Jon Smiley

Day in the life of a mid 30s guy in the suburbs (Saturday edition/no kids): 7:30am — wakes up before his alarm anyway 8:00 — walks the golden retriever 8:30 — chug a black coffee 9:30 — Costco run that somehow turns into $347 12:30 — eats samples like it’s lunch 2:00 — “quick” nap that ruins the rest of the day 4:30 — stands in the backyard staring at nothing 6:00 — gets yelled at by his wife for something he definitely did wrong 7:30 — 1.5 beers = exhausted 9:15 — falls asleep mid-movie he picked 2:30am — wide awake for no reason, contemplating everything Same script every weekend

Let me introduce you to the world's most flamboyant referee. I give you, Clésio Moreira dos Santos

Yesterday I announced to our investors that Slack Water Capital and our affiliates will no longer be allocating to new self-funded search opportunities. This decision is based on my belief that the environment for self-funded searchers, and self-funded search investors particularly, has deteriorated significantly since I first came up with the idea to launch a fund 3 years ago. While I still have a deep respect and admiration for the self-funded search model, having been a successful self-funded searcher myself, I believe the opportunity set today is no longer as attractive as it was even just 18-24 months ago for the self-funded search investor. When I first started investing in this space, the opportunity set was very different. High-quality businesses with recurring revenue, low customer concentration, and $1 to $2 million of EBITDA could routinely be purchased for 3-5x. Competition for these deals was relatively limited. They were too big for the average buyer but too small for most private equity. Today, there are far more buyers chasing these same types of SMBs. Private equity firms and their portfolio companies have come down market; family offices have proliferated and are looking for uncorrelated long-term holds with strong cash flow yields; and there is an exponentially growing number of aspiring ETA entrepreneurs looking to get in on the perceived gold rush. The results are predictable. Valuation multiples for quality businesses with $1 to $2 million of EBITDA have expanded materially. Deals that once traded at 3 to 5x, now routinely sell for 6 to 8x...and sometimes even higher! The 70-80% SBA loan, 10-20% seller financing, and 10-20% equity self-funded search model of the past simply doesn't work at these valuation levels. Thus, the self-funded searchers, on average, are left picking through the scraps left behind by other more experienced and better capitalized buyers. These scraps are typically the lower quality businesses with high customer concentration, greater economic sensitivity, more project-based revenues, greater key-person risk, and/or more operational complexity. And valuations for these businesses have moved up as well. These are primary types of businesses that are trading for 3-5x today. I do think there are still some opportunities in the sub $1 million EBITDA range for self-funded searchers. However, it is really hard to deploy a meaningful amount of capital into these smaller deals due to a small total equity check and the SBA's 20% ownership threshold. While these can be good opportunities for searchers and individual investors, they don't really move the needle for a fund. The typical self-funded searcher profile has also changed. The self-funded search model has been heavily marketed and romanticized on social media and podcasts. As a result, it now attracts a much wider pool of people than it did in the past. Many of the new crowd are not as well equipped to perform what is essentially a leveraged buyout of an incredibly fragile small business. Many of these new buyers underestimate how hard it is to successfully operate a small business while also servicing a significant amount of debt. They underestimate just how savvy the current business owner is, how hard they work, and how many roles they fill on a daily basis. Many searchers think they are buying passive income and can operate from behind a spreadsheet. Nothing could be further from the truth. Finally, when I started building Slack Water, there were only small handful of funds or larger investor groups focused on investing in self-funded deals. At the time, I felt like I was filling a real gap in the market. However, I no longer believe that to be the case. There are now dozens of funds and investor groups targeting the space. There was a period of time in 2025 where it seemed like there was a new fund focused on self-funded searchers being launched every week. In my opinion, there are just not enough "large", high-quality, self-funded search deals for all these funds to deploy that much capital in this space unless everyone is going to write a lot of $50k-$100k equity checks. And how much due diligence can you perform, and impact can you have post-closing, across 100 portfolio companies? This flood of new capital, and shortage of quality deals of size, is naturally causing these funds to compete for what limited deal flow there is. This competition is naturally pushing investor terms in an unfavorable direction. Less governance. Less downside protection. More aggressive structures. Higher entry multiples. Less equity participation. In my opinion, the combination of these 3 changing dynamics is not a great recipe for future returns for the space as a whole... Yes, there will still be exceptional operators who find those needles in the haystack, build great companies, invent innovative capital structures, and achieve extraordinary outcomes through self-funded search. I believe that strongly. However, in my opinion, returns for the "asset class" as whole over the next 3-5 years will likely not be what they were over the past 3-5 years. Rather than force capital into what I believe is a deteriorating environment, I believe the disciplined decision is to step aside. Personally, I've also discovered that I actually enjoy operating more than I enjoy being a passive investor. I enjoy the messy process and challenge of building something. The daily battles that inevitably popup. And, selfishly, having the final say on strategic direction. As a result, going forward Slack Water will focus on building our own platforms and explore new ETA models while remaining open to opportunistically investing across both private and public markets.

A speech I give to every new employee, either immediately before or immediately after we hire them: 1. Our business, and therefore your job, exists bc rich people trust us with their money and/or their buildings 2. They are adults and will understand if we make mistakes (provided they are not repeated too often) 3. What they will certainly not forgive is being lied to, either directly or by omission 4. Furthermore, we can fix ~any mistake *so long as we know about it* 5. Therefore, if you make a mistake or see any of us making a mistake, we beg you to tell us, so we can tell them and then fix it 6. Don't worry about being yelled at. We don't do that here, and, anyway, there is no conceivable way any mistake you could make in this job would hold a candle to the mistakes (generally, of omission) I have personally made (and, probably, unfortunately, continue to make) 7. My literal door is usually open; my metaphorical door is always open. If you see something wrong, pls, again, I beg you, come tell me! (And then I repeat some or all of this during company meetings throughout the year, to try to make sure it sinks into the culture.)

It’s coming