolio. So we could, you know, You kind of either on Doug and actually show that what we, you know, kind of say makes sense actually makes sense.

And you know, just how, you know, McDonald’s and example, right, as an organization is primarily a franchise organization, but they have, you know, many of their own wholly owned stores because they want to use those as test beds for their experiments to see what’s going to work well, it’s not, you know, we, a key makers ops, you know, one.

As a test bed for us to really kind of, you know, use all of our systems aggressively, be, you know, kind of be very diligent and, um, with how to kind of grow these types of companies. Um, secondly, I mean, obviously I think we, it’s a great business decision for us and, you know, the returns are fantastic and you know, we’re having lots of growth, so that’s a, you know, you, it has to be a strong business decision, but yeah, but you know, I think those two things kind of really married together, our reasoning for kind of doing our own portfolio companies that we own the operator.

Ben: [00:19:53] Yeah, that makes sense. I mean, it’s, I’m curious on your website or on the, we funder, it said you had a, a proprietary sourcing and deals scoring system. So obviously this is proprietary, but deal flow is a very important part of this. So if you could touch on, you know, how you’re finding these businesses, uh, what the due diligence process, what,

Deven: [00:20:16] what it is you’re looking

Ben: [00:20:17] for.

I think that would be really interesting.

Deven: [00:20:20] Yeah, I’m sorry. I got you, but I’ll give you that. Yeah. I’ll give you the short version. Well,

Ben: [00:20:23] higher, somewhat high level, and I know it’s proprietary, so yeah.

Deven: [00:20:27] No, I, you know, we, we, like, we prefer to, in the sense that we like keeping it secret, but rather that we just, you know, we built ourselves to kind of do for ourselves, but, um, on the sourcing side, uh, you know, I think the way, so there’s really two channels, uh, of, you know, kind of businesses, right?

And one, one is, um, even businesses that are already available for sale. And, and that was what those are. They’re kind of often listed by brokers. So, you know, one of the first things we did just to start getting initial deal flow was, was to basically build a relationship with, you know, hundreds of business brokers and also get kind of the API feeds and the data feeds from every Brooklyn listing site.

And what we do then is we, um, yeah, pulled the data. And so instead of saying, Hey, like, you know what most people do, Brooklyn listeners will say, Hey, we’ll get an email. Uh, you know, once a week with all of those things that you know, are filter for them and they’ll kind of look through them and say, okay, this is an extreme on some show that we call them.

Um, you know, what we do is actually the minute a deal gets originated. Um, we actually pull it into, uh, you know, pull the API, put it into a database that we have and the database will then start basically, um, try and normalize some of the data. So it’ll pull out, you know, what’s the revenue, what’s the earnings, what’s the region, you know?

Well, how long has business been around stuff that like is usually somewhat standardized. And, um, try to kind of, you know, it’ll force rank the ones that we think are really good fit for us. Nice. It’s like the Scott stock

Ben: [00:21:44] screener for private

Deven: [00:21:45] companies basically. Yeah, exactly. Um, and, but then we go one level ahead, which is we have a team that’s kind of off shore.

That’s basically saying, you know, what’s, you know, they’re the one question they have to answer every day is like how much more information do I need to know about this business too? Uh, put in an LOI, a letter of intent, non-binding kind of indication of interest at a certain valuation. So what we, what they do there is they have their checklist of here’s, what everything I need.

So if there’s certain things that are missing, they’ll basically go, you know, reach out to the business owner, the business broker and say, here’s the seven piece of data I need before I can kind of get more data. So, you know, they’re always kind of completing the analysis of the, of the, of the prescreening businesses.

So every time we look at a deal, we have every single one that we compare apples to apples. And say, these are the ones that really stand out based on know, kind of evaluation, things like that, or, you know, just, um, you know, quality of reviews or, uh, you know, revenue per employee or whatever the metrics Brittany are using.

I’ll use all of those. Um, the second thing we do is we, we actually come up with their own internal evaluation, which is also somewhat digitized, which is basically kind of say like the industry will value, you know, HVAC companies at 2.8 X EBITDA. But like, that’s a, it’s a really kind of blunt instrument to use to value something.

Right. And it’s we’ll use, but you know, what we said is if we can, I think from their own valuation methodology, that’s more tied to how we truly something. Then we can find the ones. Yeah. You know, undervalued because everyone else is using this kind of blunt instrument of like a one, one multiple. Right.

So we kind of go and say, look, how long, you know, we’ll adjust the multiple based on. You know, how long has this been around? You know, how has, how strong is the management team? What are the reviews, you know, is this region growing quickly or slowly, you know, what’s the unemployment and things like that in region.

And you know, how many big cities are nearby that can be expanded. Like, those are all things that we filter into to say our actual valuation is, you know, X it’s not 2.8, like before, or it might be two. And then what we do as we sort by the ones that are most undervalued and sort of prioritize those first to kind of do some outreach to.

