Kylon: Welcome to the Kingmakers podcast. Kingmakers is an elite accelerator for business buyers. We help entrepreneurs acquire their ideal business and provide them with the tools to succeed in post-acquisition.

I’m your host Kylon Gienger. Join us as we explore and unlock the secrets to successful business acquisition, growth, and exiting strategies.

Hey guys, so if you’re enjoying the podcast and you wanna take the next step in your business buying journey. There’s a couple of different ways that you can do this.

First, check out our business buying workshop. The Kingmakers workshop will give you a backstage pass to a private equity firm that acquires and operates six plus new businesses per year. This is an opportunity for you to peek behind the curtain and understand the entire process of finding, buying, and growing an online business. The workshop is limited to a small amount of serious business buyers so you can count on it being intimate and you can plan on spending plenty of one-on-one time with some of the best and brightest entrepreneurs in the M&A space. So go to kingmakers.co/workshop. Again, that’s kingmakers.co/workshop to get more information and to apply.

Second, if you are serious about buying a business. I would love to have a quick chat with you and see how we can help. Go to kingmakers.co/call. Tell us a little more about yourself. And then you can schedule a free consultation call and we’ll see what we can do. Again, that’s kingmakers.co/call. Talk to you soon.

Hello everyone and welcome to the very first episode of the Kingmakers podcast. I’m your host Kylon Gienger from kingmakers.co and today on the show we have the founders of Kingmakers, Hayden Miyamoto and Deven Soni.

Hayden is the founder of NoHatDigital and co-founder of Wired Investors and Mediablock. He’s built and scaled several seven-figure online businesses. Has trained thousands of people in digital entrepreneurship. And has deep experience developing systems to scale websites.

Deven is a former internet focused venture capital investor at Goldman Sachs and Highland Capital Partners where he helps fund several top media and software businesses. He’s also the co-founder of Wired Investors and Mediablock.

And so together, Hayden and Deven co-founded these two different acquisition firms. They’ve analyzed thousands of deals and purchased and operated twenty plus businesses in the past three years. And we’re excited to have them on the show and we’re excited to launch this podcast.

And so, Hayden, I’d love to start with you, man. The intro we have but please fill in some of the blanks. And tell us a little more about your story and background.

Hayden: For sure! Thanks for having me, Kylon. Yes, so I started out in online entrepreneurship when I was seventeen years old. I’ve never actually really had a real job, so to speak. I guess I’ve been a digital nomad living in Mexico. Splitting my time between Mexico and Toronto for the last seventeen years now.

Like you said, I founded pretty much every type of online business you can think of. My sort of MO recently has been to actually bring down entrepreneurs. We’re flying entrepreneurs to the small town in Mexico I live in. I train them on how to operate businesses and keep them on as managing directors of those businesses. Originally, that was businesses I founded and then in the last few years, it’s been businesses that we bought.

Kylon: Talk about Valle de Bravo. I’m sure some people who are listening are curious and some of them might end up down there one day.

Hayden: Yeah, it’s a beautiful town. My wife was basically raised here. It’s a town of about 70,000. Lots of nature, mountains surrounding a big lake. I mainly—it’s been sort of this weekend playground for the affluence in Mexico City. We moved here because we had two small children. They’re now larger children and Mexico is just a great place to raise a family. A lot of community here. There’s also not a lot of English speaking people here. You can probably count them on your fingers. So I kind of got into importing friends with this business.

Kylon: It’s a great way to put it.

Hayden: We brought in probably 50 plus people down for over 3 months. People lived here, worked here, learned Spanish (you know) made friends. And in one case another one of the founders of Wired Investors met his future wife here. So yeah, it’s been definitely a different way to run businesses. But that’s the advantage of online is that you can really operate wherever.

Kylon: Yeah, for sure. And for a little bit of background. Hayden and I actually met for the first time on a podcast that I have launched in 2016. It was the very first episode and anyways, we ended up working together. I ended up going down to Valle de Bravo as well. Heading down there a couple of weeks here. And it’s just a beautiful place. I would highly recommend it.

Deven, onto you man. I know that you’ve probably got your air pods in and you’re maybe on one or two other calls at the same time right now, but would love you to add a little bit more color to your background and tell us a little bit more about your story as well.

Deven: For sure, thanks for having me. No, it’s a slow week so just this call for now. But thanks again. I’m excited to get this started. My background is pretty different from Hayden’s and it’s probably the reasons we kind of get along so well and have really complement our skill sets. I spent of my life living in California in the bay area. And ever since I was in high school, I sort of knew I wanted to do finance and work in that kind of world. I didn’t really know the nuances of it back then. And I originally wanted to work in investment banking and kind of feels like that and I grew up loving to read the Wall Street Journal kind of stuff—in addition to video games and stuff like that.

