Fund Stuff Episode 6 - Dominic Wells From Onfolio

Fund Stuff Episode 6. Join me and Dominic Wells from Onfolio as we chat about permanent capital and going public

Fund Stuff Episode 6 - Dominic Wells From Onfolio
Fund Stuff Episode 6. Join me and Dominic Wells from Onfolio as we chat about permanent capital and going public

[00:00:00] Andrew Pierno: I'm here today with Dominic Wells. He's the CEO and founder of on folio. , and they're also acquiring companies. And so I have a shit ton of questions for Dom. And, , Dom, do you want to just give us kind of a high-level overview on folio and what you guys do over there?

[00:00:18] Dominic Wells: Yeah, sure. , yeah, essentially we're a holding company.

Online businesses. , we're, we're kind of following the Berkshire Hathaway model in the sense that we're, we're looking for long term holds looking for, , sort of permanent capital, as opposed to, you know, there's a lot of funds in the space where it's more like buy a business, grow it, flip it and rinse and repeat, uh, which, which isn't our model.

, We, we started out really just trying to focus on buying content websites. , but we think that space is kind of flimsy these days. And we see a lot of opportunities in e-commerce and sometimes SAS. So we, you know, we, we actually really are kind of agnostic. So there's this model now. So again, there's other people in the space who are doing like an FBA roll-up or a Shopify roll up.

, whereas with. I guess a bit more slowly than that, we kind of go for everything. ,

[00:01:18] Andrew Pierno: we've we have been the same way, uh, picking a thesis or, I mean, even a market, uh, it turns out it's really hard to do. We picked like no-code tools as our beginning, like, yay. We'll buy a bunch of NOCO tools and then you go try and find a bunch to go by and there's like, Too, you know what I mean?

And like, once you small and wants to big, and you're like, ah, shit, I guess we got to change, change markets. , but I'd love to learn how you guys are. Like, how has the company structured? Is it, uh, as a holding company, you guys are just an LLC with each individual company is an additional LLC underneath it, or is it all kind of under one company?

[00:01:55] Dominic Wells: Uh, it's a mix. So we're actually a C Corp. , when, when we first started, we were just on folio LLC, and we were a little bit of a service provider. So I had a few websites of my own, but we basically worked with investors. Someone would say, Hey, I want to buy a website off like empire flippers or something.

Can you run it for me? And so we just did everything through one printer out of city and they, they would buy the website in their own entity and just pay us a fee. , but then we said, actually, we want to change to a holding company. We want to raise. Into the holding company and eventually take it public.

And so a C Corp was the way to go for that. And so we got the C Corp as the holding company. That's on folio holdings, Inc. We still have on folio LLC below, which is like the operating entity. And then if we buy a kind of small, uh, like affiliate SEO website, we'll probably just keep that under. The operating LLC.

, but increasingly as we're buying e-commerce or SAS, they typically, they need to have their own PayPal accounts and Stripe accounts. Uh, the books get messy if they're all thrown into one. So we typically spin up another LLC. And then, yeah, that's just like the subsidiary underneath

I'm in Taiwan. , the team is all over. We've got. A team of about five in Taiwan with me who are actually all Americans and a couple of Brits and one Canadian. And then, , the company's based out of Delaware. , and then we have our in New Zealand. She didn't really plan to be in New Zealand, but she's from there.

And then when the pandemic started, she just, everybody kind of went, went home. , we have people in Europe, people who are a bit more nomadic. , so yeah, we're kind of, we're kind of remote, well, fully, fully remote. We were like scratching our heads when the world started going remote first. Cause we were like, oh, we.

Like, isn't that how you run business? Like we've always been my, that kind of funny.

[00:04:11] Andrew Pierno: Have you ever considered using a series LLC for each, uh, additional acquisition that you guys do?

[00:04:18] Dominic Wells: Yeah. I mean, not at the moment. We're kind of figuring things out with our legals and our books to be like, what should we do every time we buy us? Should we follow a certain thing or should we just do it as necessitates? And at the moment we've just spun up an LLC as necessitates. But yeah, I think we need to look at some of the other options as well, so that we have something more robust, like more, more easy to follow and

[00:04:46] Andrew Pierno: something I've been batting around too, for us where we bought three with just our own cash.

