E195: Boopos: Financing Subscription Businesses with Ignacio Villanueva

[00:00:00] Ronald Skelton: Hello and welcome to the How2Exit Podcast. today. I'm here with Ignacio and I just forgot how you, why don't you pronounce your last name for me? Cause I know I'm going to butcher it. I just forgot how you said it. So say your, say your name for me. Okay, cool. I didn't want to do it after the, we talked for two or three minutes after I told you to pronounce your last name.

And I thought, man, I'm going to get it wrong. Cause I forgot how he said it was. But, uh, I love unique names. 

Sorry for that. And we'll just keep moving here. I'm looking forward to this conversation today. I know that you're part of Boopos. You guys finance online businesses and stuff. Why don't we start off with the same place we start with everybody. What's your origin story? Kind of, how did you start?

And then we'll talk about Boopos and what the origin story of Boopos is too.

[00:00:43] Ignacio Villanueva: Yeah. So definitely. So I'm originally from Spain. I was born and raised in Spain. My dad was in the Spanish military, so I always lived, there's a military based, it's a joint military base between the U S and Spanish Navy. In Roda. South of Spain's beautiful place and there's next to the beach. So I was raised there. I went to an American school and everything. Then when I went to high school, I was always a fan of rugby. Rugby for more went to the special p to the national team, national rugby team.

So I played professionally for 11 years. In 2016 I went to Olympics. So I was an Olympian rugby player for the Spanish national team. 2016 Rio De Janiero it was an amazing time. Unfortunately, Spain, is small sport. Spanish people only like, Soccer, Real Madrid, Barcelona. Perhaps a little bit of tennis, but apart from that, you cannot make a living, living from, from any other sport.

So, funny enough, I tried two NFL teams. So I had two different tryouts, one with the Steelers, another one with the Tampa Bay Buccaneers right before they won the Super Bowl, the Super Bowl. Unfortunately, I didn't get drafted. Obviously, I didn't have that much of experience. But yeah, so I got out of rugby while I was playing for the national team I studied to join degrees, business and law. So I always knew that some point, at some point in my life, I had to stop playing rugby professionally. So, after a while, realizing that I couldn't leave out of sports, I basically started a fintech company. And then I met someone who built the first unicorn Spain.

That's Juan Ignacio Garcia. He's the CEO and founder of Boopos. So he kind of took me in, one of the first one on the team, and we built this amazing platform. Which I think it provides a very good, feedback, capital and, and many good aspects of the SMB acquisition space. So, I've been in the M& A space for quite a long now.

I would have been a sports guy if it was up to me, but it didn't work out. But now I'm happy. And I'm, I think, M&A has played out very, very well for me.

[00:02:52] Ronald Skelton: Interesting. I've only played a rugby twice in my life. When the air force we had, they had soccer teams and other stuff. And there was a group of people trying to get a rugby team together and we would, they would go out and practice. I didn't practice for him a little bit. And then we played a little game where it was kind of like a scrimmage where we're playing against other people are trying to create a team and it kicked my butt. It's a totally different sport. So a lot of respect to you there.

Interesting. So that's a really interesting background. Now, tell me about Boopos. I love the name. There's actually a, uh, uh, Italian restaurant here. It's not any, I don't think it's good anymore, but it used to be really good. It was just before they franchised it was just one. It was in San Francisco.

It was called Bucca de Beppo. So when I hear Boopos, I think about that, but Bucca de Beppo is basically, you went in there, you'd order food and you didn't order your own because whatever they brought you was enough to feed your entire family. So you order spaghetti, they bring you like three pounds of spaghetti, right?

[00:03:42] Ignacio Villanueva: Yeah. So that's a funny story. Everybody we talked to, they always ask the same question. Where does Boopos come from? We don't have a meaning to it. It just, the CEO decided to put that name. And just what we do,we've been in the market for a while. We initially wanted to buy businesses ourselves. Kind of, that wasn't a thrust CEO buzzed and a little bit of brands and all of those.

So we started looking into, building a rollup strategy. We quickly realized that, hey, we actually don't have any experience operating these brands, but we had experience in the banking industry, right? So we decided to just focus on allowing people that actually know how to operate the brands and facilitating the acquisition through financing capital, non diluted.

So we saw the space. We saw that the only options remaining were kind of SBA loans, which required a personal guarantee. It takes at least 90 days. And the worst thing is it takes personal guarantees on the house, right? So people are not willing to do that. Especially if you're trying to buy a really good business.

And you have to wait 90 days. Sellers usually like to go with an upfront buyer. So we, we were taking the place with SBA. We don't ask for any personal guarantees. Our process is much more quicker. So we need, we study like that. Financing all sorts of online businesses. We started e-commerce, content site, marketing agencies and sites. 

We kind of shifted in the last few months, which we can talk about. But essentially what we do is financing acquisition for subscription businesses.

[00:05:15] Ronald Skelton: So, so any type of subscription business? So that's Saas software, paid newsletters maybe. And what other, what else would be constri, you know, are brick and mortar subscription businesses? Like maybe a gym? Where they have subscriptions at that, in that realm? Or is it still online?

[00:05:31] Ignacio Villanueva: Right now, what we've done so far is we need the ability to track the monthly recurring revenues from the clients and the payment processor. Because we can, let's say you're using Stripe, we can add to your Stripe account and we're going to have the ability to track the monthly revenues and make sure that the business stays in shape or stays in their projected revenues that they had on their P and L, right?

The problem with brick and mortar is that they use a lot of cash. So you never know, how much revenue, uh, the business are really making. But if at some point we find a business, a vertical that we're able to connect to their payment processor, and we could see their monthly revenues and how they trend, we wouldn't have an, uh, a problem financing for those businesses.