Um, that’s kinda the high level. I’m happy to dig in further or

Ben: [00:23:51] no. I mean, that makes sense. I think, I think adjusting you’re right, right. I mean, it’s a very crude measurements. 2.8 is a great multiple, but like if the company has

Deven: [00:24:01] been operating for 20 years, it’s in a high

Ben: [00:24:04] growth spot, they ha they’re the only HVAC person in town.

They have all of these, you know, they have a, a good moat and good projected earnings. Growth. It makes a lot more sense to

Deven: [00:24:16] pay

Ben: [00:24:16] up for that sort of business. So, uh, you had mentioned business broker sites, so I’m curious are these like Flippa empire flippers? What other key?

Deven: [00:24:26] Yeah, the digital side you have, you know, on the digital side you have Flippa empire flippers at the international, um, on the digital side, on the, on the brick and mortar side, you know, there’s actually, um, A little more consolidations since that everyone actually uses one aggregator, uh, for the most part called is by cell.

Um, and there’s myself as an aggregator where, um, brokers, Lafayette advertise their listings. Um, you know, what we actually do is yes, we scraped the listing to the site. We then actually go out and have someone call all the brokers and regions that we care about or an interest that we care about and try to get there on their own proprietary lists.

Um, as well. So they, you know, oftentimes what they’ll do is they’ll circulate a deal to their network before, right. They pay the listing fee to the biz, myself sell, but list it. So oftentimes there’s, you know, I would say like there’s buy, sell is sort of the, you know, the tip of the iceberg in terms of actual businesses that are available for sale.

Um, the other thing that often, you know, it’s kind of strange, you’d be surprised, but, um, business brokers tend to turn down a lot of listings because they think it’s literally be too much work to sell. Um, and you know, we like doing work. So we often say, Hey, certain things that you, you know, it’s our wheel house that you’re rejecting.

Please send them our way. And we’ll, we’ll still happily pay your commission. Um, but just send stuff our way. So we get a first look at it before you just have to pass on it or something.

Ben: [00:25:47] Nice. So you’re taking the ones that they even decline and running them through your analysis.

Deven: [00:25:52] Exactly. Right. And sometimes, you know, people decline because, um, they’re, they’re over capacity or they, you know, they’re, they’re a broker that, um, you know, is in, in, you know, in Boise and they don’t want to go to another part of Idaho because for whatever reason.

Right. Or right. They’re

Ben: [00:26:06] human too. I mean, sometimes just life is in the way. Right. So can’t prioritize it. Um, Awesome. Yeah, that’s very, very fascinating. So I’m curious, obviously, when buying a private company, uh, there’s a lot more risks than buying like a public publicly traded company. So there’s loads of them.

Right. So, in, in your opinion, what are like the key risks or kind of icebergs that you’re looking out for when buying these companies?

Deven: [00:26:37] That’s a great question. Um, I think we really break it down into kind of two or three things that we can kind of understand. Right. So the first one with that, with that, they got a trip we’ll underline.

It is really just kind of key employee risk. Um, because at the end of the day, you know, a business is a, is a consortium of personalities that kind of meld together. Right. And sometimes it’s personnel like those. There’s certainly visuals that are very, very important to a business. And, you know, oftentimes the entire business process can be built around a person or that can be a single human that does all the sales for the entire organization, or is a single person that manages the license for a larger organization.

So, you know, we really tried to understand first is like, what are those single points of failure in the business? Those can be, you know, sort of legal that can be licensing. They can be knowledge. They can be, um, you know, distribution, cause someone, you know, is a member of, uh, you know, the, uh, you know, lions club or whatever, and that’s where they get all the leads from.

Right? So like we truly trying to understand all those things, which are, you know, where does distribution come from? Who’s actually doing all the work. Like let’s look at F you know, a little of every revenue stream in the business and kind of map it out from end to end. And let’s make sure that there’s like, you know, some repetition on every single one of those things.

And if there’s not, then we either don’t buy the business or we. You know, during the period between, um, you know, analyzing the business and closing the business, we try to build a, a recognition stream for that, that stream. Um, you know, the second thing is there’s just a lot of legal issues that you don’t think about, you know, with respect to kind of, you know, workman’s compensation in a data protection, um, you know, how you’re storing things, um, Yeah, environmental issues.

Right? So we, what we really try to do is understand those needs on a state by state basis, um, make sure that we ensure against, like, I think the nice thing is like the insurance straight for all these risks, you kind of know what your maximum liability is for the most part, because you can ensure, again, for compensation, with an insure against environmental risks, you can insure against data.

You know, he gets whatever. We obviously try to do the right thing, but we also just make sure that we’re well insured that, you know, one, one event or item can’t script. Destroy like everything else. Yeah. The collateral damage. Um, so that’s another thing that we spend a lot of time on. Um, the, the third is, uh, you know, the business just really being, and this is part of, you know, kind of key man risk, but it’s like the biggest key man risk is, is, you know, sort of the business actions, really being operating in the owner’s head and not anywhere else.

