Ways To Maximize Your Valuation When Selling A Business With Nick Weiksner

Andy Splichal:

Welcome to the Make Each Click Count podcast. This is your host, Andy Splichal, and we are happy to welcome this week's guest to discuss today's topic, which is ways to maximize your valuation when selling a business. Today's guest is the CEO of South Col, an e-commerce accelerator fund that partners with successful e-commerce founders to illuminate the trail to an optimized exit of value. A big welcome to Nick Weiksner. Hi, Nick.

Nick Weiksner:

Hey, Andy. How are you doing today?

Andy Splichal:

I'm doing great. Well, thanks for joining us. So how does South Col help e-commerce companies accelerate their growth?

Nick Weiksner:

That's a great question. So it's a bit much because we're a little bit different than what's out there in the market. There are not a lot of things like us. South Col is the genesis of a joint venture between three very successful e commerce companies that does something different than each one of the three companies. That joint venture came together. But we go into a company, we provide capital for growth. It's always good to have capital for growth. We provide strategic resources to help them understand what they should be doing.

Nick Weiksner:

We lay out plans with them about how their valuation is going to go from where it is now to what they want to exit for. And basically, we work with entrepreneurs who have four to 30 million in revenue, profitable, growing, but they really want to double or triple their current valuation and sell in 18 to 24 months, which is no small feat. So our entrepreneurs tend to be people that are, they're going to take this capital infusion and put it right back into the company. Then we're going to work with them so that it churns through that company and creates the value that they get on the exit and sale to a strategic buyer, which we can get into, sort of why we are with the range we are, but everything sort of fits that the exit is going to go to somebody who is adding this to a portfolio of things that they sell and that this would be a strategic purchase for them. And that's how you can get the multiples to be higher.

Andy Splichal:

So do you help companies find the company that's going to buy their company?

Nick Weiksner:

Yes. Oh, you do?

Andy Splichal:

Okay.

Nick Weiksner:

Yeah. So we do three things. So when you come to us, we provide the capital, then we come in and we join the board. We'll have a South Col. One of the founders will sit on the board of the company. And we have a huge list of things that we do in terms of, like, process mapping out everything that exists at the company now, where they want to go in the future. Then we lay out sort of, how are they going to achieve it in the next three, 6, 9, 12, 18 months? And we sort of put those on the horizon and then we hold them accountable for sort of hitting that. And whenever there's a need, we have a wide range understanding of who we can bring in to help us solve a problem that's particular to the individual company.

Nick Weiksner:

And then on exit, we actually manage the wholesale and do that. And that's all part of the South Col package where we're getting a percentage of the equity to the upside. So whatever is more the value that's created from today. So we'll value your company today, then we sell it, let's say for three X, we're getting a piece of the increase in that valuation. So basically we're all aligned that we want to grow this pie, because the bigger the pie, the bigger the piece we get is, and the bigger the piece the entrepreneur gets is because the three companies that we formed were Global Wired Partners, GW Partners. Now they rebranded, but GW Partners, they've done well over a billion dollars of CPG transactions, and they're an investment bank based out of Charlotte, North Carolina, and Ascala, who is a scale and sell and process mapping consultancy out of Tel Aviv in Israel. And Sellers Five, where I actually was the CFO, I left my role in sellers Five to run this joint venture that we formed with these companies with the express purpose of getting involved with the company, working with them really deeply for two years, and then selling the company.

Andy Splichal:

How long has South Col been around?

Nick Weiksner:

South Col has been around for not even a year. Not even a year. So all of us have been inside of this business. I was at Sellers five from 2016 till I left late last year. And a scholar has been around for ten years, and GW Partners has been around for ten years as well. So doing all ecommerce focused work for that. So we have a long transactional history. South Col itself is a very new entity.

Nick Weiksner:

We raised a $50 million fund to put into our portfolio companies to help them get capital to grow.

Andy Splichal:

Now, the dream of a lot of entrepreneurs is that they're going to start a company with the idea of one day selling it and retiring to a tropical beach somewhere. So let's start there. What are the top things that a potential purchaser of a company care about when looking to buy a company? What makes a company viable?

