Sachin Bettadapur

The discourse on starting vs buying home services is missing the incredible shift the industry has undergone in the last 3 years and why they have genuinely increased in value (although current market multiples are still wild) 3 years ago, you could generate real lead flow with a good GMB, a decent website and some ad money. You could start with <$1mm and get to profitability quickly and then grow from there with cashflow. Today, that is almost impossible. Most of the lead flow is going to ads, so you have to pay for all your leads. So you need way more money to start (say $2-3mm). So there is more of a financial moat today, hence higher valuation for existing businesses. Taking a step back, I think it would be helpful for folks to assume the market is much more efficient than they think. 8-10x acquisition multiples are usually 5-7x for the buyer because they have purchasing synergies. The big roll ups aren't stupid and overpaying by 3x vs. market. Similarly, if these businesses get bought for 6-8x EBITDA, they have real value which means you can't just create them out of thin air easily. In turf, we see 30-50 new companies each year that just churn. We've started 7 new locations with the all the know how and capital from our existing locations and it's still hard. Obviously it can be done, but if it was easy, these businesses wouldn't trade where they do.

Lower Middle Market valuations are all over the place. Here are some valuations I have seen over the past month: 1. Residential Plumbing (1.8M EBITDA) - 4.1x 2. Residential/Commercial HVAC (2.1M EBITDA) - 10.5x 3. SAAS Company (1.2M Rev) - 5x Revenue 4. Pest Control ($2M EBITDA) - 16x 5. Home Service ($1.2M) - 7.1x 6. Building services ($900k EBITDA) - 3.7x

Do not buy a home services company at this price Seeing more of this broker slop every day This is why I'm focused on organic growth with new greenfield locations because I can't find anything worth acquiring at a reasonable price

no person in their 20s became a millionaire by investing 10% of their pay check with the hope that compound interest magic will make them retire fast

This was definitely the coolest house today at the parade of homes near me. What do you think about these rooms? The whole vibe was inviting, warm, and just made ya feel really good.

Something I have always discussed with people looking to use the SBA and buy a business…. ‘The SBA is not your partner, they are your lender. If your business is doing great they will say ‘awesome, pay me’. If your business is doing poor they will say ‘sucks to hear, pay me’. And all SBA lenders aren’t equal. Some banks suck. Some are great. Be careful. The only requirement to use the SBA is can you pass the process. There is no requirement of actually being able to operate, or how good the business is, or what does the real cash flow of the business look like, etc. [this is unfortunate] I’ve had a high number of people that bought businesses between 2022-2024 that are struggling and looking for liquidity options (i.e., they are struggling to meet cash demands and are looking to jump). All struggling for a variety of reasons. I’ve tried to step back and look at the commonalities of these businesses…. 1. SBA - and the MASSIVE bill each month 2. Lack of operational background in owner 3. Did not truly understand the unit economics of the business and it ‘REALLY’ makes money (I am sympathetic to this to a degree) 4. When the ship was leaking, the ‘answer’ to their problem was to hire….and hire….and hire…..and hire some more….and now they are in cash crunch hell. Just because the SBA green lights the deal, DOES NOT MEAN it is a good business. Do not use that as some confidence booster that creates irrational confidence. How do you avoid this stuff? I don’t know, honestly. Other than, the advice I give people when they reach out to me about buying a landscaping business is to go find 2-4 landscaping companies around and go work for them for 90 days each. You’ll learn more and understand if you want to PG your life to go buy one.

Chamath: “Private equity in general is totally hosed.” 🏢🚨 “I think the history of this is important.” “There was a long standing belief that the best way to generate the best risk adjusted return was to have what's called a 60/40 allocation. 60% to bonds and 40% to equities.” “Over many years, especially when we artificially suppressed rates at zero, a lot of people started to move their allocations away from 60/40 and they started to make more and more investments further out on the risk curve.” “The biggest beneficiaries of that were venture capital, private equity, and hedge funds.” “The thing with private equity is that because rates were zero, they had an infinite amount of borrowing capacity at very little downside to them, and so they were able to manufacture returns much faster than venture capital and hedge funds could.” “So as a result, you had an initial group of people that were defining the asset class, making a ton of money, and then you had all these fast followers that said, ‘Well, if they're doing it, I can do it too.’” “But then always what happens is then you have this flood of laggards that just flood the zone.” “And it's these laggards that make it very difficult to generate returns because they start overpaying for assets, they start mismanaging and under managing the assets that they do own.” “That created a lot of competition, and so that's why you see this hockey stick graph.” “And when you see that kind of graph, it doesn't matter what asset class it is. The returns go to zero.” “And so we've seen this in venture capital. We've seen this in hedge funds. And we're now going to see this in private equity.”

Yet another half-reasoned, error-littered Chamath hot take of the week What is true: 1) A significant portion of returns for the asset class as a whole over the last 10-15 years is attributable to multiple expansion unrelated to fundamentals that is simply not sustainable long-term 2) Proliferation of capital in the core middle market has driven entry prices for quality assets to pretty obscene levels. This is also generally true in the upper market with the number of traditionally middle market funds that moved up market and had to try to invent new playbooks with questionable success. I'm no public markets expert but I would also imagine the number of mispriced take-private targets is at a low 3) The lower middle market is more competitive than ever so entry prices are also higher than ever. But outside of the few hottest industries, LBO math still works at these levels, there is still a lot of asymmetric upside in this segment, and you will get paid by a bigger firm for doing the work to build a good platform 4) The global LP capital pool is unfathomably big and it's not going anywhere. Yes, the current cohort of GPs will shrink as there are funds that will no longer have a right to exist, especially if/when alt allocations drop. But there is simply too much money out there for the industry to shrink in any meaningful way - it will just get reallocated to different GPs and models (see: growth in the independent sponsor market) 5) The length of fund lives and overlapping cycles (i.e. you're generally raising the next fund 5+ years before the current one is fully realized) means any change will take a long time to materialize So PE is no longer in its golden age but it's not going anywhere. Sponsors that have an edge (true industry expertise or operational focus/capabilities) and/or participate in the right segments of the market will continue to see outsized demand. And even if returns compress on average, they will never "go to zero" and the distribution will never look like VC

Chamath: “Private equity in general is totally hosed.” 🏢🚨 “I think the history of this is important.” “There was a long standing belief that the best way to generate the best risk adjusted return was to have what's called a 60/40 allocation. 60% to bonds and 40% to equities.” “Over many years, especially when we artificially suppressed rates at zero, a lot of people started to move their allocations away from 60/40 and they started to make more and more investments further out on the risk curve.” “The biggest beneficiaries of that were venture capital, private equity, and hedge funds.” “The thing with private equity is that because rates were zero, they had an infinite amount of borrowing capacity at very little downside to them, and so they were able to manufacture returns much faster than venture capital and hedge funds could.” “So as a result, you had an initial group of people that were defining the asset class, making a ton of money, and then you had all these fast followers that said, ‘Well, if they're doing it, I can do it too.’” “But then always what happens is then you have this flood of laggards that just flood the zone.” “And it's these laggards that make it very difficult to generate returns because they start overpaying for assets, they start mismanaging and under managing the assets that they do own.” “That created a lot of competition, and so that's why you see this hockey stick graph.” “And when you see that kind of graph, it doesn't matter what asset class it is. The returns go to zero.” “And so we've seen this in venture capital. We've seen this in hedge funds. And we're now going to see this in private equity.”