[00:06:16] Ronald Skelton: Yeah, we interviewed somebody like we were talking beforehand. It's been a long time. One of your, one of your guys is from early on, maybe a year and a half, two years ago, early on. And it seemed like you did, still did the same thing. You got into Stripe or you looked at, the, you looked at the payment processing and that's how you verified, the recurring or the,monthly income.

It seems to me, I remember that's also how you kind of structured what the payment would look like is based off of that revenue, right? Do you guys still do that? Yeah.

[00:06:46] Ignacio Villanueva: Good memory. So we started off as revenue based lending. Which meant essentially we connected to the revenues on a monthly basis and then we'll determine what percentage of those revenues had to peep had to be paid back. So it will change. The good thing with e commerce as there's very seasonal on the higher months, Christmas, you will pay a higher amount. But in the summer where you kind of not as high revenue company, your pay, your monthly payments will, will lower, right?

It will be easier for you. However, we changed, our model to a fixed term loan. At the end of the day, it was easier for our customers to kind of project the monthly payments. It was also easier for our investors to understand our business model. And our projections, and especially for the financing team to get paid on a monthly basis.

It's just hard to calculate every month for every single client how much they have to pay. Right. So we decided to shift everything to a fixed term loan. And now it's a more traditional term loan where amortization starts after a period and then interest on the remaining balance.

[00:07:56] Ronald Skelton: Yeah. I,remember having that conversation and thinking how complex it would be that you almost have software that would have to do it, And have auto pay or something because it would just be so complex that if it was a hundred percent revenue base and it was based off of, you know, it wasseasonal, I could see where the complexity wouldreally be a a barrier to really wanting to do anything manually inside of that realm.

Talk about the type of companies what's like, what's your ideal customer? If somebody came to you right now and they're thinking about buying companies, what is it you're looking for them to, present to you and what type of companies?

[00:08:31] Ignacio Villanueva: I will, I will take the question. I will adapt to it. I'll change it if you allow me to. So there's three. Yeah, there's three types of buyers that we've identified in the market, right? First of all, you have roll up strategy. They're usually private equity, they have a lot of experience in the financing space, they know how to structure deals, they understand the power of leverage. So they're always looking to put as little capital as possible. And they usually are composed of a team of someone that has really experience in economics, P and L, financing, et cetera. They have a really good operator.

And then they have somebody that knows how to talk to investors, knows how to raise capital, right? So what these people do, they'll raise capital. Let's say the raise between three, one and three million to start off with. And they'll start buying brands, right? So we're essentially what Boopos does is we take the LBO strategy that private equity firms have been doing for so many years, and we're serving them kind of as a first vehicle to get traction.

Right. If you think about it, if you're able to raise capital, let's say you raise a million. You have two options. You can buy one company worth one million, or you can leverage partner with Boopos and acquire three companies worth one million, one million each. While you're doing a structure, where you're putting 300, 000 down.

We'll finance, let's say 300, 000. And then you do seller financing on the remaining amount, right? So do you do 1 3rd. 1 3rd. 1 3rd. So these role of strategies, they're partnered up with us. They acquired around 5, 6, 7 brands. They'll show traction. They'll show that their model works. And then at some point they have two options. 

Either they raise equity again and they do the same thing over again. Will they acquire five, three, four, whatever amount of number of deals they set up in their investment thesis. Or they could raise institutional debt at that point and use the capital to repay itself. Which we don't have any issue.

So essentially it's just a two to three year plan where the idea is I'm going to buy the most companies I can get my hands on. I want to make sure that I have a good investment, investment thesis strategy in place that I know how to operate these brands, but then I'm going to scale, my process and refinance these guys.

Right. So that's one type. Roll up strategies, a lot of experience. They understand leverage, they understand our terms and why our cost of capital might be a little bit higher than SBA. Then we have sophisticated buyers. It's just people that know how to operate brands. They love buying and selling in general.

So they've managed to operate a business. They've grown the business. Now they want to sell it because they're not really, they're good to taking the business from one to three, but then from three to four, they just either don't enjoy it or they're not very good at it. So we work with a number of those where they might buy a company, one month. Maybe buy another one in four or five months. Sell one company within a year.

And they're always back and forth between buying and selling. They're very sophisticated entrepreneurs. They're usually by themselves. Maybe they have a partner or two at tops. But they do understand a little bit of leverage. They understand that, the less capital they could, they put into these acquisitions, the more acquisitions they can do and the bigger return of investment.

Right? And then on the third category of buyers, we have, first time buyers. Individual buyers who they might have a little bit of experience operating brands, but they've always done it under the umbrella of someone else. And now they want to take the risk of being their own bosses, kind of pursuing this economic independence that everybody is talking about now.

And they just want to engage. They know that they cannot go to SBA because they might not have a house to put as personal guarantees. So they partnered, they partnered with us for their first acquisition. So those kind of the three, three types of buyers, roll up strategy, more experienced entrepreneurs or operators, and then the first time buyers.

[00:12:40] Ronald Skelton: Are all three of them kind of the one third, one third, one third model where I bring a third of the cash, you guys invest a third of the cash and the seller finances, the other third? Or has it changed based off of risk and the, in the user?

[00:12:52] Ignacio Villanueva: Yeah, I guess it changes also based on experience and your ability to structure a deal, right? And at the end of the day, if you're a seller or if you're some, some sort of a savvy seller, you want to make sure who you set up a seller note with. Because we've done over 150 transactions.

We've deployed over 70 million by now. So we've seen all sorts of transactions with all sorts of sellers and buyers, right? And something that we've realized, unfortunately,with individual buyers, they're not very good at making the simple math, right. In terms of how much debt you want to acquire for this acquisition.

And how are you going to structure the seller note? And the most important question is, how are you planning on financing the seller note? Because on paper you get the numbers have to make sure on that have to make sense on paper, and you have to underestimate your ability to grow the business. Everybody thinks they're going to grow the business 20 percent year over a year, every consecutive month. Where it's actually very hard to scale a business, especially if you've never done it.

