In the last decade alone, the private equity (PE) market has more than tripled in value, from approximately $2 trillion in 2010 to over $ 6 trillion in November 2021.
Naturally, the lucrative returns this sector has offered in recent years has resulted in it becoming oversaturated with PE funds, firms and solo investors hoping to outperform the market.
Traditionally, PE firms target established businesses which showcase lower risk and strong growth potential. However, there is a niche investment strategy overlooked by most inhabitants of this market that is referred to as micro private equity.
Micro PE investors acquire businesses with a market valuation below $5 million. Through partial and full acquisitions, these investment funds aim to either purchase and sell these businesses in the short run for a quick profit, or grow these businesses using their resources to generate greater returns in the long run.
Micro PE acquisitions allow small business owners to “cash out” and explore other opportunities or grow their personal liquidity through secondary market sales of their equity. Based on which option is in their best interest, founders may opt for a partial or full acquisition of their companies.
While this form of private equity remains relatively recent and less known, it does offer its share of acquirer success stories.
With an estimated compound annual growth rate of 19.7%, the growth prospects for SaaS firms often outweigh those reigning from other sectors, which has resulted in a heavy inflow of investment from private equity funds.
As the sunrise sector of the decade continues to expand, we’ve seen acquirers greedily charge into this industry to claim their slice of the cake. Across the numerous business acquisitions that have taken place within this booming subscription economy, not many have been as considerate to the founders of acquired businesses as SaaS.Group have been.
Founded in 2017, SaaS.Group is a private equity fund that practises a founder-friendly approach to business acquisitions.
SaaS.Group specialises in acquiring bootstrapped SaaS businesses with an ARR range of $2M-$10M that demonstrate product-driven growth and a self service model with limited operating costs. Their acquired companies were often run by a global team of employees who were accustomed to a remote-first setup.
The core principles of SaaS.Group prioritise making acquisitions as smooth as possible for founders by simplifying the buyout process and reinforcing the importance of growing their acquired businesses without changing the business’ culture.
This philosophy is further emphasised by the post-acquisition resources and network of advisors that SaaS.Group offers the management and founders of their acquired businesses in order to assist them in reaching their future goals.
Headlining the roster of acquirer success stories, Thrasio has made a name for itself as a venture backed micro private equity acquirer by becoming one of the fastest US companies to reach unicorn valuation status. With a whopping portfolio of over 200 brands, Thrasio showcases an extensive range of consumer good products.
Founded in 2018 by Carlos Cashman and Joshua Silberstein, Thrasio quickly became one of the largest FBA acquirers by buying out profitable Amazon sellers at lower multiples and then using their resources to fast track the growth of these businesses.
By targeting brands with an annual revenue range of $1M-$100M, Thrasio aims to invest in companies that demonstrate product driven growth through tangible everyday goods with consistent and steady demand.
They have also emphasised that the business metrics for these Amazon products must reflect positive customer feedback (at least 500 positive reviews and a minimum average rating of 4 stars).
Thrasio’s notable portfolio growth rate is what truly distinguishes them from other micro PE acquirers. Their best performing FBA businesses have more than doubled their revenue since acquisition, and their products have been made accessible through over 150 marketplaces and retailers. In the US alone, Thrasio estimates that every 1 in 6 households owns at least one of their products, while 86% of their brands are sold internationally.
Relative to other digital consumer goods companies, such as Perch or Heyday, Thrasio continues to outperform their competitors through their comparatively larger portfolio of brands which have been able to grow due to this acquirer leveraging their economies of scale to maximise the profitability of each Thrasio product.
Inspired by Warren Buffet’s coherent and streamlined approach to investing, it is clear as to how the “Berkshire Hathaway of the internet” has made a name for itself as one of the most notable acquirers of tech companies within the micro PE industry.
Founded in 2014 by Andrew Wilkinson and Chris Sparling, Tiny Capital currently holds a minority stake in over 90 businesses and majority ownership in 35 companies. Consisting of over 900 global employees and more than 100 Tiny Scouts, this fund offers a “by founders for founders” perspective to business acquisitions.
Tiny Capital has a history of investing in both private and public companies within the information technology sector. Many of the founders who have partially or fully sold their businesses to Tiny Capital have continued to work within their companies.
The co-founders themselves have had their fair share of experiences in building business, such as Metalabs and Meteor. For this reason, they are more than familiar with the issues faced by business owners who are searching for acquisition opportunities from venture capital firms and other private equity funds.
From the layout of their website to the founding principles of the company, Tiny Capital prides itself on being an unorthodox alternative to traditional private equity by making their services more accessible and understandable to the layperson with no background in finance.
Furthermore, the influence of Warren Buffet is reflected within their target to complete their acquisitions within 30 days. This approach is advantageous to both founders- who benefit from the clarity of the acquisition details and the compliance of an acquirer who acts in their best interest- and Tiny Capital, who saves time and resources through a more efficient buyout process in which all involved parties are satisfied.
The field of micro PE has allowed acquirers such as SaaS.Group, Thrasio and Tiny Capital to generate immense returns and is predicted to showcase many more promising prospects in the upcoming years.
Bootstrapped founders of small businesses (valuation < $ 5 M) have also greatly benefited from the accessibility to funding that micro private equity has provided them, as they are no longer limited to more conventional financing options such as venture capital financing.
Furthermore, micro private equity has allowed numerous founders to explore exit opportunities and experience liquidity events through the acquisitions that this field facilitates.
At BitsForDigits, we offer a marketplace for these founders and acquirers who wish to fulfil these objectives through full and partial acquisitions. As we continue to grow, we look forward to seeing many more listings and hope to continue enabling many more success stories.
Further Resources: VCbacked, The mini-Berkshires (Micro-PE), The State of Micro PE, SaaS.group – The Horizontal SaaS Serial Acquirer, Meet The World’s Largest Buyer of Amazon FBA Businesses, Andrew Wilkinson & Tiny Operating Manual, Sell your whole business or just a piece of it
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