Kylon: I was gonna say, that’s like your favorite past time growing up. That’s pretty unique.

Deven: Yeah, you know I just loved to read and I kinda fell into that. Reading a couple of finance books and it struck a cord more than the other stuff. I went to UC Berkeley up in the bay area for undergrads—studied finance. I got my first job in my early 20s working in investment banking and (helping) being a small part of a big firm that helped companies like Microsoft and Amazon, and Electronic Arts, and Google. Buy businesses that were to them. That was my first experience as an undergrad. I really really enjoyed it. I learned a ton. I also realized that one of the things I didn’t love about it was that you do these deals, you help a company and build a strong relationship, but you leave and go on to the next thing and the next client. I really just wanted to build this long term relationship with people and partners for a longer period of time. So thought that venture capital would be something to look into and eventually got a job working at Goldman Sachs in their resident division.

A lot of people don’t know—a lot of people know Goldman as traders, investment bankers…but they also have a pretty active private equity group which makes investments off of their own balance sheet and from the capital of the partners of Goldman. They invest in everything—from bridges and tunnels to tech startups. I was a part of the division in investment and technology companies. And that was everything from semi-conductor companies to software companies, to media companies and everything in between. So that’s where I spent a couple of years on. It was like this hyperactive period in Goldman where I was in the year 2000s right when that group was really growing rapidly. So I think I was there and I probably helped invest a little over 200 million dollars into almost 10 deals. And learned a ton.

One of the things that happened while I was there was the group started growing—I spent time going from looking at smaller deals and spending time with the CEOs and the people who started the business  and eventually we started looking at bigger companies. We spent much more time with the controller and the junior DP of finance and folks like that. I really just liked working with entrepreneurs and business builders a little bit more than the finance team of some big company. And because of that I looked into transition and eventually joined a slightly smaller venture capital firm called Highland Capital Partners.

That was the firm that launched the original dot com boom in the 90s and funded some of those seminal early internet companies—technology companies and got on from there. Where I spent a lot of my time was doing some more creative deals. So buying divisions out of public companies or funding companies that were rollups—meaning one company’s strategy to grow is buying businesses. There’s where I learned about this space. And I was intrigued because I learned a lot ways to—a lot of really inefficient businesses out there, a lot of companies where owners aren’t excited about running a day to day business, they’re probably looking for an exit path. I was really intrigued by that. So I went from there. I was there for a period of time and helped with a bunch of deals. So I got this real entrepreneurial itch to construct something on my own.

It’s right around the time I met Hayden actually. I was winding down from my professional career looking at doing something else. I was actually enjoying one of his internship programs back in the day. And right on that time I was also poking around into starting a small e-commerce business. Interestingly that e-commerce business ended up taking off right at the time I met with Hayden. So we weren’t able to work together more fully at that time. And that company took off and kinda grew to being very time consuming to getting a bunch of national attention. So I spent time at that business with the co-founder.

Over time, after 2 years of running that business, my co-founder had to take over and I was looking for the next thing. I got re-acquainted with Hayden. And that’s when we started looking at buying larger—not larger but big enough to be interesting to people kind of software and media companies. And we did our first deal first deal together back and you know 2015 or 2016. That’s how we got started with with Wired.

Kylon: Yeah love it man and really quick kind of on yours and Hayden’s partnership you kind of mentioned how you met but you know how do you guys kind of work together how do you complement each other—you know I’d be interested to hear that just just briefly. I personally, I’m always interested in great partnerships. I’ve had one for several years now and it can really be a neat thing when done right and of course a lot of them you know go wrong as well too but you guys seem to have a real synergy.

Deven: I can…I’ll kick off and you know he can chime in as well. You know on my end, I had…but I’ll probably just call it theoretical and textbook driven experience as well as a good level of background on the finance and legal side of you know… kind of just finance. And that you know related to things things like business ownership and raising money and capitalizing deals, and structuring them and modeling things out like that and that’s kind of where I think a lot of my skills came from.

What I didn’t have any experience doing was really kind of growing a business or building a team. And those are 2 things that Hayden had a dramatic amount of experience in. And I’ll let him out on that. But you know where I think I just kind of initially added value was really around some of those things is the institutional side of raising capital and the legal side of working with law firms and things like that—which were things that until you do it you just don’t have a lot of knowledge base. But that’s where I think I let Hayden to see in myself as well.

Hayden: Absolutely, I couldn’t agree more. I would just add… both Deven I are very growth oriented people and I think we’re both trying to absorb as much knowledge from each other as possible. So I got really fascinated with the finance space—you know having never even gone to university, it’s not something that you run into normally and then likewise is also being quite interested in learning the growth side. So you know I think the fact that we both love learning is you know one of the things that keeps us friends and partners.