[00:14:00] Ronald Skelton: All the, yeah, even the PE firms that buy companies through acquisition average, I think it's like 25 to 30 percent growth year over year. And they're doing acquisitions to grow. Right. So I hear, I hear, buyers all the time. Yeah. I'm gonna buy the company and grow up 40 percent year over year. It's like, yeah, no, you're not.

You think you are, you might, but chance, you know, I would lay odds that you wouldn't. I'm a betting man. So I would bet against you on that. 

[00:14:22] Ignacio Villanueva: Yeah, definitely. So you have to be careful. So I would say, yeah, when is a rollout buyer, we feel more comfortable with a one third, one third, one third structure. But when it's a first time buyer, we really want to advise the guy. Hey, I mean, we want to do it. We can do it and we've done it in the past, but I want to be your advisor, your financing advisor.

And I want to tell you what I think you should really do. I don't think a one third, one third, one third strategy, it's going to work in your favor because in the end of year two, you're not going to have cash to pay both to serve as a debt and pay off the seller note. So we kind of suggest a more even 50, 50 approach or 40, 40, 20, something like that. More realistic.

[00:15:08] Ronald Skelton: Now, I come from a real estate world in a world where, you know, and the stuff I'm looking for, other than things we buy cash for,smaller size deals where there's usually assets that are leverageable as collateral. So, for instance, the real estate world, if I don't pay the mortgage, they get the house. And then, and a lot of the business transactions, if I don't pay my debt, they get my equipment and maybe I own, maybe I own the real estate and they get the real estate out of underneath it. How do you guys secure your, how does Boopos secure their, notes?

[00:15:38] Ignacio Villanueva: Right. And for what you say, I mean, at the end of the day, you don't have to manage house or real estate. You can always sell it. It's always going to keep the price, and their value. Right. So, yeah, that, that's one of the things that people have to understand about Boopos is that we don't require personal guarantees.

So, but we do take collateral of the assets. Now that might seem scary, but let's say you, you buy a SaaS. Revenues decreased 20 percent year over year, over a five, six, seven consecutive months.And you cannot make the payments. Yeah we might take over the SaaS but what are we going to do with that SaaS, right. 

It's already far enough down the drain that there's, potentially nothing to do about it. So it's a very high risk for us to finance these opportunities. So that's why in, in the cost of our capital, it's a little bit more expensive than the SBA because SBA, at the end of the day, they can go to your bank and say, Hey, I'm going to take whatever you guaranteed of these assets.

[00:16:34] Ronald Skelton: Do you have a turnaround team? Like, what do you do with those assets? I mean, as an acquisition guy, like, you said you got over 150 deals done or something like that. You had $70 million deployed over the term of Boopos's uh, lifespan. What happens when something comes back?

Do you guys end up dissolving them or do you put it to a team to turn it around and or do you sell it to one of the other buyers?

[00:16:56] Ignacio Villanueva: The latter, is what we aim to do. So initially, if we've had a relationship with the seller throughout the process, cause sometimes we, we have to talk to the seller to get some information. Connect some accounts during the process. And we always reach out to them and say, Hey, we have this situation.

Do you want to take over the business? Obviously they've already get the capital from, from the closing stage. And now they get a free asset that they know, inside out. There, there's always a win win situation for them. So I would say going to the seller would be our first option. And the second option is we do have a group of buyers that we've worked in the past with.

They know they're good, very good operators. So they're really, interested on taking some of these opportunities. But I will, I will take the opportunity to do a shout out. If somebody wants to take over these stress assets, they can, they can shoot me an email. I'll be happy to put them in contact with the right person.

[00:17:51] Ronald Skelton: Yeah, it might be something where like look I've already got you know, somebody might need to submit a portfolio or just like hey, here's the three SaaS companies I own. If you've got anything that's distressed that has customers in these three realms, we'd love to talk to you. Right. Cause a lot of times, these SaaS is like, here's a good example.

There's a lot of SaaS companies or membership companies that are CRMs for marketing agencies. They're, a general software tool. They're a CRM, but they've spent, they've honed in and created something special for a niche, to where, If I'm a C, if I own a CRM software as a service company for marketing agencies and you've got, and I'm thinking about getting into, I don't know, link building or SEO.

And, you reach out and go, Hey, I've got a depreciating asset here. I've got something that we're going to have to take ownership of that's a software as a service for an SEO company. They're still making money, but they need somebody to take the helm and treat them right. I'd rather start from that than actually start from, okay, I'm going to go hire five guys and create an SEO arm of my company.

Or I'm going to go buy, or even better I just bought an SEO company that does SEO. And you've got something that's in that realm. And I don't have a SaaS side of my thing. Right. That, that's who I, who I'd want to find as my buyer is like, I'm already up and running the SEO.

We do everything manually. You have a SaaS company that, services that industry.

[00:19:15] Ignacio Villanueva: I mean, absolutely. Growth by acquisition is our number one sport, right? We always love that. And we always encourage that. But going back to the first question, you have to understand from the three types of buyers that I was mentioning. What happens is first time buyers sometimes they don't know how to manage these brands, right?

So someone that actually knows how to operate SaaS, operate subscription business, if they, even if they do the minimal work, which they know how to do, they'll bring the revenues back up, right? So they'll know how to operate those assets fairly quick. So it's a good opportunity for people that actually know how to operate to reach out to us and say, Hey, I'm willing to take on those opportunities.

Now the sophisticated buyers, I think it's a little bit more complicated. If a sophisticated buyer, has decreased revenues, there's not a lot of people, maybe there is the right person to do so, but chances are going to be smaller. And then with the aggregators, what happens is they usually start buying brands and sometimes they have too much overhead cost.