And, , obviously that has, that has limitations. , We've been deciding whether to go a, raise a flag. Be continuing to do kind of like a sponsor deals where it's just kind of a deal by deal basis, spin up an LLC. We find a target, right? We put the investors in that LLC. And we are the managing member of that LLC.

So we control it, but other investors have shares in it, but you guys kind of went like a third way, which I haven't really given much thought to, which is almost that I know, obviously these aren't proper funds, but the terminology still holds at the GP level. You guys sold like GP shares. , with the outcome of trying to eventually go public, which I think is awesome.

Like I, you know, I have similar aspirations, , but was it, did you go, how was that decision process to actually raise money at the GP level instead of doing like a deal by deal basis or just raising more, a more traditional fund?

[00:05:49] Dominic Wells: , yeah, I, I wrote pages and pages and that night, but, uh, I like read. If you Google anything like fund versus holding company, I've probably read the first two pages of Google.

You know, there's, there's, there's a good article by like the balance, for example, , it was really a response to how I want it to like all the different boxes I wanted to tick. So at the time, like I mentioned, we were working with individuals. We had about 30 or 40 websites that we were operating and whenever there was a Google update, , most of the websites would be fine.

One or two websites would get destroyed by the update. So as a whole, we were like, yeah, this is a good business model. But if you're the individual owner of one of those websites, like you've just bought a business for like a hundred K 500 K and it's been wiped out. So not good. So we needed to think, okay, how can we have everyone owning a share of the same pie?

So. This isn't a problem anymore. And we looked at a few options. One was a fund. One was doing individual. We w w we played around with doing individual group buys. So say like five investors, 10 investors would pull money together and we buy one business and then we do it again. And the idea would be each one.

Instead of like putting all their money in one, they'd put like 10 K in one. , and that was okay, but it was, it didn't really solve the problem of, , everyone owning the same pie because it was down to the investor's discretion and some of them only invested in one. So I had the same problem, uh, and it was also a bit of a logistical nightmare.

, So it kind of came down. Do we go with a holding company or a fund? And I got pretty far along the fund route. Like I put a deck together. I had, uh, a lawyer ready. , but it didn't quite sit right with me because I didn't want, I actually think a fund is quite rigid. Like, I didn't want to just say, okay, we're going to buy these types of businesses and then you buy them.

And then for five years you have to sell them. , I really liked the idea of a holding company. But a private holding company, the problems I saw was if you want to raise a digital, additional capital into the private holding company, you either have to do these continual kind of raises like companies like

And it's like, how do I, how do I value this? How to previous investors exit if they want to, , or what a lot of holding companies do is every time they raise money, they spin up a new LLC new money comes into the. And then you end up with a whole bunch of different pies again, instead of everyone learning the share of one.

, and I also had a lot of investors who were not accredited because I'd been around for a couple of years. And I had people that maybe had like 300 K that they could invest, but they weren't accredited. So they weren't like, they weren't poor by any means, but they just couldn't participate if we stay private.

And so. I realized that when I looked at companies like Berkshire, I realized, well, they've got an added advantage because they're public people can just buy and sell their shares. So there's there's liquidity. , because the feedback I got from a lot of investors is they hate a lot of investors just hate looking at their money for like five years or 10 years indefinitely.

, and w the long sort of conclusion is I found out that if we. When public sooner rather than later. So rather than trying to get big, they have been named on the company and then go public. We were just going to go public when we're actually quite small. , that's an acceptable path. It's a bit of a weird one.

And a lot of people are like, why are you doing that? But, , for me, I was like, oh, that's actually like, why would I not do that? That solves all the problems I was trying to solve, , and allows us to go public sooner and get a big evaluation. Because when you're public, you get this arbitrage where you can buy businesses for say Forex as a private company.

But as a public company, you'll probably be trading anywhere from like 10 to 20 X. And so every time you buy a business, you'll even if you don't grow it, like you're getting a bad evaluation, your own end. , and there's probably a lot more nuances, a lot more considerations that I've forgotten along the way, but that was kind of.

