How do you structure 100% earn-out agency acquisitions that founders actually accept?

EP 120_FINAL Full Video.txt English (US) 00:00:00.080 — 00:00:11.280 · Speaker 1 You are a media agency focusing on the lower middle market and kind of being the best go to media agency for that group, but you've also gone out and made 24 acquisitions. Why are you buying companies. 00:00:11.280 — 00:00:22.080 · Speaker 2 The same reason I started the company, as the same reason I'm buying companies. We found that there's 90,000 marketing agencies in the US, and 99% of them don't know how to be a great marketing agency. They're not a great partner. 00:00:22.160 — 00:00:23.160 · Speaker 1 How do you value the business? 00:00:23.160 — 00:00:24.120 · Speaker 2 There's so many factors. 00:00:24.120 — 00:00:25.080 · Speaker 1 Into how valuable. 00:00:25.120 — 00:00:25.960 · Speaker 2 A company will be for. 00:00:25.960 — 00:00:29.320 · Speaker 1 Us. What makes an agency worth acquiring? 00:00:29.360 — 00:00:30.960 · Speaker 2 The number one thing is. 00:00:31.120 — 00:00:33.920 · Speaker 1 When you structure these deals, what kind of multiple have you seen? 00:00:33.960 — 00:00:44.760 · Speaker 2 We actually don't do upfront cash. We do 100% earn out based on how it performs. Oh wow. The stories are wrong about how people never hit their own out. So I'm like, let's do the opposite. 00:00:46.240 — 00:01:15.300 · Speaker 1 Everyone, welcome back to $100 Million Exits, the show where I interview founders, investors and operators who have built and scaled billion dollar companies. Today I have Eric Huberman on the show, today the co-founder of Hawk media. Hot media has done over 24 acquisitions rolled up into. Hot media is also done over 120 investments through their fund, and has peaked, or has reached $750 million in gross revenue. Eric, it's amazing to have you on the show today. 00:01:15.340 — 00:01:16.540 · Speaker 2 Yeah, thank you for having me. 00:01:16.580 — 00:01:35.100 · Speaker 1 Well, Eric, I want to start with the fact that, you know, you are a media media agency focusing on the lower middle market and kind of being the best go to media agency for that, that group. But you've also gone out and made 24 acquisitions and, you know, one just closing recently. Why are you buying companies? 00:01:35.140 — 00:03:50.420 · Speaker 2 Yeah. So the same reason I started the company as the same reason I'm buying company is like we found that we I, I found that, uh, when I was advising and consulting for a bunch of brands when I was running my own brands, uh, there's 90,000 marketing agencies in the US, and I'd say 99% of them are. I don't know how to be a great marketing agency. They're not a great partner. Whether it's because they actually don't know what they're doing marketing wise, they don't know how to build a team. Like a lot of people fall into running marketing agencies because they're good salespeople and know enough to be dangerous. They sell some clients, and now you've got a marketing agency, and then you start hiring people to keep up, and all of a sudden, you're almost a slave to your own business, where you're constantly having to feed the beast and find clients for the, you know, employees you have. And you end up on this hamster wheel. And there's, again, a good a large portion of the 90,000 agencies in the US fall into that category. And so what I found originally, that's why I started, was I found that the few there were any good quickly when a market only wanted to work with a fortune 2000. And basically what that meant was, if you're not in the fortune 2000, good luck finding a decent marketing partner that has any credibility and the horsepower to give you that sort of fortune 500 marketing. But even if you're not in it and has, you know, the infrastructure, the capabilities, the talent, all of that, like you're weeding through a sea of crap to try to find that. And so that's why I built Hawk. And then you turn around and go, you know, I can look at this as we have 90,000 companies in our competitive landscape, but if you kind of turn it around, you go, well, wait, we've built all this infrastructure. We've got a process that works. We have a platform. Why don't we go look at all these agencies and see if there's some there's diamonds in the rough that we can find because we know how to vet on and go this, you know, this is a really talented group of people that just needs a little more horsepower, infrastructure, etc. to compete and that we can basically partner up in one place. One can equal three. We can get new talent, new skill sets, uh, in a new client base, new location, potentially, while also bringing them all the infrastructure and everything we've been able to build to really differentiate and succeed. And that we've tested that over the years. It's worked really well. And so it's become a pretty core part of our strategy is finding incredible boutique agencies and bringing them in as a partner. 00:03:50.420 — 00:03:56.840 · Speaker 1 And so is it only boutique agencies or do you look at technology or other types of acquisitions? 00:03:57.360 — 00:04:28.400 · Speaker 2 We have bought one piece of technology, but that the 23 of the 24 have been agencies, so we're open to it. It's just it's really easy on the agency side integration wise, like we know how to underwrite it. We know how to do diligence. We know how to value it. Like we that part's easy for us. Technology is a very different beast. And now with AI, it's even further along because we have our own AI development team, that there's very little software that is small enough for us to be able to acquire, that we can't just replicate it in a week. 00:04:29.960 — 00:04:35.520 · Speaker 1 You just crushed so many founders souls right now and it's just exit. You know, like. 00:04:35.960 — 00:04:36.680 · Speaker 3 Will you? 00:04:37.200 — 00:05:16.820 · Speaker 2 Yeah. I mean, we've we've entertained it. The problem is like, the way we can do agency acquisitions really can make sense both on both sides economically, but on software. Software is not generally profitable. It's you know, they're like $1 million agency is a very small agency. $1 million piece of software is seen as something actually marketable, and we don't see it the same way because we're not treating software revenue any different than service revenue. These days, I don't I don't believe it's it's that different anymore. And so, you know, has that that's brought down the multiples on software. I'm actually bullish on the multiples on services going up because that money has to go somewhere. And great service businesses I think are going to be more valuable going forward. 00:05:16.860 — 00:05:26.740 · Speaker 1 Yeah, they've been depleted over the years because everyone's been focused on SaaS. But now as we see SaaS get depleted, um, it's a good point where where does the money flow and when deals get to make. 00:05:26.740 — 00:05:46.700 · Speaker 2 Sense, I think software is going to become service based, where you're going to be building custom software per client. And so, you know, I think a lot of that's going to go that way. And so software businesses are going to have to become more service businesses and have that service business ethos, which I got to tell you, most of the big software companies I work with are terrible at that part. So it's going to be interesting to see how that works. 00:05:46.740 — 00:05:56.600 · Speaker 1 I do not disagree. And so what makes an agency worth acquiring? What do you look for? And how do you value the deals? 