Sieva Kozinsky: Why I Buy Great Businesses and Hold Them Forever – Own Your Future – Flippa

OWN YOUR FUTURE – LIVE 2020 took place live (from our homes) on July 9th 2020. The video included here was recorded at that event.

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Sieva Kozinsky is an entrepreneur and investor. He’s raised $10M+ in venture capital and scaled his businesses to tens of millions of users (mostly in the US and Canada). Today he is the Co-Founder of Enduring Ventures which buys beautiful businesses and holds them forever.

Reach-out to Sieva here: @SievaKozinsky or email us at enduring.ventures

Why I buy great businesses and hold them forever

Sieva and his co-founder have built a business that holds businesses forever. Modeling their fund after Berkshire Hathaway, Sieva and Xavier have been looking for and buying great businesses that they believe will be around in 25+ years. In this fireside chat with Blake (CEO @ Flippa) Sieva will explore what makes a business acquirable and why they look for businesses that have grown organically with little to no spend on sales and marketing.

Session highlights:

5:05 – Beginnings as an Entrepreneur
9:10 – Learnings from Entrepreneurship
11:07 – Businesses is a Universal Skill
14:30 – Huge Growth in Short Term ~ Unsustainable Business Model
15:55 – Influences for Long Term Investments
21:03 – Investing is Waiting for the Perfect Opportunity
22:40 – Understand your Personal Profile/Skillset
23:47 – Look for Consistent Growth
29:55 – 2-Sided Investment Strategy
34:20 – How to Approach a Valuation
39:19 – Interest in Businesses & COVID

Video Transcript

All right guys, well, thank you so much for sticking around. I know it has been quite a day, a morning, an afternoon, wherever it is, wherever time zone you’re at. I’m excited for our next guest. It’s gonna be a little bit different, we’re doing a fireside chat without the fire, but still the chat between our CEO here at Flippa, Blake Hutchison, and a gentleman named Sieva Kozinsky. Sieva is an entrepreneur and an investor. He’s raised over $10 million in venture capital, and has scaled his business to 10s of millions of users. Today, he is the co-founder of a company called Enduring Ventures which buys beautiful businesses, and holds them forever. And I was looking at his LinkedIn one thing I love is that he also says he loves houseplants, so that’s a nice touch. Now let’s put our virtual hands together for both Sieva and Blake if I can bring him in here. There you go. Hey guys, how you going?

[Sieva] Howdy.

Hey Sieva, thank you so much for joining us on Own Your Future, and thank you, Ben for the introduction. Sieva, it’s 4:21 a.m. right here in Melbourne, Australia. What about you where are you right now?

Wow, well, you’re in the future. Hopefully you can tell me what it looks like.

It’s dark.

I’m in California, San Francisco, so almost other side of the world it’s 11:21 a.m.

[Blake] Okay, fantastic, and thank you very much for joining. I do wanna start by just asking people to check out enduringventures.com. This site boldly states, “We buy exceptional businesses and hold them forever.” And of course, you’re not only the co-founder of Enduring Ventures, but you’ve got a very, very strong background in entrepreneurship, and so perhaps we could just start by talking about your entrepreneurship journey before Enduring Ventures because I think for a lot of people on online right now and for those people who are listening to a recording of this, that there is a journey between entrepreneur and investor, right? And it’s so many people who go from entrepreneurship to investing. Now you will once upon a time on the Forbes 30 under 30 list for an education startup, so tell us a little bit about your entrepreneurship journey, and actually, what happened to that business?

