In this episode, I talk with Kevin Petersen of Webfolio Management about the Webfolio story and model.
Kevin has been an entrepreneur since childhood owning a lemonade stand and pretending to invest in the stock market at age 9!
He started Webfolio Management as a web appraisal business and discovered that there were already brokerages and marketplaces. The first business he bought was a tattoo blog for $900 to test. Kevin paid a developer $300 to optimise the site and started writing content himself and it started turning out $700/m so the lightbulb went off in terms of what happens if he were to buy 100 sites or buy much larger sites!
We discuss how these businesses are simple in concept but complex to run and his friends did not feel it was for them to operate so they decided to put up the money so Kevin could buy and run them and split the proceeds. So 3 years ago they tested a small fund and gave him an opportunity to build his team so he can support larger businesses and larger syndicates such as investment clubs for real estate and stock picking clubs.
Kevin’s Evergreen Fund (which has been extended to 1st October) fills a gap in the market in the $1-5MM range where the acquisition price it too big for individual investors but too small for venture funds. Minimum investment $25k per individual (max $500k) who are accredited or who will typically invest through their corporation
The biggest challenge with an innovative new fund such as this likely isn’t actually deal flow (which is what most people ask) as they can afford to pay more than current market rate due to the big capital pool and ability to improve the businesses (with the skills and team they have) to produce returns that are far higher than what you can expect from public markets. They are focused on B2B SaaS businesses that can have as high as 75% profit margin and they are prepared to trade margin for growth which a lot of sellers are not prepared to do.
They are focused on buying B2B SaaS businesses that can have as high as 75% profit margin and they are prepared to trade margin for growth which a lot of sellers are not prepared to do if they see it as a lifestyle business. Most of the low hanging fruit is actually in marketing. The favorite growth strategy is to retain sellers who are willing to stay on in some capacity and retain some equity to keep some skin in the game, as well as retainer key players within seller teams.
They prefer B2B SaaS vs say e-commerce as there is more stability with MRR being predictable and you can model growth like you can with a traditional business and know who your customers are. He doesn’t want to put investors money in a model where are managing a supply line that could change, that volatility is undue risk. And in SaaS there are levers you can pull to reduce churn or grow and doing both compounds the asset value.
They have a dividend hurdle set at 12% annualized return so if they are not paying out at least 12% they do not collect a management fee. Aim is to sell for 2-3x what they paid for it.