00:05:56.640 — 00:06:34.640 · Speaker 2 Yeah. The number one thing is, uh, a motivated founder, someone that really is like, like our best case scenario. And what we look for is a founder that is getting bogged down by the day to day. They're having to do HR, accounting, legal, you know, recruiting, client services, everything. And really what they want to focus on its growth. And can we go in there take all that off their plate. Let them focus on growth and, you know, have them run through a wall. That's the best case scenario. Um, and that's what we look for is a founder that is very growth motivated, that wants to grow. That just can't find the time because managing these businesses is hard and they don't have the infrastructure, the executive team, to help them do it. And we do. 00:06:34.680 — 00:06:41.760 · Speaker 1 Ultimately. How do you how do you value the business? Like do you look at cash flow, you know, future cash flow? Do you look at EBITDA? You look at revenue. 00:06:41.880 — 00:07:23.660 · Speaker 2 Uh, we look at generally EBITDA, but most of these don't have any debt. So it's EBITDA is generally cash flow. Um, and so it's EBITDA, but it's also what comes in that scale is a factor, uh, the stability of that EBITDA. How does it work the past three years. Like how volatile is that what their retention is, what their concentration. Concentration is, is a bunch of factors that we look at. And then that's that's just to get to our why. And then diligence wise their culture's a factor there. Again, their actual motivation, their trajectory, they're how complimentary they are to us. Like how much synergy is there here. Like there's there's so many factors into how valuable a company will be for us. 00:07:23.700 — 00:07:35.300 · Speaker 1 And then when you structure these deals like typically what what kind of multiple have you seen, have you seen over the years of doing multiple transactions over the years? Have you seen the multiples been shifting? What's been the typical range that you've been seeing? 00:07:35.420 — 00:08:00.480 · Speaker 2 Yeah, multiples have come down for the past few years. Um, you know, they went from I'd say somewhere averaging around like for that for the size we're playing in like we're, we're buying one and a half to 5 million revenue agencies generally. Sometimes a little bigger, sometimes a little smaller. But generally that's a spot. And the multiples are not went from like, you know, averaging probably for four and a half to averaging three tax revenue. 00:08:00.480 — 00:08:00.920 · Speaker 1 Or. 00:08:00.960 — 00:08:02.600 · Speaker 2 Even EBITDA, EBITDA. 00:08:02.640 — 00:08:03.200 · Speaker 1 Yeah. 00:08:03.560 — 00:09:13.470 · Speaker 2 Yeah. So and then yeah it's not just a cash transaction. We actually don't do upfront cash. We do 100% earn out based on how it performs. And so because honestly like and are we pay better because what we do is we make it completely variable versus milestones. Like a lot of companies, what they do is they'll give you 20% of the cash upfront, and then you have to hit milestones that are pretty much unreasonable, or they throw some tricky language in there. So the only money you ever get is that 20% upfront. And I'm truly trying to partner with the founders that we're acquiring. So I just build it out more to be like, you win, we win. And you know, we win and lose together. And so we guarantee profit margins. We do a lot of stuff because again, we're taking over the operation. We do a lot of stuff to take some of the risk off the person, and they really get the benefit of the upside without that much downside. Um, but in return, there's no upfront cash. We're mitigating that risk on our end, because what I find is for a buyer to be able to give you upfront cash, they have to mitigate that on the earn out part. And that mitigation ends up usually being really onerous for the founder. And the stories are long about how people never hit their own out. So I'm like, let's do the opposite. 00:09:14.110 — 00:09:38.350 · Speaker 1 Well, I guess I guess I'm having a hard time understanding the difference from how you described it. Like, if I'm if I'm an agency and I'm getting valued at 3 to 4 x EBITDA or my cash flow is actually my income and I'm not getting any of that upfront in the transaction, but I'm being asked to stay on and grow this business. Like, what do I actually end up like? How do you end up actually structuring that deal now that I can't control. 00:09:38.510 — 00:10:09.490 · Speaker 2 It, structure it based on, like if you maintain your business, you'll hit that three x EBITDA in three years. If you shrink your business, it'll just shrink as much as you shrink. It's directly linear. If you grow, your business will grow that EBITDA multiple. So we actually give you the benefit of the growth or the shrinkage in that tail, as long as you want it to be, as long as we keep working together. So if you are able to grow like we have a guy that forecast his business. So instead of selling for three x EBITDA, he's sold for 12 and it's still paying out. 00:10:10.290 — 00:10:13.250 · Speaker 1 So that is that kind of long term incentive a little bit more stability. 00:10:13.290 — 00:11:08.950 · Speaker 2 We give the founder the benefit of the synergy along with what we get. And so it's it's the long tail incentive. Exactly. And so we attract the right seller because again, we're trying to partner with founders to really scare and grow these things. If someone's looking for some quick cash like good luck. And there's two reasons people are looking for that. One they want out, which again, don't want to buy you then. And good luck selling your agency if you just want out. Like most people won't buy that or two. There's ego attached like they just can't comprehend, even though the numbers actually play out like we pay better than most buyers. Like we again if you. The thesis is if we take everything up off your plate book growth. Can you grow your business? Turns out yes, most founders can. And if you grow your business, you're going to get a bunch of multiple with us. Then you get with other sellers. So if you don't believe in that thesis, then I definitely don't want to buy you. And so it ends up being a self-selection process where, yeah, if you're really stuck on the suffering couch, someone's someone's going to get screwed by you. 00:11:08.950 — 00:11:27.030 · Speaker 1 By this time, 24 hour acquisitions and you have a playbook. What can you share to your audience that might be interested in kind of buy side M&A that they can learn from your playbook? On what makes a successful transition post exit or post transaction. 