Yeah, yeah, sure. Happy to give you a little bit of background to kind of color who I am, and how I ended up running Enduring Ventures. So I grew up in the San Francisco Bay Area, so it’s largely surrounded by tech. My family is from the Soviet Union, so we came over when I was pretty young. I have a family full of dentists and doctors. So growing up never really considered entrepreneurship as a path. It’s not something I really heard about. In the Soviet Union people didn’t own their own businesses, everybody just worked for the government. So I didn’t know that was an option. I always thought I was gonna be a doctor or a veterinarian. So when I went to college I started pre-med, very much planning to go down the doctor path. In college, I took a entrepreneurship class, and it was with this professor who’d sold, he like built a business from scratch. He’d sold it for over $100 million. And I remember he was like, so cool. He was the only professor that would come to class every day wearing a Hawaiian shirt. And he was very much not the classic academic, you know, buttoned up glasses, and so on that you’ve imagined. He was very cool. He’s very laid back. He’d swear in class if he wanted to. And you can tell that this guy had kind of made his own world and had pursued his own destiny, and he was just confident in who he was, and it was a very magnetic energy, so I really enjoyed that.

He opened my eyes to entrepreneurship, you know, he would invite his friends who had also built companies, who’d raised funding, who’d sold companies. And it was really the first time in my academic journey that I was like really hooked on something. I was like, “Man, this is amazing. “I love this. “I don’t know how I’m going to get into it, “but I would like to explore. “This as a pathway for my career.”

So I dropped medicine much to my parents dismay, and went down the path of tinkering with startups, and built a couple of different companies early on. My first company in college was basically a tutoring business. I think it’s pretty common for college students to see that you know, there’s some students that need help. There’s other students that can help them to connect the dots and just start generating revenue, and that’s basically what I did. I expanded from there I got together with a part and we basically built this website where we would go to students in class. We would find the best student, note takers in that class, they would post their materials on our website, and then their classmates or students from other schools could buy their class notes, or their class study guides. And that business really took off it was called Study Soup at the time. We grew it from just my campus to about 300 campuses nationwide, throughout the US and Canada as well. And it really became this resource where if you were a student who was struggling in school, you could go to this website, you could get tutoring help, you could get class notes, you can get class study guides all made by people on your campus, or some of the best students in your classes.

So I ran that business for about seven years, we’d raised a couple million dollars in venture capital, grew it to about a million to 2 million students using our products every month. So it was a really fun Journey, I learned a lot, I made a lot of mistakes for sure. But was really fortunate to hire great team there, and that is actually the team that runs that business today. So I left the business three, four years ago. I’d always wanted to go out and build other companies. I wanted to test my hand at investing and other startups. So that was a conversation that me and my founder, my co-founder had pretty early on in the business. And he knew that I was gonna go off at some point, and he wants to stay with the business and keep running it. So I still own that business, and it’s still doing well, it’s still growing, but I’ve been working on other projects ever since and–

Fantastic.

Some of those projects–

There’s this– There’s quite a few businesses in that space as well now, like you obviously started that early, but that’s a concept and obviously online learning and education is thriving right now.

Yeah, definitely, it’s been booming. It’s, when I was in it, it was a little fringe and a little niche. And it was debatable whether people would ever do online learning or whether you really needed people to go into class. I think companies like Coursera at the time were they came out the doors firing, they were really exciting for people, they raised a bunch of capital. And then there was a long period of time where all of these EdTech companies were the ugly duckling in the room, right? They were not proven, there weren’t enough users using them, but I think now in the last three to five years all of those companies are starting to do really well. So fortunately, EdTech is having its comeback moment, especially in times like this where, you know, you don’t have the option to go to class, right? So now digital learning, online learning is the only option, so those companies are doing really, really well.

Yeah, I mean, that’s outstanding experience. And I think that there’s so many people right now who are students who would never have imagined that they would do something online and learn online, and engage with a teacher, or lecturer, or a professor, and that’s now obviously happening at favorish rates.

How do you think that being an entrepreneur has prepared you to be an investor, someone who wants to buy businesses actively and regularly? Do you think that being an entrepreneur, someone whose created an online business from scratch, gives you a unique I guess position to take?

Yeah, yeah, I really do. You know, I think there’s a few different reasons I was an entrepreneur first and now an investor, and I still consider myself an entrepreneur in many different ways, and I’ll explain that.

You know when I was starting my business in college, I was just like a kid that knew nothing about business. And I was not at that stage or at that age, I wasn’t at a stage where people would trust me with their money to do investments, right? I had no track record, I had no experience. So building my own company was really my own way of building up my reputation, building up my knowledge of how to hire, how to scale a team, how to train a team, how to find product market fit, how to scale the business, et cetera, and how to how to really like extract the profit, right?

