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Jeremy Giffon

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130
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2024-07-23
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2024-07-23
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  1. “Why do people buy this business and not the other business? How do you make money? How did this start? How did you get here? You make $20 million a year from a Chrome plugin. How the hell did that happen? Just understanding that I'll see new analysts who don't really understand what the business does, but they don't ever want to say, what does your business do”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  2. “Well, we used to make DCFs just so we could all feel like we made a DCF. Check that box. Yeah, well, it wasn't even that. It was more that we thought, well, geez, everyone else does this. So we better make sure we do it. Now, the questions that I'll ask a seller are what does this business do?”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  3. “I think a lot of investing is pattern recognition. That's nice because compound interest dovetails well with pattern recognition. So I think part of it is you just see what matters and what doesn't. A first-time buyer will always care about things that just don't matter at all. I think a lot of that comes from just reps, but I think the other thing that I really noticed is when I started, none of us had any finance or investing background. We were just fans of Buffett Munger and read all the books. And so I think there's an air of insecurity that comes from that, which leads to asking a lot of complicated jargoning questions. So in the first four or five years of doing this, I would ask a lot of very complex questions, which in retrospect, I think we're mostly about trying to telegraph to the seller that I knew what I was doing.”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  4. “Okay, you can take that, but let me at least explain to you how they're levering up the business to give you that offer. And maybe you're okay with that, fine. All the time, I tell people, congratulations, Microsoft has decided that it's strategically important for them, so they're going to give you 40 times revenue. Take that deal. But you got to at least understand why and how. And so I was always amazed how much the seller had no idea what the buyer was getting or how they get paid back or how they'd make money. And I don't think it's super hard to understand. Certainly if you're in a position where you've built big business that you're selling, you're more than capable of understanding this stuff in an afternoon. And it's really worth doing it just to get a sense of what is the other side getting here.”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  5. “Oh, God. I remember the startup that I was at prior to Tiny, we got bought by Workday, and it was some 30-year killer from Morgan Stanley who just come on. And we were just these doofus Canadians. It's the Sun Tzu thing, like the battle's over before it even started. And I think it's classic. This is not novel, but it's the most important transaction of your life, probably. You've never done it. Maybe you know someone else who have themselves done it once and you're up against someone who that's all they do all day every day. And so it's very difficult. I think the best thing you can do is talk to a lot of buyers. Maybe try and get an understanding for how it works for the buyer and what they're getting out of it. It would be very strange sometimes you'd put an offer on a business and the seller would come back and say, I got this other offer that's a lot more. It's not magic how that other offer happens.”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  6. “Have to work to overcome and understand okay still a good deal despite that and so I think a lot of new entrants to the space they get some prospectus in their inbox and they're like oh this is amazing maybe the person who's run this business for 30 years has decided that now is a very good time to sell the business maybe you're not it's not just your lucky day that's the most basic there's tactical stuff but it's really all downstream of why is this business being sold and is this person just a trustworthy person or do I understand that their story makes sense that it all add up?”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  7. “The biggest mistake is just ignoring your gut, which is trite, and I hate to say it because it's not that interesting, but it is the absolute biggest mistake. Every bad deal I've ever done or seen someone ever done in terms of buying a private business in the first two minutes with meeting the owner, the principal, the seller, you could have saved yourself. Because if you're not doing nine months of diligence, you're basically just diligencing the principal or the seller and saying, can I trust this person? Is this person trying to screw me? Because if they are, it's pretty easy because we're not going to deploy bane on you. And so you probably can get stuff past us. It would be seeing if a person is trustworthy and then understanding why are they selling the business? Because you're buying from the ultimate insider who's decided this is the exact moment to divest from the asset. So that's already a completely bearish signal. You're already at such a disadvantage. And so you really...”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  8. “And that's what inspired us. We couldn't believe that we had tried to sell, in my case, a business to a public company in Christander's case to private equity, and we couldn't believe that it was six to nine month steak dinners, backslapping, terms, all this stuff. And we look at Boffitt, who could buy a $30 billion airplane parts manufacturer only hour. And we were like, hold on, this company is a stripe account and a website. It's not complicated. Surely someone out there can do it in less than six months. And you can, that's a testament to tiny success is that you clearly can. But I think a lot of that just exists for incentives and busy work and stuff.”