Workshop
Q.
Where does Tiny sit in the investment landscape?
‘We’re a holding company that buys profitable internet businesses. We’re private equity but we started as a reaction to it: we had sold small businesses to private equity before and it’s just a horrible experience – all sorts of crazy terms and they drag the process out for six months. We thought the type of founders we were interested in – often bootstrapped, who started projects as side projects – didn’t need all that. We wanted to make the acquisition process easy.’
Q.
So, how does your model compare to traditional private equity?
‘We don’t think selling a company is how we get our money back. We never slash and burn, we don’t rely on flipping any companies, and we’ve yet to sell a portfolio company. Instead, we think about long-term cash flow. Our incentive is for any company we acquire to grow reasonably, but not insanely. We want the company to provide lots of cash for a long time, which we can use to buy other great businesses.’
Q.
And what inspired that approach?
‘We are shameless copycats of Berkshire Hathaway, which is obviously a lofty comparison, but we’re also Charlie [Munger] and Warren [Buffett] fans. We want to buy businesses at a reasonable price – that’s not super applicable to tech these days, but it’s a framework that’s deeply embedded in us. We just keep it simple. When I talk to people from traditional finance backgrounds, they think I’m hiding something, or doing something clever. The clever thing we’re doing is sticking to really simple stuff, which is actually quite hard.’
Q.
What kinds of companies do you acquire?
‘We’re pretty flexible, but there are some common characteristics we like: they are profitable, simple, online, with generally not a lot of overhead. The founders interested in us tend to fall into two buckets. One is the bootstrapped business, where maybe the founders had a side project that blew up, but they didn’t want to do all the work needed to run it as a business. Then the other one is the venture-distressed businesses – ones that took a bunch of venture capital and managed to create what would otherwise be a good business, but is not a good venture business. So, basically decent businesses with bad balance sheets. Oftentimes those entrepreneurs are encouraged to shut down or they’re written off by the venture capitalist. We like to come in with alternate outcomes for them.’
Q.
What do you look for in a founder?
‘We don’t have armies of analysts or investment bankers or lawyers or anything like that. Our big thing is integrity. If we feel like a founder doesn’t have integrity, we’ll just forgo the deal, even if it’s a good deal. Part of the reason for that is principles and values, but another is that we can’t afford to do a very simple, quick deal if we think that someone’s hiding something. We make a lot of handshake deals – we do the bare minimum of legal and investment banking work. That’s how we’re able to move fast. So, we need to buy the founder’s story and feel that they are someone who’s high integrity. They’re doing the same thing with us, because most founders have had terrible experiences with people who want to buy their company.’
Q.
Finally, any words of wisdom to any prospective tech founders?
‘I think there’s a very narrow sense of what it is to have a successful tech company. There are probably hundreds of thousands of really great online software businesses. So many founders absolutely kill themselves, raise tons of money, have these all-star, world-class teams, the best investors in the world and can never get to $5m a year in recurring revenue. Meanwhile I speak to people who have built simple chrome extensions or little widgets or utilities that are doing $5m a year in recurring revenue, growing 50 or 60% a year, that are profitable. These are the kind of businesses we’re interested in.’
This article was first published in Courier Issue 37, October/November 2020. To purchase the issue or become a subscriber, head to our webshop.