So that experience of running the business for five, six, seven years really taught me a lot of the skills, and a lot of the insights that I use today when I’m assessing a business. You know, I think if you ran your own business you can connect with founders at a deeper level, and I will caveat and say that I know a lot of great investors, both VC investors, and private equity investors that have never ran their own business, so it’s not a requirement.

But as you can imagine, you know, if you’ve ever been your own house, or if you’ve ever done your own construction work then when you plan to build your house down the line, and hire a contracting crew, you speak the same language, you know some of the intricacies, you know, you can kind of, if there’s some conning going on, or some misunderstandings, or maybe somebody is trying to get around you, you can really see through that, because you have that type of personal experience. So given that, like today when, you know, when we’re looking at businesses, I am looking at dozens sometimes, you know, over 50 businesses a week, and because of my experience of running my own company and understanding, you know, what are the staff structures that are needed? What are the normal cost structures? What are some opportunities for this business, if it were to be five times the size, and if we were to help grow it? I’ve seen that path before and I can apply some of that wisdom to the businesses that I’m looking at, even if it’s not the same business model, even if it’s not even in the same industry, what I’ve found is business is, it’s kind of a universal skill. And you know, you can build up your chops or your education through building your own company, and an education business, you can build your own, you know, pool cleaning company, and you can take those fundamental building blocks and apply them to almost every other business. Even super big, super complicated businesses, once you break it down you, it’s all the same fundamental, so I do you think it’s super helpful in that sense.

It’s a super interesting point, and what we see this a lot play out on our platform. Even if it’s a smaller micro asset, let’s say it’s an e-commerce business. Let’s say it’s making $50,000 a year. The seller doesn’t wanna have to spend the time educating someone who is completely new to e-commerce, and so they don’t wanna have to deal necessarily with, you know, hundreds of questions about how e-commerce works, versus how the business operates. And so we often see sellers say to buyers, ‘Hey, do you actually have experience in e-commerce? “It sounds like you’re interested in buying my asset, “but you’re asking questions which would assume “that I’m gonna have to take you on a bit of a journey “as to how e-commerce functions “versus how my business functions.” And so I think that it’s like a marriage and being in the domain that you operate looking at bigger businesses, or in the domain that we operate looking at smaller businesses that knowledge and subject matter expertise counts for a lot and it’s gonna help through not only browsing for businesses, but actually through the due diligence, and negotiation period.

Yeah, yeah, I definitely agree with that.

So Sieva, tell us a little bit about Enduring Ventures. So you’ve got this statement, it’s a holding company inspired by Berkshire Hathaway, so let’s start there first. What do you mean by that, and what does Enduring Ventures try to achieve?

Yeah, so you know, I think one thing to understand is that Enduring Ventures or the idea for Enduring Ventures came out of me and my co-founder’s desire to build something for the long term. When I first started my startup right out of college, I had this mentality and I think it’s a mentality that many entrepreneurs share of, “I’m gonna run a project for three to five years. “It’s gonna grow super big. “I’m gonna get wealthy, “my investors are gonna get wealthy, “and then I’ll move on and work on something else.” And I think that short term-nism, that mindset is very common, and one thing that we wanted to do when we were approaching this is we wanted to really think about well, what is the business look like, if we’re gonna run something for 15, 20 or more years. And I think it’s pretty rare for people to think in that way. And you know, if you follow any of Charlie Munger’s or Warren Buffett’s methodologies, you’ll know that incentives drive everything in society. Incentive drives your behavior.