00:11:27.390 — 00:13:22.190 · Speaker 2 Yeah, I mean, you have to be like our goal. The biggest thing is by the time you actually close an acquisition, both sides need to be very, very clear on what the next year looks like. So like so that when you kick it off again, this is for how we do it, which is our goal is growth. We're not just trying to we're not buying assets. Like at the end of the day, like agencies aren't worth shit without the team. So we're just we're it's an aqua hire would be like in a nutshell. And I don't care if it's a $100 million agency, it's still an aqua hire. You're hiring team with relationships to clients. Like that's what an agency is. And so you need to build something that's going to really incentivize that team to stick together to perform for you. You need to be able to spot places where there's opportunity to accelerate that company in a realistic way. Everybody thinks they're so fucking brilliant, but you need to really understand that, like a lot of these operators actually do know what they're doing, and there's reasons why it hasn't performed. And to dive in and really figure out, are there opportunities where can you boost these things? Because it's kind of the cliche, if you're not growing, you're dying. If there's not opportunities to build these businesses and grow them, they're going to end up declining and, and, uh, going down the other way. And then again, every strategy is different. We have a scaled strategy. So for us we're able to do deals a lot quicker. We're able to do deals at scale, and we've built an infrastructure for it. And for us we know that some are going to work out and some aren't. So we just march forward and go for, you know, quantity and not not a massive quantity. But we do end up we've done 24 deals as opposed to doing two deals and having to make sure that those two deals go off on that edge. I just talked to a friend of mine that was able to triple his business with one acquisition between the synergy and the other and the size of the business, but he spent two years on that one deal. Two years ago I did ten deals in a year. So you you know, it's just there's different strategies depending on what you want to do. We're going for the programmatic M&A strategy. 00:13:22.630 — 00:13:37.010 · Speaker 1 I think it's fantastic. It's really enlightening to kind of hear the insides of how these types of deals get structured. And for founders that might be on the selling side, what are the biggest mistakes that they make going into the sell side process. 00:13:37.330 — 00:15:24.310 · Speaker 2 Not being rational on the stuff they like. I'm trying to think of like the ones like I mean, and I say that, but sincerely, we walk away from a lot of deals. We're just like this person's all ego. Like, we're not dealing with this. Like, if you want to have a prudent conversation about, like, this works, this doesn't. That's where we do really well. And like and I don't mean not being emotional on like, concerns. Like I just we're going under contract with a deal right now that the guys had some reasonable concerns to talk through that what's talked through. And let's see if what we know we can cover those. And that's that's super normal. But it's more of like, you know, I've worked for 20 years on this and I'm I expect $20 million up front. I'm like, for your 1 million revenue, 200 k EBITDA business, you think you're gonna get 100 times EBITDA. Like, it's those kind of things. It's just like, come on, man, I'm not. Yeah, exactly. And it's like, I've definitely my my M.O. is like, I'm not going to be the one to bear bad news to you. I'm gonna tell you good luck and go find someone to do that, Like and so that's that's a good way to like you have to really understand like it sucks because we all have inflated views of the value of what we've created. It's just natural. You have to as an entrepreneur and you know, you have to come to terms yourself with what it really is worth. It's kind of like every time I see an entrepreneur hire a PR firm, and they think they should be on the cover of Forbes, because everything they're doing is so exciting. And it's like, come on, man. Like, you got to be realistic with where you actually sit. And when we see people that are more realistic and have come down to earth and like, go away and not again, I'm not trying a lot of people, it's not about like deflating their self view. It's just actually understanding where they sit in the market. I remember one of my I said, I got quoted on this recently and my wife's like, thanks for that, but I'm going to do it again. I when I hit 10 million in revenue at the company, I told I ran in, I was like, we hit 10 million in revenue. Holy shit. My wife's in private equity. She's like, you know, how many companies do 10 million a year in revenue? Like, relax. 00:15:25.830 — 00:18:43.750 · Speaker 2 It's like you kind of have to have that realism as a part of it, too. That's one. Also, most people in our target and most people probably listening haven't gone through the process. Don't try to act like you know everything. That's that's a really tough one too. It's like, ask questions, get advice. Like go get coaching from people that actually know what they're talking about. But we've dealt with that a couple of times where people are trying to tell us how this all works. And we're like, you know, they're telling me like, oh, your model doesn't make sense. Or I'm like, listen, if you don't like it, that's fine. But again, I've bought 24 companies and I also have invested in another 120 companies. Some of those of that assets, like I have a wife in private equity. Don't try to coach me on how M&A works. Like unless you're actually there are people more knowledgeable than me that I go to advice. But when I'm talking to someone that literally never sold a company and they're telling me this isn't how it works, or they're we're dealing with this on one right now where it's like every little question they like, they're posturing as if they know everything, like they're very, you know, they they're all buttoned up. They know everything, but they're asking questions that are make it obvious to the, you know, sort of sophisticated buyer that they have no idea what they're talking about. They'll use terms and you know that they don't know the meaning of those terms. It's like, don't put off, don't put on a front. I guess that's what I'm trying to say. It's like, just be real. Be authentic. Be who you are. Because again, you're in. The only time I would say this is different is like, if you're really trying to get someone to, you're trying to fleece someone, like, get someone to buy your company before it falls apart and get out. Do whatever you need to do. But if you're truly looking for a partner, be open and authentic and real because they're going to be a partner. Again, my goal at the end of a transaction is both sides know everything, and I mean that I want the founder that we're acquiring. I there's nothing I'm trying. There's no tricks I'm trying to pull. So it's really easy. I'm like, you know, sometimes founders would be like, I don't know if it's okay to ask this, but can I see this or can I ask you that? Can I get more clarity into this? Please ask everything. I want you to know everything about our business and what you're getting into. I have them go talk to a bunch of the founders we've acquired here. The good, the bad and the ugly. That's super important. And so it goes the other way. Like, the worst thing people do is tell us what we want to hear versus what they actually believe and feel, because then at some point it catches up, whether it's in the deal process, they start arguing about terms where you're like you said you wanted to do this. Why the fuck do you care about this? Well, I don't really want to do that. Well, what the fuck are you talking about? Like that'll happen. Or post transaction. This has happened a couple of times. We do our deals where we really set up the founder to be the growth engine. And we'll get people that, like, do the deal. The entire thing, the reward structure, the burnout structure, everything is based on their growth. And then they go, oh, I don't want to drive growth. So well, what the fuck did you do this deal for? This has happened a few times. So it's like, that's the stuff that it's like now learning from that we're very articulate about this is what you're going to be doing. Are you ready for that? Are you sure? Are you absolutely sure. And to the point that the founder is like, yes, yes, I get it. You've said that 50 times. I'm like, yeah. And then I'm again out of transparency. Go. Here's why I'm saying this 50 times. Because this is the ugly side of what's happened. And so again, I think it's authenticity. And I don't mean authenticity of like what the way an influencer is authentic. I mean, truly being honest and authentic with what you want, what you're trying to accomplish with that partner, if you're looking for a partner, is critical. 