The evolution of my thought process when I, when I sort of came up with this.

[00:10:26] Andrew Pierno: Yeah. And I've even seen too. And when public companies even just announced an acquisition and that gets priced in, oftentimes that increase in stock price makes up for the acquisition amount and then so right. And then, and then idea persists.

[00:10:43] Dominic Wells: Okay. And sometimes they just pay with shares. Like I think when, uh, when Disney bought Pixar, they didn't, they didn't pay any cash. And just issued shares. , and when you do that, that often initially drops the share price because you know, it's like printing money suddenly, suddenly there's more shares.

So the, the price of one share drops, but then once the earnings of that new business start showing up on income reports, then the share price can go up like quite sick. So, how do you,

[00:11:13] Andrew Pierno: how would the mechanism of going public work? Have you looked into like, I don't know, meeting with us back or is it what'd you just do like a direct listing because I was just looking on the site and you guys have fire call like 38 sites, right.

And it's four point some odd million. So roughly like a hundred grand per site ish. , Doesn't it cost like close to at least a million bucks just in, I dunno, for US-based businesses, just in the like legal accounting and reporting requirements and stuff like that to go public.

[00:11:46] Dominic Wells: , no, I mean, you can do it for about 200 K uh, if you do a direct listing, we also, one of our benefits is that we.

Gave equity to someone who's taken like a dozen companies public before through a direct listing. So that drops a lot of the cost. , you know, a lot of people will go with a company that charges a hundred K just to put a PPM together. Whereas he did it for free basically because we have equity and then, uh, So, yeah, we're able to do it for a lot cheaper.

, but also a direct listing is it's fairly cheap. We look to the spec as well, but again, we kind of started down the direct listing path before SPACs became super, uh, you know, flavor of the month. , but no, it it's probably going to cost us. In terms of the, the, the audit, , the listing fee on the exchange, the filings, it probably cost us about 250 K to go public.

And then around similar amounts of stay public every year, probably a bit less actually. , well actually depends because we w we might go public in Canada on the CSA CSA, , actually has achieved. It costs more to go public on CSE, but it costs less to stay public, but we think we'll probably only be on CSE for like two years and then we'll up list to NASDAQ anyway.

And then, then obviously the costs are a lot more, but by then we'll be, we'll be larger. And so our logic is the cost of going public early is more than made up for by the benefits of being a public county. And then when you get on that, as that, yeah, it's expensive. You need to be a large company, but, , When already, you know, we'll have reached that stage faster by being public earlier.

, so yeah, that's, that's kind of the, the, the logic behind it, like being public is going to allow us to raise so much more capital so much faster, but like, we have people who are like, I'm ready to give you a check for 500 K, but I'm not going to do it until you're public, because I want to see, you know, I want to know your financials are legit.

I want to know that the sec. Or if it's in Canada, uh, the Canadian equivalent, , you know, that your compliant with them. And as soon as I see that, like here's the money I have. So one or two, one or two deals, and our increased ability to raise money will more than make up for the costs and the hassle

[00:14:25] Andrew Pierno: and going on the U S stock exchange would be too expensive to start.

[00:14:31] Dominic Wells: Actually no. So the original path was OTC QB, , or one of the OTC ones. It depends. Uh, they're all kind of similar OTC. QB has got more prestige, but, , OTC link is fine as well, but, , The reason we looked at Canada was because when you're on an OTC, it's still a bit of a pain in the ass for investors to try and sell their shares if they want to, because they have to go through, uh, an exchange agent, a transfer agent, and then they have to load the share certificates into a brokerage that deals with OTC and not all of them do.

Whereas CSE. Oh, yeah. There's also a lockup period of like six months if an American buy shares or four months at the non-American batches, whereas CSE, there's no lockup period. If you're a domestic, if you're a offshore entity that has, , it's a lot easier for investors to let, just load their shares into, , uh, Something like a fidelity account or they can just open like a fidelity Canada account or something.