Incentives drive outcome. Incentives drive how you run your company. And you know, by setting a three to five year mindset for myself in the past I was creating incentives that would encourage fast growth in short periods of time. And if you think about it from the other perspective, you know, you’d think about what are some of the downsides of optimizing around fast growth in a short period of time. And that may look like you know, it’s not applicable to all companies, but many companies that we see today that raise VC funding and are looking to do that huge growth hundreds of millions, or billions of dollars in valuation three, to five, to seven years, they are sometimes pursuing what is an unsustainable business model. Sometimes they’re not supporting their employees for the long term. They’re really looking for people that can create huge growth in a short period of time, and then so they can move on to other people. And sometimes we see great outcomes like Airbnb or Uber, maybe. But oftentimes, you know, if you guys read TechCrunch, for example, you’ll see the company that raised $40 million and disappeared in two years. And then we see that I think, every few months, and I think that’s largely driven. These aren’t horrible businesses, right? That’s just largely driven by taking a business that could be a good slow growth business, and trying to apply venture capital jet fuel to it.

So we are the anti-VC, the anti-private equity group. You know, we got together to really think about this longer term idea, and have pulled a lot of our inspiration from Berkshire Hathaway as you mentioned, and I’d say, you know, if you study Warren Buffett’s career which we have quite a bit. I’m a big biography nerd first of all, I’m a big Warren Buffett nerd second of all. And if you studied his career, you know that, you know, he had what I call kind of three major turning points. He had his first life as an investor which is following his mentors style of investing. Benjamin Graham came up with a book called “The Intelligent Investor”. He was his professor at Columbia, and his whole methodology of investing was a simple, very simple framework, you know, you analyze a company’s financials and their assets. And as long as those two things combined together are worth more than the market cap of the company in the public stocks then you invest, and as long as you keep investing in what he used to call these cigarette butts, those will grow in value, so that was the first life of Warren Buffett. Then as he started raising funds he started looking more towards companies that he could acquire majority or a complete stake. And one of the companies that stands out that we know him for is Berkshire Hathaway.

So Berkshire Hathaway was a textile mill that he bought that at the time was throwing off anywhere between three to $5 million of cash flow. And first he bought a small piece, and eventually over time, he bought the whole company. And what he learned from that company was that, it’s because it was a textile mill, and as you know, history has already played out most textile manufacturing has gone overseas. So there was no amount of investing that he could do in Berkshire Hathaway to make it more competitive. The trend was everything was moving overseas. So what he learned there was that he could take that about $4 million of cash flow every year, and instead of reinvesting it in the textile mill, he could apply it to other businesses, and then create multiple entities that are all generating cash flow that he could then use to reinvest in the best businesses. So that was his, that was kind of his second big learning from my perspective. And then I’d say his third one was when he met Charlie Munger, and Charlie Munger’s philosophy was a little bit different. He was against the cigarette butt methodology. He moreso wanted to invest in great businesses with great brands that he felt would create a ton of value in the future. And slowly his influence kind of wore off on Warren Buffett, and that’s how Warren Buffett started investing in companies like See’s Candies and Coca Cola, and Geico, American Express, all of these companies that had at the time really strong brands, of course, they were a lot smaller than they are today. But he got into these perpetual motion machines with a moat, and they just grew and created a ton of value for Berkshire Hathaway. And those are kind of those last two principles are the ones that we really take from Enduring Ventures is how do we use cash flow to create compounding value over a long period of time? And how do we identify businesses with real moats, and real brands that we can get involved with for the long term, right, for 15, 20 or more years?

And so that’s the hard thing, right? Finding a business that has emotion in the first place. And then, you know, once you do, how do you find a pathway to owning enough of that business to be able to actually control decision making, and hold on to it forever? So how do you think about that, in the case of Berkshire Hathaway I understand that there’s, you know, kind of five macro groups? There’s this area of their portfolio where they aim to own the entirety of a business at least, or at least 80% of the business. Presumably, that’s what Enduring Ventures does as well, but how do you even find yourself in that position in the first place? It’s a great aspirational goal, but to find a business that has a moat, and then to finally set off with a overall overwhelming ownership of that business is not trivial.

