How To Acquire A Startup That Isn’t For Sale (And Fund It With Private Equity)

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How To Acquire A Startup That Isn’t For Sale (And Fund It With Private Equity)

Joel Holland landed a $37 million deal.

How To Acquire A Startup That Isn’t For Sale (And Fund It With Private Equity)

Joel Holland has come to love the simple life. After he sold his first company, Storyblocks, Joel and his wife moved into an RV and began traveling all across the lower 48 states. They landed in Vail, Colo. where they enjoy the mountains, skiing, and hiking.

As CEO of membership club Harvest Hosts, Joel also introduces his customers to the simple life. Harvest Hosts grants RVers unlimited access to stay overnight at unique locations such as wineries, breweries, golf courses, museums, and lavender fields.

The business model itself is simple: Members pay an annual fee to access the reservation network, but they don’t pay the host businesses per stay. Likewise, host businesses can participate for free.

But RVers are encouraged to patronize the businesses they visit by purchasing a bottle of wine or a tour ticket. Harvest Hosts members are expected to spend up to $50 million at host businesses this year.

Three years after Joel purchased Harvest Hosts, the company boasts 180,000 members and 2,000 host sites. In 2021, Joel landed a $37 million investment from private equity firm Stripes.

On an episode of the How I Raised It podcast, Joel talks about acquiring the business and working with private equity firms, plus the considerations he uses to keep things simple at every step along the way.

When Joel bought Harvest Hosts from its founders in 2018, it wasn’t technically for sale.

“I think the way that a lot of people go about purchasing a business is wrong,” Joel says. “To go through business brokers or go on BizBuySell.com — to me, that’s too efficient.” (Yes, something can be too efficient…)

Joel argues that buyers pay a premium for the convenience and competition these avenues offer.

“My approach is to get to know a vertical really well, and something that you personally enjoy would be my choice,” he says.

Joel knew RVing well and was already a member of Harvest Hosts when he reached out cold to the owners with nine crucial words — would you sell this business for the right price?

“That little qualifier always gets a response,” Joel says. “Because even if the group had no interest in selling — which, by the way, the owners of Harvest Hosts had no interest in selling — they had to find out what the right price was.”

Joel’s question got the conversation started, and after a few months of getting to know one another, they made a deal.

When it comes to negotiating the right price, Joel recommends a degree of caution.

“When you give a range, be careful because you’re putting a stake in the ground,” he says. “They [the buyers] are always going to trend towards the higher end of the range.”

And while some buyers like to offer a percentage of ownership as a part of the deal, Joel prefers to keep it simple.

“I didn’t want any partner whatsoever, because I knew I was going to be making some decisions that might make them uncomfortable,” Joel says. “I didn’t want to have to think about hurting them as an equity partner. Whereas if I own all of it, I can make whatever decision I want and sleep really well at night.”

Fast forward to 2020. At the beginning of the COVID-19 pandemic, the travel industry ground to a screeching halt. But as summer approached, people looked for safe options to get out of the house and have a vacation.

Interest in RV travel exploded. Harvest Hosts doubled its membership in 2020, and as Joel was ramping up advertising and staffing, his phone began to ring.

“I never thought that we would raise funding,” he says. “It just turned out that RVing became so popular, we started getting a lot of inbound interest from private equity firms. It was constant.”

“Even though I had zero interest in fundraising, I still took all the calls,” Joel says. “I spoke to all the firms… And I told them all the same thing — we’re not really looking to raise, we’re cashflow positive, we don’t need the money. I don’t see the point in bringing in a partner at this point.

But as conversations continued, Joel became very interested in the valuations he was receiving and also began to see the potential value a partner could bring.

True to his love of simplicity, here’s what influenced Joel to make a $37 million deal with Stripes:

Once he received an offer worth considering, Joel didn’t reach out to any new firms.

But he did give the other firms he had been speaking with an opportunity to participate. The company received five bids in total, based on the relationships Joel had already formed by taking their calls.

“The value of having a partner who could bring something else to the table was big,” Joel says.

“And that’s ultimately why I did it. It wasn’t the money … Stripes has already in the first few months been really helpful in helping us scale the business through things like finding talent.”

He wouldn’t have done it if it wasn’t an excellent match. “The advice I was given when I raised in my 20s for Storyblocks was that a financial partner is like a spouse that you cannot divorce,” Joel says.

“So the advice between the lines was, pick very carefully because you’re with this person, this group ‘until death do us part.’

“Again, I like simple,” Joel says. “I wanted as few seats at the table as possible unless there was really a good reason to have another group that would add strategic value. Instead, we built a great board, and we brought on board members who add a ton of value, who are much less expensive than having to give up a bunch of equity.”

Joel was familiar with the ways private equity firms work, having raised PE capital for his first company several years earlier.

Here are some things that private equity firms look for in an investment:

✅ Established businesses with repeatable, recurring financial metrics and a long runway

✅ Profitable companies where valuation can be calculated based on traditional valuation methods (e.g. multiples of EBITDA or cash flow)

✅ Companies that are actively growing and that have the potential for substantial growth over the next 5–7 years

✅ Companies where the founders are ready to transition out (or cash out)

If your business checks one or more of those boxes, then it might be a good fit for private equity.

Nathan Beckord is the CEO of Foundersuite.com which makes software for raising capital. Foundersuite has helped entrepreneurs raise over $3 billion in seed and venture capital since 2016. This article is based on an episode of Foundersuite’s How I Raised It podcast, a behind-the-scenes look at how startup founders raise money.

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Author: Nathan Beckord