Um, meaning they have knowledge that no one else has. They have, you know, systems that no one else has, so, Oh, good luck nation is. Yeah. It’s you know, when you ask for documentation, they, they, they bust out the, the old, uh, employee manual from 1972 that we haven’t looked this thing in 15 years, but here you go.

Right. Um, So, you know, a lot of what we try to do is basically spend the first, you know, the first month before close and then the first month or two after close, really just making sure we, again, understand everything that can be understood and try to systematize it, put it into software, put it into an ERP system, um, so that there can be some continuity.

Awesome. Yeah.

Ben: [00:29:40] Good answer. Thank you. Um,

Deven: [00:29:42] that key man risk,

Ben: [00:29:43] it’s also important with these, these sorts of businesses. And I think that’s what that’s, what really spoke to me on your website is, um, you know, maybe if you could talk macro picture of why, why now, but, you know, you touched on, uh, some percentage of small businesses being owned by people over the age of 60 looking to retire all of these things.

So I think, yeah, if you could just answer

Deven: [00:30:07] yes, absolutely. Why now, you know, the why now is, I mean, I think that there’s just this big transition happening right now, where. You know, many, many business owners, especially in brick and mortar business that started them in the 60 seventies and eighties. Um, and now they’re really getting ready to retire.

So 60% of business owners in the U S are open to the age of 60. Um, that’s kind of like 2.3 million business owners, right. Are that age. Um, and there’s a lot of things that go with that. So yeah, obviously there’s many, many, many, the various kinds of businesses that are very financially successful, but you know, when you’re financing a festival, you often just don’t.

Evolve. Right. And that means many of these companies haven’t evolved onto using new technology, um, on to, you know, getting away from, you know, three page, carbon paper to do their invoices and say, Hey, it’s worked and it I’ve gotten successful using it. So why change?

Ben: [00:30:56] Yeah. And the margin expansion associated with just optimizing a few of these things, it’s gotta be insane.

Deven: [00:31:03] Well, you know, w w we find it very, almost an idea. W you know, it’s almost like these things kind of Brian, right? All these successful businesses Ryman since then. There’s a lot of things that are very similar, you know, they’ve always had a culture of providing very, very good service, but because they do everything right.

So that’s why they provide good service. But would that mean because they can’t scale because you know, at the bottom of the bottlenecks and the owner at the end of the day, who’s writing the invoices by hand and checking jobs by hand. Right? So that’s, that’s something you can’t, you can’t, you know, double your business.

So they, they often, these companies turned down, you know, 30, 40, 50% of the calls they get because they just. Don’t want it, they can’t scale. They can’t train people. They don’t trust anyone else. And, um, so that’s kind of one thing, but. No to your bigger question, which is why now? Um, you know, even, especially with COVID I think what would be a lot of people are seeing is that, Hey, I’m, you know, in my sixties, I kinda wanna spend time with my family.

I don’t want to actually go out and put myself at risk of getting ill, especially when I’m a high, you know, high risk person know elderly. So there’s a big tradition. A lot of people that, you know, said I’m going to retire in 2025 are like, I want to retire now. Right? Auntie get out of this business now it’s I can kind of.

Stay home with the kids and family moved to my mountain house, whatever it is. And, you know, historically what it is, what happened was, you know, if you look at like the last hundred years, these, these kind of trade that the, the businesses were passed down to children, right? So it was like, okay, well, my son is going to take over the plumbing business and he’s going to be a plumber.

But, but you know, if you look at what happened in the eighties and nineties, all these people were like, you know, Go to college, get your degree. They’ll be, you know, studies, liberal arts, go, go work in a big city. So, um, you know, many times like, you know, these guys will own business, their own businesses and their kids are, you know, engineers at Facebook or they’re, you know, attorneys.

And then they’re not going to come back to, you know, you know, middle Middletown, Colorado, and run a plumbing business, even though it makes a lot of money. It’s just not their lifestyle. It’s not how they’re, you know, kind of their lives right now. So, um, there’s really just this gap where there, there’s not really anyone to take these businesses over because you know, people that know how to run them, that the plumbers and technicians often don’t have the, the capital, the financial sophistication.

And the people that have the capital and financial education or working on wall street or working in corporate finance. So it’s kind of this big gap. And that’s kind of, I think that we’re trying to fill ’em as an organization is that gap between capital sophistication and, you know, technical knowhow and kind of the service culture.

So, and willingness to kind of be in, in, in, in regions that might be very lucrative and that might not be the most appealing or, you know, a business owner it’s not on the beach in Florida or something.

Ben: [00:33:37] Yeah, and, and that really makes sense, but it begs the question. I mean, yeah. Eventually you’re going to have to staff these.

These businesses when the business owner leaves. So even if it’s obviously it won’t go to their children, but, um, I would imagine that hiring for these sorts of technical positions is gotta be very difficult right now. And so obviously that’s part of the value add that you at kingmakers ops is adding,

Deven: [00:34:03] but, um,

Ben: [00:34:04] is that a gigantic hurdle for

Deven: [00:34:05] you guys?