So it's a lot easier for investors. There's a shorter lockup period, which again is easier for investors. So we could, we could buy someone's business and give them shares and they could sell the shares almost to be there. If they wanted to. Now we wouldn't want them to, so we would probably enforce a lookup period, but like there's no, there's no restrictions there.

, and there's also a kind of. What's impressive factor as well. So right now we're at around, we're probably on calls for about 3 million revenue right now. , and obviously that that's increasing by the end of the year. Maybe it will be like 500,000 a month, , which is still quite small. Now, if you're in Canada and you go, oh, we've grown from 1 million to 5 million revenue in a year.

And then in the next year you go from 5 million to 10. That's actually quite impressive in Canada. So you might get a better valuation. You'll get more attention. Whereas in the U S that's kind of tiny and no one really cares. , and so there's, there's a few benefits to Canada. , now some people might say, well, being public in the us is more prestigious than kind of the, which is true, but that's why we're going to get to NASDAQ later.

And so really. The, for all intents and purposes of going public, it doesn't matter if we're in Canada or the U S because people can still see our financial statements. There'll be IFRSs sort of gap, but that doesn't matter. They can see that we're compliant with the Canadian government. We might even still do a Juul listing and be on OTC.

If like, if we find a lot of American investors are put off by kind of a, I don't see why they would be, but, you know, , Yeah, we'll have public, we'll be publishing quarterly financials. So all of the benefits will still be there. It's just a little bit easier. , the sec is a lot harder to, but they're both equally hard to comply with, so that's fine.

But the sec is just a lot, like a lot more paperwork. So it's generally once you're, once you're on the CSE, it's a lot easier to stay. You have slightly better deadlines with your filings and you have slightly better costs and everything. , and so, yeah, we just figured let's, excuse me, let's go to Canada and then, uh, either way jping from OTC to NASDAQ or candidates, and that's pretty similar.

You just got to fill out the necessary forms. , so yeah, we, to be honest, we have flip-flopped around this for awhile. , but, , uh, yeah, this is the past that we feel pretty, pretty happy. Did you ever

[00:18:29] Andrew Pierno: think about, , or consider the possibility of somebody buying the holding company as a whole and just sell that whole thing to private equity?

Have you had any conversations like that?

[00:18:43] Dominic Wells: , no, uh, we haven't been approached either, so we haven't had to have that conversation, but, , yeah, I mean, that is an option. I think we're just trying to swing slightly bigger than, than that, you know, who knows maybe in a few years, if we have a public company comes along and makes us an offer, that's fantastic for our shareholders.

We might consider that, but I'm sort of thinking in like 5, 10, 15 year time slots. I'm trying to build something significantly larger than that. , so yeah, it's not, it's not sort of one of my exit plans, but I wouldn't rule it.

[00:19:24] Andrew Pierno: That's super cool. I'm I'm my wheels are spinning on the, on the public side of things, but I want to bounce back to, , just the, like the cashflow side of actually running these things.

So we do SAS only, , just cause that's the only thing I know. , and, and what we found initially, we were like, okay, we're going to buy these things. We're going to hold them forever. It's software. You know, we're going to buy perennial businesses and grow them into perpetuity and. Well, we found, I mean, obviously the, the deals that we're doing are quite small, but there's actually not enough cashflow, meaningful cashflow to pay back investors with.

, do you guys, is, is it the nature of content sites that makes, I mean, SAS in theory has, you know, 80% gross margins, right? Maybe not, you know, 90, if you're lucky, whatever. , but in practice it's like, you gotta pay people. We gotta pay, we gotta pay engineers. Right. Product design, , growth stuff, I guess we both have to pay for in some way, but what made you decide to hold them forever?

And how did you kind of overcome that initial cashflow problem that we have, or maybe it's just, it's just us that we're, we're fucking something up that we need to figure it out quickly.

[00:20:37] Dominic Wells: Well, part of the reason I want to hold them forever is because it's like a snowball thing. So the lower end. Yeah. There are cashflow issues, especially as when we were really small, like, you know, we might have, let's say we had five websites that were producing. I dunno, uh, five grand each a month profit or two grand each a month profit.