So they overhire people. And what happens is at P& L level, at LLC level, they're profitable and their business are going absolutely great. But they overspend and they overhire. So the overhead expenses are just too high. So there comes to a point where they're trying to raise their next round of equity and their VCs look at their Holdco P and L and their balance sheet and they say, no way. 

So at that point, they just dilute themselves and they get, they have to get rid of some of their best performing assets. So they can re engage with the acquisition space. So those are also great opportunities that business wise, they're performing very, very well. They're great opportunities, but it's just for some reason,the operators didn't, perform well in terms of setting up the whole cost.

[00:21:11] Ronald Skelton: Yeah, divestitures happen a lot, right? Or a company buys something that has two or three different, avenues and they focus on the one they wanted and let the other two just sit there and kind of idle. Right. And, now, now they go raise another round. And the, the, new investors look at it and go, why in the hell do you own this thing over here?

It's totally off character with everything else you have. And a lot of times it's because, well, it came with, you know, X, Y, and Z that we've acquired. 

[00:21:39] Ignacio Villanueva: And also that you have to be careful when you play around with that, right? It's always a, that could be very, very good and it could be dangerous as well. Right? So if your revenues decreased just a little and you're too over leverage, that could just, it's just, they could kill the whole structure, right?

So these things also happen sometimes. It's like where you're too over leveraged, the minimal change on interest rates, if they raise or the revenues go down for whatever reason, then you're automatically under stress and you have to act quick on it, right? So there also goes opportunities where just people are over leveraged.

Doesn't mean that there are bad opportunities.

[00:22:18] Ronald Skelton: The other thing is almost all businesses, whether they want to believe it or not, are a little bit cyclical. Meaning they have cycles of up and down throughout the year. And if you watch it, if you don't watch it and you, you plan for thinking everything's going to, especially as optimists that come in and we're going to grow everything 40 percent per year. You look at it and go, yeah, I can handle a $10, 000 a month payment.

Like, yeah, you can on your best months and on even on your good months. But if you look at your down cycle month, you're only, you're only 5 percent over that. So if you have a 10 percent market swing, or you have something that happens or a glitch in software and you lose some customers, those three months is your down cycle for the year.

You're going to have to make sure you have cash reserves, from previous months to cover those expenditures. And it happens in all business. A lot of people, we were,we were on another show recording. We were talking about companies that, do a lot of sales between Thanksgiving and Christmas, right?

The e commerce side of things. And, what happens if you don't plan that out, the four or five months or three or four months leading up to Thanksgiving, you're buying inventory and building up and getting ready. So you got a lot of expenditures. And then the funny thing is, is those guys, the guys that own those always want to sell them in January or February.

They've already cashed their big cash check for the year. Right. And, they want to pull the cashes out of the company and they don't, if you look at this, you look at the EBITDA and all the high level numbers, they look great. When you look at the month to month cash flows and go, wait a second, you've got four months out of the year where you're rarely getting by.That debt structure is important to match against any debt you take on carefully to match up and get, not just like, is it even, I'm going to cover it or is it, is it profitable enough to cover it? But you look at it per month, per month, or do you have bad months where, most of our money's made in these three months or whatever. It's a little bit different subscription businesses.

Cause usually they're steady, but not all, not all the, even subscription businesses are steady. Look at Jim's right. Jim's a subscription of January, February, March is up by, You know, June, uh, June, July, and August. They're having to try to go into collection for some of those. Right.

[00:24:18] Ignacio Villanueva: Yeah, so one thing you mentioned was the cycles, right? And I just finished reading the book, the Ray Dalio, the New World Order. And he talks about this in this book, and it makes sense. Everything is a cycle, right? Even when you, when you study the numbers on, on August, right? Everything, the, uh, global warming, uh, isn't just a cycle.

The economy, the debt, the longterm debt versus the short term debt is all very cyclical, right? So with SaaS businesses, e commerce, it's all the same. So you have to be careful. One of the advantages that I would say working with a financially, financial institution, now it doesn't have to be Boopos I'm not trying to provoke people to work with us, but we do run the analysis on each of the brands and we'll look at things like seasonality, trends that will look at the monthly payments and everything that revenue. So we, we set your foot to the ground, right? And unfortunately, people always think they're going to grow the business.

They're going to have enough cashflow to, to pay the debt. And they're going to be able to surface debt without any issues on it. And the business is going to keep on trending up. But one of the things is we look at the cashflow right now. What's the business looking like right now? And that's how the business is going to look like in 12 months.

I know you could grow it, but let's just take the worst case scenario where the business stays the same. Or even if the business, it's down trending a little. You can project a little bit of that downtrend as well to be sure that you have the ability to pay the seller notes and that you can have a good deal structure.

Something that we've noticed is that businesses that are trending down have a very high chance of keeping down or keep the revenues decreasing post acquisition. Right. So that's something that you have to, that you want to take into consideration for both setting up the purchase price, asking for debt because you might want to go to, you can go to SBA, get a 90 percent debt through 10 years, but if the revenues are going down, you want to take that into account, especially if you structure the deal with a seller note.

So we're part in analysis and we're the first people interested that you secure a good deal and that you have enough cashflow to both service the debt, but also pay the seller note.

[00:26:34] Ronald Skelton: Interesting. So, what would somebody bring to you? What would be, I mean, I guess you get to log into their Stripe account and stuff, but if somebody's structuring their deal, is there anything unique about, putting together a,Hey, we want you to help us fund this. Like a package or, or, submit, I'm sure you have online forms and stuff people submit.

Is there anything unique they need to look for inside of these companies to know it's a good deal for you?

[00:26:57] Ignacio Villanueva: So, yeah. I would say that there's a cash flow positive, because we're a cash flow lender. It has to have at least 18 months. So those 12 month companies, I mean, there's not enough history to kind of bet anything on it, right? And then it has to have stickiness. So we have to be able to look at the customer retention rate and see that customers are actually staying on the business and not churning away.