00:18:43.790 — 00:19:24.610 · Speaker 1 The fact that you kind of hit so many different layers there of a transaction, um, just shows like you've you've been through this multiple times. Yeah. Just because yeah, that's the thing is, like, people think about the honeymoon stage of like, oh, we're going to get acquired. I'm going to get this big, you know, like opportunity. Now granted, you don't get the cash upfront. So there's there's this kind of continuum that really matters the transactions you're doing. But yeah, you know, the that expectation management and all transactions like that's the biggest killer of kind of post exit. Uh for, for the sell side is just they thought something and they had something in their head. And despite whatever was written down, they didn't actually click. Um. 00:19:25.530 — 00:20:21.510 · Speaker 2 And so and then it's kind of a function of like, I think also every transaction you're going to have what you hope would happen and what actually happens. And it's like there's going to be a delta. Like it might be a small delta, but there'll be a delta, the ability to roll with it. Like this is the reality now. Like control, which you can control and move forward, I think is a really important one too, because let's say even out through that, all that transparency, all that direct communication, you still heard something different than what happened, than it is what it is. I've seen different people sort of rise again and be like, oh, this is what I signed up for. Like, I didn't quite get it, but now that I'm here, I get it. Here it is. Let's go. And other people that, like, get pissed off about it, get kind of, you know, almost grumpy in sometimes where it's like, well, I didn't think this is what it was. It's like we tried to tell you, but okay, we're here now. And instead of weaving in and maximizing the opportunity, they do it begrudgingly, which just hurts themselves. That's the other piece too, is like depending on your deal. But if you're in an agency, your Ernst's probably gonna be a big part of that whatever deal you signed up for. 00:20:21.550 — 00:21:08.390 · Speaker 1 Maximize it. And so yeah. Especially in that negotiation. Like get those expectations cleared up in the beginning. What's the deal that ultimately didn't work out? Yeah, you did the deal. You closed. What's kind of some of the details of of one of those situations where you thought you did it right, but it still fell apart real quick? If you're a founder doing over 5 million in revenue and want to know what the best $100 million plus founders are doing to fuel their growth. Then make sure to subscribe to our $100 million exits newsletter. Get the playbooks that are proven on how to fund, grow and sell your business. I'll even give you a curated list of investors that want to invest in your business. It's totally free. All you have to do is click that link down below. Subscribe. Do it now. I promise it's worth it. You won't regret it. You got nothing to lose. Go ahead. Subscribe now, back to the show. 00:21:08.430 — 00:21:25.970 · Speaker 2 Yeah, we tried to buy one international deal, but we didn't know how to read the tax returns. And the guy had said he was doing 25% EBITDA. And when we got into the business, it was -25%. So we ended up saying we could either fix this for you or give it back to you, and we gave it back to them. So that was one. Uh, two. 00:21:27.130 — 00:21:36.569 · Speaker 2 Uh, it was a guy. That's kind of what I was alluding to. A guy that came in and after like six months, like he was like, yeah, I'm going to grow the thing. And he's like, he basically told me, like, I just want to sit at home and you got. You guys 00:21:37.570 — 00:22:07.250 · Speaker 2 send me brands that want to work with us and I'll close them. I was like, you think that's a challenge for me to like a company that says, I want to work with Artmedia. I can't find someone that can give someone a contract. Like, that's your job. That's not a job here. And so we ended up giving him back, like a longer story. But after like six months of trying to work with a guy, we just gave him back his business and went, screw it, like we're out. So it's those it's like when it's just like, there's this is a waste of my energy and yours, like, I don't want to deal with this. So do you. 00:22:07.250 — 00:22:12.010 · Speaker 1 Preserve their brand to be able to spin it back out to them, or is people kind of merging into hoc? 00:22:12.050 — 00:22:22.510 · Speaker 2 Ultimately it's depends. It depends on the value of the brand and what they've built in the marketplace, or if there's a reason to have it and there's no ego on my end. So if it's going to whatever's going to drive more business for him. 00:22:22.550 — 00:22:46.310 · Speaker 1 I'm just going to switch over to your investment side. So you have this playbook of, you know, buying businesses for your core business, which is, you know, our media, the media agency, but for the investment side. So you started doing some angel investments and early stage investments. Then you essentially raise the fund multiple funds. I think at this point kind of gave the audience a quick history on kind of what led to becoming an LP back fund. 00:22:46.350 — 00:22:47.670 · Speaker 4 My original plan with Hawk. 00:22:47.670 — 00:23:06.190 · Speaker 2 Was I never thought I was going to big this build, this big of a business, not out of lack of confidence, it's just not how I was thinking. And so I thought I'd build a cash flow business that would make great cash. Every year I'd take that money and I'd put it into real estate, and I'd build a, you know, a great real estate portfolio. That was my conservative side. So I could take risk on this. But the idea was. 00:23:06.830 — 00:23:08.310 · Speaker 4 Take profit for ten years. 00:23:08.350 — 00:23:38.810 · Speaker 2 Put it into real estate. By the ten year mark, I'd probably be earning a decent amount in real estate. Was the way I was thinking like, invest my money conservatively. Uh, a year in. I had friends that were raising money, and they're like, hey, we're raising money. We want you to be an investor. You're coming in. How much can you write a check for? It's like, no, guys, I'm not doing this startup shit. Like I spend my time on risk. I'm not putting my money there. And they're like, no, no, we're not asking. We're telling you you're going to invest. You're going to be on the cap table. It can be a small check, but you're in like, I respect that. All right. Fine. I wrote a small check. 