Nick Weiksner:

Perfect as a CFO? So I'll start a little bit close to my own heart. Here is one of the first things I tell entrepreneurs. And it's one of the most boring, and they don't tend to love it. Most entrepreneurs don't tend to love it, which I get is when their books need to be very clean. What I mean by clean is I'm not talking about fraud or things like that. I'm talking about everything in your books should be by accrual accounting that properly reflects how your business is performing because the cleaner, meaning that if they dig into you during due diligence, they're going to dig through all your financials. And if they don't find any place where what they're digging is what you're reporting, your value is going to go up huge. I mean, it's going to be a number of multiples up because they're going to go.

Nick Weiksner:

That says to me, this entrepreneur understood how important that was and took the time, effort and energy to make them right. Because I can't tell you that usually with the companies we go with, and it's not even really a problem, usually within the first 30 minutes or an hour, I'm able to uncover, like, something's not done right in these books or these younger companies that we work with.

Andy Splichal:

And then I was going to ask, how many companies do have their books.

Nick Weiksner:

Right that you get involved with, I would say. And then our portfolio companies that are out there, you've heard me say it to you guys, we run a range, but I would say our absolute best ones are at a B minus at the stage that they're at. And we want them A's. To us, we value this as being an A. And it's also something that's completely deliverable because we can get in there. We can show you how you can get this to be there. And it doesn't take a huge amount of energy. It takes some focus, it takes some work, but it's not the heaviest lift.

Nick Weiksner:

And then once you get it right, you want to have reporting. Because we like to sell. We only want to be involved with the company for two years. We want to sell in 18 to 24 months, and we want year over year comps that are correct. So we really work quickly. It's sort of like, to us, it's like blocking and tackling. If you're going to make a sports analogy, it's like, come in there, get these books right, get them clean, and then everything that we report over the next two years and we go back a year, we're going to have all these numbers that they're going to instantly go. These all work.

Nick Weiksner:

Okay, cool. Now, when we go to a strategic buyer, they're not discounting you for an unnecessary reason. And then, number two, you have to solve some sort of demand or need or solve a problem of a customer, and you have to understand your customer. So we really dive into, you need to understand, like, I ran a retail business, and my co founder and I, it was a chain of stores that took family photos, right? Digital family photos and all this. And we could walk around a mall and we knew our buyer, we go, I see that person, they'd probably spend $500 on photos because we just had all of this knowledge of what they tended to drink, what they tended to wear, what they might subscribe to. You really need to understand your customer that intimately, because when strategics come in, they want to make sure that the company they're buying has a long range ability. Because, Again, to get a high multiple and sell to a strategic, they need to be saying, you're filling something we don't do right now. Take an easy example.

Nick Weiksner:

Let's say you're doing something in the arts and craft space and you want to sell to Crayola. Crayola's got tons of shelf space. You have to be answering some sort of niche, very specifically that they go, we love this. This answers a problem for six to nine year old girls. And we could give it the shelf space. You've proven through being able to sell this product, $4 million a year for two years, growing 20%, that this market wants this. We'll make it to the larger market in terms of doing it. So it's important to know your customer, know your products.

Nick Weiksner:

South Col specifically, we have a third one, which is we really will work with entrepreneurs who care about something outside of their business. So for us, it's foundational, whether it's, and it can be anything. For me, my passion is public education. I was a teacher in the inner city, and that's something that I spend a lot of time on. I care about. I would love to see done. Not to say that I don't work my tail off my job, but we always want to have somebody who has something outside of their own business that they care about. And so some of our entrepreneurs are passionate about helping young girls in Africa who are disadvantaged or another one's big, into marine preservation of the environment, of the marine.

Nick Weiksner:

It can be anything. But that's important to us because to us, that just sort of says, we found it correlates with successful entrepreneurs because they tend to be passionate people and their passion should be broad for that. Anyway, those are sort of our three top ones.

Andy Splichal:

So I see on your website you have a free business valuation button. What do you use to quick. I mean, I'm guessing it's all automated. What's the formula that you're using to create a valuation for business?