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  9. “We were buying if they were assets. We would say, Oh, we're buying Chrome plugins or Shopify apps or whatever themes. People would ask her, are those even assets? And I think that's really what you want, at least if you subscribe to the Munger theory, which is that it's better to find your own lake than to try and be the best fisherman. I think you get a reputation for it. But honestly, there's not a lot of people out there who can do this stuff because it's really weird and it requires very fast speed of execution, which requires really abnormal underwriting abilities or requirements. And you have to take weird risks on things that other firms can't or won't take risks on. A lot of company buying, at least in my experience, is not dissimilar from Craigslist. If you show up first with cash in hand, you get the deal. Maybe if you're not the highest price. And so I think a lot of it is just being willing to go and do that.”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  10. “Well, Tiny, I mean, in the early days, we were just very good at outreach. Andrew and Chris, the co-founders, had very good reputations, but we would just email people, just say, hey, we'd use a product, use a lot of software in a day, and some amount of it will be venture funded. But the software that you use that isn't venture funded, it's probably just a small team who's bootstrapped. And you can just email them and say, hey, do you want to sell your company? We had to do that for the first few years. And then eventually we built up a reputation and it kind of flipped and we would get a lot of inbound. And yeah, we would see a lot of this stuff at tiny and a lot of it was just, which I love is one large investment bank sent us something and they were like, we could not think of anyone else to send this to because of a mix of how weird it was and its size. And I think that's great. In retrospect, one of the very bullish signals that Tiny was when we started, people would ask us, what.”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  11. “Downstream of venture has outsized returns so that you can just be super wasteful. It makes more sense for every party economically to just throw it away than to do something diligent with it. And so we're at the best opportunity of all time right now to do that because of the amount of venture that's gone into the system. I think eventually returns normalize, which I think they tend to do over long stretches of time, the wasteful behavior will go away because it won't make any sense anymore.”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  12. “Let's say Fortune 500 tech company buys a company for 500 million dollars and they want to divest a $50 million asset. Does anyone get any credit for that $50 million sale? No, it doesn't move the stock price. It doesn't help the Corp dev. No one gets anything for that. And so what's really wanted there is just make the poor corp dev guys life easier. And so those are great. Another is sometimes startups have two product lines and one's working and one isn't. I've seen examples where company has pivoted and you had a product that was kind of working but maybe wasn't working well enough to become a multi-billion dollar outcome and then you need to get rid of that asset. There's obviously a bunch of stuff in bankruptcies that can be great. I've seen situations where startups build marketing assets or basically like lead gen businesses that end up being better businesses than the main one. And so when the main business goes under you can buy those marketing assets or whatever, there's all kinds of things and it's all just”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  13. “Some of these are so good. Red doesn't even talk about them because I know no one's doing them. An example is anytime a large tech company makes an acquisition of another mid-sized company, there's almost always assets in there that need to get divested or the acquirer doesn't want. What's funny there and other misaligned incentives is the incentive of the corp dev of the acquirer is not at all related to maximizing price. What they want and what so many people want all the time in investing is just they don't want a hassle. And fair enough”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  14. “Venture capital, you have to spend it. You can't just leave it in your bank account. And so you'll hire a bunch of people or spend a bunch of money on dumb stuff. And then you will falsely attribute that spending to the growth, but in fact, it was not at all related. And what's funny about this is you can never run the counterfactual because of the venture capital dynamic. And so it's really hard for people to believe. But I mean, one thing that I asked founders, like if you take a founder out for a few beers and you're like, how many people could you cut from this business? They generally know right away sometimes the founder's like, no one. Everyone is essential. And that's a really well-run business. But the majority of the time, yeah, well, we raised all this money. We tried to hire a big sales team and it's not really working, but it's not going so badly that we have to cut it or whatever. And we get to tell our board that we're doing something. And so there's all these weird optimizations that can be had just by broaching these misaligned incentives.”