Is really important, but I wouldn’t call it a hurdle. So it’s very important to get the right people in the right seats. Uh, I think there, there are certain ways that we think about it, um, that are maybe a little different than how you would think about it. Um, so, so one, um, you know, the question is for you in a labor, a labor as a competitive markets, if the question is who are you competing against?

Right. And generally speaking, who we’re competing against for technicians are. A old mom and pops that refuse to use, bring an iPhone to work and use carbon paper, or, you know, private equity owned organizations that are really, really focused. So the bottom line and not upselling, you know yeah. Charting the most, you can on an injury bill of sale and that’s like the norm.

Right. So, you know, it’s really funny because you know, you can actually just the curse for do a cursory look one day and say, look, let me look at the, you know, the Yelp reviews, Google reviews. Uh, of, you know, a private equity owned auto mechanic or privately owned plumber versus one that’s owned by a, you know, a hands on technician and the reviews are night and day.

And you’re like two stars for the private equity ones because they don’t all they care about. It’s all profits often. I mean, it’s, it’s a generalization, but it’s one that we’ve seen that it’s kind of somewhat accurate versus, you know, the ones that are high technician run that, that really care and provide good service.

So what we’re really trying to do is meld those two things and eat people don’t really see those opportunities very well. Um, the second thing is, uh, you know, I think that the question being, what is a technician worth to you and are you actually paying the value for a technician? And usually it’s not right.

Like, it’s like, okay, well, you know, I paid 16 bucks last year and hours when pay 17 bucks this year, an hour, even in the, I can’t find anyone. And when you’re saying I’m making like $300 an hour off this person, why aren’t you gonna pay 20 like that? You need to make in order to really just kind of think a little bigger picture and, you know, you pay a little more.

Yeah, for 401k benefits or, you know, pay for, you know, night school or, you know, add on education, provide a couple extra days of vacation. Those things are not that expensive in the grand scheme of the business, but they add a lot. They’re very important to people that come to work everyday. So that’s kind of the one holistic thing about just the numbers and to your second point was location.

And, you know, I think what we really try to learn from, with location. Is, you know, I think there’s a lot of organizations globally that create, that make living in some weird place, a, a badge of honor. And I’m just gonna look weird, but it’s a place that may not be in favor, right? Not living in a big city that make it a badge of honor.

So using the peace Corps. Or teach for America or, you know, the military right. Where you’re like, okay, well I’m stationed here. Or I went to, you know, XYZ town for, for a year and it was great. Right. And we were really trying to do is make it a cultural thing where we train people and say, you know, we kind of have this Ascension model in front of bring technicians in early that are pilot qualified and say, look, you know, we we’d love you to come be a part of the kingmakers ops organization so that in four or five years, we can actually help you become a business owner yourself.

And that’s the bowl, but many people want to have, and we’ll say we’ll provide mentorship and training. But, you know, here’s the other side of the bargain you’re going to have to live in. Yeah. I don’t, I don’t want to disparity. Here’s some towns that people may not want to live on, right.

Ben: [00:37:08] From Indiana. Just use that one, you know, small town in Indiana.

Deven: [00:37:12] Okay. I didn’t really know it, but you, you get the idea. Right? So we were like, Hey, here’s the first step is like, you come work here, you crush it on this business for the first three years. And then when you’re, when you hire your replacement, that you think is as good as you. Then we’ll let you move on to the next thing, which could be buying a business.

It could be being a manager of a region. So that’s kind of, we’re trying to build this Ascension path and badge of honor of living in places that are not traditionally feeling. Yeah. That’s, uh,

Ben: [00:37:36] that’s really interesting. I think it’ll be very, very fascinating to watch you guys expand and grow. I’m curious.

Deven: [00:37:43] Um,

Ben: [00:37:44] Like right. When you go into a company, uh, what is, what is the initial, like the first biggest lever you can pull the, can move the, move the business the most.

Deven: [00:37:54] Oh man, I hate saying this, but it’s, it’s raising prices. Um, it’s an easy one. You know, the people tend to underprice like people that provide good service tend to underprice.

It just, it it’s just a weird thing. Craftsmen often just say, you know, I don’t know how to charge, like, you know, So that that’s, you know, when we bought a business, you know, a year ago we found that they were by far the best service of any company in the region. Um, and they were, you know, we’re pricing by 15, 20% with everyone, which were the phones ringing off the hook and they couldn’t service.

Half the people that called them because they just didn’t have the manpower. And we didn’t want to expand because the owners were getting ready to retire. There are certain digital marketing levers associated with increasing your conversion rate on your best channels. So, um, you know, let’s use, you know, some people’s best channel could be Yelp.