So usually the process with working with Boopos is, you're on board to our platform and we have partnerships with all the brokers, most of the brokers in this space, right? So Acquire, Empire Flippers, Qwilight, FE International. You can either go to their site and look for a SaaS that you want to buy, or you can come to our marketplace where we have all those opportunities pre, already pre approved on our marketplace, right? 

So let's say you look, you're going on acquire,you see a SaaS that it's quite interesting. You'll request the information and then you go to our platform. You upload the information, very streamlined process, and then we'll analyze the deal. We have a committee every Tuesday and Wednesday.

So very, every other day, we're basically analyzing businesses. So within two to three business days, we'll analyze the business. We'll send you a term sheet and then we'll structure the how, the monthly payments will be done, right. At that moment you can go back to the PNL, put some numbers in, see how that will affect your PNL.

And then we basically have a personal advisor for every buyer that we work with to make sure that we run over different scenarios in terms of deal structure. So we said, yeah, we, we subject, subject, different deal structures for the buyers is okay, I, I'd recommend you putting 30 percent down for this business or 40 percent down, or I recommend you doing 50, 50.

So we individually work with each of the buyers to make sure that they get the best out of there, out of their deals. 

[00:28:57] Ronald Skelton: Interesting. Interesting. Now, is there any industries or anything you guys just don't touch?

[00:29:02] Ignacio Villanueva: Yeah. So unfortunately e commerce being one of them. So here's the, here's the thing. We started off financing e commerce. We had a great partnership with Empire Flippers. I think we did like 10, 15 deals every month. But unfortunately the performance on e commerce was not as good as we expected.

And the reason for that is thatthe life of, uh, of the time it takes for an e commerce to do horribly wrong is unfortunately, very, very quick.It can turn upside down from one week to the other.

[00:29:38] Ronald Skelton: And a lot of it has to do with there's,a lot of me too's out there I guess we would call it. You do, you start, it's very competitive space. You get something that's really kicking it on like Amazon or Shopify. Your competitors will see it. And the next thing you know, they're going to have a similar product line right up beside you in the same application, the same platform that, Amazon have put right beside yours.

Right. I know people, it's been a few years now, but I know people that were, they would, that's how they made their business. They made their money. They go on an Amazon, they look for the best sellers. Then they would go and read the two and three star reviews and see what's wrong with the product.

They'd fix those items, introduce a new product side by side, and within a month or two, they're getting five star reviews and four, 4. 5 and five star reviews. They fixed what was wrong and they bust that new, that bestseller out of the, out of the space, right? And it was simple things like phone charger, cables, and just random stuff, but they were killing it.

You know, one of the guys is doing two and a half, $3 million a year, and all he does is, he hunts down really good selling products, reviews the two and three star record, you know, reviews. Figures out what's wrong with the product. Maybe it's service or shipping or, or maybe there's a flaw in the cable.

He'll contact the same manufacturer. He figures out who's making it. And go, hey, i'd like to order a shipping crate of this, but I want you to, he's an engineer by background. Because I want you to use this spring instead of that in the flashlight and solder it with this spec of solder instead of that.

And then I'll order a bunch. So he makes it sure it won't break like the other one did. And it doesn't take long for people to order his and realize it doesn't have the same problem. 

[00:31:12] Ignacio Villanueva: I mean, I wish all our buyers knew. There were software engineers. They knew how to talk to the, to everybody in the shipping, change the product around. Unfortunately, that's not what happens. And you have to think, let's say you buy a business. You buy an e commerce and all of a sudden Amazon changes their monthly fees.

You have to pay a little bit more, right? So what happens is you can now spend less in marketing. So when you spend less in marketing, you make less revenues and everything is just on a downfall very drastically. So yeah, e commerce is a, is a great business to buy and sell. Some people do it magnificent. But I would say if you've, if this is your first acquisition, if you don't know the space absolutely well, you may want to think about getting into e commerce.

just a little bit.

[00:31:58] Ronald Skelton: So you said start in e commerce and stuff. The other thing about the Amazon one is like for the same, same, same, guy I was telling you, it was doing the phone products and stuff like that. He's lost entire product lines because Amazon decides that they've got to do an Amazon based product in that. At one point, I don't know if they still do this, but Amazon was brutal for a little while.

Amazon reached out to him, said, we'd like to buy your business and we're creating an Amazon based product. Here's our offer. You can either sell to us or we're going to compete with you side by side. And there's nothing he could do because he knows once he puts the Amazon price, they're going to dominate him.

It was a cell phone type of, um, it was still in that cell phone space, or maybe he did some stuff with rechargeable batteries for a long time, too. It might've been something in that space, but there's now the Amazon brand was going side by side. He got the good grace of God. They offered to buy him out at a low rate, but it was something.

And he did just selling that, selling a six figure piece of his business off, because he's going to have to compete with them head to head. So that's another one of those, when you're, on these big platforms and e commerce space, you're at the whim of, of the big guys.

That's one of the reasons I don't play in that realm is I don't, I try not to play in any realm where a single player can change your, your, game overnight. Like just, they can change their rates or they can, change an algorithm. And just totally read your life. That's why I liked it when I was telling you beforehand, you're talking about newsletters and, and, things I like to acquire.

It's because I own the email list, right. To where if I have a website, Google, you know, I want websites where the majority of my readers, I have their email list and their, and I have them on my list. And I'm getting traffic from all kinds of links and stuff out there not just Google. I'm getting link based traffic because Google changes their algorithm.

I Googled it once. I said, how often does Google change our algorithm? I think it was like six or 800 times a year. It's crazy. And they take major updates, but they're constantly changing that thing. And you're one change away from being from first page to 50th page. Same thing happens in this e commerce space.

