What to acquire when everything is expensive
Asset prices are through the roof. Stocks are expensive. Real estate is expensive. Treasury yields suck right now.
And now cap gains taxes might be going up. We saw a little dip in the market last week but it found it's footing and stabilized. We'll see what fun surprises unfold next week.
The only reasonable answer I can think of is either:
Wait
This is probably the right answer. Sometimes doing nothing hard, and this feels like one of those moments. Will the bull market hold out for another 12 months? 18 months? 2 months? Hard to say.
When everything is expensive, focus on the assets you have, or in our case, the acquisitions we've already made. 2/3 are going through heavy engineering efforts right now and that takes a lot of focus. 1/3 is ready for some real growth.
Off Market Assets
This is the more nuanced answer. Off market assets that would avoid a bidding war could potentially be decently priced. It's not going to be much cheaper than market, but it may potentially be work pursuing.
Concretely, let's take a micro SaaS making $1k a month. A year ago you could pick that up for $1k * 12 months = $24,000 top line times a 3x multiple = $72,000 on the high end. Realistically it's probably $24k at 85% margins = $19.2k times a 3x = $57.6k. But right now? I've seen zero revenue products selling for $50k to $150k on these marketplaces. It's crazy!
If you're not above hustling on indie hackers or twitter, you could likely find a micro SaaS that makes a little revenue and pick it up for a decent 3-4x. I do believe that whatever happens in the macro environment, multiples are going to be driven up by demand as more and more funds like ours formalize and raise capital. We might be looking at 5-6x in two years as "normal" no matter what interest rates do.
Another idea if you can't find a profitable SaaS to buy is to pick up something from product hunt that's been dead for 6 months. Usually the developer who built it hasn't thought about it in forever and it's just sitting in a Github repo rotting away. You could probably pick up something pretty close to done for under $10k. During this hot period, you could focus on launching it properly and putting in the time and effort to finding customers. I always remind myself that this is very difficult to do. It's much easier to buy something with revenue, but then again, these are not normal times. It might be worth the risk and be cheaper to buy an asset that just needs to find the right audience.
As for us over here, we're undecided on our exact game plan. For sure we're focusing on our existing companies. They're going to come out of this engineering sprint in sub 2 months and they deserve a good marketing effort. But at the same time we're also considering buying something upstream and getting a loan (because it's basically free money right now). And we're raising a fund. Hard to say which will be correct, but one of the benefits of being in a buying group is that we can say yes to several things at the same time since there are 4 of us.
