• Napkin Notes
  • Posts
  • 💸 Why 2nd Time Founders Are Buying Startups Vs Building Them

💸 Why 2nd Time Founders Are Buying Startups Vs Building Them

Learn the trade secrets from this M&A marketplace founder

Together with

Hey, this is Napkin Notes: the only newsletter Mark Wahlberg takes his eyes off the Super Bowl to stop and read.

Marky may be a movie star, but deep down at the bottom of his heart, we all know he wants to be a startup founder.

And lucky for Mark, today’s newsletter is all about buying startups vs building ‘em. We’re gonna talk about:

  • how to build startups worth acquiring

  • the due diligence process when shopping

  • and some ins and outs of M&A marketplaces

Before we get into it, here’s a little message from our pals at Rundown AI.

Stay up-to-date with AI.

AI won’t replace you, but a person using AI might. That’s why 500,000+ professionals read The Rundown– the free newsletter that keeps you updated on the latest AI news, tools, and tutorials in 5 minutes a day.

🍽 Today’s Menu

  • 📰 Latest startup news

  • 💸 What buyers look for in a s startup

  • 🍿 400 of you RSVP’d to our AMA with Ryan and Arlene today

  • 🌱 Fresh napkin startup ideas of the week

  • 🤣 Swipes that’ll make you smirk

Time to take off your allbirds, start the kettle and crank up the brightness on your screen. It’s go-time.

P.S. Did a friend send you this? First, thank them. Then subscribe so you don’t miss the next one 🔒

📰 Latest Startup News

YC dropped a “request for startups”. Lyft’s CEO took a big L for their earnings typo. OpenAI has a secret VC fund owned by Altman. TechCrunch dropped their paid newsletter. Instacart dropped 7% of their staff. Founders Fund made a sneaky $200m crypto bet. You were late to your Valentine’s Day dinner reservation. Andddd Salesforce’s former CEO Bret Taylor and longtime Googler Clay Bavor raised $110 million to bring AI ‘agents’ to business. 

Now let’s jump to our main event.

💸 Why Founders are Acquiring Startups Instead of Building Them with Roman Beylin

Meet Roman Beylin, founder of DueDilio, a leading online marketplace to hire highly vetted M&A due diligence service providers.

The marketplace idea was initially targeted at micro acquisitions, but now it’s evolved to larger deals. Over the last little while, they’ve executed:

  • 483 projects

  • with 200+ vendors

  • and seen 315M+ in transaction value

I had the opportunity to catch up with him for coffee this week in Miami and was amazed to hear how he’s been providing value around a new hot trend.

Entrepreneurship Through Acquisition (or ETA as Roman calls it) is on the rise. And it’s likely not gonna slow down anytime soon. Due to acquisition platforms like Acquire.com making it more accessible, and many baby boomers looking for new owners to take on their business, the topic of buying businesses could just be at the start of a big hockey stick moment.

Let’s cover some pros and cons of buying a startup vs building (aka slaving away for a couple of years to get a startup idea up to healthy momentum)

👍 PROS of buying vs building:

Roman’s big 3 are:

  • Immediate cash flow and revenue.

  • Established customer base and market presence.

  • Existing operational systems and employee expertise.

  • Creative financing structures

Roman also said (while I was sipping one heck of a cortado):

“Internet entrepreneurs (like you lovely folks reading Napkin Notes), are uniquely positioned to excel in the world of ETA. Their diverse skill set provides a significant advantage over those without such hands-on business experience. I think it’s also fair to say that side hustlers/first time founders have a higher risk tolerance compared to the overall population.”

👎 CONS of building over buying:

  • Potential for inherited problems (e.g., outdated practices, underperforming staff).

  • Higher upfront capital requirement.

  • The cost of capital is increasing and SBA loans require a personal guarantee

  • Due diligence can be complex and it can be difficult to find trusted vendors to work with*

*That last point is exactly where Roman’s startup idea, DueDilio, comes in:

Roman’s building a marketplace of M&A deal teams for small to medium-sized business acquisitions ($500K to $25M. And it’s more than just an idea. In the last little while he’s assembled 200+ vendors, executed 400 deals and supported $300m+ of exits on his platform.