Yeah, it definitely isn’t, but I think, you know, again, this plays into this mindset of short term-ism versus long term mindset. We are very patient investors, you know, we can look at hundreds and hundreds of businesses and decide not to pursue them. I think over time, over the time me and Xavier have been running businesses we’ve developed a good eye for what are the things that we’re looking for in a business. So when we look at 100 companies, we can spend, you know, maybe 10, 15, 20 minutes on them, and then pick out just the two or three that we wanna go deeper on. And another Warren Buffett phrase, or another a piece of knowledge to share with you guys is he said, you know, “Investing is like baseball except “for you never strike out,” you don’t ever have to strike out, right? You can just wait for the perfect pitch. So in baseball, you’ll get three pitches, and then you have to go, you get three strikes and then you have to go. But in investing you can just stand there at the plate all day and wait for the perfect pitch to just come right out to you, and that’s the one you can swing at and really knock out of the park, and that’s how we think about our investments too. There’s, you know, there’s a lot of competition out there. There’s a lot of private equity funds or private investors, but we have a little bit of a different lens, you know, we’re not looking to grow a business for four or five years and flip it. And also we’re willing to wait and apply some of the skills that we’ve built running our own companies in order to nurture growth out of something that otherwise wouldn’t be the best fit for someone like a private equity fund.

So you’ve been doing this for a while now, and we’ve got lots of buyers who are listening in, and that’s part of what Own Your Future is either those people starting something, or those people acquiring something, and there’s a few people obviously considering selling. Let’s say you’re a new buyer, and you’re looking at acquiring your first business. You’ve been doing this for some time, what would be a couple of tips that you might give a first buyer, first time buy?

You know, there’s a few things that I can kind of rattle off here just on the fly. I think the first thing to understand is, the first thing that’s really important to understand is yourself, right? Who are you and what are you looking for? Everybody has a little bit of a different personal profile going into buying a business, and everybody has a different ideal outcome. You know, some people are looking to run two, three, four businesses. Some people just wanna buy one business where they are a full time operator, and others just wanna buy a business, but they don’t wanna operate it at all. So I think understanding your skill set, you know, are you able to run this kind of business, and if not, are there people in the company, or who can you hire to run this business? And remembering that hiring great people is really, really hard, so if you find a business and you don’t feel like you have the personal skill set for it, just make sure that you know it’s gonna be really hard to hire someone to lead that business, so take your time with it or maybe look for something that could be a better fit for your personal skill set, or one that you can personally run. So that’s the first thing is really try to understand yourself.

The second law that we strongly believe in at Enduring Ventures is Newton’s first law which is, “Objects that are in motion stay in motion.” So if you’re looking at a business that’s decreasing in revenue or decreasing in user base, the most likely scenario, unless you can pull a magic trick, or you have a very specific set of experiences to turn that thing around, the most likely scenario is that it will keep going down. Now, if a business is growing 10 or 20% per year, and it’s been around for a few years, and it’s going up like this then Newton’s first law says that it is much more likely to keep going up like that. So if you’re a first time entrepreneur, especially if you’re a first time entrepreneur, or a first time buyer I would look for businesses that have a consistent pattern of growing, or doesn’t have to be even growing fast, but of growing and growing over a period of time. And the reason I say period of time is because people can simulate growth for six months, for a year, sometimes for two years.

But if you’re looking at a business that’s been around for three years or more, and it’s been on a consistent growth pattern then it’s much more likely that even you somebody who is new to the business doesn’t understand the industry will come in and it’ll continue to either grow, or maybe it’ll flatline, or maybe it’ll decrease a little bit. But it’s much easier than if you come in and the business is already decreasing. So those are some of the kind of obvious things that come to mind, but if you guys have specific questions, you know, if there’s listeners that are looking at buying a business, you can tweet at me, you know, you can DM me and we can talk about your specific business, and I’m happy to advise anyone and just provide kind of a sounding board for your decision making. Sometimes it can save you a lot of time and money.

Yeah, outstanding, Sieva, thank you so much that’s very generous of you. So general practicalities for a moment, how many businesses have you acquired, or has Enduring Ventures acquired, and what are the acquisition plans moving forward?

