What I Learned Last Week curates the most interesting content relating to business acquisitions, operations, entrepreneurship, finance, and more. WILLW is a publication of The Business Inquirer.
I’m experimenting with a peer-to-peer deal flow exchange. I write about it towards the bottom. Take a look and let me know your thoughts.
What I Learned Last Week is brought to you by DueDilio. DueDilio is the first M&A due diligence marketplace connecting business buyers and investors with quality, verified due diligence experts.
We’re seeing record levels of M&A activity brought on by free money, the pandemic, and Biden’s proposed tax hikes.
From Axios Pro Rata:
Deal volume topped $4.3 billion, nearly double the year-to-date period for 2020. It's also 34.4% higher than 2007, which was the prior record-holder and one of only two years in which $3 trillion was topped through the end of September.
The 2021 data includes $1.52 billion for Q3, which also is an all-timer. Not just for a third quarter, but for any quarter.
Q3 also reflected higher average deal sizes, or at least higher disclosed deal sizes, as the number of deals was hundreds below any of the prior four quarters.
Geographically, European deal volume for Q3 is double 2020, while the U.S. is up 32% and Asia-Pacific climbed 21%. U.S. volume comprised 44.9% of global M&A year-to-date, and 36.9% for Q3.
Tech continued to lead all other industry sectors, with a 20.7% market share YTD, followed by financials (12%), industrials (11.3%) and energy (10%).
This article does a great job of explaining the current M&A frenzy.
Nearly two years into the COVID-19 pandemic, private equity is, once again, in Congress’ crosshairs. A plan to change capital gains tax has become less controversial in Washington, making it almost unavoidable, and placing mid-market firms and service providers in the position of having to race to ensure that deals get done before any legislation is enacted.
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Andrew Wilkinson of Tiny Capital needs no introduction. They are the Berkshire Hathaway of online businesses. Jason Spanomanolis did a great job compiling the many lessons that can be learned from listening to the various podcasts that Andrew has participated in. It’s a really nice summary.
For those who don’t know him, Andrew Wilkinson started off as a freelance web designer and founded Metalab, which grew to become one of the most prominent design agencies. As Metalab grew they started playing around with building their own SaaS companies and then along with his cofounder Chris Sparling started Tiny, which is a fund / holding company that buys internet companies and grows them in the long term. They currently own more than 35 companies, recently did their first public listing (through reverse takeover) with Wecommerce, and run one of the biggest rolling funds in AngelList. They do all this while living a relatively relaxed life in Victoria, Canada, a city of about 200k people.
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Michael Dempsey is an investor at Compound VC. He wrote a really thoughtful article on speculative bubbles and how to approach them. As the saying goes “optimists make money, pessimists get to be right”.
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Low code and no code (LCNC) tools are leveling the playing field between enterprises and SMBs. It’s a space that I am actively following. Accenture has a nice write-up explaining the value of LCNC for SMBs and what this means for software and platform companies.
We have already seen tech waves accelerate SMB business growth, which is incredibly critical to today’s economy. For example, a few years ago, SMBs that wanted to sell online had to make substantial investments in e-commerce infrastructure. Shopify changed all that. The platform enabled entrepreneurs from bakeries to clothing brands to start selling online when COVID-related lockdowns forced physical stores to close.
We believe LCNC will have an equal, if not larger, impact on SMBs. Today, there is a growing set of SMBs employing LCNC to deliver value to every facet of the business by enabling and simplifying everything from customer acquisition to back-end processes. This comes at a key moment when SMBs are looking for ways to compete and differentiate against larger companies and other SMBs.
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The SaaS CFO has an interesting post on what to include in SaaS COGS.
The proper coding of SaaS COGS versus operating expenses (OpEx) is important for many reasons. First, we must understand our true, overall SaaS gross margin. Second, we must understand our gross margins by revenue stream. Third, without correct expense coding between COGS and OpEx, we cannot create the proper SaaS P&L. Finally, without a correct SaaS P&L, we cannot easily or accurately calculate SaaS metrics.
In this post, I’ll explain how to structure your cost of goods sold for SaaS, what’s included in COGS, and benchmarks for SaaS gross margins.