Other people’s will, could be Google, organic. Other ones could be Google reviews, but let’s just use Yelp as an example. So if you, if you’re getting, you know, 30% of your customers from Yelp, then what can you actually do? To work with a Yelper and optimization expert to optimize that profile. So you get more conversions from the same amount of traffic.

So that could mean, um, you know, changing your ad copy around highlighting certain reviews, um, you know, becoming a verified business, um, adding more appealing pictures, uh, responding in 10 minutes versus, you know, two hours to quotes when they come in. Like those certain things. Really optimizing the inbound on the, on any channels are working.

So it’s kind of like, you know, the first thing we’ll do when we come to a business to just sit there and watch for a period of time. Well, as we’re watching, you know, there’s certain things that we can do that are not disruptive. It’s not like, Hey, all of a sudden, you know, I know you guys were using paper, here’s an iPad.

Please go, go to work now. Right. It’s more about, Hey, you know, you were getting leads from Yelp. Let’s just make the leads better. Let’s try to maximize the revenue for a lead and certain things like that. And

Ben: [00:39:40] I would think with this niche of businesses, I mean, might be a broad generalization, but I wouldn’t imagine that there is digitally savvy as they can.

And like the low hanging fruit there, you know, is just, have you ever tried paid media, paid advertising? Here you go.

Deven: [00:39:59] Well, you know, many, many people, you know, they, they use conjecture into the data, right? So they say. You know, I tried the elk lines and that, you know, there’s some guy called me and I didn’t like the Toni use, so I’m not using those guys they’re crossed.

Right. Or, you know, there there’s three leads. We bought this one time. They didn’t work. So screw this channel, right? Like that’s usually the conjecture. They tend to yeah. Versus saying, Hey, here’s my, you know, revenue per call. And if my profit per call, you know, here’s my cost. Here’s, you know, the percentage conversion rate, which is the data you shouldn’t sort of use it.

Right. And, and even the people that when you do hire marketers, uh, that focused on local, right. I think oftentimes. It’s um, you know, if you’re, if you’re a really good marketer, I think you’re often more inclined to want to go work for a digital businesses, highly scalable and less inclined to want to work for, uh, you know, middle of Indiana plumbing deliveries again.

Right. So, um, so that’s a certain thing as well. We try to bring a little station to talent, um, and assist customization to every part of the process, including marketing, which is a very big lover.

Ben: [00:40:59] Well, and this is where, I mean, so again, broad generalization, but I would imagine it’s this little mom and pop, uh, HVAC, I guess they’re quite bigger.

They’re bigger than that. But, um, um,

Deven: [00:41:11] th th th th they’re often big mom and pops, right? It’s kind of like, Hey, we’re, we’re a mom and pop, but all of a sudden we found a niche and we’re a mom and pop that do 5 million a year in revenue is really needed.

Ben: [00:41:21] Cause it’s sort of like the ideal customer customer avatar for this.

I mean, what’s kind of EBITDA revenue,

Deven: [00:41:27] uh, Yeah. Yeah, yeah, yeah. It’s weird. You know, again, you start seeing trends just everywhere where, you know, I think. We see a lot of companies that can cap out right at, or around about a million dollars in earnings. So if you go back to what’s revenue on that bull, you know, the margins are, are, are 20 to 30%.

So the revenues three or $4 million to profits around a million, you know, upped up by 25% shrink by 25%. That’s kind of the range where, you know, we find companies that are. Still a little too small for private equity, like big private equity firms, because they’re not, they don’t have the CEO and the CFO and all that stuff in place.

Like usually if you’re a PE firm, you’re going to want a company that has a management team. Right. And we’re sort of willing to do that. Work of putting the management team in and earning an outside multiple because you know, usually if you’ve been managing a team and you have a great business and you find product market fit, you’re not going to be a $1 million business, or you may be like a $4 million business.

And it’s really just. You know, making sure that, you know, supply and demand meet with high quality service, right? That your a million dollars is probably a $4 million business. And you’re, you know, 2.5 X EBITDA, multiple of high pilot, an eight X Eva done multiple because that’s what private equity tends to pay.

So we try to kind of. You know, we’ll, we’re young, early. Yeah. We’re, we’re learning the space. So we’ll, we’ll kinda be the valuable players and we’ll kind of go a little lower and T and not lower end, but, you know, we’ll do the heavy lifting a little more than a sophisticated, you know, private equity firm might to get sort of those wins.

Um, and then eventually, you know, if we choose to sell the business, we can sell it at, at sorta in that way. Right.

Ben: [00:43:02] You touched on a few things, uh, that makes me think about exits here. So, um, it sounds like, you know, you buy a million million dollar per year. You grow it by a couple, you know, some optimizations grow the revenue, uh, whatever.

And then you tank kind of targeting, uh, eight, eight X multiple exit. But my question is more, um, well one correct me if I’m wrong there. And then, uh, two.

Deven: [00:43:29] Will you

Ben: [00:43:29] aggregate these and then, you know, almost like a franchise sort of, you know, this one in Northern Indiana

Deven: [00:43:38] is all the HVAC and you’re

Ben: [00:43:40] going to put in a head office that takes care of all of these.