Kylon: Awesome! So Wired Investors. You know, I’d love to go a little bit more in depth there. You guys started that up it sounds like around 2015. And what was sort of the business model there and what was accomplished over the next few years? That can go to either of you or both.

Hayden: I’ll start. Deven and I and another co-founder at the time, we’re looking at businesses to buy. In a space there—it was very fragmented there were a few different sort of business brokers. A lot of businesses tended to be on a much smaller side—you know business you buy for $100,000 or less. And the multiples you buy it for say 3x their earnings. And when we started looking at businesses we were sort of looking at that size and it just became very clear that it’s the same amount of work to grow a business that’s making $1,000,000 a year as it is to grow a business making $10,000 a year.

And so we just we just really started looking at a lot of different deals and eventually a friend of mine who I’ve also been on a lot of his podcast, Spencer Hawes was interested in selling his business. And it was a business I had a lot of experience in so we decided we would run with it. We had some great success quite early and we sort of looked at scaling the thing. Yeah…anything to add to that, Deven?

Deven: Sure. So I think that was exactly right. I wan to add quickly to that. There was a lot of activity and I cut my teeth on looking at businesses to buy on sites like Flippa where people are selling businesses or sites. So if you come at that stage for $10,000 (something like that). And I actually kind of picked up a couple as a hobby and kind of poked around with them. And bought that. We just had WordPress back in the day and figured out how to operate the thing. And you realize really quickly that it’s the exact same amount of work to buy a business that’s 100 times bigger. But you actually have more credibility to invest in growth, invest in a team, and you must have these tailwinds that make just life easier in general.

So that’s where we got started. We bought a business that was a pretty good scale. To Spencer, that was also well known. Because we bought that business and it was sort of well known, we ended up learning a lot, meeting a lot of people that were interested investing in deals like this, meeting a lot of people that are interested in selling deals like this. So the flywheel got spinning probably a little quicker than I would anticipate anyways. And basically we ended up seeing a lot more really high quality dealflow. Seen a lot of interested capital partners and really just put the two together and went off to the races.

Kylon: And so then from about 2015 to now, I guess you’d mention it really kind of took off. You go over really briefly what was kind of accomplished. At one point, I think that you guys were acquiring a business every…was it you know every quarter or even more than that?

Deven: Actually I think the pace… at our peak pace which is probably kind of you know late 2016 early 2017, we were buying almost a business a month and you know we had outsourcing a team of 3 people that were kind of scouring the internet looking for dealflow. We had built these systems to do diligence. Built a really strong process to onboard and build growth plans and actually execute. And it was a pretty exciting time because there’s a lot of opportunity. We’re meeting a lot of interesting people in the space and building what we think is probably one of the biggest firms in the space really quickly and organically. So that was super interesting.

I think over the period of 2015 to 2017 we probably ended up buying nearly 20 companies. And we still operate most of it today so it’s certainly been super rewarding to just make all those learnings and mistakes much more quickly. I think a lot of people that do these acquisitions are by companies. We’ll do 1 a quarter, 1 a year. And you know we’re kind of really really active even in these large venture capital environment. So the fact that we run such a fast pace, I think it has really accelerated our learning. So we made our mistakes quicker, we identified our wins quicker. And it just iterated much more efficiently and it’s where we’re at today.

Kylon: Yeah for real man. And I do wanna go into the genesis of of Kingmakers then and how that sort of came about from your partnership and from Wired. But you had mentioned mistakes and I know and I’ve talked to both of you a little bit more about Wired and that period and you both described it as this time when you really…you decided to really cut your teeth and jump in and really immerse yourself in it and essentially make and learn from as many mistakes as possible. And I’d be curious if you want to touch briefly on what you think some of the most valuable mistakes you made were in in this space or maybe the most?

Deven: Yeah I’ll let Hayden start and I’ll fill in the gaps.

Hayden: Sure. We move very fast. You know, move fast and break things. And honestly I think my motivation at the time was actually just to move fast get out a large gamut of experience in the space and then sort of figure out…learn from those mistakes and figure out what our best investment thesis would be. So we bought all sorts of businesses. We bought a lot of media publisher businesses. We bought SaaS businesses. We bought services. We bought a service company. We bought a lot of businesses. And I would say that was one of the first mistakes that we learn from which was just to figure out exactly what our bread and butter was I and it took us probably about 8 businesses in or so to figure out exactly what that was. The other large learning and you know Deven can attest to this from his experience in venture capital—it is just how important diligence is and how important it is to get writing. Create just this bulletproof process. And that also took some time but I would say a year. And diligence and dealflow, they were really our strengths.