00:23:38.970 — 00:23:42.050 · Speaker 1 That I know you're investing. Jedi mind tricked you. 00:23:42.250 — 00:24:48.119 · Speaker 2 When I wrote it. It was a very small check, but it became $1 billion company very quickly. And so I was like, oh, I might not want to be so stubborn about this. Like, I know a lot of operators, I know a lot of people. I have a good network. Maybe I should look at this more. And so over three years, I wrote seven checks into startups and averaged 11 extra turn on them and went, oh, I'm this worked out pretty well. I should maybe invest more money. I had a guy that I brought on to manage that. Oh, that's actually part of the story too. We were also doing a lot of sweat equity deals where we do services for equity, and it turned out most of the companies that wanted to give up equity for marketing services were undercapitalized or under motivated to actually build a big company. It was too easy to get equity out of them, which meant they didn't value their own equity. Which best piece of advice I think I've had as an investor is invest in the ambition of the founder. Where are you trying to take this? Like, what are you trying to do? And if someone's willing to give me 10% of their company to do marketing, they probably don't value their they don't think it's going to be $1 billion company because there's no fucking way they give me $100 million in potential value. Saw that the sweat equity deals weren't, you know, turned out to be a negative selection. And so the 00:24:49.760 — 00:27:06.280 · Speaker 2 the investments went really well. And so the guy running that for me was like, we should write more checks. I'm like, I don't have unlimited capital. And he's like, you know, I was actually investing in real estate too and still am. And so I was like, why don't we, uh. And he's like, why don't we raise a fund? I said, yeah, let's look at it. And we went out and raised a five, $5.6 million fund. And that was between 2019 and 2021. So five years later, that's about a four x mike. Which has been awesome. Or like top well above the top 5% of fund managers during our vintage. And so then we raised a second fund two years ago. Um, that's also going really well. I'm starting to get like it takes a while. We're early stage investors, so we're starting to get the winners are starting to come out the like. Real growth trajectories are starting to happen. And what we talked about before recording like the market's been a weird four years. And so I'm looking at the returns we've had in that period and been like, you know, if the market turns right now with how much we've had like that forex on the on one could go to eight x very quickly given like just market multiples and increases and that kind of thing. So like because now it's you know doubling it isn't crazy. We're already for X but to get a double out of, you know, get a 100% growth out of where the market shifting would is totally possible. And so we're really excited about what the next couple of years look like. And yeah, we'll probably ought to raise our third fund this year. We're almost fully deployed out of fund two. Um, but that was really a trajectory with some angel investing and then getting more focused on the fund. So the first fund we looked at doing like 70% future marketing, future e-commerce and then 30% consumer. And then we realized pretty quickly, like, consumers are really hard in the really early stages. There's such an X factor in that early, you know, pre-seed seed round that. I don't think I'd be surprised if anyone can just spot it. I like later, like series A, series B, series C consumer I think is really interesting. And I'm an LP in a fund called Family Fund that does a great job there. But on the future of marketing, future of Commerce, we know how that should look. We don't like it, doesn't need to have any traction. We can look at a strategy and go, yeah, fuck, we need this for 600 clients. Go build it. We'll onboard. And that's been really fun because we've we that's where we've made a lot of great calls because we know where the market's going. 00:27:06.320 — 00:27:12.260 · Speaker 1 So what are some of the kind of deals you're most proud of, like the ones that really stand out that you got to put your name behind. 00:27:12.660 — 00:29:03.040 · Speaker 2 Yeah. I mean, PostScript was a really fun one. Um, well, I guess let's go to the fun side. So, you know, we're also in Clavijo and one of their first partners and that's had an IPO. So that's a great one. PostScript, which is a SMBs marketing tool. They're a they've built a massive business that's really made our first fund. And that was we knew we wanted to invest in an SMS marketing tool. We looked at all of them. We vetted all of them. And Alex, the president and co-founder at postscript, what do we chase me down the halls at Shop Talk? I was like, we need to work with Hawk. Like, all right, let's talk. I really liked him. I liked how they like to business. I like the way they were thinking about it. And we invested and we called it. Right. And they've done an incredible job. So that's been a big winner. Um, the one of the most that I'm really excited about that. And that's still growing. But from a trajectory standpoint, we were in the fam, friends and family round of a company called tele, which was basically the a free television where they give you a free television as a sound bar and that's what I'll add unit on it. And the founder is an old friend. He had a really big exit. If you know Pluto TV, he founded that too. And, um, he called me that. He's going to build a television company. And I was like. Like Pluto. He's like, no, no hardware. Like you're going to build a hardware company. What the fuck are you thinking? And I'm like, you know what gets you? We'll throw a check in. Like, this is one of those bet on the jockey. You'll figure it out. And, I mean, the numbers were last year were public. They were on like, uh, you know, they they did almost. They got to like, a 40 million run rate in their first year, 30 million run rate in their first year. And the trajectory is insane. And so, you know, they're that business I think is going to be probably end up being our biggest winner by far, because it's already going to be our most valuable company we've ever invested in, probably next year. And it's been two years. So. 00:29:03.620 — 00:29:10.340 · Speaker 1 Uh, TV that you get for free in exchange. I project ads on you, and they're like, because. 00:29:10.700 — 00:29:40.420 · Speaker 2 It has a sound bar in the corner. The sound bar has a little, like, add screen. Not not sound, just video. And and then they have a bunch of integrations, like if you're watching sports, I forgot which one they have. But like, if you're watching sports, DraftKings or FanDuel pop up and you can bet on the game like they have all that kind of stuff that they they literally it's a media property that they partner with, you know, whether apps and all sorts of other stuff to create revenue. And it's working really well. Their metrics are absurd and so. Well, yeah. 00:29:40.420 — 00:29:41.380 · Speaker 1 That's saying. 00:29:41.580 — 00:30:31.360 · Speaker 2 Yeah. So that's an exciting one. And I mean, there's a ton though. I just invested our newest investments, a company called Don't Do So dough like bread Dodo. And this is an amazing site you type in, come up with on any product you ever you want to come up with. Like, I'm going to launch my hot sauce company. I just need to find a few hours to do it, or not even at 30 minutes to do it. You basically type in the product you want to launch. They immediately generate, you know, uh, using AI, uh, renderings of the product, the logo, everything, and go, you know, and then you can talk to it and change it and update it. You get to where you want it, and then it'll immediately pair you with a capac or manufacturer tell you the cost. Set up your website, set up your ads, and boom, you're off to the races. And it takes like probably 30 minutes to get the whole thing done. And you've launched your CPG company or your product company. Wow. 00:30:31.400 — 00:30:41.360 · Speaker 1 That's like kind of that. Was it, uh, AI slap in reverse personally or whatever it was that recently that's like more for like a software business. But now you're talking about like lighting. 