So the whole, that whole cluster of flex sites makes 10 grand, but five sites who's going to run. So you hire someone to run them. Maybe that person costs you five K. , so now like half the profits gone and then. , you do it again and it's just, and then, but then eventually you need to start hiring two people to run three businesses and stuff.

And so it is a bit of a cashflow drain. , so we raised money with. I think we raised about 800 K, we got rid of a lot of our smaller sites, sold them off. And then we used a lot of that work and capital to hire people and to buy bigger sites. So actually the economies of scale work really well. , and also bigger businesses tend to come with teams.

So if you buy a business for, and it might be the same in SAS, like a lot of SAS businesses at a smaller range tend to be sold by founders and the founders doing all the work themselves. An engineer. , and so maybe the businesses making like, yeah, 5k a month and the founder's like, you know, I'm going to bounce off to the sale.

And so you have to bring in with your developer and your developer costs more than the business is doing, but at a larger scale, like let's say. , well, I haven't looked at a ton of stuff, but what if it's the same as content and e-com and a larger scale that P and L tends to include team members in it.

And there's no real additional replacement costs. Maybe there's some, but what we're able to do is I've got someone whose salary is painful. Cause he's running three businesses. Maybe he can now run a fourth or. We can hire someone else to run one and they, they start running that business, but maybe they have capacity to run a second one.

So it does it scales a lot better. , the reason we want to hold them forever is because it's quite hard to find good businesses. So, you know, you don't want to have to sell them after a few years, , and rinse and repeat. , and then, you know, there's that we sort of SAS business the other day that was still sold by a single founder, but it was sold for like $13 million and it was.

I dunno it was a high multiple, but I would've thought that assessment was churning off quite a lot of cash flow. , so, and then the other thing is we don't, we don't pay investors. We, because investors will be able to buy their shares and sell them. In the future, they were not paying out dividends to our investors.

We have a second share class that does come with dividends actually, but that's, that's, , that's just like a slightly different conversation, but, , yeah, we're not obliged to pay out dividends to our investors from the profit of the business so we can keep cycling the cash back into additional, uh, acquisitions or growth.


[00:23:47] Andrew Pierno: So at the moment your investors. I mean, you guys are there out there. Exit is going to be you guys executing on this going public strategy, right? Because otherwise for most investors outside of that other class of shares, they don't really get a dividend. They have ownership, but it's, it's a liquid.

, others I've seen like shirts, for example, they pay, , they've, they kick off a dividend. So they buy software, they buy SAS companies and they say, we're going to give investors some, you know, kind of profit share and, you know, they send monthly mailbox money, but you're right at the higher, at higher scales, like, I mean, obviously complexity increases, uh, comes with its own kinds of problems.

Like the bigger you get. Broadly, the cashflow problems are a little bit easier because at the moment each individual company that we have is too small to support, , like a developer to each. So, but in aggregate they can. Right. , but I'm, I'm curious about your, like your, your back of office setup. For us.

I, the way I think about it is there's, there's going to be engineering. There's no two ways about that. We're going to have to have engineers on staff. If we continue to buy these small little things and do a bunch of them, then we need kind of like a shared resource model. The obvious answer is, like you said, where you go and you just kind of buy bigger businesses that can support a team bias.

And I, my only concern there is that there's a lot of people thinking that way. And I'm just trying to see, is there an angle for us to be kind of the go-to place where people can sell, you know, a SAS business that's under 10 K with no employees, for example, uh, and we have the infrastructure in the backend to go and operate those effectively, but I'd love to hear how your equivalent to operations.

[00:25:37] Dominic Wells: Yeah. I mean, I don't know if you can do that because I don't know. W, you know, how many businesses a developer can run before you need to hire another developer. And so, but, , potentially, well, and again, this is another reason why I thought, well, I don't want to do a fund, but I want to do a holding company is because I saw the really the best way to make this work is scale.

, What we're doing is that there's two ways of doing it really there's like the highly centralized model, which is what say general electric did. It's what a lot of the conglomerates did in the seventies. And that's actually what undid a lot of those conglomerates. , most of them were like, you know, these guys.