[00:33:58] Ignacio Villanueva: Yeah. Content sites you, you have to know the game. I would not recommend anybody to get attracted by the high returns that the content sites have, because you might see, you might go into a marketplace, say, Oh, 90% S. D. E. I want to get one of these. It must be easy to run it right. But then as you mentioned, Google updates, it will just destroy you, right?

It's, you have to know this stuff. Regarding e commerce what we've seen though, is back in the day, it was very, it was fairly easy to compete on Amazon. And the main reason for them, there was two main reasons. First of all, there wasn't as much competition, right? So if you want to sell, whatever, um, phone cases, right?

There weren't as many sellers for selling phone cases. And their marketing on Amazon was not as high. Now as Amazon has raised not only their fees, but also how much you have to spend on marketing. Marketing just really became, the real estate for online businesses. So if you're spending at least, what? 20 to 30 percent on marketing on Amazon, right?

So, if you were to sell on Amazon or if you were to get on e commerce, what I would recommend is look for something that has brand equity. Now brand equity means people recognize your name. It has a brand to it. You can sell it in Shopify, WooCommerce. You can take it to Walmart in the future if you want to, but you want to create an audience that resonates with the brand, right?

And selling this non brand products on Amazon. I just don't think it's working the way it used to anymore.

[00:35:38] Ronald Skelton: Yeah. You want somebody to actually Google your brand name as opposed to go to Amazon and look for your product, right? 

[00:35:47] Ignacio Villanueva: Exactly. 

[00:35:47] Ronald Skelton: It's fine. It's fine. If you send them to Amazon to buy it, I guess, or whatever, but, uh, you want them to go look for Nike shoes instead of going to the Amazon and say, I need shoes, right?

Nike's a hell of a brand. So that's probably something you won't achieve or buy. But, bad example, but it gets the point across you, if you're,

[00:36:06] Ignacio Villanueva: You have to understand Amazon landscape as well. 50 percent of products that are sold on Amazon, are through Amazon products only. Now 30 to 40 percent are big corporation, Nike, Adidas, iPhone, whatever. And then just the remaining amount where individual sellers who, again, there's tons of people making a lot of money selling on Amazon.

I don't discourage that. I'm just saying, if you're, if you want to get into the space now, I think you're a little bit too late to get onto Amazon. Unless you want to build a brand equity brand to yourself, right?

[00:36:40] Ronald Skelton: Yeah, I get that. What about like, do you mess with anything in the TikTok shop, now that TikTok shop has a shop open. I heard their fees are really high. Do you guys finance anybody that's got, those type of stores? Or I guess that's not a subscription base?

[00:36:54] Ignacio Villanueva: It's not a subscription. Now, actually we haven't seen any of those. Now we're always in the lookout for new verticals. We study a little bit YouTube channels. I know some people are buying YouTube channels now, but I guess it depends a lot of, on the operator. So it's kind of hard to change hands there.

We're always looking for again, new verticals. Something that we can get our hands on where we could understand how revenues work. They work in a subscription model and that we can connect to the payment processor. So, I mean, open to suggestions for anybody listening to this.

[00:37:26] Ronald Skelton: How do you deal with, so inside of newsletters and, and, YouTube channels and stuff like that, there's a little bit of, um, I want to call it social clout or something. Like, I know I have paid subscribers on my newsletter that pay for subscription because they love getting my podcast. They love, they know, I do a lot of this stuff for free. And they reached out and go, how can I support you?

And I just kind of jokingly said, well, subscribe to the newsletter. I've got one that's like $10 a month, 9. 95 a month. It's just a cheap one. And they do. And I was thinking, do they even open it and read it? Like I actually, I look through there cause sometimes I can see my, my active users. I can see inside of the statistics who opens every single one of them. And not all my paid subscribers and some of those guys who you know, they give me ten bucks a month I know it's not much on that.

They rarely open the damn thing, right? And it's because they it's kind of like what's that paleon or some of those other words? They're just putting money into something because they listen to the show and they want to contribute. The problem with those type of businesses are, and it's, incognitive in mind, but if you look at some of these other newsletters and some of their stuff, that social cloud is big, right?

They've got such a following. There's such a social influencer that when that changes hands, a percentage of that company could go away because they're going to follow whatever that guy's doing next.

[00:38:40] Ignacio Villanueva: Yeah, I guess at that level though, you have at that point, you have a few writers that were working for you that are creating most of the content. You're just basically giving them guides on what to write. And then if you work with the seller for at least what, six months of transition and he kind of lures you into what his mindset is. 

I think there could be a chance where it's a smooth transaction or transition from one owner to the other. And, but yeah, we could potentially look at those. I mean, if we could see when the client start paying for the subscription and when they turn in terms of date, we can create a cohort analysis and then we can deploy capital on it.

[00:39:22] Ronald Skelton: I would buy new, uh, I would buy YouTube channels too, but mostly like the faceless ones where it's an, where they're doing like, they're covering an industry or whatever. And it's, I don't know if I would buy something with a figure head on it, right? It's like same way. It'd be hard to buy a podcast.

There was a podcast recently for sell. They didn't say what it was, but they were, it was a fairly top business podcast. I didn't sign the NDA cause it was like 13 mil. But when you read it, I could figure out who they were, just by like their daily podcast. They've had these particular guests on. They, they listed the size by the description, like there's only two podcasts that could be.

And I know that one of the two guys I've met him, he's not going to sell. So I know it was the other guy. But, that said, how do you replace that? Right. That most of the people going to his show, he's, uh, he has a co host. The one I'm thinking of, but, uh, unless he's sticking around, 

[00:40:13] Ignacio Villanueva: Yeah. You, 

[00:40:14] Ronald Skelton: People show up. You know.

