Brent Beshore

How Brent accidentally bought his first business at 24

A seller who'd been left at the altar twice rejected Brent's lowball offer, then called 7 months later exhausted and agreed to sell at Brent's price if he could close all-cash in 60 days. Brent, 24 and clueless, suddenly owed himself a business.

“And then 7 months later, he called me up out of the blue and said, I've just renewed our largest account. Business is in great shape. I'm exhausted. I'll give it to you for the price you asked for, but you got to close all cash 60 days from now. And it was one of those where you kind of like, you make the sale on, you know, they go down the elevator and you say, oh shit, it was, it was like that, right?”

Use the target's accounts receivable as your SBA down payment

Brent funded his first acquisition with almost no cash out of pocket by leveraging the existing business's accounts receivable as the down payment and financing the rest through an SBA loan.

“Back then what I did was I leveraged the accounts receivable from the existing business as the down payment and then got the rest of the debt through the SBA. And so, I mean, I put very little cash into the deal.”

Steal thisPledge the target's own receivables as your acquisition down payment so you put minimal cash in.

Permanent Equity's anti-PE model: no fees, no debt, 30-year hold

Instead of the standard 2-and-20 ten-year fund, Brent takes no management fees or reimbursements, uses no debt, holds companies for a 30-year initial term, and only earns a cut of free cash flow above a hurdle as cash is returned.

“And so that's our model and we don't use debt and we hold it for a very long time. So we have a 30-year initial term on our capital. Typically a private equity firm will have 10 years and most private equity firms, you know, use a lot of leverage, put a lot of debt on the businesses at closing. We typically use no debt. And so we're kind of in some ways the opposite of traditional private equity.”

Steal thisAlign with LPs by taking zero fees and earning only on cash you actually return.

No-debt aerospace deal let Packair grow 7x while levered rivals stalled

An advisor called Brent an idiot for not levering up his 2019 aerospace acquisition Packair. When COVID hit in 2020, being the only debt-free player let him reinvest all cash flow and grow the business ~7x while indebted competitors barely moved.

“And so we were able to take all the cash flow that we were generating because we were still generating cash flow even though the business was down a lot. And we were able to go out and basically make 10 years of progress in 2 years. And that business now is 7-ish times the size as when we bought it. And everyone else that had debt is, you know, maybe grown a tiny bit out of from 2019, but not much.”

Permanent Equity underwrites every deal to a 30% IRR minimum

Brent says the minimum return he underwrites any acquisition to is a 30% IRR, and that historically returns have been well above that floor.

“Uh, so we, we target, uh, the minimum underwriting that we have is we target a minimum of a 30% IRR is, is minimum we underwrite to. And we've historically been pretty significantly above that.”

Small-business M&A is inefficient because it's brutally hard, not unfair

Brent argues the small-business acquisition market is inefficient not because buyers exploit sellers, but because the work is brutally difficult and easy to lose money on, citing a PE operating partner who went all-in on a deal and ended up bankrupt.

“Is, is inefficient, but it's inefficient for different reasons. Why people think it's inefficient, not because people are getting taken advantage of. It's inefficient because it's absolutely freaking brutally difficult and it's so easy to lose a bunch of money.”

Buy durable, simple businesses: 'people won't stop dipping in water'

Brent's acquisition thesis favors businesses with simple, durable demand, dominant market share, an asset-light model, and a growing market. His pool-company test: people have dipped their bodies in water for pleasure for thousands of years and won't stop.

“I mean, you know, we kind of joke that, you know, people stop dipping their bodies in water for pleasure, we'll be fine. It's been happening for a couple thousand years. I think it'll keep going. Like we try to have these like very simple theses for everything.”

Steal thisOnly buy businesses whose core demand has survived for centuries and won't be disrupted.

Your first $300K-$500K of cash flow is a job, not passive income

Brent warns that you can't realistically just occupy the investor seat in small business; the first few hundred thousand of cash flow almost always demands heavy sweat equity, so you're essentially buying yourself a job.

“The first $300,000 to $500,000 of cash flow coming from small businesses are very likely going to require a lot of sweat equity in exchange for that money.”

All businesses are loosely functioning disasters that happen to make money

Brent's signature line: every business, no matter how big or profitable, is highly dysfunctional because it's full of messy people, and that messiness compounds. He says only consultants and the lucky-once dispute it.

“Why are they dysfunctional? Because they're full of people. People are messy. When you get a bunch of people together, that messiness compounds. Like, it is not a complicated concept. Uh, and so I just think that people should lower their expectations and, and understand what to expect when they get into a business.”

EBITDA is bullshit earnings; look at real owner cash flow

Echoing Munger, Brent says EBITDA usually obfuscates reality in small businesses because of CapEx and reinvestment needs. A business 'making' $7-9M EBITDA where the owner only pulls $1-2M is really a $1-2M business.