00:30:41.400 — 00:30:55.720 · Speaker 2 It's vibe coding product companies, everybody has always wanted to launch their little product brand. Now you can. And it tells you the minimums. It tells you everything. So like I'm he I keep waiting I'm going to launch Hawk sauce. You know hot habanero hawk media hot sauce. 00:30:56.160 — 00:30:58.840 · Speaker 1 Sell it to your employees. Yeah, yeah. 00:30:58.880 — 00:31:38.260 · Speaker 2 We probably have to give it them up, Yeah, I just see it, you know? I like hot sauce. It seems fun. Like, I'm just like, let's just, you know, have fun with it. But, like, that's the idea is, like, you can create this long tail of, like. I think that's a really interesting thing of like, what's it like? The dropshipping thing didn't work like the way these businesses like, but there's still there's a massive market for people that want to run $1,000 a month businesses just to make us, you know, their side hustle or their little product company or just doing it out of a hobby. Like, maybe it's not even to make money. It's just to have a little cool business. And I think, like with AI and the way they've built their infrastructure. Like, I really like that company. So that's the most recent. We wrote that check two weeks ago. 00:31:38.380 — 00:31:50.660 · Speaker 1 That was kind of fun. Um, I haven't seen that, like, super clear I haven't I go through it, but, uh, yeah. Has a pretty good grid out there. What's some of the mistakes you've made when it comes to investing in early stage founders? 00:31:50.700 — 00:34:12.159 · Speaker 2 Yeah. Um, the I for a while we really looked mostly at the. So I always used to joke, like everyone says, bet on the jockey. But you can't bet on a jockey riding a donkey. So like, we would look at the platform more. There's a lot of wisdom in bet on the jockey. Like we, you know, when we started investing pre-COVID when Covid hit. Like we had some some founders lean into it and maximize the opportunity because like, there's a great line. I was told it's like, what does this make possible? And like looking at the opportunity, they're like, okay, this is how I'm going to lean into this. You have other people that when it gets tough, they stick their head in the sand and fucking disappear. And we've had that a few times. It's really hard to gauge what a founder is going to do when things get tough, because things will get tough. But I've now watched a few founders that just fall apart and do not handle pressure well, and we live in a time now. I would say not to get too philosophical, but I think people have a really hard time with grit and like we have not like my generation. The Millennials and Gen Z's were not brought up with a lot of grit. And so when you get things get tough, You have a lot higher likelihood of people just collapsing under it. And businesses fail for two reasons. They either get underwater financially or the founder gives up. Or I should say leadership team, because sometimes you have a new CEO or whatever. But if leadership doesn't give up and you don't have a hurdle that you can never overcome financially, meaning you're not underwater on debt or you haven't raised at a prep stock, you'll never overcome your you just can't give up. And so finding founders that are not going to give up is really important. Which is why, like I've had a few deals, I've looked at where the founder is like, yeah, we're going to try this one. And if it doesn't work, we're going to move on to the next one. It's like, no, no, no, I need like this, your entire soul to be tied up in the success of this business, because I've been there like I've been to the point. Like, thankfully I've made enough money now and then 12 years about this. I don't need to fucking do this. And when I say that, it doesn't mean like it's worth enough. I can sell it. It means if tomorrow I turned off Arc Media, I'm good. Like financially, I'm good. So it's a great place to be. But I still want this to be the biggest, baddest fucking thing ever. And I still work my ass off because I am motivated by the actual achievement of it and success of it, not by a paycheck. And so you need founders like that that are just committed to the goal and to the vision and to the, you know, the finish line, whatever that might be. Not, you know, how. 00:34:12.840 — 00:34:14.280 · Speaker 3 How do you pick that out? 00:34:14.320 — 00:34:16.760 · Speaker 1 Like when you first get the chance to meet them. 00:34:16.800 — 00:35:45.700 · Speaker 2 Do what you can to pressure test it, to challenge them, to spend some time with them. You can't. It's really hard. You try to, you know, you ask questions about when they have overcome that stuff you talk about, like, why are they doing this, what's motivating them, what you know. And it's the hard part is when you get the person, they're like, yeah, I know I want to build this for two years and then flip it like the I when it's a founder that's done that four times. Sure. We've had a couple of those deals where it's like they've sold their last three businesses for between 9 and 10 figures, and this is their fourth one. Like, yeah, sure, you'll probably pull that off. But when it's a first or second time founder saying that shit, it's like, stop it. Like, why are you doing this? And you want to have them innately understand the challenge and the opportunity, meaning like they know what problem they're solving. They're really motivated by it. It means something to them. And I think, again, I resonate with that because the reason I do what I do is because there are 90,000 marketing agencies in the US, and 99% of them are full of shit. And the fewer that are good are really hard to work with. So why isn't there an agency that's the best at what they do, but also easy to work with that can serve all the entrepreneurs out there that need help desperately and can't find decent help. Like that means that's why I do what I do. And so you need to like, challenge founders. Like, why do you care about this? Is it just because there's a hype train on AI right now and you want to build this? Like, why do you give a shit? Where is this coming from and why, when it looks like this isn't going to make you any money and this isn't going to end up sending your kids to college or buying you a big house, you're still going to grind through it to make it fucking happen, because that's going to probably happen. 00:35:45.740 — 00:35:50.060 · Speaker 1 I see that often, and sometimes they don't. They don't get on the other side. No. 00:35:50.100 — 00:36:01.080 · Speaker 2 Exactly. like. That's why venture works the way it does. I mean, people ask. You know, I think on our first fund, we have like four winners for losers and ten. We'll see. And it's like, that's a pretty normal distribution. 