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Corey Turner writes the excellent Swaylytics blog about data-driven e-commerce. Highly suggest you check out the blog if you’re in e-commerce or just curious. Corey recently had a conversation with branding expert Marc Gutman and asked a question that probably many of us want to know: Can you create a meaningful company dropshipping products from Alibaba? Ok, maybe I’m the only one who has this question. Check out their conversation here:
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Franchises are not in my core area of interest but I’m a sucker for a good breakdown of various business models. Franchise Breakdown$ is a great newsletter I recently discovered that…well…I think the name says it all.
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a16z writes about the software stack for solopreneurs. It’s an area to keep an eye on as more and more companies are popping up to serve this market.
Lost in all this talk of digital nomads and side gigs, however, are the masses of independent professionals who are working on their own and making a living, but not necessarily pursuing their creative passions. Not everyone’s talents lay in the creator class. A lawyer, a recruiter, or even a venture capitalist may not recognize themselves in this new creator economy, but since the onset of the pandemic they are “going solo” — performing the work of existing professions without the infrastructure of a firm — at an astounding clip.
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I saw this posted on Searchfunder and wanted to share it. Some great lessons from a (searcher) CEO of a newly acquired company.
Some things to consider when retaining a previous owner in a business…
Great lessons in shipping your first MVP. Talks about tech but applies to any business…
How to think about non-competes and why they are important…
Something to think about when you’re fundraising…
These are some great frameworks when you feel like you’re not being as productive as you should be. For me, this is a pretty constant feeling…
Two interesting threads on the impact of supply chain disruption and what we should be preparing for…
This applies to SMB acquisitions as well…
Just keep going, the best is yet to come…
🤔 Thoughts & Commentary
Napster for Deal Flow
I want to try and facilitate more deal flow exchange between subscribers. The goal is to create a peer-to-peer deal exchange network for TBI subscribers.
Here’s my logic…
Everyone is looking for deal flow. It’s a numbers game after all.
Everyone is willing to pay a finders fee for a closed deal.
Buy-side reviews hundreds of deals in a given month.
Many reasons someone may pass on a deal. As they say “one person’s trash is another person’s treasure”.
Why not create an easy way for the buy-side to share deals with each other?
The simple idea is that if you see an interesting deal but it does not fit your criteria, you're able to access a directory to see if anyone else is looking for a similar deal. If yes, you reach out and share the deal with them. If they close, you receive a finders fee. This creates a win/win situation. In a way, you're creating your own deal scout network.
I want to give this concept a try and see if it adds value. I've put together an Airtable directory with a form for you to submit details about your desired deal flow.
Submit your deal parameters here: https://bit.ly/3ikIJkc
You can see the Airtable here: https://airtable.com/shrURcboFs6kEz9Xj
Let me know your thoughts on this idea. Would appreciate it if you spread the word. Helps everyone.
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I have a confession to make. If you signed up for this newsletter and didn’t use a generic e-mail address like Gmail, Hotmail, Yahoo, Earthlink, etc then I probably looked at your website. If you’re a searcher, your website sucks. Sorry, it just does. It’s too corporate, cold, cookie-cutter, and impersonal. But don’t worry, you’re in good company because they all suck. It’s not just yours.
That’s what I thought until last week. In the course of routine snooping on my subscribers, I finally came across a great searcher website. Here it is: http://www.danprecourt.com/. Yes, it needs to load faster, have a proper SSL certificate, and a favicon - but other than that - it’s perfect. Great job Dan! We can all learn from it.
🛠 Tools & Resources
These are tools & resources that I personally use. They may contain affiliate links so I’ll get a few shekels if you sign-up.
ProjectionHub - Access to 50+ CPA-developed financial projection templates. 25% discount.
PrivSource - Deal aggregator for lower and middle-market listings.
Logology - Best automated logo & brand identity tool I’ve come across.
DeepBench - Access a cutting-edge expert network. $200 discount.
OpenPhone - The best business phone solution that I have found. $20 credit.
Eloquens - Knowledge marketplace. I’ve bought a few guides and templates here.
That’s all for this issue of What I Learned Last Week!
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Important Disclaimer: This newsletter is provided for informational & educational purposes only, and should not be relied upon as legal, business, investment, or tax advice. This newsletter may link to other websites and certain information contained herein has been obtained from third-party sources. While taken from sources believed to be reliable, it has not been independently verified. The Business Inquirer makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. References to any companies, securities, listings, investments, or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any business, tax, or investment decisions. Content in this newsletter speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.