“Like, we look at businesses all the time that are making, quote unquote, making $7, $8, $9 million a year that you ask the owner how much money they've taken out of the business and they're taking out maybe $1 million a year, maybe $2 million a year. I got news for you. For the most part, you don't have a business that's quote unquote making $7 million a year. You have a business making $1 to $2 million a year.”

High authority or delegated authority: hell is in the middle

Brent argues there are only two viable ways to lead a company you own: full top-down authority (this is the vision, get in line) or fully delegated authority (it's your vision, I won't intervene). The middle removes the team's agency and makes every failure your fault.

“And so there's really two ways to be involved with the company. You either say, hey, this is what we're doing, this is how we're doing it. You need to get in line. I need people to go and execute this vision. Or you say, hey, I want to be supportive and helpful. It needs to be your vision. And I'm not going to intervene even when I think that something's wrong.”

Steal thisPick full top-down or full delegation for each company; never half-manage.

Capital Camp: $10K tickets for the 'sweaty business' Twitter crowd

Sam describes Capital Camp, a Brent Beshore-founded gathering for the private-equity, real-estate and blue-collar 'sweaty business' crowd from finance Twitter, charging $10,000 a ticket and considered well worth it by attendees who return yearly.

“It's kind of this group of people who talk about real estate and sweaty and blue-collar businesses on Twitter, and they all go to Capital Camp.. And it's like $10,000.”

Incentive-caused bias: share buybacks line the CEO's own jeans

Wilkinson explains incentive-caused bias using buybacks: CEOs paid in stock options benefit when share price rises, and buybacks shrink the share count to lift price — so a 'return capital to shareholders' move can really be self-enrichment.

“a lot of CEOs are compensated based on share price because they get stock options. So their stock options become more valuable when the share price goes up. And what makes the share price go up but share buybacks? So when you buy back shares, there's fewer shares and each individual share is worth more. So it's actually a way for the CEO to put money in his or her own jeans.”

How Brent Beshore 'accidentally' bought his first company

Beshore's first acquisition came from a mutual contact who mentioned a business owner just left at the altar twice. He read that as a buy signal, told the owner he wanted to buy, got laughed at and told no, then got a callback 7 months later to close.

“Yeah, so I had a mutual acquaintance say, hey, you should meet this guy. He's in your industry, and he just got left at the altar for the second time. And I took that to mean I should try to buy his business because why else would you tell me that? He had no idea. He was just trying to connect two people that were, you know, in the same in the same field or similar fields.”

Buy like a family: no debt, no intention to sell

Permanent Equity's model is the opposite of standard PE: instead of a 4-7 year hold with maximum leverage, they buy with no intention of selling and typically use no debt, so the businesses can absorb shock.

“We've just really taken the opposite approach and said, "We wanna own businesses like a family would." So we buy with no intention of selling the business, and we're typically using no debt as part of our transactions, which in the private equity world means that we're the weirdest duck in the world.”

Steal thisBuy cash-flow businesses with no debt and no exit timeline so a downturn can't force-sell you.

Never buy from someone who didn't get rich doing it

Beshore's screening rule: if the current owner didn't build real wealth from the business, neither will the buyer. The owners they buy from are typically the local Chamber of Commerce darlings.

“we have a rule: we don't buy from somebody who's not already wealthy, because if they didn't get wealthy doing it, we're not going to. So they're already doing well. I mean, these people are the chairman of the country club.”

Steal thisBefore buying a business, confirm the seller actually got wealthy running it.

Owner earnings vs EBITDA, defined

Beshore defines owner earnings as EBITDA minus operating interest, the capex needed to maintain the current trajectory, and a normalized salary for the owner-operator. It's the discretionary cash left after running the company as if you hired someone to do it.

“yeah, I would say EBITDA minus operating interest, any sort of necessary capital expenditures to keep the business on current trajectory and a normalized compensation structure for the owner if they're in leadership of the company. So it's like kind of if you hired somebody to run the company for you and you made all the necessary reinvestments, how much would be left over for at your discretion”

Permanent Equity pays 3.5-5.5x owner earnings

Beshore's typical purchase multiple is 3.5 to 5.5 times owner earnings, with only 2 to 3.5x paid in cash at close and the rest held back, earned out, or downside-protected. Their strike zone is $3-8M of owner earnings.

“Yeah, I would say kind of 3.5 to 5.5 would kind of be the normal range. I mean, maybe we'd go higher for a really high-quality asset, but I would say that's a pretty normal range in our segment, which is, you know, kind of our strike zone is $3 to $8 million of owner earnings.”

Debt turns a good company into a fragile one

Beshore avoids leverage because you never fully know a business until you own it, and debt widens the range of bad outcomes. He buys all-equity with full balance sheets and working capital attached to keep the companies robust.

“Debt's one way to take a good company, make it a fragile company. The more debt you're layering on and the wider the variation of outcomes that you expect to happen.”

Steal thisKeep new acquisitions unlevered until you understand what's really under the hood.