And it’s it’s

Deven: [00:43:45] then. A

Ben: [00:43:47] group that has like a portfolio and then spin off that new company of these aggregated smaller businesses to a private equity.

Deven: [00:43:54] Cause then

Ben: [00:43:55] that would be a little bit more in their range of purchasable assets, right?

Deven: [00:44:00] Yeah, absolutely. I mean, I think, I think we’re taking everything in, in, in baby steps.

Uh, yes. Uh, you know, I think that the goal, um, is, and will be to create a more consultant portfolio. That’s a roll up, um, that has a unified brand. Um, you know, there’s certain steps we’re taking that direction today that make it much, much easier for us to do that when we choose to do it. So, um, you know, we, we use the same, we try to use the same sort of software tools and management systems and ERP is across all of our companies so that there’s not a lot of transition.

Um, you know, a lot, not a lot of less switching costs. We said we don’t want to do later. Uh, you know, the second thing is, um, we are, you know, are trying to identify those services, um, in, in, within that should be shared services and are building infrastructure gradually. So, you know, there’s certain points of pain for every home services owner and, you know, a really big one is, um, after hours calls.

There’s not a great way to do, you know, cause usually the owner will pick up calls that, you know, after 6:00 PM in many, there may not be a lot, but it still sucks that, you know, being, you know, 10:00 PM got in Rouse out of, you know, having drinks with your friends or, or, you know, being called at two in the morning, it doesn’t happen all the time.

So sucks. So what we’re trying to do is find a really systematic way to manage that. And then is that the process it’s built, we’ll kind of extend that to the other companies in the portfolio. Um, you know, similar things like bookkeeping are already pretty well extended things like marketing are already pretty well.

Well, you know, systematize that we were going to graduate you, those things. And then, and then what will end up being the head office is that vehicle does all the shared services across all the other ordination thing. English. It’s not like it it’s more of a gradual change. Like we don’t like changing things like dramatically on day one.

It just like, you know, kind of like. No watching and understanding before we sort of like, like declarations of what should be done. So, uh, or, you know, all of a sudden, here’s your new uniform. It’s like the King maker’s ride. Right. We can craft to do that much of that.

Ben: [00:45:55] So, yeah. Yeah. Well, your integration team will have a have fun.

I know a lot of these businesses have been operating with the systems that they have and, uh, Integrating new systems, like an ERP, uh, can be very

Deven: [00:46:09] difficult and lengthy for sure. Well, yeah, I mean, you know, one of the things that we learned there is we really try to get people like the key managers that already have the trust of the organization.

Like the, you know, the lead ex technician. Right. We try to get them bought in, um, by. Group force is probably the right word. Right. You just make much, a lot of videos and sit there and wouldn’t it be great if you could do this, it wouldn’t be great for you. That’s right. And you get them bought in and once they buy in, then it’s, they’re the ones convincing their team, not the, not the, the new, you know, high student owners, you know, whatever.

Right. Like it’s a much, much more straightforward process getting everyone else on board.

Ben: [00:46:45] Okay. Makes sense. So, um, in your opinion, as one of the cofounders, I mean, what’s the biggest risk with this sort of business model? Is it, um, the assumption that you’ll be able to sell this portfolio later, or you’re buying them for cash flow and you can hold them into perpetuity and it will be, it will be okay.

Deven: [00:47:05] No, we’re, we’re definitely buying for cashflow. So you, you know, I think we’re only doing deals that we think are profitable. They’re gonna to be cash generative. Um, so the exit is really a. Um, the cherry on top, not the, not the cake. Um, you know, I think we, we like this business model. I think we like the industries we’re in, I, if the whole ins for a decade, like, I mean, delighted, like I think it’s just, you know, I think he’s been convinced, thrive and become more valuable over time.

Um, so, so I think, I mean, I think the risk is more around, you know, unifying the training and management and trying to. Manage the managers and manager support portfolio that had always been the challenge. Um, you know, the, the digital side. And I don’t see that and it not being a challenge. I mean, we’ve definitely, definitely learned a lot of things since then.

Um, every implemented, but I think to me, that’s the thing that still keeps me up is how do I, you know, sort of manage this, this thing more so than halfway sell it, um, or how do I buy businesses and how do I grow with it? Those things are dialed down by them reasonably well.

Ben: [00:48:09] Yeah, well, it’s certainly not going to be easy, but I’m a big fan of, uh, you know, buying these cash flow, producing

Deven: [00:48:15] private assets at a decent

Ben: [00:48:17] multiple, I mean, everything has been bid up just beyond belief.

So if you can actually find something that’s two, three times EBITDA, I mean, it seems rather. Uh, resistant to economic shocks. So a good business to be in. So shifting a little bit more to,

Deven: [00:48:37] uh, Um,

Ben: [00:48:39] kingmakers ops the fund, uh, right now. So right now you’re raising on we funder, um, you’ve raised 432 K

Deven: [00:48:50] out of a

Ben: [00:48:51] one, 1.07 million, I think.