They were in Korea or they were in world war two. So they were very military and they were used to a very centralized model. So they just set up their conglomerates that way. , but then businesses like constellation software, uh, Berkshire Hathaway, they're, they're all pretty decentralized to be only really.

Centralized decision-making is capital allocation. , and even constellation software has pushed a lot of that down to the loan officers as well. And so we, we kind of, we kind of have a little bit of both to be honest with you. So we might buy a business. And install someone as the CEO and be like, okay, you're going to run it.

If you need to hire a marketing person and that there's a budget, go hire a marketing person, and we're going to sort of leave you to run the business. But we have a central, we actually have a central marketing department and we have a central SEO department where it's not as efficient to have an individual SEO working on.

Individual business. So we have like a team of like four SEO's who will work on every business, , uh, marketing, again, there's like three or four people who will do marketing for not every business, but the ones that need marketing. , and it's probably going to go that way when we build out a media buying, uh, , as well right now, excuse me.

Right now, we just use agencies for our media buy. , and then. We've got me as the CEO and we've got a CIO who oversees everything. And then we have kind of portfolio managers who are like many CEOs, but they run maybe four or five businesses. It depends on the business and their, their, uh, their skills and things like that.

, cause there are two ways to it, particularly with. Content and e-commerce businesses. It's like, do we have one team that works on everything or do we have one team for everything? And what we've found is it's kind of, yeah. Kind of a hybrid approach. , I would like to go more decentralized and I think it's a cost thing.

And if a business gets really big, maybe it just gets its own team. And then the smaller ones you have this kind of fractional sharing of resources. , So it's cheaper to have central and one team running everything, but they get spread too thin. , and so the performance actually benefits from focus.

And so decentralization I think is better. , and I have to make fewer decisions and hold fewer business plans in my head. So it's nice for me as well.

[00:29:10] Andrew Pierno: Do you feel like using international labor? Really makes this business model work, because the way that, the reason I asked that question is because we can only afford.

Non US-based labor, right? Like Europe's too expensive. Right? We're going to Brazil. We're going to Colombia, Mexico, right? Africa, India, China. That's like, that's where we can source talent from, because that is, that is our price point at the moment. , but it actually makes our margins obviously a lot, a lot better.

Do you feel like. I don't know, whatever it is that we're doing is really enabled by, , using a global talent pool.

[00:29:53] Dominic Wells: I think it can be, uh, I think so when we started out and I had a previous service-based business, which had smaller margins, and so we had a lot of Filipinos, a lot of, , south Africans are pretty good because they're basically Westerners, but.

Eastern European prices or all previous Eastern European prices. Cause he's in Europe actually getting more expensive. , and again, we also have some Eastern Europeans I find as we're getting bigger, I'm hiring more north Americans because even though they're expensive and you also have things like health insurance, you have to have them as employees and not, , contractors.

, I, I, I just find. North Americans tend to be, there's a bigger pool of really talented people. And so I could hire like a Serbian for three K or I could hire an American that's safer seven K. , or, you know, obviously some like engineers, American engineers will probably what, 12 K 50 K, but, , like marketing, good marketing people, maybe a seven K, but that seven K person isn't twice as good.

The three K person, but they're often 5, 6, 7 times as good. So in terms of bang for buck, actually the more, the more expensive people are actually better. , but for the menial jobs, like the virtual assistant type work. Yeah. Like you can absolutely use, , remote, uh, remote positions. I actually haven't had an experience hiring from like Brazil or.

China India. Yeah, there's, there's, there's a lot of good, , labor out there. There's also a lot of bad labor. , so my experience has always been Filipinos and, uh, Eastern Europeans. And it depends on the role. Like Filipinos are really good at some things, Eastern Europeans are really good at some things.

, so, but yeah, I think it can definitely enable a lot of. , making the model work, particularly when the margins are lower, I just went, you know, what, how can I make it? The margins about, uh, I was like, I'll raise money by bigger businesses. And then I couldn't hire more expensive people. That's way easier.

Just hiring people who, who were better at my job than I am. That's the, that's the dream.