Founder moat: the biggest danger in acquisitions

Beshore screens against 'founder moat,' where all the goodwill is tied to one person's relationships, expertise, and drive. He wants repeatable processes, non-owner management, and no 'hit-by-a-bus' risk where any single person could destroy the value.

“we call this founder moat. So this is probably the biggest danger of acquisitions, is you buy a company that is largely all of the goodwill is tied up in the relationships, expertise, drive of the founder. And there's just no really way to transition those separate from maybe coming alongside them and over a very long period of time, making that transition happen.”

Steal thisDe-risk a company by building non-owner management so no one person can be 'hit by a bus' and tank it.

Offload until there's nothing left for you to do

Beshore's playbook for making yourself replaceable: keep handing off the things you're bad at or dislike until you move up the stack and eventually have nothing left to work on. The real test is whether the business runs fine without you.

“take the things that either you aren't good at or you don't want to do and start giving them to other people. And then over time, as you sort of continue to offload and offload and offload, you just kind of move up until eventually there's nothing much for you to really be working on.”

Steal thisSystematically delegate what you dislike or do poorly until the business no longer needs you.

700-person scout network feeds all-inbound deal flow

Permanent Equity sources deals entirely inbound, partly through a scout network of about 700 people who get paid when a transaction closes, a model common in Silicon Valley but rare in private equity.

“we have a scout network, which is common in Silicon Valley, uh, but very uncommon in, in private equity. Um, so we have about 700 people now that, uh, that scout opportunities for us, um, which is fantastic. Um, and we obviously pay them, um, when, when we are able to consummate the transaction.”

700-person scout network feeds all-inbound deal flow

Permanent Equity sources deals entirely inbound, partly through a scout network of about 700 people who get paid when a transaction closes, a model common in Silicon Valley but rare in private equity.

“we have a scout network, which is common in Silicon Valley, uh, but very uncommon in, in private equity. Um, so we have about 700 people now that, uh, that scout opportunities for us, um, which is fantastic. Um, and we obviously pay them, um, when, when we are able to consummate the transaction.”

Beshore predicts 20-30% unemployment from COVID

Recorded April 1, 2020, Beshore predicts the CARES Act won't stem the tide on unemployment and that the rate could hit 20%, 25%, even 30% within roughly six weeks, exceeding Great Depression peaks.

“I'm not sure it's gonna actually stem the tide as much as they think it will on unemployment. And so, I fear that unemployment could go to 20%, 25%, maybe even 30%, which is—”

90% of businesses hit, only 5% with a tailwind

From the businesses Permanent Equity interacts with, Beshore estimates roughly 90% were adversely affected by the early-COVID shutdown, about 5% unaffected, and only about 5% getting some weird tailwind.

“I would say 90% of businesses have been adversely affected. 5% are probably unaffected, and then maybe 5% have some sort of tailwind that's weird because of this. But 90% are just— it is suffering. I mean, it is unbelievable what's happening right now.”

This is a war, not a 2008-style recession

Beshore argues COVID's economic shock is best understood as a war, not a financial recession, because its violence renders past data non-predictive. Anyone expecting a quick V-shaped recovery, he says, has never operated a business.

“anybody who thinks this is going to be a short, like, V recovery, where it's going to just pop right back out of this thing, has never been in a business. And those are most of the people that I hear that are investors saying stuff like that. They've never operated a business.”

Buy businesses with selection bias against them

Beshore would start in construction or home services because no one with money wants those: nobody quits an air-conditioned job to go dig pools in Arizona. Avoid wineries, film, and restaurants where wealthy people pour in money and bid up the space.

“Like nobody drives by somebody building a swimming pool in Arizona in the summer and says, you know what, I really want to quit my job in the air conditioning and go dig a hole in the ground, right? Um, so we want to get involved in things like that.”

Steal thisPick unsexy industries that wealthy hobbyists avoid so you face less competition for deals.

1-800-GOT-JUNK, but for lawn care or irrigation

Shaan relays that 1-800-GOT-JUNK founder Brian Scudamore (who owns all of a ~$500M/yr company) said if he started over he'd build the same model for lawn care or irrigation. Beshore agrees these unsexy niches are exactly the opportunity.

“we— either me or some— one of us asked him where opportunity is, and he goes, man, if I had to do the same thing, I would do 1-800-GOT-JUNK, but I would do it for, uh, lawn care or for irrigation.”

Steal thisApply the 1-800-GOT-JUNK franchise/branding playbook to lawn care or irrigation.

Don't row a rickety boat harder, get a foothold then build

Beshore's metaphor for why he left the agency business: a rickety boat that looks pretty won't move no matter how hard you row. He'd rather find a small operator with real systems, snake his way in for a foothold, and build from there.

“if you've got a, if you've got a boat that you're trying to row that's rickety and, and it may look pretty on the outside, but it's just not going to go anywhere. It doesn't matter how hard you row it.”

Steal thisPick businesses with structural tailwinds instead of grinding harder in a fundamentally weak model.