Nick Weiksner:

The formula is a little bit, there's a few parts of it that drive it that will change it. It is fairly straightforward. You're really looking at that, that sort of valuation tool. You're looking at what niche you're in, where you are, where you sit in the market. So we have some sort of determinants about what it is that you purport to sell. Is it crafting products or is it live food or is it clothing? These things can sort of matter. The amount of your sales revenue size is a big one. Profitability, because for us, we talk about EBITDA.

Nick Weiksner:

Some people might call that discretionary owners income. They're similar. And I don't really put your listeners to sleep talking about what the differences are. They're generally the same. But what that says is that's like the amount of cash a business is producing that they can do whatever they want with. They could reinvest in the business. They could go buy a boat. Whatever they want to do, they can take that capital out and their business is still running in the simplest terms.

Nick Weiksner:

So you get a multiple based on that. And so where you fall on a revenue size, what industry you're in and how profitable you are are going to absolutely determine a multiple. And you multiply that multiple and that's going to get you a value. And on exit, you're going to see that we apply strategic buyer multiples, which are higher. And so the first thing we've had people ask us, and it's a very reasonable question, why do strategics pay more? Are they dumb? No, strategics are incredibly smart. Strategics look at the world differently, which is if you've got something like going back to my silly crayola example, you've got this crack. You've shown the market. They know that they could ten X your sales.

Nick Weiksner:

And it's not because they're wrong, they're right. They own shelves that we don't own. We being any of us who don't have a billion dollar company, they can then say, all right, so we pay seven times for this. Well, we're going to grow it ten times out of the chute because we have a much bigger distribution system and we could put this out. So we're taking that premium and spreading it out over many, many packs of this craft. And so it might be $0.10 extra on each of these craft packs. And that's totally reasonable. But the binary function of whether the market, there is a market for this or isn't, you solve that.

Nick Weiksner:

This entrepreneur, he or her has solved whether or not there's a market and strategic go, that's what we need to know. We now know there's a market we'll now win. That's why they pay more. And so we'd always want to say that that's where we want to exit to as opposed to a single purchase buyer or an aggregator or something in that realm which a lot of these smaller ECOM companies, that's where they're being sold. If they're being sold on one of these sort of buy business boards and.

Andy Splichal:

You don't sell to them at all.

Nick Weiksner:

No, we're going to sell to the highest bidder, but they're not going to be the highest bidder. So the answer is we'll sell to anybody. So if an aggregator came and wants to pay ten X for a business and they've got the cash, sure. Because again, we're trying to maximize that exit so we don't take anything off the table. But historically strategic buyers are going to be significantly above any of those other markets.

Andy Splichal:

So when you provide company, you partner with a company and you're providing them with capital infusion, how much do they determine they need and what are they using it for?

Nick Weiksner:

Yeah, we do that right up front. One of the things about South Col is we're a very big believer in very clear conversations and discussions up front so people laugh because our Lois are incredibly detailed. So can we get into a letter of intent where we're trying to work with the company? We list out everything that we're going to do and we list out everything that we expect to be done and how to let and do it. And we don't shy away from difficult conversations. So that's when we want to have the difficult conversation. The entrepreneur again, sometimes it's easier to discuss this sort of like fake realities. The entrepreneur is saying, no, I really want to go sell this in Europe. And that's where I want to do.

Nick Weiksner:

I want to take this money, I want to open up and sell in Europe. And we go, well actually we want you to expand in the US because that's where you're only doing 10% of your volume. You could be doing the US. That's where we see the fastest way to grow your revenue. Let's talk about that now and let's talk about what you know and what we think. Because we always believe that we want to work with entrepreneurs that have deep opinions, but we also want entrepreneurs that listen. So we have all those conversations up front so that once we get into it, everybody's aligned, everyone's going, okay, hey, look, we've decided we're going to attack Europe in six months and we're doing this now or whatever we decided. And then everybody pulls towards that so that there's no confusion.