[00:40:15] Ignacio Villanueva: Yeah, you can't replace that. I don't think

[00:40:18] Ronald Skelton: Yeah. Like this, this, How2Exit. I'm on every show. I've been doing a little thing where we do guests, we do, occasionally we do them. I would like to do one a month where we have a guest host. Somebody else comes on and sits in this chair and interview somebody that I can interview. We've done two so far.

They went really well. So that was at the pilot thing we're going to do, but, in the long run, this isn't something I see that's going to be long term sellable unless I move myself out of it and have somebody else sitting in this chair on a regular basis. Not that I'm a, a super attractive person that people want to sit here and listen to, but people do come here because I'm asking questions.

So, that's the problem with the YouTube channels and even some of the newsletters out there. If it's written by the same person and it's not written by a team of writers, it's really hard to, it's really hard to copy somebody's voice. And their, their, their, intellect, the way they think.

[00:41:06] Ignacio Villanueva: Well, there's two things I want to mention. First of all, is that perhaps you want to, you might want to look into it and create a bundle. Where you talk to different podcast, hosts, get into a price and then start selling a price to external buyers. Where, hey, rather than paying 10 per podcast, you could pay 24 for podcast, right?

So that's a strategy that I've been learning about recently, and I'm very interested. Very interested and just how do you create bundles for people? And then the other one that I recently discovered, which I thought was interesting, is that the sunset strategy. So essentially what you do is you buy a business, whatever business that's, has high margins or high, even high cost, but it has a very low churn, you acquire that.

You just let it out. Let it die by itself. So by reducing all the costs that's on that business, say marketing, whatever people you have in a content, you don't pay for those at all. But just naturally the churn will start dying off itself. But the price of the acquisition is actually lower than what you make out of just letting the asset die.

Right? So I thought that was pretty interesting strategy with some of these subscription based YouTube channels or whatever. So you might, all right, how much is he spending on running the YouTube channel? Right. And how many, so you just let it die by itself and you just recollect the payments naturally.

And that might give you more capital than actually what you pay for initially.

[00:42:35] Ronald Skelton: It's interesting that you said that. I know one guy who's doing that. What he'll do is he takes the last, 'cause YouTube has a spike. Like when a show comes out, you got about a week or so where, most of the 90% of the traffic for a show is within, especially like a subscription traffic. Is just within the first week to, to maybe sometimes, depending on the show, two weeks.

Like I know I watched, uh, my, my, first million. Or the 1 million, uh, yeah, I think it was my first million or something like that. Anyway, I don't go back, if I miss one I don't go back and dig through and see if I miss any. I usually catch it within the first probably seven to ten days. So I have a, a connection who he buys youtube channels and he just lops off the revenue from the spike revenue from the last two. And he'll buy it based on like, okay, I think he goes back 60 days.

So for two months, he looks at the revenue, he removes those videos. He's got an algorithm, a tool, he puts it into. And it shows him what all the old videos are making. And he bases the,acquisition based off of that, because he knows if he stops it, like you said, he, he, sunsets it, it's going to trail off.

And he makes, he's like, he says, I look to make three X what I put into it. And usually I make more because, on some of them, he even tries to do some, tries to do something for them. So it's a brilliant idea. I've only ever, you're the second person I've ever heard even talk about that.

So, uh, I like you, I like that you brought that up. 

[00:43:52] Ignacio Villanueva: It's just something similar to KDP businesses. I remember there was a time where everybody was just buying KDP businesses. But the real smart strategy on KDP business is just, you have to find a book that's always going to stick around, right? So you want to buy the most boring book that you can see out there. Like the Harbor, Harbor economics, volume one, right?

Cause you know, that everybody always, no matter what people are going to keep on buying that business and with little marketing, you're going to have people buying the business. With YouTube channels. I would go for a kind of similar strategy where I would see, okay, supply and demand unit economic one, right?

And who's posting that video and then reach out to him and see if you can buy it because you can, it's just very easy. How much are you making per month? What's the downtrend? You do the math, you buy at a lower multiple and they just let it die itself. People are always gonna watch different YouTube videos, right?

And some songs like you could buy, okay, you buy what not, but bunny. But if you can buy a local musician, you buy off his, his YouTube rights, and then you just let it die out.

[00:45:00] Ronald Skelton: It's interesting. It's a evergreen product. So, you know, what, is somebody teaching on YouTube that it's not going to change over time, right? The fundamentals of marketing, not online marketing, just the funnels of mark, you know, marketing itself might be something or the fundamentals of finance, right?

Understanding balance sheets. Those type of things they don't change over time. A balance sheet as far as I know balance sheet been a balance sheet. I've been in business for 20 years I don't remember them looking any different 20 years ago than they do now. They might, there might be new, new stuff on there.

There might be uh, in the you know when you're looking at the expense reports and stuff. Different things are on the item, but an expense report still an expense report. So the fundamental businesses stuff, yeah, that would be a, that's interesting. Cause that would be something that if you look at it and go, this isn't going to change much over time.

And then you have the opportunity to revamp and remaster the videos, right? Cause with AI and all this other stuff on that, you really don't have to put a face on it. So, 

[00:45:54] Ignacio Villanueva: Not only that. Now you starting to see, okay, what resonates with the audience? If it's a, a tutorial on Excel on how to do X, then you just keep on adding, how do you do Y, right. And you keep on adding to that same kind of video and you work around it. But yeah, there's different strategies and I guess, so a few years ago it was Amazon and just sell whatever you can.

Then it was a content sites. Now it seems like newsletter, YouTube channels, TikTok videos. I mean, we're going to see all different types of fades. It's just about understanding. No, I would, I would say know the basics because, every time there's, uh, something new in the market, people seem to forget about the basics. Just make sure that the basic maths add up, right? Don't try to win the system. Don't try to 2 plus 2 is 5. As long as the basic maths makes sense, then go for it. Because there's always going to be this new thing that might get you money, but just make sure that you're not making, dumb mistakes in terms of how do you position, acquire, set up a deal structures, et cetera.