[00:32:24] Andrew Pierno: , and then I know we're well over time, but I just wanted to get your quick thoughts on the transition from buying content businesses to buying e-commerce businesses or, or, and then the obvious question for me is a kind of SAS person.

Why not? SAS?

[00:32:41] Dominic Wells: Yeah. So why not SAS? Actually, we, we we've looked at a couple of sources. One I looked at shortly before this call, which, , we may explore further. The main reason was initially we didn't have a developer on the team. And again, like I mentioned, a lot of these SAS businesses are sold by founders and it's like, okay, I'm going to need to pay all the profit out of the business to replace you.

, so it's kind of annoying. It's like, how much does this business doing? Like, oh, 500 K revenue. What's the profit 200 K how much do you pay yourself? Like nothing. So the profit is basically nothing if I replace you then. , but now we have a developer on our team who, you know, his salary is already accounts.

He can, he can help us better sass and be like, tell us whether he can run it and see like, oh no, we're going to need an engineer to do these elements and stuff. So SAS has come into play for us now. , e-commerce was, I always wanted to get into e-commerce and my head of SEO had a lot of experience with e-commerce.

Into it. , I just didn't want to spend investors' money on an experiment. Like what if I buy an e-commerce and it dies. But where we basically accidentally bought an e-commerce business because I hired someone away from an e-commerce business. And when he told his boss that he was leaving, his boss was like, well, I actually, I want to retire.

So maybe you guys can just buy the business. And we got basically no money down. We're just paying, we just pay for the business over time. , And, uh, yeah, I'm loving it. We've grown it quite significantly. There's so many leavers you can pull compared to content websites. , like it's harder and it's a much, much bigger cashflow sink than a content site.

, but there's also a lot of funding available for e-commerce businesses like Shopify capital, for example. , so you can, you know, you can get some cash to purchase inventory with quite easily. Uh, yeah, we, I mean, obviously it depends on the cost of capital. There's some pretty attractive options out there and some pretty unattractive options, but yeah, we, , we're not afraid of that, like within reason obviously, but, , things like Shopify capital helps us out because when we, when we bought the business, we got it for no money down and then we'd have to, uh, at the time, basically all of the profit was going back to paying the seller and then, , We needed to make like a hundred grand and inventory purchase and Shopify capital.

We're like, well, we'll give you 60. And so we, yeah, we took 60. We put in 50 of our own, bought the inventory and we just we've we've already, I think we've basically just paid off Shopify in like six months and we've grown quite significant. So it was worth it for us. Growth. I think

[00:35:37] Andrew Pierno: most of the answer to all of these problems, questions, cashflow problems just grow all you you've made a shitty purchase.

It was too expensive. Well, we'll just grow into that valuation. , but I, you know, one of the, uh, one of the things I find difficult to wrap my head around is when you guys are buying stuff like forever, , how do you get rid of like, So here's the context I'm battling with the idea that our business models are subject to power laws, right?

Like naturally in a portfolio of X companies, you're going to have some that just win or some that just catch. Right. And naturally you're going to have some that, that like just kinda suck or like, you know, it's, you know, every dollar you put in, you only get 50 cents back, no matter what you do. How do you think about like selling off the losers and kind of doubling down on the winners or using that cash to buy new ones?

If you guys are trying to hold them.

[00:36:31] Dominic Wells: Yeah. I mean, w we'll do that. Like one of the first things we did when we raised money was we sold off a bunch of our smaller sites that just don't make sense to hold. , and if we bought a business and it didn't work out, yeah, we would still sell it. So it's not a hard and fast rule of we won't sell.

It's more of a mindset. , if you're thinking about buying businesses and holding them forever, you look at businesses a lot differently. , you're not trying to find. Like, if you're a flipping business, you might try and find something that's kind of crap and be like, oh, I can flip this. Uh, whereas we're like, I mean, yeah, we'll still take a flipping opportunity if we see one, but we're more approaching businesses.

Like, could we hold this one forever? And when you ask yourself that you tend to do due diligence a lot differently, and you tend to be fast here, , which is generally a good thing, particularly in this market. ,

[00:37:25] Andrew Pierno: What do you consider it to be a flip is a six month or two

[00:37:34] Dominic Wells: years? I mean, I guess I would consider a flip to be yeah, around that mark, like maybe six months, maybe 18 months or two years.