Yeah, so you know, our goal is to acquire probably three to five businesses a year for these first couple years. We just made our first acquisition in February, so we’ve been around for about nine months or so. We raised a little fund from essentially friends, and family, people that trust us to go out and acquire these businesses. Our first acquisition, so we’ve had three companies that we’ve bought, two of them that we haven’t announced yet, they just got acquired in the last 30 days. And one of them that we did announce, and that you guys can actually research online, it’s called upcounsel.com, and UpCounsel was an interesting business, I had used UpCounsel in my previous business, so what UpCounsel does is it helps businesses find affordable attorneys. And in my last company I had a really really expensive attorney with a brand name firm, and they were charging me like thousands and thousands of dollars every time I wanted to meet with them, it’s so expensive and it was driving me nuts.

Yeah.

So I googled, yeah. You probably know from running your business. So I googled around and I found this company called UpCounsel, and it was basically a resource, kind of like a very specific Yelp, but for attorneys that work with businesses, and that address the needs that I needed, and I found a great attorney there and she was a third of the cost that it was costing me for my attorney. And I ended up hiring her for this project, and she became our in house General Counsel. She would help us on all of our, on all of our paperwork or legal needs for about five, six years, so it was great. And about a year ago, or maybe six months, no, I guess this was six months ago, I got an e-mail from the UpCounsel CEO and CTO. It was just a generic e-mail I was just getting it as one of the users and they were saying, “Hey, guys, like, you know, it’s been a good run. “but unfortunately, we’re running out of capital, “and we have to shut this business down.”

Yep.

Yeah, and that was really shocking to me, because you know, I’ve used it a ton. I’d spent a lot of money on the platform, I had recommended it to so many of my friends, they used it, I heard a lot of great things about it. And when we dug into it, you know, they’d raised over $20 million for the business. And it was one of those cases where they were trying to build a huge venture scale business, which is understandable and that’s why they had raised so much money. And they built a really great business, with a great brand, with great revenue, with great lawyers, but unfortunately, they hadn’t achieved that what we call escape velocity in venture capital. They weren’t gonna become the next Airbnb, they weren’t gonna become the next Lyft. And because of that, and a couple of kind of legal issues that came up, their investors got cold feet and they weren’t able to continue fundraising and growing the business. So my you know, I had thought that the business was gonna be too expensive for us to be totally candid at the time, my business partner had the foresight to reach out and just kind of learn a little bit about the situation, and see if there’s a way for us to keep this business alive because we knew, you know, thousands of businesses were using it to hire their lawyers.

Fortunately, you know, by the time we got there, I think the investors had mostly written it off, and the CEO and the CTO unfortunately, were diluted quite a bit through that journey, so we were able to come in and acquire the business at a reasonable rate. And they were really just happy to see this thing that they’d created for like eight years, nine years stay alive, you know, they were pretty sad to see it go. They were happy to see us come in and run the business for them. So that’s a little bit about the UpCounsel story, and then as far as where we’re heading next, we’re looking at, you know, I think maybe four or five different B2B SaaS companies. We’re also looking at local service companies, so we have this two sided strategy. It’s basically a barbell. On one side, if we look at sleepy service companies and sleepy software businesses. So they generate a good profit. It’s been around for a really long time, you know, they have some kind of moat or a monopoly in their area, maybe a local monopoly, or maybe a brand. And on the other side, we look at the tech companies like UpCounsel or companies that are great businesses with a great brand, and good revenue, have maybe raised a little bit too much money. and we can come in and help them keep the business alive, maybe restructured in some ways and put in a team that can run it profitably.

So firstly, yes, super surprised to see the UpCounsel acquisition, know the UpCounsel business and obviously, as you said, venture backed and found itself to some outstanding clients, both enterprise startup and very, very strong brand names, small business clients. And so when you see something like that play out, you immediately question what has played out there, but as you said, you know, the VC landscape doesn’t necessarily reward some of those businesses which aren’t rocket ship fast growth, versus your approach which obviously is looking for those businesses which can be enduring and continue to spit out cash flow. Just quickly, you talk about acquiring businesses with a moat. What do you define as UpCounsel’s moat?