Right?

Deven: [00:48:54] Yeah. So

Ben: [00:48:55] yeah, if you’d just talk a little bit about,

Deven: [00:48:57] um,

Ben: [00:48:59] what you’re getting as an investor, what the timeline is, uh, and just anything you can share on that.

Deven: [00:49:05] Sure. Absolutely. So, you know, we are, we’re kind of raising at the moment, really, just to, again, I think, you know, platforms like we fund are a fantastic place to kind of, you know, kind of shout out to the world, especially people that are investors that, Hey, it’s not all about, you know, startups and software and AI.

There’s some great businesses out there that actually drive great returns. Um, You know, we’re for the million dollars we’re selling, you know, 15 ish percent of the company. Cause you wouldn’t three, uh, you know, it’s, it’s, it’s a seven all pre money valuation and raising a million on that. Um, you know, on top of that, you know, I think the other thing we’re really trying to do is, um, really activate that community.

So, uh, you know, at the moment, like, you know, the average investors invested like $250 into the campaign, just because they kind of want one to watch what we’re doing or they want to diversify their investments. But in what we have now is, you know, 1300 people all across the country that are supporters of kingmakers and.

You know, one of the things we plan on activating really aggressively as the campaign ends is to say, Hey, do you have any friends, cousins, neighbors that own brick and mortar businesses that may be interested in selling, do you have chances are they do? And so they didn’t, we’ve already gotten, you know, 40, 40 inch leaves from people, um, as we do.

And he just casually mentioned it, you know, do you have. Um, you know, nieces, nephews, kids that may wanna, you know, join the management program. Right. Um, or, or do they have people that are in trade schools already that may want to, you know, kind of work with us? Um, if they want a job. So like, you know, we just kind of like, we always do.

I see the benefits of having a big community and people that have actually committed community capital are like the biggest supporters of what you’re doing. So that’s kind of the reason we’re on we’ve funder versus donut, you know, kind of more traditional venture venture funding or private equity funding routes.

Is it, you know, We will have, and we’ll do that. But, you know, I think on the other thing is our business model actually is oddly surprisingly, um, cash efficient, uh, you know, generally speaking, um, you can get, you know, 80 or 90% finance debt financing as businesses. So, you know, a million dollars to actually buy five companies that make, you know, four or $5 million a year in cashflow, at which point we can kind of.

Virtually continuous cycle by using cashflow flow to continue to five businesses. So, uh, but yeah, but you know, we fund has been a fantastic platform so far for us and it’s been, been very supportive.

Ben: [00:51:27] Awesome. Yeah. And it looks like your 430 K uh, you said about a third of the way done. So had you raised 40% and third of the way done, what happens if you don’t hit that cap of a million?

I mean, is this

Deven: [00:51:41] like a hard gap or

Ben: [00:51:42] you can operate with this amount.

Deven: [00:51:43] Yeah. Absolutely. So, um, I think that the way that we’ve under structured, if there’s a, a floor and a ceiling, the floor, I think we had was, you know, a few hundred thousand dollars. So we’ve already hit that floor. So you know, that that capital is ours to kind of invest.

Uh, the hard cap is actually a legal hard cap by the sec of a million dollars. When you, when you. You know, I’m a credit investors. So, um, that’s kind of where we are. You know, I think what we have today is, is 430 should be enough to, you know, close to. There’s not really a reason for us to stop. Like we can kind of pause in the capitalist we choose to or need to, and then, you know, eventually.

Uh, come back in October, once we’ve kind of, you know, doubled our business. Yeah. Cross fingers. Right. Um, you know, done really well with the, the initial acquisitions and, and, um, you know, kind of go out that way or continue to raise more. So it’s really not like a, a onetime thing. It’s really just a, you know, I think it’s a running process for us to always.

You know, identify people that are interested in doing what we’re doing. Um, you know, participating by investing and also following along with kind of the updates and things. Is,

Ben: [00:52:47] is this the only fundraise that you’re doing or are you doing a private round in a parallel to this.

Deven: [00:52:53] Yeah. At the moment, this is the only round we’re doing for kingmakers ops.

You know, frankly, that the money is just going to sit there for a while. So you’re in someone’s firm. We don’t want to raise more capital and you need to sit there, you know, the deals we have kind of under LOI. Um, the capital that we’ve already kind of gotten committed as a sufficient, um, you know, it’s gonna be good.

It’ll be some time to digest that, uh, those businesses right into do a good job job of, of kind of systematizing them. And at that point, I think we’ll decide, you know, if the right approach is to go raise more equity capital, or go raise debt capital, which, you know, both of which are options.

Ben: [00:53:28] Makes sense.