Nick Weiksner:

So we get involved with a company and we direct where it's going to go. So when the capital is coming in, we have a budget and we say, okay, we're bringing, let's say a million and a half dollars. Okay, we're launching a three PL, we're launching the EU, we are bringing in a data system to help sort of like manage inventory. And we're launching three new products which are going to cost this amount to develop and take this long and be launched by Xdate. And so then that's how we're going to spend the $1.5 million. And here's areas that we think we might hire into because as we grow, we're going to need to have increased staff. Right? Like we try to buy businesses that are super leverageable, that we can take people and really get a lot more revenue with the same headcount. But obviously, sometimes when you do things, you need to bring in whatever it might be.

Nick Weiksner:

Maybe you bring in someone for outbound sales. You've never had outbound sales. You're going to sell some to larger distributions and you're going to go out there and try to sell it and you're going to hire someone to do that. So whatever we've decided are the three to four things that are going to drive this two to three X growth. Because stepping back, when you look at a business, if you want it to double or triple the existing business, you can have it grow at 20%. Or maybe you're like phenomenal and you can have it being growing at 30 or 40%. That's still not double or triple. So you have to be bringing in new ideas that you say are big changers.

Nick Weiksner:

So you're bringing in a new market, a new product. Those are the things that are going to be like, well, we sold 8 million last year. We're bringing in this one here sells 2 million. We're doing this and this, which are similar to it, and we think it sells as much as it. That's how we're getting four more million dollars. So there's 4 million, right. We'RE TRyiNG TO GET TO ThAt TrIPLE. We've got to build up.

Andy Splichal:

So it sounds like the funding that you're given is more for companies to use on infrastructure opposed to just simply trying to drive more traffic.

Nick Weiksner:

Well, sometimes driving traffic, actually, we're doing a big project with a client now where we are lowering their CAC from where it is down 40% and driving traffic. So we're actually increasing marketing spend, trying to decrease CAC and increase Ltd. So from that marketing side, we want them to have money to spend, but we want to make sure we're driving profit because that's another part that we could be different than other people who are very successful. We believe when we come into a company, given a two year time road time period that we're looking at, we don't want to do a ton of things that aren't profitable from the start. So if we're driving traffic, we want it to be profitable by. If you're a product that sells multiple in a short period of time, then fine, it could be the second or third. But generally we want that first purchase for it to be profitable at that first purchase. Now, how narrow do you make that profitability? That's where we sit down and we talk and go, what's the value of a customer if we bring lifetime value and go? SO WE CAN TALK ABOUT THAT AgAIN.

Nick Weiksner:

Going back to my route to get somebody in for their first portraits at my old company, I would almost do it for free because we knew that everyone who came in would come in six times or more on average and spend $400 per time. So to get that into the store, I was very willing to sort of aggressively reach out to get a new mom in with a baby under one. Because those are the people that started to come in every month or two as their baby's changing. Right. That first two years of growth for us, and then it might go to yearly after that. They might just come in once a year around their favorite holiday or spring or back to school or whatever period they want to commemorate. So for us, you know that. And so if you got me a new parent, I was willing to pay through the teeth for it because I knew the value I could get providing a great service to them when they came in.

Andy Splichal:

How important is it for an entrepreneur to remove themselves from the business before going to sell it?

Nick Weiksner:

Oh, interesting. I would say that generally we would tell entrepreneurs that we look for businesses that could be sold completely. So we love it when it can actually. Again, if we go back to what we were talking about with the Scala, we map out the whole process where by the end, our portfolio comes, we literally can just put down a binder that walks through how to do everything. So almost literally, the entrepreneur should be able to walk out of the building that day and somebody take this binder and start running the business incredibly effectively with that. Now, most strategic buyers are not going to necessarily allow you to do that, but we look for a very short sort of overlap period because a lot of times strategic buyers might do something where they do a period of outflow to make sure that the acquisition goes smoothly, that they know things and all that. But we try to keep it to a minimum because we try to have everything where they see how to do it and they want to do it their way and they have a vested interest to sort of want to take what the entrepreneur has, but not then deal with the entrepreneurs, because entrepreneurs are great at a lot of things, but most entrepreneurs we deal with taking orders from people above them is not their skill set. Their whole skill set is they drive it themselves.

