Made my first ever VC investments ~ Let's talk

Hello everyone, 

I wanted to talk about a few angle investments I've made this week and learn about anyone else on here who has done the same? 

Firstly, a backstory on me for some context: 
 I started out as a CRE broker while in college. Then sold enough properties to build out a tiny M&A shop for my wealthy clients. My firm is comprised of 2 EX-REIT associates & 2 EX-Real estate IB Associates, and 2 MDs. Everyone is a salaried employee that gets a strong bonus each year (except the MDs, they receive a portion of the net cashflow only). 

We do about $500m in sales per year. 

I also have a 2nd-business line. This is where we use the company's cashflow to fund property development projects alongside more-seasoned Developers. On average we bring about $2M of equity to development sites each year. 
I started it on my own with the MDs, thus I own 90% of the firm. 

VC Investment #1: 
So I met a person 1.5yrs ago. He started off as a business broker for a few CPA accountants. He was averaging 4 deals per year with an average EV value of $30M at 5% commissions. He has been a broker for 4 yrs with his team. 

I kept in touch with him over the years and now he's going to build out a Lower mid-market M&A firm where he'll be hiring ex-IB guys and M&A people. 

We spent a few months going back and forth about the business model and how it would work and a few days ago I signed a deal with him for a 10% stake in his venture. 

Here are the numbers: 
- Will be averaging $200m in sales volume per year @ 5% commissions. 
- Will hire a few IB analysts, Associates, and MDs. 
- Profit margin is expected to be around 50% 
- Exit valuation is expected to be around 7X - 9X of its Net-operating income after 5 years of running the business. 

  • I'm investing about $250K into this deal. Thus, I would be walking away with a 4,200% return on my capital. 

VC Investment #2: 
Similar story to #1 but I met this person through instagram. 

The person has been running a window cleaning business since college. He was doing about 10K in sales per month before we talked about investments. He does a great job at customer service and has prices broken down well for each client. 

I ended up working alongside him for a few months to come up with new avenues for which he can improve his business. 
In short, he's deciding on adding in a heavy salesperson team with a focus on relationship building with strong cash-flowing property oriented companies. 
We're focusing on making property managers, property portfolio owners our main clients. 

  • Both the owner and I see the company reaching a $10m valuation. 

  • I am investing about $200K into the venture with a 12% stake. 

  • I am expected to exit with 1,100% ROI after about 6ish more years. 
     
    Main takeaways: 
    Building a relationship is more important. They gotta like you and you got to bring value. 

I brought value by bringing forth many business plans and connections, and possible clients. The entrepreneurs mainly liked the business growth ideas and potential clients I brought them. I did this for months without asking for anything in return. I genuinely enjoy being useful and being called a smart person from time to time. Could say I have a deeper issue to combat though haha

   My full-time gig is running my RE M&A shop and making RE developments. But I also understand the basics of various asset classes and how VC brings amazing ROIs. Which is why I'm very much considering to put more time in VC investing in not-so risky ideas. 

Here's a revelation I had about VC investing.... I was hesitant on sharing this but hell why not. 

For people who don't have access to techies with facebook level ideas and or guys from those prestigious incubators or the Ivy league schools... My advise is to find people who are very early in their business venture that resides in mature industries. 
For example, if you meet a entrepreneur doing sales of $10k per month in his dental equipment wholesale business... Then really look into it. 

VC investments in mature industries and in those entrepreneurs with a strong business model and work ethic... will bring you pretty damn good returns + the risks are much lower than tech investing. 

I'm definitely going to look for more businesses in these mature industries backed by hungry entrepreneurs. 

Please share your thoughts. 
Let's have a conversation:) 

Cheers, 

Region

Comments (4)

Jan 10, 2022 - 11:20pm
brian218, what's your opinion? Comment below:

Exciting deals going on thanks for the details! I am currently scaling my food CPG company that does $10K/mo and has 80K followers on social media. All DTC now but going into retail late this year. Truly believe the branding along with execution can create $50M+ company. If that sounds interesting, I'd be happy to discuss more.

Jan 12, 2022 - 4:57am
harveyspankster, what's your opinion? Comment below:

Congrats, seems like a good extension of your activities. I wouldn't call them VC investments per se though. VC is pretty particular to a brand of investing in tech / life sciences and IP driven businesses. What you're doing on the other hand is closer to a bit of micro PE deals which is super cool though.

“Self-control is strength. Right thought is mastery. Calmness is power. ” - James Allen
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  • Principal in RE - Comm
Jan 12, 2022 - 5:21pm

It is actually VC investing. 

The definition of VC investing is to have stakes in early stage companies that can grow very fast. 
We associate it with tech because tech is the major sector receiving  VC investments. 

Click here: https://www.investopedia.com/terms/v/venturecapitalist.asp

  • Associate 3 in PE - LBOs
Jan 12, 2022 - 5:51pm

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