Yeah, good question. UpCounsel had a couple of pretty obvious moats, you know, seeing as they’ve been around for eight plus years they are recognized as one of the top legal search sites in the tech community. If you ask, you know, 10 different folks in tech VCs or entrepreneurs most of them have either heard about UpCounsel or have used UpCounsel and had a good experience in the past. And we learned that by just doing some simple due diligence when we were considering buying the business, you know, we’d ask around of CEOs and see who used it before, and that was the feedback we got, so that was really exciting for us. The other moat that they have which is something, again, they’ve built up over eight years, is they have this treasure chest of legal content. They’ve created 10s and 10s of thousands of pages of super high quality, legal content. And oftentimes, either lawyers or businesses that are searching basic legal questions end up on UpCounsel on one of their blogs, or one of their free legal documents. And then oftentimes, you know, some of those folks will basically go and book a job and ask to speak to one of the lawyers. So there’s over a million people a month that are coming to this website that are high quality business leads, that are then funneling into this process of booking a lawyer. And that’s another moat, you know, it’s really hard to build. They built a really strong online brand, a SEO reputation, and it’s not something that somebody could just come in overnight and unseen. Right, as long as we keep creating content, and we keep creating value for customers that entity or that value is just gonna keep growing.

Okay, that’s super interesting. I think that provides some outstanding context for our buyers listening in who are thinking about how they assess opportunities. Can we talk a little bit about how you assess value? So obviously, a seller of a business, a founder of a business will ascribe some value to their business. They often think it’s worth more than you might think it’s worth. So let’s talk a little bit about buyer, and invest, and philosophy in that regard. Typically, we order, we would always say that a buyer pays for a performance but looks for opportunity. And a seller often wants to sell and get a valuation on the basis of opportunity, and not necessarily historical performance. So how do you assess value? And then secondly, how do you trade off current performance versus long term opportunity?

Yeah, that’s the age old question. When it comes down to the buying table we usually the way we’ll approach it is we’ll learn a little bit about the business, and I encourage other sellers to do the same. And then ask the seller what they think the value of the company is, right? Because at the very least that’ll help you understand like, is there, are their expectations within the realm of reality? Or are they way too expensive for what you’re looking to do? I think, you know, and I’ve been in this position as well as a founder, I think, as a founder you get really emotionally attached to your business, and you think it’s the best thing since sliced bread. You’ve been working on this thing for five to 10 years and you think it’s worth a ton of money.

You know, you’ve seen, and some of this is dictated by the tech environment where you see, you know, software company in the public markets getting 30 times revenue, or like 1,000 times revenue, if you’re looking at Zoom. So given the expectations of the seller, if they are starting so high, you know, if they want 10 times revenue, and you’re actually valuing the amount of profit margin, and you wanna pay, you know, five or 10 times profit then what’s, you’re likely way too far away from each other to get there, so what you can do at that point is you can just propose your price, but what’s most likely to happen is you’re gonna need to move on. For us we value businesses on profit, or most of the businesses that we look at we value on profit, and that’s on this side of our barbell.

Remember the sleepy companies, the software companies, the sleepy service ones. Those are all profit based companies, you know, they’ve been run by the owners for 10, 15, 20 years, and they’ve been generating some margin of profit. And we’ll basically take that profit or we usually use EBITDA specifically, which is Earnings Before Interest, Tax, Depreciation and Amortization, and we’ll apply a multiple that we think is reasonable for that industry. Right, if it’s a local service business, maybe it’s something between three to six times EBITDA, if it’s a software company or tech company that’s been growing, it could be more, but those are some of the ranges that we look for.

Obviously, for something like UpCounsel where this was a VC back business that wasn’t profitable. They just had revenue but no EBITDA, we had to come in and be a little bit more creative. And to your point, Blake, we had to look at what was the future opportunity of this business. And could we create structured deal, a financial deal in such a way that it would allow us the opportunity to chase that bigger opportunity without losing, without kind of losing our pants if it didn’t work out, right? Because when you’re chasing an opportunity you’re taking a huge risk, right? As opposed to if you’re taking a business that’s already doing something, it’s creating a profit. And as long as it keeps providing that service and supporting customers it will keep creating the profit there’s less risk there than if you have to come into a business and maybe change the business model or change out the entire team. So just I would just adjust for that accordingly, and you adjust for that in your price.