Nick Weiksner:

And when you get to buyer, that isn't often the best fit, and you see it all the time. So again, we try to have those negotiations up front and just say, look, look at all this. You don't need them to stay very long. They'll stay to make sure that everything's up and smooth, but they're ready to go to the beach or they're ready to go. They have another product and they want to go start that and get on with that.

Andy Splichal:

Now, do you have a favorite success story of one of the businesses that you've worked with over this last year that was eventually sold?

Nick Weiksner:

Yeah, being our time period of hold is two years. We haven't had an exit yet. One of our companies, though, has been incredibly excited. When I was talking about the marketing project that we're working in depth with them on, they are seeing their CAC has come down 30%, the lifetime value has gone up 20%, their sales are up 40% year over year, and we're launching them into a three PL where they're actually going to probably triple their top five SKUs because we're going to be able to. They were order volume constrained. I will try not to give them one for them and they'll know who they are, but where they worked from. We did an analysis that the most amount of orders they could get out in a day is 5000. That's the maximum this could get out.

Nick Weiksner:

They were regularly doing six to seven or 8000 during their busy period during the holidays and getting them out. And so I laughed and I told the CEO, I said I've never seen people approach the maximum because generally when you approach that maximum you start tripping over yourself and little problems ripple through and then there's huge problems and you get it. But these folks, they're up in Maine and they could fix everything with duct tape. They just brought in trucks and they were running lines out from the back of semis and sort of getting it all out.

Andy Splichal:

That's cold in Maine in the holidays.

Nick Weiksner:

You are correct. So like I said, they did it through sheer unbelievable effort and fortitude and it was awesome. Like I told the team, they're phenomenal but we're making their life easier because now that we're getting that out where they don't need to do these ones, we now can lower that down to where now they can stay at that maximum but focus on the things that can only come out of there and everything else that we can get from another place where they don't have to do it. We can increase the order volume and then they don't have to stop advertising because the last holiday season they had to turn down ads because they understood they were running too hard and too long and their employees were staying incredible hours to get it out because they all have passion for the product and want to sort of serve the customer, but there's a limit. They have to get home at some point. They have to get sleep. They have to do that. And so this year they're excited that we're going to be able to push this really hard because the strain of the high moving SKUs, the top ten SKUs which accounted for 65% of sales, they're now coming from a three PL and so we can push it and all the customers will get it and they'll get it faster and easy and in our package kits and all that.

Nick Weiksner:

So that's a success story where we're going to be thrilled as heck next year to come to market with this company. One of the things we do is well before a year before sale we are in contact with a lot of strategic buyers and obviously we know the company. We already have started talking to people in this sort of space and just sort of casually mentioning that we've got a company that's doing really well and they're know there's interest out there.

Andy Splichal:

Do your clients, are they selling on their own site? Are they selling on a shopify site? Are they selling on an Amazon store? Are they selling in retail stores where typically, well, you said e commerce, so I assume it's their own site. But is it their own site and Amazon or just their own site?

Nick Weiksner:

We run the gamut. So for what? We run the gamut with the font. They have to have at least their own site or Amazon. Right. So we're not going to work with just your traditional, just only brick and mortar sort of sales. That's not where our assets lie. Which I'll circle back to why that is because we at all of our companies, if they're an Amazon only seller, we go and explore and go. Why aren't you doing D to C? Why aren't you on your own website? What are the hurdles? Maybe that's an investment.

Nick Weiksner:

That's a huge investment to get D to C working. That's an investment. Maybe we use the capital to do that so that you have omnichannel, you have your own site, you have Amazon. We have one. Actually, the client I was just speaking of, they're exclusively right now. They're 95% D to C and they're not on Amazon. And they haven't been for a year and a half or two years. Long story there.

Nick Weiksner:

But this haven't. And we're like, come on, let's get on Amazon because it's a marketplace, it's a channel, it's a place where we can make money and sell. So why would we not be there? Let's go there. We understand how to make it work. Let's launch that. So we're doing that as well, which is going to be a huge channel. And then stores. We also are a big believer in stores.