So can King makers ops, um, is there another company that’s following a very similar,

Deven: [00:53:36] uh,

Ben: [00:53:36] process as you anything publicly traded that I could

Deven: [00:53:39] compare it to, um, you know, publicly traded? Um, not as much. I mean, I think there’s a really interesting Royal roll up of chiropractic clinics called the joint. Um, which is neat.

I always like watching them. Yeah, I think on the digital side there, there’s a lot of really, really great examples of companies that we follow. And I’ve learned a ton from, you know, constellation software is like a $15 billion world of software companies. That’s public. Um, the majority of the, you know, home services, brick and mortar style businesses.

Um, oddly the public ones all kind of shifted to regeneration, but there’s a lot of great private companies. So, um, you know, wrench group is, is, is, is a company that’s owned by private equity that, you know, does roll ups of, of HVAC businesses. And mostly in the South South Eastern U S. So I think they’re very interesting.

We definitely watch what they do. There’s definitely some other, yeah, roll-ups um, that’s one of them. Okay. There’s, there’s a venture funded company called I think it’s called, called a team shares a which, which basically is it’s kind of solid thing, helping solve this problem for a returning business owners and saying, Hey, well, By your business and over time, we’ll kind of give shares and empower your team to run it.

So, um, yeah, I think there’s definitely some, some, some noise in the space though. We’re the only ones that we kind of know doing exactly what we’re doing, but, you know, we doesn’t wear a unicorn, so yeah. That’s why.

Ben: [00:55:03] Awesome, uh, team shares. I’ll definitely check it out. And I’ll, I’ll, I’ll link all of these things in the show notes and, um, I’ll link to the we funder campaign for kingmakers ops, uh, for sure.

So, uh, last thing for my listeners, where can they find out more, any closing words, thoughts on, uh,

Deven: [00:55:23] makers. Sure. Um, so, uh, you can visit [email protected] at your, and learn more about, about the business. Um, you know, the only thing I’d say is, um, you know, if you’re really kind of, you know, I, I kind of fell into this path of buying business because I was kind of frustrated with, um, You know, the, the, the corporate life.

And even though it was, you know, because she wanted to work on private equity. And I think a lot of my, my team members on our team had had the day job and kind of gone to school and, and kinda gotten the job there was that, and keep all day, and like, you know, found a ton of satisfaction from, from buying a brick and mortar businesses with, as one of those things where you’re kind of like, Hey, I want to do a startup, but I’m not sure why I don’t have a great idea.

Um, you know, definitely consider, you know, buying, buying brick and mortar solve business. I think it can be pretty rewarding, both kind of financially and just professional in terms of how you spend your day. So that’s certainly why we’re here. She said, we think it’s a great opportunity.

Ben: [00:56:20] Awesome. And I actually, I had one more question.

So the type of person that should invest in kingmakers ops via we funder like time horizon, who’s your ideal investor? What do they look like? How do they earn back their investment for more.

Deven: [00:56:35] Absolutely. Um, so, you know, I think there’s definitely a small bite size, right? It’s it’s yeah. You know, the minimum investments, a hundred dollars, we made an intentional just to let more particular participate, but you know, definitely don’t invest if it’s your last a hundred dollars, but if you have a, you know, you’ve considered making angel investments in the past, um, either through a crowd funding site or directly, or, you know, you know, a large portfolio of public companies that you think might be a little overvalued.

Um, you know, investing in a, you know, an affordable, uh, you know, profitable, you know, network of businesses. I think it’s certainly interesting for a lot of people, uh, you know, on the exit side, you know, I would say, you know, I’d like to say, you know, in five ish years that the will, the goal would be to, you know, kind of take the portfolio public or sell it.

In the meantime, you know, they’re very likely to pay out dividends. Um, you know, over that time, you know, with our, with our last kind of roll up, we were paying out, you know, 20 or 30% a year returns, um, with seniors, inc. It’s kind of closer to 10% of years where we invest in capital quickly. But if you like, if you like, you know, potential high dividends, um, you know, kind of value plays, um, and things like that, I think he’d definitely be a good fit.

Ben: [00:57:41] Awesome. Yeah, I think that’s something that will resonate very well. Awesome. Deven really appreciate you taking the time and jumping on

Deven: [00:57:48] today. Absolutely. Well, thank you for having me back. Yeah.

Ben: [00:57:52] Thank you. There, you have it. Thank you for listening. I really appreciate your support. Show notes, transcript links, and more can be found on our website at all.

Deven: [00:58:02] Asset

Ben: [00:58:02] allocation.com. If you’d be so kind, please share this with anyone you think might be interested. Or get some value from this conversation. If you have any questions or comments, please reach out. I’m always happy to hear them. Lastly, if you’re on YouTube, please like the video or subscribe to the channel.

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Ben Lakoff is an entrepreneur and finance professional. He has developed strong global finance experience through 10 years of international assignments in the US, Brazil, Afghanistan, Southeast Asia, Czech Republic and through the award of his Chartered Financial Analyst (CFA) certification.