Kylon: And I’d actually love to go a little bit more in depth there because I think a lot of people listening are listening because they are interested in continuing to acquire businesses or to acquire one in the future or even just to manage and continue to scale one which we’ll have episodes on that. They’re coming down the pipeline here. But you know dealflow and diligence. I know that through this process you guys have developed quite the proprietary system and I don’t feel like it’s something… especially as I started to work with you guys it is very clear how critical those systems and processes are just like you had mentioned. And so I’d love for you guys to touch a little bit more on in maybe just a broad overview of the dealflow and diligence process because it’s one thing to just say those words. It’s another to really understand the level of work that goes into that process and the result that you can get at the end of it.

Deven: Sure I’ll start and it’s a really good question. It’s one of the things where you can just start doing without knowing anything and feel like you get the job right because all it is is really—we all don’t don’t just ask questions, right? I don’t ask questions but I think as you start learning more about businesses and start seeing things that have gone wrong, things that you’ve made amiss in various deals. You start really figuring out what the questions that matter are and how to kind of stage them as well such as…there’s also an innately personal relationship building component to this so you can’t just propose to someone on the first date. Yeah you can’t ask them how many people they hooked up with since high school or whatever on the first date, right? It’s kind of this nuanced thing as well.

So you know to take us one step back on the sourcing. What we really did a really good job of is taking what is inherently a very very time consuming manual process and adding a good level of automation to it. And some of the automation (as you know) are software and tools based and some of the automation is just using systems such that you don’t have to do the work yourself. And really part of that was us knowing a lot of the external tools that existed. Building tools when tools didn’t exist and then constantly we’re finding the bats. And the biggest part actually you end up even being just kind of figuring out the types of ways to reach out to people as Linkedin and better than an email. If you’re doing email, what’s the right headline. All those things can dramatically increase the responsiveness of people that are business owners and can give you just a larger set of potential targets and companies to work with.

On the diligence side, I think we really categorize it into a couple areas. One is financial. Meaning, are the things that are being… Actually, I’ll take that step back. One is really just knowing what types of things you really want to ask for in terms of materials that you want to use to evaluate the business. Things like old contracts and financial statements and historical transactions and analytics access. All these things that you should ask for because people aren’t gonna. The boss they especially don’t ask for. So make sure to have that complete list.

Secondly, it’s: what are things to be looking for that really matter. What are the key risk factors in the business. What’s the customer concentration? The tropic concentration? What are the key things that are actually driving revenue? That kind of stuff.

And then third here really is is probably the hardest and the hardest to get right, is really a lot of these personal issues—which is: What are that the team members actually doing? How much time is the owner really spending in the business? Are they the chief sales, the driver lead generator for the business? How hard is it to replace these people and how motivated are the folks that are around? All those types of things are really really tough to get right and I think it’s very nuanced. But some of it are over—probably the hundred deals which are initiated we’ve gotten better at.

Kylon: Anything to add to that, Hayden?

Hayden: I think there’s a lot to add to that, but as a high level overview I would just say that a lot of people with their exposure to business buying is really based on what exists in these online brokerages. And the fact of the matter is, I would say if we looked at the dealflow available from those brokerages and sort of looked at our diligence systems, we may be able to buy 1 or 2 businesses a year. And we’re competing with dozens of other buyers. So it is really important to have a sourcing process because we may initiate conversations over the course of the year with 50,000 people in order to buy 20 businesses. And you know it is a numbers game. You definitely want to get at least 3 LOIs out to buy one business. And to get those LOIs, you definitely want to probably be looking at at least you know 30 to 50 businesses in some cases. So I just really want to hammer that down that the 2 really go hand in hand.

Kylon: Right. Right… And Deven kind of made a good point which is that you can start doing dealflow and asking those questions and figure out a decent set of information to ask for or you know places to find a business to buy. But again, I think you guys have sure refined the process over the last several years of having just analyzed thousands of deals. I can personally attest to this… quite the system that we have down now. Hayden, you kind of mentioned about different online brokerages and I don’t know some people listening maybe wondering I guess… where do these websites to buy exist and why are founders selling them or what are the typical reasons that you know we see that happening? Can you speak a little bit to that?

Hayden: Yes. We’re sort of in this like new era of businesses built on top of online platforms. So like businesses built on top of you know search engine rankings or Facebook traffic. And a lot of these businesses I would say they were started by 1 or 2 people. They’ve never been venture funded and I would almost say that these people kind of just lucked into the business. And because of that the business really became what I would call a lifestyle business, right? So a lot of these people are traveling the world and you know making maybe 20 or 30 thousand dollars a month and just living really happily. But they’re not really business people, right? So a lot is being left on the table. Because there’s no prior funding and because they’re generally individuals, the prospect of selling the business and having a million dollars plus in the bank is is very very appealing to these people. Because it can be a life changing amount of money so that’s why they sell.