Awesome insight, fantastic insight. Thank you so much. I’ve got one more question, and then I’m gonna take a question from the group. Studying the really obvious, the current climate has changed but how does that change the way you think about investment opportunities if at all?

Yeah, it’s a good question, and it’s something that everyone should be thinking about, of course. I’d say most of the businesses that we’ve been looking at fortunately have not been hit by COVID, a couple of them have. Some of them have actually been been growing because of COVID and that creates a tricky situation from both sides, right? Because now we have a business that’s growing faster in COVID, and maybe the owner expects evaluation based on their COVID revenue, but we don’t know how long this thing is gonna last, and we don’t know whether these are just short term revenues. So we’re starting to have those conversations around, you know, how do we price in this bump without changing the initial kind of expectations too much. On the other side, of course, there’s businesses that have been totally shuttered by COVID, or some have just been hurt, even UpCounsel saw a decrease of, you know, maybe 30 plus percent of people booking legal help, right? Especially in that first month or two businesses were just fighting fires, just trying to keep, just trying to deal with employees and keep the lights on. So normal kind of legal deals or legal processes just weren’t happening. We’re seeing that bounce back now fortunately, it was a scary couple months for us, but that was the case. So for us, you know, we are definitely expecting COVID to be around this COVID situation or reality to be around for a long period of time. So any business that has been meaningfully disrupted for the last four months, because of it we are unlikely to purchase are unlikely to pursue. Unfortunately, but any business that maybe took a hit in the first couple months and now they’ve recovered we’re definitely still looking at, and then the ones that have increased in value because of COVID we’re also really interested in. So I would just think about those things, you know, there’s certain products, there’re certain software’s that are likely to do well and this new work from home reality. Your last speaker spoke about this, I think she’s totally right. I think people are gonna be less likely to travel for work. I think people are gonna less likely to travel for school. You know, even folks that maybe were in an older generation, and doing investment banking, or deals, or whatever it may be that we’re averse to Zoom, or video chat before have quickly adapted to this new reality. And I think they’re realizing that now they can hang out at their vacation home in the Hamptons, and also do all of their business, and they don’t have to fly across the country. So it’s is our new reality, I don’t think it’s going anywhere. So just keep that in mind when you’re buying your businesses, right? Think to yourself, what is the new world look like? And it’s certainly not what the last world looks like and adapt accordingly, ’cause we certainly are.

Yeah absolutely, the short term versus long term dynamic is pretty complex to get right on right now. A final question and probably because there’s lots of business owners listening in on the line, just give everyone a reminder, or maybe we haven’t covered it at all. What size of acquisitions does Enduring Ventures actually look at?

I would say our we have a sweet spot, and then we’ll look at deals larger than that. So I’d say our sweet spot is in the one to $10 million of revenue range, or maybe 500K to three to $4 million in profit. We partner with some investors, so we are looking at deals that are larger than that. And there are a couple of instances where a deals that are smaller than that, for example, like widgets, or apps, or Shopify apps that are doing pretty well. They’re growing and they’re certainly stable, but are maybe smaller than the one to $2 million revenue range. We are also looking at those as well, but really trying to stay in that sweet spot of two to 10 million in revenue.

Got it. Well, Sieva thank you so much for your time. Thank you for being a part of Own Your Future. Really outstanding insight and really appreciate all of your time today. Thanks again.

Yeah, my pleasure, and if any of the attendees wanna give me a shout, feel free to hit me up on Twitter, I just shared my handle, it’s just @sievakozinsky. Happy to chime in and provide some feedback on any businesses that you’re looking to buy or sell. I think this stuff is super fun. I’m a big business nerd, so I’m always happy to chat about it, and thanks guys for putting on the panel.

[Blake] Thank you.