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

Humble beginnings at Tiny Capital (0s)

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

Tiny’s first acquisition (4m40s)

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

50X return on Dribbble (8m17s)

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

Skip the cash flow statements (10m14s)

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

How to spot the opportunity (11m57s)

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

Chris’s superpower (14m0s)

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

Stomaching aggressively low offers (16m20s)

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

Make an offer and stop talking (17m46s)

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

It’s not you vs. them (19m36s)

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

What would need to be true to make this deal? (22m6s)

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

How to crush the cold email (23m3s)

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

Worst deal -- ignored red flags, lost everything (25m15s)

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

Best deal: Mealime (25X return) (27m0s)

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

Weirdest deal ($36.00 acquisition) (29m16s)

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