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The DIY Rollup: Get going as an individual
Alex Prokofjev
August 14, 2023
We’re in the early innings of a rollup boom. All the prerequisites are there. One, the private equity industry sitting on a $3.7 trillion mountain of dry powder. Two, serial acquirers like Visma and Constellation keep churning out talent that is keen to build generational wealth for themselves, not just their investors. Three, just as the appeal of VC investment keeps fading, the supply of companies keeps growing.
The problem is, 90%+ of the deal flow is generated by a handful of institutional players: PE backed platforms and North American strategics. Raising capital as an independent is exceedingly hard and requires a Rolodex the size of a phone book (plus an investment track record that stretches back to the times when phone books were a thing!).
Now, I can go on about the reasons why, as an independent, you are not going to succeed. It just so happens that I have a diametrically opposite opinion.
To prove the point, I’m going to help you get going by answering these two questions:
What tools are out there to help you find, execute and finance deals?
How can you build a personal brand to a point where people are ready to back you?
Tools to help you get started
I covered structuring, cap table management and target selection in a previous article, so I will skip these and go back to basics.
Tip #1: Leverage intermediaries and embedded financing
Build relationships with brokers like Corum, FE International, Empire Flippers and Hahnbeck (here’s a good list). Monitor marketplaces like Acquire.com, Flippa and Foundy. Most of these marketplaces now offer embedded financing from providers like Boopos and UFS. Their capital isn’t cheap – close to 20%, but it’s there and the success rates are pretty decent.
Tip #2: Incorporate smart
Consider incorporating your HoldCo in the US or the UK. Easier for investors, lenders and sellers. Never done a deal in the US? No problem! In September, we’ll be publishing an article on key things to look out for in a US buy-side, in cooperation with a prominent US law firm. Warning: none of this is tax or legal advice – definitely do your own research.
Tip #3: Do your research
If you don’t have the big bucks to shell out on a deal sourcing platform or expert networks, you need to be focused. Institutional acquirers overwhelmingly prefer Vertical Market Software. Do you really want to compete with them?
Acquirers flock to the Shopify App Store because it’s well built, there are lots of targets – and the ecosystem is growing.
Look out for businesses and ecosystems that share similar characteristics. Alternatively, pick country X or region X and stick with it: the way Visma, Confirma and MEDIQON have done it.
Tip #4: Leverage free / cheap help
I like Upwork for basic data extraction. You can also gather data yourself by using tools like Octoparse or ScraperAPI (full disclosure: ScraperAPI is owned by saas.group). Keep asking people for advice. Offer (future) carry or simply your knowledge. Once you’ve figured out your most productive relationships, double down. Reciprocate.
Tip #5: Build track record
Don’t waste time applying for hyper competitive Finance / Corporate Development jobs in hot tech companies, unless they offer you direct exposure to founders and investors. In my opinion, the CFO role for a scrappy, niche acquirer with no finance function beats “No.2 in Strategic Finance in a VC backed Series D” hands down.
In fact, don’t apply for jobs at all. Seek out rollups that can benefit from your existing skills and IP. Build a track record, ideally for several businesses at a time: as a deal-by-deal originator, as a fractional CFO etc. Take payment in the form of cash and equity. Solicit referrals and use your media to produce publicly accessible case studies (more on that below).
People will back your personal brand
I spent north of a decade in investment banking and corporate development. The number of people that I met professionally during these years, who can help me with meaningful introductions and/or capital I can count on both hands. I’m not bitter about it. For the most part, I was doing work for middle aged men with institutional careers and strong political instincts – but poor entrepreneurial instincts. With hindsight, I should have left much earlier.
Now, I’m determined to build my personal brand through this blog, X, Linkedin and in-person events. The audience keeps growing. The newsletter open rate is hovering around 80%.
You can do it too. Start a blog, a newsletter, a podcast. Pick a niche and roll with it. Copy playbooks of high-profile influencers in the rollup / HoldCo space.
It’s not just about investors. Once you’ve identified a specific industry to consolidate, embed yourself in it. Attend all relevant conferences and trade shows. Build rapport with the sellers. Build credibility by disseminating testimonials through media, the way rival Amazon app consolidators Carbon6 and Threecolts have done through their podcasts.