Tyler Hoffman

Broadband Baron | SMB telco operator | early innings of launching a HoldCo

[Tyler Hoffman @hoffman_capital]

@1JoeSpringsteen Especially with Michigan pot holes - always go for the smaller wheels and have better ride quality to boot

[Tyler Hoffman @hoffman_capital]

@BigDemoPrez This might be my favorite fact about you! You should lead with this 😂

[Tyler Hoffman @hoffman_capital]

@SuccessWithJake I actually think about this all the time. Like me, you probably have seller notes out there too

[Tyler Hoffman @hoffman_capital]

@Trackman777 @MikeCalcara

[Tyler Hoffman @hoffman_capital]

@joshkadkins Grew up there - bit of a sleeper compared to Oakland county. We prefer it that way!

[Tyler Hoffman @hoffman_capital]

@StrongpointRich I would presume. Setup the system logic so you only get notified of leads that answer correctly. I feel like the bots can’t process those but perhaps I’m wrong

[Tyler Hoffman @hoffman_capital]

@StrongpointRich Try those basic math questions like what is 2+2 and require it to be filled out before submitting

[Tyler Hoffman @hoffman_capital]

@pslohmann No it’s fine Peter, you just enjoy being poor

[Tyler Hoffman @hoffman_capital]

@collin_ruth89 Preserve margin, preserve cash, minimize churn

[Tyler Hoffman @hoffman_capital]

@collin_ruth89 changed the offering, by selling a more expensive product that had more value add than previous one. We still offer the previous one and include even lower priced options now so we have tiered pricing. Also think about add-ons that can drive enhanced margin

[Tyler Hoffman @hoffman_capital]

@carkerpox HA we’ve all been there

[Tyler Hoffman @hoffman_capital]

@dantasman @AdamMarkleySMB @dealflow_guy @FunlessSponsor I can’t speak for Dan but I go back to @HockJohannes initial point - 75% vs 90% leverage on most bad deals wouldn’t have influenced the final outcome. When I’m signing a PG, a project must create generational wealth. If not, rework investor AND deal terms. Dead stop.

[Tyler Hoffman @hoffman_capital]

@dantasman @dealflow_guy @FunlessSponsor Yeah I think we’re aligned here. Gotta balance it for sure

[Tyler Hoffman @hoffman_capital]

@dantasman @dealflow_guy @FunlessSponsor I guess that’s what I’m missing, isn’t your interest rate on the LOC lower than what the equity costs?

[Tyler Hoffman @hoffman_capital]

@dantasman @dealflow_guy @FunlessSponsor Makes total sense. But what would you have done with the extra cash on the balance sheet if you raised more initially?

[Tyler Hoffman @hoffman_capital]

@dantasman @dealflow_guy @FunlessSponsor Interesting. I’m hearing 10% PIK and 2x is market at the moment. No doubt there are worse term sheets but do you believe 10/2 is market? Haven’t shopped it ever since I don’t raise outside capital ..

[Tyler Hoffman @hoffman_capital]

Way better articulated than I could’ve stated, but this is an understated fact about our space

[Johannes Hock @HockJohannes]

In light of another WSJ search fund article dropping, here's a hot take. I don't think a 5x EBITDA deal with 25% equity is worth it for the searcher.

It doesn't sound like much, but the difference between 10% and 25% equity almost cuts your economics IN HALF, while your bankruptcy risk barely goes down (more on that below).

In my opinion, self-funded search has always been one thing: you take a ton of risk (lever up with PG) and if you survive, you are set for life on a single deal in about 5 years.

That's what the math works out at 4x EBITDA and 80-90% ownership. It doesn't work out at 5x EBITDA and <50% ownership. The latter is a bad economic trade for the searcher.

You'll hear every investor tell you to overequitize. Yes, that does derisk the deal, but the real winners are the investors here. What good does a deal do you that still has a ton of risk but you don't have homerun upside on the other side. The potential to make $1-2mm over 5-7 years with a ton of risk is not a good trade for the average searcher. Most of you can just keep a $200-400k job with no bankruptcy risk.

For the deals I have seen gone bad, having 75% debt instead of 90% would not have saved them. In small businesses when things go bad, it's often binary. So all that extra equity you raised barely reduces risk and but gives a ton of the upside to investors.

6 months of fixed cost is plenty of cash in the bank. If it takes more than that, the business likely wasn't going to make it anyway. And yes, someone will bring up a scenario where a business was saved by having 7 months. Doesn't matter, when you are going down this path you are playing the average odds. If bankruptcy is an impossible risk for you, then don't get SBA debt. You're better off getting paid carry at that point.

TLDR I don't think signing the PG is worth it if you don't have the chance to be done if your deal works out.

[Tyler Hoffman @hoffman_capital]

@HockJohannes 💯 co-sign. Not a popular opinion but I completely agree