so on bloomberg's front page today there's an article re-run from earlier that gives $25 million as the new number for being entry lvl/"economy-class rich" that's higher than expected, lol, even if you factor in any number of bitcoin traders who bought early and sold near the top the article made it sound like there were lots of ppl who all had $25m cash ready to invest in the markets - just wondering who these guys are? like i don't see that many even among those who work in finance, consulting, law etc as having $25m liquid, or even coming close are they pro athletes and real estate developers or what?
here's the article for those who haven't read it yet: https://www.bloomberg.com/news/arti...-think-you-re-rich-unless-you-have-25-million note, the article's saying that $25M is "economy-class rich" in terms of entry to private banking. it is not saying that $25M net worth is merely entry-level. you're right; they aren't BB finance, MBB consulting, biglaw types. these guys don't have $25M liquid. it's prob hedge fund or AM guys + family wealth types who started with a huge nest and were able to ride the bull market of the past 10 years + celebrities (there are a lot of them in NYC).
This not just about finance industry. There is a number of startup founders that may qualify - practically most executives of publicly held companies, and many founders and co-founders of private ones too. Many who exited/sold their companies as well. Someone nearby me just bought an apartment subdivision for $500m as an investment after they sold their startup that I never even heard of.
I'd agree that it's probably almost entirely entepreneurs. An exit that get the founders $25M is pretty common and they happen every day. But like you say, they're companies you haven't heard of, often doing niche things that are specific to a very specific technical part of an industry so you wouldn't even really understand what they do unless you were familiar with that industry. And they're mostly all PE deals so they don't get publicised. I know that smaller service companies are getting up 10x EBITDA pretty routinely, so you only need $2.5M in EBITDA to get a $25M exit. You also have to keep in mind you need $5M just to buy a descent house in the Bay Area, which is where many of these exits are happening. In my experience with both the finance world and the startup world it's far easier to eventually make a lot of money as an entrepreneur with a somewhat high degree of certainly. Not to say it doesn't require a ton of work and a longer time horizon, but the variance seems to be far lower so it seems more lucrative to me on a risk adjusted basis.
One of our friends who is big in the startup community in nyc earned on a exit of his company. If I told you, you would probably know the firm, but it wasn’t an household name. I suspect he made 25-50mm. I never went to bschool and for me it worked out fine, but today i would tell any ambitious smart individual to look at search funds. I think that has the highest risk adjusted return.
My brother in law just sold his firm for $25m. Not sure what the multiple was though as I did not ask him his EBITDA. Is 10X pretty standard with software companies? What if I invented a software widget that earned $100k net for me each year? Would somebody buy my company for $1M??
good stuff, i looked up search funds and it seems like their model is similar to doing a leveraged buyout the capital requirements are pretty high though, to put into an illiquid investment
Search funds is a term I never expected to hear on ET! I agree with you on that, the concept was big at my b-school and I know a bunch of people on both the search and funding side. In fact I did an internship for a small firm that invests in search funders and my main project was to collate terms and results across a bunch of searchers, and as a result I can say based on a small but at least quantitative sample size that I agree with your assertion on their risk adjusted return.
Sig - any insight on the holding period within the sample you came across? the forbes articles mentioned up to a decade plus before the exit, is that the typical range? also just wondering how the general partners protect themselves in case of a downside situation?
The EBITDA multiples vary a lot but they're generally based on an established firm with some history and stableness to their earnings and EBIDTAs of at least $1M and often much bigger. In some cases you can get a much higher multiple if you've got a lot of administrative costs as a standalone company that the buyer can essentially do for nothing. They trend lower if your earnings volatility is high. Your question is aimed more at a venture type investment, which is an investment rather than a purchase. There is the aquihire concept if you have a put together a good software team where a company will buy you as much for your team as your product. And if you have some trend of the day type software you might get someone to buy it, think blockchain software a year ago. But in general it's not worth the cost of due diligence to buy something for $1M unless there's some really great IP in there a company for some reason couldn't replicate on their own or it gets them a foothold in a very defensible niche they could expand.