Our Investment Thesis
STRATEGY
We admire the invest-and-hold outlook of Warren Buffet, and since none of us is as clever as the Oracle of Omaha, we don’t see any reason to deviate from his principles.
That’s why we call ourselves the world’s smallest Berkshire Hathaway.
This, and our relentless focus on ethics over quick profit, makes us completely unlike either a traditional venture capital or a private equity firm.
We don’t gamble on 100 companies expecting 99 disappointments but one Google.
Sure, some of the companies we invest in will do better than others over the long haul. But we’re confident that with our guidance we can help a founder go from one service truck to three and from three to ten; some will reach fifty. Scaling is hard work but it’s not a mystery or a crap shoot. It requires a differentiated business with a well-implemented plan.
We don’t buy companies and we don’t want to turn founders into employees. Our intention is to always remain minority stakeholders, though with an active role in setting strategy and in major financial decisions.
We don’t invest more than a founder needs, extract short term value, and sell fast. While we remain open to the possible liquidity/exit needs of the founder, our goal with each company is to own a small equity stake and enjoy dividends for years. As the company grows and expands, so will those dividends.
As ambitious, high talent workers within our portfolio companies seek to become entrepreneurs themselves, we will help them within our network in a way that is fair and profitable to all concerned, including their employer, our portfolio partner.
We don’t take a penny in management fees. Our pay is completely aligned with the mentor-investors. If they don’t receive dividends, we don’t either.
We’re small – there are only three principals at Benevolent Capital Group – and we make investment decisions for the fund together: it’s always 3 affirmative votes or we don’t add a company to our portfolio. We do actively seek advice from some of our mentor-investors, and we are forming a small, focused advisory committee to help us vet companies and the like.
This first fund will raise no more than $1 million. Our first cohort of companies will include 5-10 Main Street businesses. We want all of this manageable as we learn by doing – just like any good entrepreneur does.
ROADMAP
Our investment roadmap puts guidance before capital. We’re control freaks, so some of this next part may surprise you.
Our investment officially starts when we sign papers codifying our minority stake in the company, based on a valuation that the founder and Benevolent have agreed to during our due diligence phase.
All mentor-investors own an equal stake in our portfolio companies from the beginning.
Key differentiator: we do not invest any capital right away.
First, we work on the business with the founder and key staff so that if a cash infusion makes sense to all concerned, we can invest a modest sum for additional equity when the company is ready to use that capital to grow.
Founders will continue earning their pay from the revenue of the business as before. Part of our agreement is a seat on the board of directors and right of refusal for major expenditures. We work with the founder to set their salary, paid from proceeds of the business. Their incentive is then to pay dividends, most of which they will earn themselves as majority shareholders. This is another way to ensure that the incentives of the principals of Benevolent, the mentor-investors, and the founders are in perfect alignment into the future.
When we invest capital in the company, it will be on endeavors that drive growth. Our guiding principle is that if we can invest $1 to see a $3 return – in marketing, systems automation, or needed equipment, for instance – then it’s probably a worthwhile investment. If we don’t see it, we don’t spend it, as we like to say.
We believe strongly in taking small, calculated bets, learning from experience, and iterating as many times as possible until a system is perfected within the portfolio company.
With this in mind, rather than invest capital once, we will invest smaller amounts up to four times. This will limit the founder’s dilution, which is important to all concerned, and it will also allow us to make sure the founder is following the plan we have crafted with them before we invest again.
We believe wholeheartedly in freeing up the founder to work on their strengths in the business – delivering value to customers and developing long-term staff, for instance. If you’re familiar with Michael Gerber’s The E-Myth, you’ll recognize this as the franchise model – building a system as if you were going to sell franchises, even if you never decide to go that route.
Because we want our founders sticking to their strengths and building their business, part of our agreement with our portfolio companies is that we help them outsource their bookkeeping. We maintain read-only access to their books. We do not like surprises, so we have systems in place to eliminate as many as possible before they occur.
Know someone interested in scaling their business? They should apply for the Naples Pitch Showcase on Tuesday, June 23, where we’ll hear Main Street business founders make their case for inclusion in our portfolio.