BigCyber — A Federation of Services Firms, Growing and Creating Liquidity, Together
Here’s a list of company categories that have almost no power with institutional capital (i.e. Private Equity firms, institutional investors, et al.):
- custom software builders for hire
- UI/UX shops
- digital design shops
- “product” consultancies
- SEO firms
- digital marketing groups
- mobile app makers
- software/hardware/IoT consultancies
Sometimes these businesses are called “digital agencies” but that term suggests they are making “digital stuff” primarily consumed by advertising agencies. So digital agencies isn’t quite right; instead we’ll call them digital & tech services firms.
Most of those above businesses — yours included — are highly profitable. 40% margins are not unheard of, and 20% is common. That is to say digital and tech services firms throw off cash. They pay a lot of mortgages. I know.
THE PROBLEM WITH DIGITAL AND TECH SERVICES FIRMS
They’re incredibly hard to sell. For starters, 90% of institutional capital doesn’t want anything to do with companies under $10M in revenue. Of the 10% of investors left, 90% of them don’t want anything to do with project-based revenue.
Likely that’s what you have: clients that pay you for project work.
If you’ve made it that far — and found a mythical buyer of a small, projected-based firm — your offer might be for 1X your annual revenue. So after taxes, you get a few years salary. Nice but nothing life changing. You can’t retire, and you’re out of a job.
Further, cut the number down with multiple partners.
A BETTER WAY TO CREATE LIQUIDITY EVENTS AT DIGITAL AND TECH SERVICES FIRMS
Scale solves liquidity challenges from project-based firms. The same company — your same company — at $100M in (gross) revenue is worth between 2X-6X in valuation.
BigCyber was designed by services owners to use the network-effect to grow, scale, realize efficiencies, help partners leave more easily, and ultimately lead to a life-changing liquidity event.
Look for more on this space. I’ve been on this tip for awhile.
Post by Josh Oakhurst, Managing Partner