Jul 31 2020 35 mins 10
In this episode of the Website Investing podcast, Richard speaks with Ace Chapman on why he views funds as the best structure for buying assets that generate an income, such as websites. In this part 1, free subscribers get the first ~30 minutes of the conversation; paying subscribers also get part 2 in their RSS feed. As is typical, part 2 elicits more insights as we get deeper into the conversation. EPISODE SPONSORS ? Smash Digital - an SEO growth agency with actual skin in the game, ranking their own portfolio of profitable businesses, and offering the exact same services to clients. Check. Them. Out. ? Niche Website Builders - a hands-off approach to outsourcing your content. Packages include keyword research & high-converting review templates. Get 10% off your first order. Part 1 Show Notes Ace’s Journey How It All Started Ace was approached by a friend one day asking if they could invest in what he was doing. The caveat, however, was that they could only do so through a fund structure. Ace didn’t know anything about it at the time, but after the investment, he found out why fund structures were so popular for buying and selling businesses. Tax benefits, being able to build up a track history, and having the ability to roll over funds were just some of the benefits that Ace realized were available through fund structures. Ace then decided to develop his fund and make it bigger. Starting with a $500K fund, he was able to continuously grow it to $12M today, with plans to grow it even further. Advantages of Smaller Funds The returns of smaller funds are a lot better than bigger funds, because you don’t have to put as much money to work. You can also cherry-pick the best opportunities and be choosy with your investors and get better terms. Incubating Funds Ace used to train people on how to buy businesses so he himself could invest in their businesses. He then realized that he could do the same thing with funds. As a result, the Private Equity Fund Incubator was born. Ace’s concept for this is to build a network of funds that work together. There are currently 3 exciting funds in the Incubator. He is also a fund manager of multiple funds. Creating an Ecosystem of Players in the Industry Missing Pieces When you start a private equity fund, there should be an ecosystem of people around you to make it work, like debt funds, investment banks, and individual dealmakers. The industry doesn’t have much of these people, with lots of pieces missing. Ace’s overall goal is to create a more mature ecosystem where there are publicly-traded companies that are involved in this space. A domino-effect would then ensue, as Ace and his team would use stocks to acquire things, and these stocks are disseminated through the industry; and after a while, other companies would start to go public and other funds would also come in with plenty of interaction taking place among them all. An Example Major private entity acquisitions these days are not made by a single fund. Multiple funds are involved. Recently, a series of circular transactions among Softbank, Credit Suisse, and a third fund took place, and these transactions had the effect of making these three funds look good in the public eye. Their stock values went up in the process. Being a Fund Manager Timeframes Ace’s funds usually have a timeframe of 5 years with various lengths of extensions ranging from 1 to 5 years. Each fund has a certain time period where you are focused on raising capital and ideally closing deals before the fund even exists. After this would be a period in the middle where you are operating and growing the fund. The last period is exiting the fund. Are Funds Just For Buying Businesses? Ace says that the whole idea of a private equity fund is to buy private non-trading or non-floating assets, and not just buying businesses. These funds can include private debt, royalties, actual businesses, minority equity, convertible notes, and more. Using an A [...]