Nick Weiksner:

We generally will advise and it'll depend from product to product. But we would advise clients that we do the store testing right ahead of when we're going to go sale because what we want to do is we want to show a potential buyer that this would be successful at stores. But doing a store launch successfully, if you want to try to open up at 4000 Targets, it's a bigger lift than almost any company of this size generally can handle. Unless that's like where they come from. If that's their background and they have a whole team that can do it. It's very complex. It's very complex, very difficult and it can boomerang on you very fast. So we generally go when we know that you're about to sell.

Nick Weiksner:

Let's go be really successful with a store launch. We control the number of stores but we make sure that the throughput is very high, the reorder amount is high. We make sure that everything's delivered. We have people going to that store every day to make sure the shelf is neat, that everything about it is right, and then we go to sell to the buyer. We go, you've got much better ability to roll out to all these stores. We've shown you it can be successful in this store. Whatever's relevant to you. Is it hobby Lobby or is it Target or is it Costco? Wherever we think the store fit is the most important, we go and be successful there and then go here.

Nick Weiksner:

You guys are much, much better at this. You go ahead and do that. You leverage your skills and you'll pay a premium because you'll see that cool. We know it will work in store as well.

Andy Splichal:

What are some of the challenges that you've experienced? Have you given somebody capital, for instance, and not seen growth where you thought you would have?

Nick Weiksner:

I would say more is the one thing that we're very careful about is new product launches can be a large suck of money because you need to understand that every product launch has risks inherent with it. So launches can be successful or not. Obviously, you do all your homework. You make sure you've tried to do all the testing on it. You do all the best actions that you can. But the point is, inherently, there's going to be risk. So we want to make sure we are very budget focused. Where we had an early company where they got a little ahead of the budget, and that's where you can run into trouble.

Nick Weiksner:

You got to keep, I always say stay over your skis, which is, we have a budget. We've got to stay within it. And when things start to push out of that budget, we have to sit and go, we got to get it back in budget. Not, hey, let's just spend it and go and sort of get it. We need to make sure you're staying within budget. And then in terms of growth, when it's not there, our basic premise is we're selling profitably, right? Because if you remember back to the beginning of this, I said, we look for companies that are selling profitably now. So if you're selling profitably and it's going down, we then say, okay, here's the amount we can now invest the profits of the new number. Let's use that profits, push it back into the business, and get ourselves back onto the growth trajectory.

Nick Weiksner:

And why aren't we on the growth trajectory? Let's answer that question is, why are we not on the growth trajectory is our hero. SKU need a partner or need a brand moat, or does it need another product? What would address the change in growth? And so we've been pretty successful and we've been able to come in and say, look, this is what we're going to do. Here's how we'll get it and then get back on the growth path. Because again, our time window is pretty short. We want to sell it to years, so we want to solve it immediately. So as soon as we get on it.

Andy Splichal:

You had made the comment earlier that entrepreneurs are good with business and running business and creating thinking of ideas, but not so good in answering to people, I guess. How are the businesses you partner with when you tell them something like you need to stay in budget, it almost comes off like they're now answering to somebody when they partner with you.

Nick Weiksner:

That's interesting. One, during the process of screening for portfolios, the CEOs we've been involved with have all really found it very interesting that we have a very detailed and specific process that we make sure that we fit interpersonally. So I'll give you an easy example because everybody knows Apple and everyone knows Steve Jobs, how great he was, right? I say to people, Steve Jobs is great. So no one needs to worry about that. It's well proven that he's great. He's not going to be an entrepreneur that would be great with us because he was a lone wolf. He was going to do what he was going to do and amazing. He's an amazing.

Nick Weiksner:

We're not sort of set up for that. We actually look for entrepreneurs who are very successful, who are holistic, who are saying, I'm not really good at the marketing side. Could you guys help give me that resource? Yes, we're going to jump in. We will help you. We've got resources for marketing. We will help you. I'm really not good at finances. No problem.