00:36:01.960 — 00:36:10.760 · Speaker 1 Yeah. What do you do with the ten. You'll see that middle of the bunch that doesn't make the find. Or maybe you know like how do you how do you think about those ones. 00:36:10.800 — 00:37:35.340 · Speaker 2 That's a good question. Uh, the book says you spend your time on the ones that are winning. Like, that's where your time is best used. And so I would definitely focus on the winners and try to help as much there. I do end up having conversations and like spending some, some time on the other ones to see if I can turn them into a winner. Because if they're doing decently, sometimes there's a lever or and I can just be a sounding board. Like, the nice thing is, I'm an operator too. I'm struggling through the same thing as they all are. So sometimes that's where as an investor, I can jump in and be like, dude, this is what I'm doing. This is what I struggled with there. Oh, we solved that. This is how we did it and just be another, you know, peer in that sense. It's fun. I mean, our best investments are a lot bigger than my own business now. So it's, you know, they're there on that. At the beginning of all these companies, what I've built is aspirational to my investments at this point. Some of them are aspirational to me. Um, and so but, you know, these are people that are like, even like there's a point where we're also the same size and I'm like, oh, that's how you just got to our size. Like, this is what I did here. This is what you have to look at o hr function. This is how I think about it. Like helping with that stuff. But a lot of times it's like trying to see if I can be creative with them as someone looking out in on like where there's an unlock because again, we're investing in stuff. We're strategic too. So I can look at it and go, oh, this is why you're having problems. This is what I would change here. Can you do this? Can you do that? Because that would unlock it for us. And again, we represent a lot of revenue for these companies. 00:37:35.500 — 00:37:50.960 · Speaker 1 How do you kind of pick out and those like need for improvement that companies are the ones that didn't hit the scale. Um, that was anticipated. Like and they need capital. What do you typically do in those situations or what do you recommend for them? 00:37:51.440 — 00:39:28.460 · Speaker 2 That's a good question. Um, it really depends like breakout velocity. Like again, once you've done this a little while, you realize like the the rare ness of that true breakout velocity and why people talk about doubling down on their winners and stuff like it's the the true exponential hockey stick. Like, holy shit, we can't keep up with this is rare. And so can you still build a good business with normal, steady growth? Yes. Does it, uh, attract the biggest VCs? No. And so you have to get more creative. And again, it really depends on what the factors are, what that growth actually is like. Are they getting 10% annual growth or 40% or 60%. Like where is it? What is their breakeven mark? Like do they have to get to a certain revenue line? Is there a way to run more efficiently so that they don't need that much capital and they can grow or you know, and again, what are they spending on infrastructure and CapEx versus what are they spending on growth and how are those? How is that? How are those growth numbers penciling out? Because if they haven't got a great LTV ratio, that's an issue that's hard to raise against. But a lot of times I see those companies, they're just investing in the wrong. It's a technical founder that won't stop investing in engineering and they're just not spending anything on growth, which is why they're not fucking growing. But they can't get their head around that. And it's things like that. Just again, that's why it's super unique because sometimes it's a it's a structural issue that you have to change the strategy of what they're executing. And sometimes it's an issue of their tactile TV is an issue. And because if it's not an issue, then you're raising money to go grow. It shouldn't be an issue. But if that is an issue, then there might be a business issue there. 00:39:28.500 — 00:40:01.240 · Speaker 1 Tough one to kind of assess and get into the weeds on. And you kind of have to get into the weeds. They got to determine what's what's ultimately going to be the best path for them. Because also some of them raise decent amounts money, have a pref stack. If they didn't outpace the pref stack, it becomes quite the painful journey for that founder. It'd be like, is it even worth it? Yeah. You know, to to preserve their ego. I was saying at least delivered for my my investors despite nothing for themselves. Yeah. Which is unfortunate in some of these transactions. Like people raised $100 million but sell for $100 million. Yeah. It's like I sell it for 100 million. That made nothing. Yeah. 00:40:02.600 — 00:40:39.880 · Speaker 1 So when you've reached this level of success, you've now kind of dabbled in so many different areas, from your own real estate investments to venture investments to just investing in your business and acquiring other companies. What would be kind of like the One direction or one piece of advice that you would give to founders that are kind of in that 5 to $50 million range that you need to kind of watch that are profitable, that like need to figure out what they should work on. Like, how would you kind of help founders kind of narrow their focus when they reach some scale, and where should they be directing their attention? 00:40:39.960 — 00:42:37.010 · Speaker 2 Yeah, I think the number one thing is get benchmarks, you know, like what are the metrics that you're falling short on. So like, you know, if you the example I give if like and it completely depends on the business. But again back to tactile TV, if you're acquiring customers at a reasonable rate and your LTV is where it should be, and you know that you're benchmarking, right and you're keeping customers like you should, and again, there's a good ratio there. Then it's step on the gas, which is a lot of times the problem people are just ready to step on the gas because sales cycles can be a long time. So you start spending more money on marketing and sales. Now it might take a few months to see the results. And so you get committing to that and being confident in your business. I've always just believe, like I am going to grow this. It's not if, it's how. And so I'm going to I it ends up pushing me to take a lot of risks because I'm like might not work and we might lose some money, but I'm going to keep fucking trying shit until we make money. So like, we're going to keep going for it and trying different things. And I'm incessant about that. And so if you're desiring now, let's be clear, I know a lot of people that have run $5 million businesses profitably for a very long time and don't grow, and they're super happy. So you. That's why back to being an investor, you invest in the ambition of the founder if your ambition isn't there to grow. I think that there's a little bit of undue pressure to grow where maybe it's not the best for you. Maybe you run a 5 million revenue, 1 million EBITDA business, which is kind of standard. You make $1 million a year. No one. If anyone complains about making $1 million a year, they have no fucking perspective. Like that's incredible, honey. You're well above the 1% at that point. I think people forget 1% means 1%. Like 99% of people will never achieve half a million a year. So knowing that you're there, there's actually, I think like take a breath if you want to. For me, I like the sky's the limit. I want to keep going. So in terms of like how to grow, I'm about like I really like kiss. Keep it simple, stupid. Like break your company down into like, what are the main levers here for me? I look at client retention, client growth. 