Kylon: And you kinda mentioned that a lot of these people, they may be entrepreneurial they may be… you know take these risks and maybe lock out, build a decent business but they don’t necessarily know how to continue to run that business or scale it and so I’d be curious to hear what are the types of things that you guys do to an online business that hasn’t already been done by the founder that can significantly generate that growth and higher valuations of the assets.

Hayden: So one thing in common with pretty much every business is conversion rate optimization. Nobody does it. Everybody should. It doesn’t matter what the business is. It’s just doing sort of A/B split tests. Even doing initial usability tests to make sure that the site is is optimally designed. We can generally count on getting a 30 to 50 percent lift on any business that we buy. And of all businesses we’ve looked at, I’ve literally never seen one that has actually said yes I’ve done pricing testing on you know some kind of a SaaS offering. Or one that yeah on my top traffic pages I A/B split every month. Right? Not a single one. So that’s one thing we do.

What I wanted to sort of add a little bit more color on before on the diligence side is that the diligence is very different depending on the type of business you’re buying. A publisher is very different than a SaaS business. What we found with Wired was that publishers was at least Wired’s bread and butter. And some of the things that we would do is whenever you buy a business we have a growth plan. That growth plan includes ways to grow the business and also ways to mitigate risk. The diligence process is also really highlighted around. What are the risks? Are there certain pages that have a very large percentage of traffic and if they lost the rankings, the business will drop it’s revenue by half. That type of thing.

So on content business, it’s a lot of that… it’s just… okay, can we publish more content cheaper. Are they taking advantage of Google news? Are they taking advantage of Quora and Reddit? Are they doing keyword research well? Most people aren’t. Can we drive content costs down? Are they all Californian writers? So those are all sort of things we’re looking in on a publisher side.

But also on the monetization of that traffic that they’re generating, the most basic thing possible is: can we just negotiate a better rate with the affiliate or advertising network that they’re using. And 9 times out of 10 we can. And 9 times out of 10 they haven’t. You know the sellers never tried to.

Kylon: And I know you often talk about bags of tricks and you kind of alluded to you know a couple— but what are some of the other I guess tricks that you can kind of… I know for instance cross selling is is one. What are some others?

Hayden: So if we’re looking at just a single business and not sort of creating a portfolio but just a single business… I would say if it’s getting a lot of traffic from Google, there’s a lot of certain optimization that I have got sort of a lot of experience in terms of like click-through-rate optimization by going through webmaster tools and optimizing titles. We link build at scale better than a lot of large agencies so that’s sort of another side to it. I would say a large part of the publisher’s site is SEO.

Kylon: Right. And you mentioned portfolio. It’d be interesting to talk about that a little bit and Deven alluded to it a little bit earlier. You know the difference between buying just a single business or creating a portfolio. You obviously…you’d probably start with a single business but then keep attaching other businesses to that. What are the advantages there? I guess for people listening why would they want to do that?

Hayden: So you had alluded to it before. You know cross selling is a large piece so when you approach a business like a portfolio, the question you have to ask yourself is if I buy this business and I just cross sell to the other business or businesses in my portfolio, can I grow it by x percent. Right? In that sort of where having an actual thesis makes a lot of sense. So with Wired we ended up creating 2 portfolios to roll up recoils. One was in the marketing tools space and the other was in the pet space. But yeah cross selling is a large piece of it. You know if you buy a publisher, can you dance all the digital product? When you’re now selling their digital product, you’re monetizing better. Can you sell course? Is there room for FBA and physical products. You can all combine. And then at some point, can you brand everything together, unify it and essentially put it all under one name such that if you were to, can you then open up like a new buyer universe and sell for higher multiple which Deven and I did.

Kylon: Yeah, Deven, I’d love you to touch on that a little bit. The kind of multiple arbitrage concept.

Deven: Absolutely. So yeah, I think one of the really fascinating things about this space is that you know the area that we like to spend a lot of time…it’s kind of a bit of a gap in the market. The deals that we generally acquired on our own are ones that are either too large for individuals—meaning people that dig up cash in their check in the counter and on the couch cushion or whatever. But also too small for most institutional buyers that have raised external capital and what that means is there’s a real gap in the market and because of that gap in the market, valuations are lower than what they would be for business that was just a little bit bigger.