When we asked Roman how to identify the right deals to acquire he said:

“The key to achieving high returns on investment in business acquisitions lies in finding a synergy between the buyer and the business. The steps I recommend are:

1. Craft a buyer profile: Analyze your strengths, experience, and objectives to define clear criteria for potential business acquisitions. Tools like ChatGPT are great at this type of analysis. It's crucial to target businesses that align with your skill set, passions, and long-term ambitions. A buyer profile will help to quickly filter through opportunities.

2. Look for businesses that have the potential for growth without a corresponding significant increase in costs. Scalability is a critical factor for long-term value creation.

3. Seek out businesses in niche markets that have not yet fully penetrated their market but show high growth potential. These businesses often offer a unique opportunity for expansion.

4. Businesses with a loyal and diverse customer base present less risk. Particularly valuable are those with high customer retention or high switching costs, as they ensure a more predictable revenue stream.

5. Identify businesses where you can add significant value through improvements in operations, marketing strategies, or technology. These inefficiencies represent untapped potential for enhancing profitability.”

Here’s some more resources if you wanna explore this deeper:

Also, since Roman’s a fan of the Napkin Notes community, he’s offered up his free M&A guide (20-page playbook) to anyone who wants it.

Just tap below to send him an email to ask for it.

Wanna share this deep dive with a friend who’s thinking of acquiring a business? Tap below.

🍾 Startup Ideas of the Week

Here’s our freshest startup ideas of the week.

You know the rules: Upvote, comment or re-share the ideas that catch your eye. And if you have a startup idea you want feedback on, post one of your own.

  • Problem: 80% of Airbnb guests crave accommodations that offer more than just a place to sleep, seeking an immersive cultural experience.

  • Solution: a platform provides a range of local artworks for hosts to display, turning their spaces into a reflection of Albania's cultural landscape.

  • Opportunity: The use of AI technology is becoming increasingly prevalent, with numerous applications available. One such application involves the use of SQL queries to extract data, which can be a challenging task to undertake. Assistance with writing such queries is therefore greatly appreciated.

  • Solution: This tool assists users in validating and writing SQL queries by providing descriptions of their database tables and then writing a prompt in natural language. The queries can be saved and accessed from their accounts at any time. Additionally, users can work with multiple databases and access everything in a convenient manner.

  • Problem: Existing keg and beverage serving options are inefficient, lack portability, and fail to maintain optimal serving conditions. Forced to serve canned beverages which is more than 2x financial cost and 5x environmental impact.

  • Solution: Polar Beer Taps is the premier solution offering instant, consistent cooling in a mobile format, outperforming all existing options.

  • Wanna make an intro? Dustin’s looking for intros to event planners, organizers and restaurant owners; Intro him here

  • Problem: According to research with 1500 people, 65% of people are not aware of how much they spent last month, and they wish they could have known. (Mint, 2020)

  • Solution: Our product helps users understand exactly how much they're spending and offers helpful AI recommendations for making better financial decisions. We provide weekly reports, easy-to-read graphs, and personalized goals to make managing money straightforward and effective.

  • Problem: Tons of entrepreneurial people are interested in buying a business rather than starting from scratch. So the "acquisition entrepreneurship" space needs an authority site.

  • Solution: a site that does for acquisition entrepreneurship what Courtland Allen did for indie hacking: Legitimize it, get people interested in it, grow the pie. Initially, the site could simply be interviews with entrepreneurs who acquired their businesses.

Got your own startup idea you wanna validate? Tap below.

🖼 Swipe of the Week

💚 The Kernal Fam

P.S.S. Awesome to connect with Lindsey from Austin Texas, Michael from Denmark, Camille in France, Isabel in Ottawa and Julien in Vancouver this week. If you wanna book a chat with one of our Kernal staff next week drop us a line 👋

Join the conversation

or to participate.