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  15. “It's funny. If you have top tier VCs, you actually get better deals because good VCs understand that returns are driven solely through power laws. And so anything that is not that one company in the fund, they actually don't care about all they care about is preserving their reputation. So I've seen recaps done from a million bucks. You can offer the founder 500 grand personally and you can cram down the rest of the equity to 10 or 20 percent and you can recap the business or in a lot of cases you can just cut costs and then the business becomes very profitable and then it can run. And I mean, the real kicker on these, most of the time growth will either increase or stay the same when you cut a ton of costs. A weird side effect of venture capital is that you never get to see the counterfactual on growth. So a lot of times your company is growing for some reason, probably inherent to the product or something like that. But because you've taken a”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  16. “Yeah, I call it ghost ship because everyone knows there's just no financial outcome that's going to happen. And it's this weird thing because there's cash in the bank. You're making money. The team's happy. Everything's going well. Still sailing along, but it's just you screwed up. Unfortunately, because you didn't really understand capital structures.”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  17. “And so, yeah, you'll get a situation where VC is happy to give away basically a business that's making lots of money and a founder is happy to either run it profitably or take another shot on goal. And all of this can just be unlocked by having a little bit of knowledge and then solving these coordination problems.”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  18. “And start thinking about the VC's economic incentive, which these are questions founders never ask how big is the fund, when in the fund lifecycle did they invest from? Who else is in the fund? There's one case where a business doing like 15 million a year and I get on the phone with their main board member. And he was like, oh, yeah, right. He's like, I think that was in the Uber fund. We don't really care, you know, and it's just these crazy things that, like, if these two people talk to one another, there'd be huge unlocks.”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  19. “But you're going to drag that out for another two years. And it's very nefarious for founders because you only get so many years, really, where you can take these shots. And if you're really dead set on trying to build a huge company, wasting two years of your mid or late 20s or something is a huge waste. And ironically, your VCs would probably be happier for you to give up and back you again or keep the money or whatever. And so that's a situation where you've got this asset. So a company that's doing $10 million a year, which is maybe, you know, if it's a SaaS business, maybe the best asset on the planet if one person owned that, if you have a net negative churn on great multi-year enterprise contracts, it's the best asset that you could possibly own. It just compounds cash. But because of its weird financing situation, it's like a dead asset with these two parties that both want the same thing but won't talk to one another. And so that's like a classic example of a dislocation. I don't really need to know anything about the company there to know that there's an interesting opportunity. It can go a level deeper.”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  20. “Yeah, because you raised it 300 million or something and you're going, oh man, am I going to have to do a down round if I do a down round? Then I'm really going to get drowned out on the prep stack. I'm never going to make a dollar here. It's going to be another five years. But you don't want to go to your board and say, I want to give up on this company. I just realized I'm never going to make a dollar from it. And your board doesn't want to come to you and say that because then there's this boogeyman story of my VC told me to give up. The coordination problem and I've done this and we'll continue to do this, which is you can literally just talk to both of these people in private and then broker something together. And they're both relieved. I mean, it's the best type of deal. They're both relieved because the VC, it's just a pain in the ass. I talked to one large VC who was complaining about all the audit responsibilities of all these dead companies. And then you talk to the founder and the founder also wants out, it's like a bad relationship. Probably if you start thinking about breaking up, it's”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  21. “Well, not even that they failed because that's the crazy thing about these. Maybe you have 10 million a year of revenue, but you're only going to grow 60% this year and you raised...”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  22. “And so that presents a lot of opportunities. In this present day, you have all these companies that massively overraised and are now realizing that even with a good viable business, the founder personally is never going to make any money because the pref stack and because they just raise too much and you get this weird situation where VCs don't have any incentive to tell you to shut down. There are exceptions. There are a handful of really great VCs, which is both economically and morally the right thing to do But for the most part, a VC has no good reason to tell you to shut down because they're in the outlier business. And a founder is going to just, first of all, just be terrified of telling their investors that”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  23. “This one's great because it involves two parties that don't know anything about financial capital structures, which are founders and VCs.”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  24. “To my other question, I always ask investors what is their edge? And I'm always shocked how few have a cogent answer. And maybe it's because people don't think about it. You can just say I'm smarter than everyone else. And that might be true. That could be your edge. There's certainly cases of that. But you should have some reason why you think you can do better than everyone else. Even if it's just your cost of capital, like it can be anything. Most people cannot articulate why they're better than the next person, which I think is crazy in a business where you get paid for beating a benchmark.”