As an example, companies with under one to one and a half million dollars of annual earnings, which you know for any kind of individual is a pretty good living. But still many even small cap private equity firms only look for firms—you know companies with like $2,000,000 earnings or $5,000,000 earnings. So banks are the same way. So what can happen is that companies that are a little bit smaller might trade for 2 and a half or 3 times earnings and the seller may not have a lot of other options to sell the business. Meaning, less demand so the price can go down. But you know if you just do some of the things that Hayden mentioned and treat the business, buy 2-3 related businesses together you might be able to sell the combined portfolio for something that you buy for 2 and a half to 3 times earnings. You might be able to sell for 6 times earnings or something like that, right? And that’s just blocking tackling kind of growing and not that complicated.

And you just kind of really open up to a different buyer universe, right. It’s like house flipping. If you see a lot of homes with 3 bedroom one bath somewhere and if you ever want a 3 bedroom 2 baths home, you take some square footage from the dining room that no one uses and turn it into a bathroom. People just want to pay more for not a lot of work. And you know I think it’s kind of similar in the business buying world. There are just certain people that have certain preferences and you know when you find a preference that a lot of people have which is deal size, you just get a lot more competition and the prices tend to go up.

Kylon: Yeah love it. And this again would be to you Deven, some listening might be thinking you know… how do I acquire a business for 1.5 to 3 million dollars. Obviously you’re not paying for that all out of pocket and wouldn’t recommend that either, but give kind of an overview of some of the ways these deals can be structured.

Deven: Sure so there’s a lot of things you can do. There’s been a continuum from what the public call the easiest, most attractive source and our least attractive source of capital and that also is because of the interest rate and the cost of capital, right. Some types of capital, we pay a lot more for some they tend to pay a lot less for. Obviously, the easiest thing to use is to buy cash and we wouldn’t recommend it for 100% of the business. But there’s always a component of it—it’s just paying cash right out of your bank account. And generally you can do that as much as you like. We don’t typically see a lot of people putting more than 60-70% percent of the purchase price in cash. Sometimes you can do a lot less if you use some of the things I’ll mention later. But you know you know often times people will do a deal that’s 60-70% percent cash and then the rest you can figure yourself out.

One other tool that’s really common with deals this size is seller financing. Meaning the actual seller will take less of the money up front and you can go ahead and actually get a loan from the sellers themselves to buy the business or do some sort of an earn out meaning. There are certain metrics that need to be hit in the business for the funds. You need to pay this fund. So for example, the company’s been making $100,000 a month every month for the last 2 years and you want to buy it for I don’t know $3,000,000. You could say that you need $2,000,000 in cash now. That $1,000,000 I’ll pay you $50,000 a month as long as the business actually earns $100,000 in revenue or something like that, right. So that way the sellers taking some of the risk are more motivated to help you with the business review response if there’s issues. So that’s always a really nice thing to use. I think we’ve used some form of seller financing for the vast majority of probably 70 percent of deals we’ve done. That is probably a lot more money. Cash is king and you can pay less if you do a cash, it’s something we’d recommend.

There’s also several bank financing options that are really attractive. Depending on your personal situation if you have any kind of a credit or collateral using tools like the SPI in the U. S. and it’s prevalent in Canada and places like that as well. But using bank financing that’s government guaranteed to buy these businesses, usually the length of the loans are a pretty solid. You can generally borrow for 5 to 7 to 10 years. Interest rates are in these days 7.5-8 percent. Who knows what the hell it’ll be at the time of publishing. But generally speaking, the really nice thing is the loss of often lender lower the percentage of the purchase price often up to 80 percent. Often even occasionally sometimes a little bit more so that can be really appealing if you don’t have a lot of down payment and you want to buy a bigger business. The one downside is some of these assets financing is they may require some form of personal guarantee meaning if the loans don’t pay back, the business can’t pay it back, then you as the borrower may be on the hook for that payment. But it certainly offers form of leverage. We’re still big fans of that type of financing. On top of that there…

Kylon: I just wanted to interject for a second here, if you didn’t connect the dots when Deven is talking about bank loans at 8 percent interest rates amortized over 5 to 7 years. What’s important to understand is that if you structure a low multiple deal correctly you can put in just 10 percent of the purchase price and actually get your money back in about a year. And I just think that’s really crucial for people to understand since most people might think like, oh man not only do I have to allocate all this cash to down payment, but it’s going to be tied up in the business for years and that’s just not the case if you do it right. By buying the business at a competitive multiple and using the right financing in structuring the deal correctly, you can get your initial investment back in your pocket in like 12 months. And so again just think that’s really important to highlight here in with that we’ll go back to Deven as he continues to talk about different ways of of financing a deal.

