Permanent Capital Structures

Last week we unveiled Think Like an Owner's new website at tlaopodcast.com, along with our new cover art. The new site is equipped with a podcast and newsletter wide search function, transcripts embedded on the episode page instead of in new pages, and a cleaner look to the show. I'd love to know what you think!

I would like to preface this with investing in businesses and operating them are unique to the individuals in the situation. There is no right answer to how long you own something, but the permanent capital structure is interesting.

Once you find a wonderful business, why would you want to have to sell it after a few years? The SMB community has seen a rising interest in more permanent capital structures over the past few years. Often referred to as "committed capital" or "longer-term hold vehicles," these structures provide businesses with more predictable and stable financing solutions, empowering them to plan for the long-term and unlock value creation opportunities.

One of the key advantages of permanent capital structures is the ability to concentrate on long-term business strategies rather than short-term fluctuations. This focus enables leadership to make strategic decisions, invest in growth, and weather market volatility without the pressure to produce immediate results. Committed capital provides SMBs with a steady source of funding, ensuring financial stability and reducing the reliance on short-term financing solutions. This stability allows businesses to operate with confidence, knowing that resources are available to support their long-term objectives.

Long-term capital investors often bring valuable expertise and connections to the table. By partnering with these investors, SMBs can leverage their networks, knowledge, and resources to accelerate growth and improve business operations. Permanent capital structures typically create a more significant alignment of interests between investors and business owners. With a long-term investment horizon, both parties are incentivized to focus on the company's sustainable growth and success, fostering a collaborative and mutually beneficial relationship.

By focusing on long-term growth and stability, SMBs can boost their valuation potentially. As businesses mature and demonstrate a track record of success, they become more attractive to potential acquirers or investors, enhancing their ability to secure favorable terms in future transactions.

Permanent capital structures offer a range of advantages for small and medium holding companies, providing them with financial stability, strategic partnerships, and long-term growth opportunities. As interest in longer-term hold vehicles continues to rise, SMBs and investors should consider exploring these structures as a means to unlock long-term value and achieve sustainable success.

Here are some fantastic episodes on permanent capital:

• TLAO: Ross Brendel - Investing in Permanent Capital Vehicles

• The Fort: Paul Yancich - Co-Founder of Arcadea Group - Acquiring VSaaS Businesses w/ Permanent Capital

• The Fort: Michael Arrieta - Founder of Garden City - Buying & Growing Great Companies with Permanent Capital

• Invest Like the Best: Trish and James Higgins of Chenmark Capital - Permanent Equity

• If you haven't heard of Brent Beshore or Permanent Equity, search your podcast player for "Brent Beshore" and listen to episodes he has been on.

Thanks to Everest Brady for his help, writing, and research in assembling this week’s newsletter.

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This Week on Think Like an Owner

Our guest, Chris Hoffmann, is the President and CEO of Hoffmann Brothers, a home services business based in St. Louis. Hoffmann Brothers have scaled from $10 million in 2015 to over $100 million in revenue in 2023. We talk about how that journey happened, their experience building executive teams, investing in people through a training university they started for ongoing training, and investing activity for home services today.

We also talk about what perpetual non-private equity ownership enables them to do, including their unique strategy for managing cash investments and liquidity as a growing family office. This was a ton of fun for me and I hope you enjoy this conversation as well.

This episode Q&A features CEO August Felker of Oberle Risk Strategies, answering the question, "Can I just roll the insurance from the company I just acquired into my ownership of that business?" 

Every CEO and entrepreneur needs support from a team of expert professionals like attorneys, bankers, and accountants like Hood & Strong. Less often mentioned, and just as important, is insurance. And August Felker at Oberle Risk Strategies are the experts that you need on your team to navigate the insurance needs of your company as dozens of past podcast guests have partnered with them to do. Oberle helps you evaluate where your current and soon to be acquired company needs for insurance today and what it might need tomorrow. please reach out to learn more about how Oberle can help with insurance due diligence at oberle-risk.com. Or reach out to the CEO, August Felker, directly at [email protected].

This Week in SMB Twitter

Think Like an Owner is sponsored by:

Ravix Group - Ravix Group is a fraction CFO, outsourced accounting, and HR consulting firm serving small and large businesses alike. Whether you or someone you know is getting started, searching to buy a business, or building out an organization, Ravix will help on the journey. To learn more about Ravix Group, head to their website and tell them Think Like An Owner sent you.

Hood & Strong, LLP – Hood & Strong is a CPA firm with a long history of working with search funds and private equity firms on diligence, assurance, tax services, and more. To learn more about how Hood & Strong can help your search, acquisition, and beyond, please email one of their partners Jerry Zhou at [email protected]. 

Oberle Risk Strategies– Oberle is the leading specialty insurance brokerage catering to search funds and the broader ETA community, providing complimentary due diligence assessments of the target company’s commercial insurance and Employee benefits programs. If you are under LOI, please reach out to learn more about how Oberle can help with insurance due diligence at oberle-risk.com. Or reach out to the CEO, August Felker, directly at [email protected].

Interested in sponsoring? Reply to this email and let’s chat.