[00:46:56] Ronald Skelton: Yeah, there's a lot of PE firms that are hurting right now because three, four years ago, SaaS was really hot and they were, they were buying these things at high multiples, like insane multiples, right? And now they're, they're, still better than multiples for SaaS and a lot of other industries, but they're more down to earth, right?

I don't, I haven't looked in the last six or eight months. I don't want the current multiple is to pay for a SaaS company, but it's nowhere near what it was three or four years ago.

[00:47:21] Ignacio Villanueva: No, not near. Right now it's around, depending on the size. I would say between 3. 5 and five times if the deal is below a million. TTM revenues or enterprise value, either way, and it could go higher than that, above 1 million. I would say six times, seven times. We still sometimes see even eight timesS. D. E. Sorry, I think I mentioned revenue. Usually is based out of S. D. E. Seller discretionary earnings. So it's around 2. 5 to 4 times. And then if it's above a million, I would say you could see as high as six, seven. And if it has a really good value proposition and very low churn, you could see as high as 8 percent as eight times.

[00:48:07] Ronald Skelton: I, I, looked at a few, when we first got into this in the marketing realm, but, marketing SaaS type of companies. And they were wanting, I don't know if they ever got it, but they were saying, yeah, the PE firms pay us 18, 20, 25 and this is 3 years ago. You know, and I'm like, yeah, you can keep that. 

But they don't get that as like, that's telling an investor that you have to wait 25 years to get your money back if you're not going to substantially grow it. That's just not something I'm interested in as a buyer. So it discouraged me now. Three? That's, that's, almost three and a half, four, that's, that's normal. So I'd be, I'd be, back in the market for a SaaS.

I haven't looked at a long time. Last time I looked at it was like five and six. It was about probably 18 months ago.

[00:48:45] Ignacio Villanueva: So, yeah, I mean, that, that has happened, in 28 with uh, households and how they value the price, right. And then you over leverage and then four months later, the business, the house was more even, worth even more. So you went to the bank and requested more, more loans, right? And that's where you have a leverage.

Three, four years ago, also e commerce, uh, Thrasher was paying 10 times SDE at some point. And you have to like numbers, they just don't add up. And also for startups. I mean, VCs have, basically put so much capital at such a high valuations that right now is going to take companies many, many years, a few years to get to the same valuation they raised four or five years ago.

And investors are just not going to get their return of investment that they plan out.

[00:49:36] Ronald Skelton: Yeah, the, the, venture capital world has always been a mystery to me. I played that realm a little bit where I had startups, where I went and pitched the VCs and, I had some angel investors and one or two of them and stuff and, related. I don't want to get too, it was one of my biggest failures in my life.

I won't get into it too much here, but I created an online dating service to keep people honest in their profiles and spent well into the six figures, almost seven figures doing it. Had a couple of angel investors. Was in the realm of pitching VCs when we finally decided it just wasn't going to work.

And we, we shut her down. That world is, is, intriguing cause it's not logical. If they love your idea, they're going to dump money into it. Do you have a hell of a story to tell? There'll be works at example, exact example, if you've got a, if you're a great storyteller and you can get tell a good story and, and, people believe in you, they're going to dump insane money into you. And, yeah, I just, there's, there's less logic and reason inside it. At least there was, I bet with a new economy and with things going on. Money's a lot tighter now, but, uh, 

[00:50:34] Ignacio Villanueva: Yeah. I think that we work story is the perfect example, right? Where he was able to get valuations on a FinTech kind of owner. I think that about a, but a SaaS kind of, startup where it was just real estate. That, that's a funny story.But yeah, I think these I've kind of,

[00:50:49] Ronald Skelton: Paid to leave and he's doing it again, by the way. He's got another project. He's raising money for him. People are investing in him.

[00:50:55] Ignacio Villanueva: I mean, he's a great guy. He's very, very smart. It's not easy to do that, but I think VCs are more, they're shifted more and they want to see that you're able to be profitable. And once you've shown that you can be profitable and not burn cash, that, that's where they will invest in the growth. But what had happened throughout the years is they will invest in you, regardless of where your ability to be profitable.

And ultimately what you want to become, no matter what business you're creating, no matter what you get into, you want to create cashflow, right? You want to have the ability to create cash on a monthly basis. So what happens with VCs is they were, they were investing in all these startups before they show their ability to create cash and be profitable.

And now I think that they shifted to a model where, okay, first show me your ability to create cash and be cashflow positive. And then I will invest whatever capital I have to invest in order for you to grow and do 10 times, 20 times that cashflow.

[00:51:55] Ronald Skelton: It's funny how rational, rationality comes back into play when money gets tighter. Yeah. Well, we're getting close to the top of the hour now. So tell us everybody kind of, how do people reach out to, to Boopos and make that contact and show you something they want funded or,how do people reach out to you? 

[00:52:12] Ignacio Villanueva: Yeah, absolutely. So just go to boopos. com type on Google. You should find it. You can go to acquire. com also and search for deals that have a pre approved badge. And also feel free to reach out to me via LinkedIn. I'm happy to talk to anybody. Even if you don't want to buy a business or just thinking about buying it.

I love to talk to people just like kind of you Ronald where I enjoy having these conversations, learning from people. So I'm always eager to, to meeting new people in this space or just reach out to you, to me, to, for a genuine conversation. I always enjoy that for real.

[00:52:43] Ronald Skelton: How do you want them to reach out to you? Are you active on LinkedIn or what's your preferred social media platform?

[00:52:48] Ignacio Villanueva: Yeah, LinkedIn. I'm very, active in LinkedIn. so that would be the best way.

[00:52:52] Ronald Skelton: I'll make sure those links are in the show notes. And thank you for being here today. We'll call that a show.

[00:52:56] Ignacio Villanueva: All right. Thank you very much.