00:42:38.670 — 00:43:58.130 · Speaker 2 top of funnel sales and conversion rate, leading to how many new clients we signed. So how many new clients do we sign every month? How many do we lose? How many grow organically with us? And then what's the top of the funnel leading to more of that? And how are we converting it? And so then you look at those metrics and you go, okay, where do I think the lever is? And at the end of the day, if your lifetime value is good, your net revenue retention is good. Your conversions are where they are, etc. the only lever you have is top of the funnel, which is why marketing exists. So if everything else is functioning like it should, then you you get. That's when you go from middle of the funnel performance marketing and you open it like again this is more of like the 30 to 50 million range is probably where you've done a lot of performance marketing and lead gen, and you start to get into branding. You start building more of a top of the funnel strategy of like, how do I just get our name out there so we can just attract more people inbound? And that's yeah, that that's a fun stage to be in, because the more you can do that, the more every, or every other metric looks good and the bigger you build, the better your retention gets. Because as you build a bigger brand, confirmation bias kicks in where it's like, well, your big companies, you're obviously not fucking up. So you're doing you make good product or you do good work. Like people believe in you more, trust you more every other. Your conversion rates go up, your cart goes down. It's it's a fun part, but it's scary when you step into it. 00:43:58.130 — 00:44:11.210 · Speaker 1 So what I want to do now is I want to ask you some, some quick questions that you give me some quick hot takes on. Um, and kind of give me your quick answer. Uh, so first one I want to say is, as an investor, what markets are you avoiding? 00:44:11.890 — 00:44:49.350 · Speaker 2 Oh, I'm avoiding, I want to say avoiding, but I'm very, very, very cautious with just software like straight software. Because if it's because we invest in seed pre-seed, I think later stage software has enough moat data, etc., that they're actually probably going to keep the business and be even harder to compete with these early stage companies. Like, again, it's so easy to vibe code and to build shit. Now, I'm not saying that like a really good piece of software can't be built. And like, the problem is the noise. Like, I could replicate what you have and make it look like what you have in a week and then what? So we're being really cautious on that side for the early stage, because I think it's just going to be noisy for a while. 00:44:49.910 — 00:44:54.990 · Speaker 1 At what point should a founder consider inorganic growth in acquiring companies? 00:44:55.310 — 00:45:31.190 · Speaker 2 I don't know. Like I'm trying to think of like it's one of the opportunities like again, with inorganic growth, you also end up, uh, acquiring a lot of the problems of the company, too. Like, you have to end up fixing their businesses. A lot of the times they're selling for a reason. And so I believe you have to be in a place where you can actually absorb that, that if it doesn't go well, that if it becomes a headache, you're okay. And it's not just a huge distraction from your core business that takes the whole thing out, that it's actually, you know, either not a big deal or additive versus we need this to go well, because a lot of times it will not go well because. 00:45:31.210 — 00:45:37.050 · Speaker 1 And what's the biggest mistake a founder makes when considering by side M&A too early? 00:45:37.090 — 00:46:42.230 · Speaker 2 I think a lot of people I watch it like because I speak at a lot of M&A conferences and stuff, like you have these $2 million agencies buying another $2 million agency. I'm like, great. So if they lose half their revenue base, you've still got all their people. You're now you're in a 25% layoff of your team. You can't afford to last through that. Like what's the plan? Like we you know, we're in a place like I mean, we've bought we bought a company that, you know, it was a small business. And about a month later we get a surprise. We have this bill we owe for $300,000. We forgot to mention. And I'm like, cool, that's on you. Like, thankfully, we have reps and warrants, like, we're not worried about that. They're like, yeah, but we have the money to pay it. And if you don't pay it, we'll lose all our clients. It's like, great. So we are basically the, the, the smart thing to do right now is actually give you a $300,000 loan that we didn't expect, and we can afford to do that because of how big we are small, a $2 million agency cannot do that. And so, you know, people get really excited about the upside of M&A. But like, yeah, we waited a little while. We waited until we had some infrastructure really lean into M&A. And thank God we did because it's still cost us a ton of money. Yeah, I. 00:46:42.230 — 00:46:47.990 · Speaker 1 Think that's a huge mistake. A lot of money. They love the idea of potentially like skipping a bunch of steps and getting bigger and faster. 00:46:48.030 — 00:46:49.190 · Speaker 2 And that's that's the. 00:46:49.350 — 00:47:30.410 · Speaker 1 Way this guy wants to sell to me. I should do the deals. Like, oh, you should shop around a little bit. Yeah. You can see your options before you get into bed with that one guy who sell to you. Yeah. Um, well, Eric, it has been awesome having your insights, uh, on the show today, you know, with over 120 investments, 24 acquisitions, and 750 million in revenue, your insights are true to your accomplishments. I really appreciate you coming on. And, uh, telling our audience about what you've your what you've seen. So, yeah, proud of me. Uh, looking forward to to get this out. Uh, before any before I let you go, what would be the best way for people to learn more about your fund and your ad hoc media. 00:47:30.530 — 00:47:38.570 · Speaker 2 Yeah. Hawk. Media. Hawk. Mediacom. Hawk ventures is hawk ventures. Com really easy. And then I'm just add or slash or Huberman on any social and why? 00:47:38.690 — 00:47:42.570 · Speaker 1 Like who should come to you for money when it comes to the investment side. 00:47:42.650 — 00:48:00.250 · Speaker 2 Where our client base is a strategic advantage? Probably. So like again, future of marketing, future of commerce. The small and medium businesses we work with could be great potential partners to it. And they're trying to reach that market. And from a marketing or commerce lens, that's probably perfect. 00:48:00.290 — 00:48:13.530 · Speaker 1 Well, if you're listening and you'd like an intro to Eric, feel free to to reach out to me or leave a comment down below and I'll be happy to consider that intro for you. Uh, again, Eric, thanks for coming on and yeah, thank you. Talk soon. 00:48:13.650 — 00:48:14.010 · Speaker 2 If you were. 00:48:14.010 — 00:48:26.930 · Speaker 1 Inspired by today's episode, then go ahead. Watch this next episode. Promise? It's worth it. And if you really enjoyed this last episode and you want to connect with the guests I had on today, make sure to leave a comment down below telling me why you would like an intro to this guest, and I'll make it happen.