Nick Weiksner:

We're here to support. So we look for entrepreneurs that are saying, I am awesome at product development. I know it. I want my time freed up to do more product development. So we try to come in and really off the hop, those difficult conversations. We try to go, what do you love to do? What makes your heart sore? Okay, we're not going to get you 100% of that. We're going to try to get you a huge chunk of your time to spend on that. And we'll fill in the other pieces to give you that bedrock.

Nick Weiksner:

And then we make sure that there are people that are listening. And then ultimately we always just make suggestions. And if they go, no, we've had portfolio. We said like, hey, we believe you should do this. They listened to it. We had a constructive conversation. They decided they wanted to go the other way. As soon as that happens, we go, how can we be successful going that way? What can we do to support that way? The time for talking about what we're going to do is over.

Nick Weiksner:

And we don't live in a world where we get to do this twice. So let's be successful now. If we're growing in the US, let's go, let's go do that. If we're going to the U, let's go do that. What can we do to make you successful? What can we do to make it so that this is successful? And then when we sell this for huge multiple at the closing dinner, we can laugh and joke about what would have happened if we've gone the other way. But I want it to be when we've had a successful exit, regardless of what it is. So we tell our entrepreneurs it's their decision. Then, getting to your last point, we actually, in our documents, again, these difficult discussions, we actually require budgets.

Nick Weiksner:

And it's in the documents that to go outside a budget, there needs to be unanimous board decision. So basically that's saying they know when we do, every year we do a budget, once we have that budget, that's just the way it is. That budget is a controlling item. And so their time to sort of have that ability to do those things is when we set it. And usually that time is December. It's in that December meeting for the year, the next calendar year for most companies. And during that time, we're like, look, tell us what projects you want to do. Tell us how much they're going to cost.

Nick Weiksner:

Give us that budget. Build it up for us. We're here. We want that. We want this to happen, but we want it to be thoughtful and planned out, because sometimes entrepreneurs, even really good ones, we just try to make sure they're not just jumping from one to another to another and sort of saying, if we're going to change course, we need to have significant reasons why and we need to understand it. And that's our control. And we set it up at the beginning and we tell them this is because we want to sell in two years. And if we're changing path every three months, we're not going to be able to sell in two years.

Andy Splichal:

How does your fee structure work?

Nick Weiksner:

Our fee structure works that we get a percent. We value the company today and we get a percent of the upside. So we come in and let's just say you have 5 million in revenue and 1 million in EBITDA, and we value you at 5 million. So five times that, 1 million. So your company is worth 5 million today. We'll get some percentage above 5 million for what we sell. So if we don't sell it for more, we've put in all this time, energy, effort, work, strategy, not getting anything. But if we sell it for 100 million, we're getting that percentage on all of that.

Nick Weiksner:

95 million, that's above. And then we'll also usually have a catch up provision where if we increase it by enough, we get our percentage from dollar to zero. But basically the way it is is unless the entrepreneur has increased their money, we're not getting our fee. We are at risk. We tell the entrepreneurs we're coming in and we are at risk with you because your life is probably in here, right? Your house, whatever you have here, you are deeply invested. Well, we also are invested.

Andy Splichal:

Is there ever disagreements about the initial valuation?

Nick Weiksner:

For sure. And that's why we have, like I told you, difficult conversations we have up front. Our LOI walks through it. Interestingly, in our investments, I would say that. I would say well over 80% think that our valuation is pretty fair. Because here's our theory. We try to do a very fair. Like, six months ago, we were closing a deal, sorry, last quarter.

Nick Weiksner:

So three months, we're closing a deal and the market's tight. Three months ago, man, there were no deals getting done. Things are way down. We went to them and said, look, we're in this for two years. This is what we think you would be valued in a normal market, not the crazy market of 2001 or whatever, but just in a normal market. They were very happy. They said, that's a very fair valuation. We would love it.

Nick Weiksner:

We understand we wouldn't get that today. If we went out today, we wouldn't be able to sell it for 10 million. That's a fair valuation. And so we came in at 10 million. And the point is, we come into companies, and I'd say this to the entrepreneurs is every entrepreneur should believe that their company is going to triple in the next two years. That's like a fundamental belief entrepreneur should have. They should always have that mindset that it's just going to happen. Right? Which is great.