Deven: You know we’re big we’re still big fans of that type of financing on top of that there’s you know external investors. And those are kind of debt investors. Meaning people that once who lend money at a stable return. So often people that just wanted an income stream they don’t have much money in the bank and instead of earning 2 percent on a checking account maybe they’ll lend to you and earn 10 percent or 12 percent a year or something like that. And they’ll be kind of senior. Meaning—maybe let’s say you borrow 20 percent of the business using some sort of debt financing from external parties. That means that it’s a million dollar business. You have $200,000 at 10 percent interest. The interest rate is going to be something like 20. That’s $40,000 a month. That’s kind of senior, meaning if you can’t pay that back then you basically, the lender can the business. But the odds of your business declining that much are pretty low. So it’s pretty low risk, right. It’s all risky and that’s why you pay the return you do but it’s a lower risk.

And the last thing also try to just invest your equity and this is what you’d expect—someone actually buys a percentage of the business. And you know the benefit here is it’s not like you’re obligated pay that back if there’s a quarter a year with businesses that make money. Tough luck—that person is not getting a payment or distributions. Or the business shuts down, they’re not getting anything. But the upside is it does really well. They perform, they get a percentage of the profits and percent of the equity value based on what they’ve invested. So that’s the continuum. Obviously seller financing is the easiest to get. Super common in almost every deal and it goes down the spectrum to things that are maybe a little more expensive.

Hayden: One thing to add in terms of forms of seller financing or sometimes people would call as holdbacks, you can make them contingent. So a large part of our diligence process like I mentioned before is about identifying risks and if there is a larger risk on a business we may very well put a percentage of the business—let’s say 30 percent of the business as holdback payments but those payments are based on essentially that risk. I’m not actually seeing it’s all happened. In many cases we won’t buy the business if we don’t have this contingent holdback, right. I just want to add some colors to that.

Kylon: Well something else you may add some color to as well that I know is along the lines of risk mitigation would be warrants for purchasing portions of the business you must speak to that really quick.

Hayden: Sure so one thing we did with our last rollup venture is we structured our deals to buy a minority in businesses and then have a warrant for a year—purchase the rest of it. So it gives us…it really diversifies risks, it diversifies risking a business, it diversifies risk in the partner in case the partner we’re working with is just not a good fit for whatever reason. And in a couple cases we also didn’t even buy any of the business we just literally bought a warrant. We just said, “hey we’ll pay you x dollars in order to have a warrant for 6 months.” And that gives us time for us to sort of play with the business growth a bit and we can strike on that option only if it checks all the boxes for us.

Kylon: So are you typically able to do that and actually gain access to the business and operate it? Is that what you’re meaning?

Hayden: So we’re not necessarily operating but there are things where we basically apply our bag of tricks. And that’s part of the benefits of the seller in terms of to put this option in. So they’ll get a lump sum of money but at the same time we’re also going to add a bunch of content, add a bunch of backlinks, help with some conversion rate optimization and grow the business. And so that warrant is not—the strike price is not defined necessarily as a set dollar amount but rather a set multiple. And the idea is that you know we’re helping grow the business and then effectively buying it for more.

Kylon: Right. Love it. Yeah it’s a long story short. There’s a ton of different ways to structure deals. Seems like it’s limited by your own creativity. One other thing I want to touch on is what type of person do you think is ideally positioned to purchase an online business.

Deven: That’s a great question. You know it’s one of those skills that I really do think can be be learned over time we’re probably the best example of that. But you know we’ve really seen 2 types of people that are really interested. One are people that are more entrepreneurial by nature—meaning people that are interested in starting businesses and know how hard it is especially during that kick off period of the year 2 or 3 where you’re just not having a lot of revenue. You need to spend a bunch of money and so much time. You don’t have a lot of data or traffic to optimize your business from.. And people have done that and maybe succeeded with that but now we’re kind of ready to shortcut that process and buy a business so that you can start improving something that already has some some legs.

The other I would say are folks…and we see a lot of these people and I think they over time become really good business owners are people that may have had more traditional career for many years, have some savings and are kind of burned out with or is not excited about the career path they were on, want something a little more independent, don’t want to go from being at a point where you didn’t have a stable job and income and things like that to go to start from 0 to start your own business again. But really do you want to start something that has some history? Some clients maybe a bit more forgiving because of that. It may provide financial stability because of that and there’s a lot of work that you need to put in at the outset to learn how to operate people—operate if it is due today. How to manage and motivate people. Some of the technical side of the marketing and growth and managing things but you know I think that these types of folks often do become really good operators over time. It just takes some time.

Kylon: That’s great! So we’ll start wrapping it up guys but you know I’d love to talk about Kingmakers and its genesis. So let’s go to that for a second.