, but it is interesting because let's say we, we buy a business and we grow. And it's doing really well. And we think we can't grow it anymore and we've doubled the money we deployed. So potentially we could sell it, take a tax hit, but then we're going to end up with more money to buy another business, which has growth potential.

So we could do that or we could just hold it forever and just cashflow it and just do like maintenance and then take that cash into. Another business. , so then the decision is like, okay, if we can't grow it anymore, how risky is it to hold? Like if we hold it and just do the bare minim. , is it gonna, is it going to eventually die?

Like, should we sell it now while, while it's going well, give it to someone else who can focus on it or can we just leave it to just chug along and do its own thing and pull rough cash? And so it kind of depends on how competent we are with that. , yeah, so really those are the considerations. Now, if we think we can't grow it anymore, We don't want to deploy any additional cash into it because we just get bad ROI, but we don't want to hold it because if we do nothing with it for six months, eventually it's going to just die then.

Yeah, we'll sell it.

And then, but yeah, the idea is it's more of a mindset thing. So if we tell people we're flipping businesses, they come in to invest and they're like, oh, so you're gonna, when you sell these businesses, are you going to shell share the proceeds with us? And when I know we're doing like a permanent capital, we just keep rolling the money up as much more tax efficient for everybody as well.

, but, ,

We don't want to roll out. If

[00:39:38] Andrew Pierno: you guys, so if you guys, so when you sell us, if you create a software company and you go to sell it, generally speaking, that's not capital. , generally, right? Uh, I mean, you know, this isn't tax advice, blah, blah, blah. But if you buy a SAS company, it is capital, right. You can appreciate that.

And then when you sell it, it's also capital, but why is it more tax efficient if you sell it and roll it up versus sell it and distribute it. Particularly the well, C Corp too. I mean, well, the C Corp, I guess you're just paying corporate tax and then you would have to pay the double hit if you dispersed.

Is that what you mean by more tax efficient?

[00:40:16] Dominic Wells: Yeah, I was thinking more like we get the ROI within just by keeping the cash within the business and, , growing it and growing it and growing it. And then when a seller sells his shares, like you just gives that tax hit once, rather than every time we sell a business.

I, uh, probably don't know enough details about that to try and answer it, but I'm just my understanding is that, , it's better to just keep readable. Maybe that's maybe the PR I'm confusing selling a business with not selling one, but essentially paying dividends out, for example, versus just redeploying that capital over a long period, and then investors sell their shares at the end of.

That's more tax efficient, but in terms of selling businesses, I'm not actually sure of the final details. So I may have answered that a bit wrong. , but, , yeah, I mean, this has many other reasons why we, we don't want to have that like flip mindset. , yeah, that's just general. How we're approaching it, but the, you know, again, if we see a business that we like, you know, we should just sell it this one, then we will.

, so it's not, it's not against the rules around. Perfect.

[00:41:36] Andrew Pierno: , , I, uh, really appreciate your time. This has been tremendously helpful for me. I think I extracted a lot of really useful, useful things and confirmed some, some thoughts that I had had about our next moves and such. So I really appreciate you being open and, you know, best of luck going public.

That's so cool.

[00:41:58] Dominic Wells: Yeah, thanks. It's been a good chat. I like the structure of this book cost is just kind of like grab a coffee and chat about stuff. So I appreciate it. I appreciate you inviting me on

[00:42:10] Andrew Pierno: and we'll take care of where can a working people find you or are you not, are you not that kind of guy?

[00:42:16] Dominic Wells: No, unfortunately I am pretty, I'm pretty responsive. , yeah, so obviously the website is on , And I think we found each other on Twitter. So Twitter is always a good place to approach me. I'm at team on folio. , but yeah, if anyone goes to the website, fills out the contact form, that'll, that'll find its way to me.

If anyone wants to chat as well. So either of those two things are a great place to find or follow me.

[00:42:46] Andrew Pierno: Well, thanks so much, Dom. I really appreciate it. Have a great rest of your day.