Nick Weiksner:

When we get involved with a company, it means that we, the founders of South hall, believe it's going to triple in the next two years. And so when we believe that the initial valuation isn't our gating point because we'll value at 10 million because we think we're going to sell you for 30. We think that in two years, we think come next year, we're putting you on the market for 30 million and that's what we want. Right? I don't need to nickel and dime. Are you 6 million today? If you went to Market? Sure. Are you 8 million? I don't know. And the point is we just try to sort of come in with a fair, normalized market value. But for sure, entrepreneurs are always wanting that and we always try to tell them, we put it right there.

Nick Weiksner:

We say, here's how we came up with it. This was your revenue, this was your EBITDA, here's the multiple we applied. And if you have a different one, come to us. And then we actually have ways for our deal to work that. We've done deals where they want a sort of valuation based on revenue and we go, okay, but then on the exit, that's what we get to value our piece off of as well. So we use the same valuation technique. So there's a lot of ways we can do this to make the entrepreneur feel comfortable about the entry valuation.

Andy Splichal:

And how can an interested listener learn more about working with you guys?

Nick Weiksner:

Well, number one, you can go to SouthCol.co. Just Co, and it's S-O-U-T-H-C-O-L. So South Col is the last phase of Everest. It's a almost technical part of Climate Everest. The reason we're called South Col, we work with investors who've already gone all lift them out. They're up Everest; they're very near the top. There's just a little left for that final ascent up. And that's where South Col comes in to help.

Nick Weiksner:

So you can go to our website, you can also contact me directly. I take emails every day and I answer them all myself. And it's Nick@SouthCol.Co. Those are the easiest ways to do it. You can fill out our valuation tool and get an idea of what your valuation is, and then you can call us. We work very quickly, we get sort of your financial information, all that. We'll circle back with you and tell you where we see the market, your value, and where we could or couldn't work with you. And the last thing I'll say is, Andy, we pride ourselves, we know a lot of people through the space, so we've had a lot of our companies, we say no to 95% of the people that we speak to.

Nick Weiksner:

We're saying sorry because we're looking for a very, because we're taking a huge risk, right. For us, we need to sort of really align with the entrepreneur, align with the market, align with the plan. Right. That's a lot to line up. But one of the things we do is, I would say that probably 50% or maybe 70% of the people we work with, we put them in touch with somebody that can help them. We say, hey, look, in looking at your business, we see this. It's something that we would look into. Here are a couple of people you could reach out to if you want help.

Nick Weiksner:

We looked at your PPC and it looks online. Here are five people we've worked with in the past that are great at it. Reach out to them. And if you want to work with them, cool. Because my theory is, if we can help somebody, I mean, we've had people come back to us like already just, we've only been around not even a year already have one that I was like, you guys are just a little small, but here's some things. Gave him some resources. He just emailed me last week and he's like, hey, we're seeing 20% year over year growth. I think by this Christmas we'll be big enough.

Nick Weiksner:

Would you guys still be interested? I'm like, I'd love to. Let's get together. If you're at Prosper, let's meet there, then let's talk next year. And so we look at everything as if we can help these companies. They can come back to us later when there's a fit or whatever there is. We always try to help and provide.

Andy Splichal:

That's great. And speaking of help, I mean, you have given a lot of great information today for companies thinking of selling or sometime in the future selling. So thank you very much, Nick.

Nick Weiksner:

Thank you for having me on.

Andy Splichal:

All right, for listeners, remember, if you like this episode, please go to Apple Podcasts and leave us an honest review. And if you're looking for more information regarding South Col or connecting with Nick, you will find the links in the show notes below. In addition, if you're looking for more information on growing your business, check out our all new podcast Resource center, available at podcast.makeeachclickcount.com. We have compiled all of our different past guests by show topic and included each of their contact information in case you would like more information on any of the topics in previous episodes. Well, that's it for today. Remember to stay safe, keep healthy, happy marketing, and I'll talk to you in the next episode.