Deven: Sure I’ll kick off and Hayden can fill in some gaps. After us evaluating high hundreds if not thousands of businesses, buying almost 20, I think we’ve gotten really really good at the front end of doing that. The sourcing, the diligence, the on-boarding, and we think that those things just end up being really hard and challenging. And we’ve done that work up front and we really want to share the benefit of that with other people that may want to buy a business. We’re big fans of sourcing deals vs using the outside brokers sometimes because they can be so competitive and you don’t always find exactly what you’re looking for. So what we want to do is provide a service where we work with partners to actually almost create like an accelerator to accelerate their path from wanting to buy a business. Maybe think about it for a while. Maybe looking at some listings to actually being really confident in operating a business. Finding the right business for them. On-boarding that business to reduce the risk and then kind of providing a level of guide and support post-acquisition.

The other thing is our goal really here is that we love this asset class we’re very long and kind of a small business. What we’ve also realized is it’s just really hard to for us to…you can’t buy everything, all money… So for us it’s like, let’s see what we’re good at and you know basically work with people—what they’re good at and let them be really motivated to kind of run businesses that we can also invest in, help with, and join to succeed together. So that’s kind of the genesis of Kingmakers. And you know I think that what that really means to us is just having a partner to provide the actual level of confidence in this process which you know is pretty uncertain. It can be a much bigger endeavor and much more expensive endeavor than buying a home yet there is what I always say much fewer resources available and much smaller peer set and a support network. So what we want to do is build a lot of that infrastructure to make it easier for people to take that leap to buying a business.

Kylon: I do want to go back to Hayden and have him touch on Kingmakers too, but you you did mention something I want to go back in and touch on this really quick before we do end which is online business. Obviously, a lot of these sort of concepts can apply to online and offline business and different sizes of businesses, but what’s so compelling about this particular type of asset to you? Why are you excited about it why should other people be excited about it?

Deven: Absolutely. It’s a really personal reason for me but I think it’s also not practical. When you’re looking at an online company, it’s often one that can be run from anywhere. Meaning you don’t have to let’s say choose to buy a laundromat instead. It might be just the same evaluation and you can go and risk. But if it’s the only laundromat available for sale and it’s in Omaha, you may not want to move to Omaha. Where as with the majority online businesses that are software-based or content-based, you can kind of run from anywhere. There is a host of experienced staff and operators and providers and agencies you can hire globally to help operate and manage the business. It’s also a little more scalable. If you wanna—let’s take the analogy further…let’s say you want to become the Warren Buffet of laundromats. You can buy one in Omaha and the next one you need to find it nearby. Otherwise, you don’t really get the benefit of scale. Whereas the online site again, you can scale up your portfolio much more efficiently because you can relocate everything. You can’t start an office in your hometown, but then I think you can really just do it from from anywhere and you also can get the scale globally. You can’t get a lot of customers in California for your laundromat in Omaha. Whereas you may get customers for your software tool from California or Argentina or wherever else. So you have this global customer base. So you really have a lot more scale. This business can get much bigger as well.

Kylon: Love it. Hayden, anything to add to that?

Hayden: All I saw was a lot of people get into these online businesses in the first place they start them in the first place because it’s so much easier to possibly own them. And I would say for sure if we had bought 20 local businesses we definitely would have been drawn into the day to day operations. Whereas with these online businesses it really is easy to become like a passive owner and let the business work for you. And that’s something that has always attracted me about the space. It’s not only the scale but how easy it is to become a passive participant in the business.

Kylon: Business working for you instead of you working for it. I love that. And then Hayden, anything else to add to what Deven was talking about with Kingmakers?

Hayden: I think you definitely hit the nail on the head. I like to think of us as an accelerator for people who want to to buy businesses and our long term goal is to also be an equity participant in those businesses.

Kylon: Awesome. And so last question to each of you. Is there any parting advice that you’d have for any listeners just interested in getting into the space?

Deven: I’ll do one. Though that service offering, I think it’s really true which is—I think a lot of times people are stalled in this process because…a few things. One they go to the site—this platform where these deals are listed and don’t find something that’s offered for them. Or 2, they just find it very overwhelming. I think for me coming from a really non-operational background, it took some time but it’s certainly one of those things I was really able to get my hands on pretty efficiently. And secondly, there’s just a giant world of businesses out there beyond the ones you see advertised and brokerages. I think certainly I had to think outside the box with how to find the business. You’ll find something that’s a better fit for you that actually may be a better value as well.

Hayden: I would say if you’re looking to buy your first business and you don’t have a ton of experience in running online businesses, probably look for the simplest business model possible. So don’t jump into trying to run a SaaS business or even a service company. But I would recommend like a publisher or an FBA businesses. They’re quite easily learn. And yeah start as simple as possible.

Kylon: Fantastic! Well folks you are the average of the 5 people you hang around the most and today you’ve been hanging out with Hayden, Deven and Kylon learning how to build your business empire. For more information or to get in touch head over to kingmakers.co and always remember to build beyond business.