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.
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Hello Friends!
I was out all week performing my civic duty by sitting on a jury in Federal court (see bottom). This wreaked havoc on my schedule. Clearly, I missed writing the Tuesday TBI newsletter. Weâre now back to our regularly scheduled program.
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đ° Articles
Jay Vasantharajah is a real estate and private equity investor focusing on software and tech-enabled businesses. He writes about CAPEX in software businesses and how itâs a misunderstood metric.
In software, capex is basically R&D expenditure or salaries paid to developers. Accounting rules give businesses the option of capitalizing these costs onto the balance sheet as assets. You need to, however, prove how specific developer costs actually created intellectual property (aka an asset that will generate future revenues) to accountants/auditors, which can be hard to do. And even when you do manage to properly capitalize R&D costs, each year that goes by, youâll need to prove the asset value still exists. Choosing to capitalize can also be risky because if you over-capitalizing, or improperly impair or amortize the intellectual property youâd be breaching accounting standards. As a result, capitalizing R&D costs is a massive administrative burden.
Demystifying Capex in Software Investing
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Session #15 of the free SMB Legal M&A Masterclass talks about selecting the right purchase agreement for your transaction. Most transactions can be broken down into asset deals and equity deals. Each has its own nuances and itâs important to tailor the purchase agreement appropriately.
The first thing to do when choosing the right form of agreement is understanding your seller.
In an asset deal, identifying the seller is usually pretty easy: the company itself is the seller of its own assets! That said, watch out for subsidiaries and affiliates. This is where legal diligence becomes your best friend. The last thing you want to do is get down to the goal line before closing â or worse, cross the finish line and close â before realizing that some material assets are actually owned by another entity.  Every entity that has title to any of the assets you are buying should generally be a party to the agreement.
In an equity deal, itâs the owners of the target company that are the sellers of their equity interest in the company. This means you donât have the same subsidiary concerns that you have with an asset deal, because a subsidiary is included in the sale as an asset of the company being purchased.
Once you have your head around the right parties, itâs time to start drafting!
SMB Legal M&A Masterclass - Session #15
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Kyle Poyar is an investor at OpenView with a focus on SaaS. He often writes about product-led growth and the drivers of revenue for SaaS businesses. In his latest post, he switches gears to discuss product-led marketing.
Product-led marketing is about reaching a broad swath of potential end users who experience a pain that your product helps to solve. Look for low-cost, highly scalable launches that seamlessly connect with your product and create value for the user. This helps you build trust and credibility to nudge users to give your product a try.
Look at HubSpot, the CRM platform with a $22 billion market cap, for inspiration. HubSpotâs top three ways of attracting new users are word of mouth (33%), Google (26%) and HubSpotâs blog (13%), according to the companyâs Q3 2021 Investor Presentation.
Your guide to product-led marketing
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Curious about divestitures? Check out this quick post from the weekly bloom.
Divestments can be done for any number of reasons. Sometimes, a company will sell assets to raise capital. In other cases, itâs more productive and financially prudent to sell part of a business than waste valuable resources on something that no longer fits with or serves your company.
Operators handbook; Divestitures 101
𧔠Twitter
Great discussion of optimal deal sizeâŠ
Expenses are much easier to game than revenues. Pay equal attention to both during due diligence. Here are some things to look out forâŠ
This is how you hustle to spin up an Amazon businessâŠ
Very true. This is why itâs important to find something you actually enjoy doing. It will take time. Do something you loveâŠ
đ€ Thoughts, Events, Other
Cost of Legal Work
I want to share a great resource released by Contracts Counsel - a leading marketplace for legal contract work. You can go to their website and select a legal document to view the average price you can expect to pay on their marketplace. Love the transparency that theyâre introducing. For popular M&A documents, you can expect to pay $500 to $1,500 per contract.
Legal Pricing: Explore Project Pricing on ContractsCounsel
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Civic Duty
Sharing a bit of my personal experience. This week I was selected and served on a jury in Federal court in a PPP loan fraud trial. It was one of the most meaningful experiences Iâve had in a while.
A few takeaways:
The process from jury selection to actually serving is extremely well managed.
I and the other jurors felt a strong sense of patriotism, duty, pride, and hope. I believe that the process is specifically designed to bring out those feelings.
Twelve people from very different backgrounds came together to render a verdict. This was not easy. It wasnât a slam dunk. It took time and discussion. It was extremely cordial and handled with humility. It was an emotional experience for everyone.
White-collar crime is extremely hard to prosecute. Even with overwhelming facts, proving intent, a scheme to defraud, and willful harm is difficult.
The process works.
I know the first thing we think of when receiving a jury summons is âHow do I get out of it?â. I had the same thought. I encourage you to think about it from a different lens. You may have a very meaningful and enlightening experience.
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New Business Marketplace
There are a couple of new marketplaces that I want to highlight. Whatâs interesting is that both of these have the same idea of creating an end-to-end experience for buyers and sellers. Meaning, itâs not just a listing destination but you can sign and submit LOIs, find lenders, find advisors, and close the transaction without leaving the platform.
BuyAndSellABusiness - headquartered in Toronto, itâs one of the first to digitize and automate the entire purchase and sale experience for small business owners and entrepreneurs. Users can map and execute on deals â whether theyâre buying or selling a main street, SaaS or eCommerce business in the micro market (businesses valued under $5m).
Private Market Labs - AI-powered small business acquisition platform. Private Market Labs is changing the game of small business mergers and acquisitions. With their Broker Directory and Marketplace of Service Providers, theyâre on a mission to save you time by connecting buyers with the resources they need.
đ Tools & Resources
These are tools & resources that I personally use or have used. They may contain affiliate links so Iâll get a few pesos if you sign-up.
Cerebro Capital - Cerebro has a network of 1,500+ lenders who can provide debt financing for your acquisition, refi, etc. $500k minimum.
Curators - Proprietary deal sourcing. You need targets that fit your investment criteria, and Curators delivers week after week - we even update your personalized database on a daily basis with new information on best-fit targets.
BizNexus - Proprietary deal flow, deal aggregator, and exit prep.
PrivSource - Deal aggregator for lower and middle-market listings.
Calendly - Leading scheduling platform to easily schedule meetings without the back and forth. Iâve been using it for several years now. Free 14-day trial.
ProjectionHub - Access to 50+ CPA-developed financial projection templates. 25% discount using code âduedilioâ at checkout.
Logology - Best automated logo & brand identity tool Iâve 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. Iâve bought a few guides and templates here.
Deal Flow Scout - Peer-to-peer deal flow exchange. Free, open, transparent.
Deal Sourcing Guide - A directory I put together of online marketplaces, brokers, DFY deal flow, and more.
Thatâs all for this issue of What I Learned Last Week!
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