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  25. “Yes, that is my favorite book on investing ever. The big thing that really turned a light bulb for me, and that was when Greenblatt would describe things like index or mutual fund has to dump this because they have some weird legal thing about what they can or cannot hold. Okay, so now I understand. And I like that certainty. At the end of the day, there can be difficult problems to solve. Even in the Greenblatt instance, you're probably one of 100 people who is actually reading the 150th page of the legal offering of the warrant offering or whatever, right? And so maybe that's your explanation for why you get paid, because you're the only guy who's going to read $150 pages of a rights offering of a small cap. That's a good explanation.”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  26. “Ladder, unless you have a very good explanation. And so I think I take comfort in oh, this is a really messy situation, and I totally understand why other people's incentive structures don't allow them to fix this problem and why I can uniquely. And so that's why I think it's easy to make low risk investments if you understand things that way. You have a very good explanation of, yeah, I got paid for this because I did these three or four things and there's these five different stakeholders and they all wanted these different things and I figured out how to solve it and it unlocked this logjam. I like things that are very explainable when it comes to investing at least.”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  27. “Need to know that much about a product, it's serving a niche thing, and people are paying millions of dollars for it and they don't leave or whatever. Do you really need to know that much about buying a business if the guy is getting divorced or there's some tax law change or he has some other exogenous catalyst that you can just tell, I mean, this comes back to the people that you sit down with them and he pains them to be selling the business. That's a great deal. I'm probably going to do that deal just from that fact alone. One of my favorite quotes that I think about probably every day is the Grocho Marks quote about I don't want to be part of any club that'll have me as a member. People never think about this with investing. It's like, why has this come to you? You better have a very good reason. And no one ever has a good reason if you believe markets are slightly efficient. Then if it's landing on your doorstep, you're either the luckiest person in the world or everyone else's passed on it. And it's probably the”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  28. “Know if it's reachable, but to me, the perfect investment would be one where you actually never have to talk to any of the people or know anything about the business. You can just understand the circumstances around it and the incentives of the various interested parties and feel out why this opportunity exists, why you can solve it, and then why you're getting paid for it without ever knowing anyone. I think a lot of these, especially in the private markets, are just coordination problems. You're basically coming in into a log jam and just unjamming it and you can get paid for that unjamming when it comes to buying software businesses. It's amazing how many people would ask me about technical due diligence. And it never crossed my mind if this is a business that people are paying millions of dollars for, clearly works. The software works, what do you need to diligence? Obviously, it's different in a hard tech company or something, but even then, if it works, it works. I think you can take all these signals. Do you really?”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  29. “This program. And I think the best organizations do both by virtue of being selected by the company, it really helps your entire career, and it gives you something. Like I really admire certain organizations where you can just tell someone been at a consulting shop or something or been at a really good bank and just the way they write emails or the way they think or whatever. And that's obviously double edged sword, but I really like this idea of you can just tell the polish. And obviously same with military people. Maybe there's a path to becoming a principal. I don't actually think you need that necessarily, but you should be certainly be clear about it. There's nothing worse than all these VCs that have never promoted from within to a partner, but then you ask associates and analysts there and they're like, oh, I'm going to be a partner one day. And it's like, no, you're just totally wasting your time. I think that would be close to the perfect business because I guess what I'm after is leverage in the idea of basically being able to be compensated super highly for your words is pretty close to just speaking money into existence, which I think is.”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source

  30. “Yeah, the perfect business for me is getting paid a tremendous amount of money for your words, just your advice. I really do think the old school merchant banks and M&A boutiques like Lizard and Alan& Co. and some of these places are pretty close to the perfect business where someone has decided that your wisdom is so worthy that they're just going to give you hundreds of millions of dollars for it. These businesses require no capital. They're hugely cash flow creative. You can generally build equity by investing in the deals that you're advising on. And for the best ones, there's also this idea where organizations are either selection effects or treatment effects. And so selection effect would be Harvard or a modeling agency where most of the prestige comes from picking the people. Whereas the seals or something like that, to some extent will have a treatment effect. You become a different person by going through.”

    2024-07-23 · Invest Like the Best · Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay] · IDENTIFIED FROM THE TRANSCRIPT · source