🔑He accidentally started a $100M+ holding company
Welcome to The Business Buying Academy with Sieva Kozinsky. Here's what we have in store for you today:
- PE vs. VC
- Starting a holding company by accident
- A beautiful manufacturing business for sale
New Speaker Announcement!
Chris Hoffmann is speaking at the Enduring Ventures Duration 2025. Chris is the CEO of Hoffmann Brothers, a residential service company which he has grown to be one of the largest private home service companies in the country (over $100 million in annual revenue). When Chris expanded to a new market recently (Nashville), the business went from zero to $15 million in revenue in just 48 months (without any acquisitions). Chris is the best I know at operating home service businesses, and has countless nuggets of wisdom to share. Check out one of his latest on X.
If you want to spend time with Chris, 50 other talented capital allocators over 3 days on the coast in Maryland, sign-up below.
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ps: if you're thinking of joining, book soon. We just sold out of our 4th of 6 room types. Only 2 left!
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If I had to explain private equity and venture capital with one word, here's the words I'd use:
Private equity: Predictability.
Venture Capital: Moonshots.
PE and VC often get muddled together. I've managed money in both, so I'm going to break down the two for you today:
"The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund combined."
- Peter Thiel
The average venture firm will make 20-30 investments per fund. For Thiel's message above to be true, many of those are going lose money for the VC, some will return the money and then one or two investments will outperform.
In Private Equity land this would be unacceptable.
Here why...
When LPs look at PE funds to invest in, one of the metrics they care a lot about is "loss ratio". How many deals did you lose, some or all of your money? To an LP, this is a signifier of risk. Your fund performance may have been great, with high IRR and great cash-on-cash returns, but if you lose money on half your deals, and one outlier drove your returns, the LP will read this as a higher risk fund, with lower probability of repeated success in the future.
They will remove the 1 outlier and look at the rest of your portfolio's performance without it.
PE investors want predictability. They invest with firms that have a proven process for making a business more valuable.
VCs invest in people, PE invest in process
You will hear from a lot of VCs that their thesis for investing in a startup is "I back great founders."
VC funds typically have more portfolio companies than PE funds (a middle market PE fund might have around 8 to 12 investments on average, while VC funds usually have upwards of 25 or more).
In 2018 I started a seed stage VC fund. After 7 years, we invested a lot of small checks in a lot of companies, and it's doing fairly well.
Here are the stats:
- we invested in 77 companies
- paper markups 6.47x
- capital returned to investors so far 1x
Things seem like they're going well. But it's not my favorite way of investing, here is why:
- your money is locked up for a long time. Which means you can't reinvest it if you have other good opportunities.
- you have no effect on the outcome of companies
- to do well in aggregate, you need some investments to go to the moon, and become a multi-billion dollar company
Here's a more detailed breakdown of the difference between VC and PE:
Venture Capital: A High-Risk, Portfolio Approach
VC investing is designed for those who are comfortable with uncertainty and willing to take long-term bets on innovation. Here’s what defines VC:
- Power Law – The goal is to invest in a broad portfolio of early-stage companies, understanding that most will fail, but a few will need to generate outsized returns.
- Long-Term Holding Period – Investments are typically held for 7-15 years, with returns realized through IPOs or acquisitions.
- High Risk, High Reward – VC firms expect a majority of startups to fail, but the few winners can provide exponential returns (10x+ on investment).
- Investor Profile – Ideal for capital allocators i.e: institutional investors, endowments, and high-net-worth individuals
Private Equity: Concentrated Bets with Predictable Outcomes
PE follows a fundamentally different investment philosophy, focusing on acquiring mature businesses with established revenue streams and optimizing them for profitability.
- More Concentrated Approach – PE firms invest in fewer companies but take significant ownership stakes, often leveraging debt to enhance returns.
- High Likelihood of Success – Because PE firms invest in established companies, they aim for predictable, stable returns rather than moonshot wins. And no zeroes
- Shorter Holding Period – PE firms typically hold investments for 3-7 years before exiting via a sale to another PE firm, a strategic buyer, or public markets.
- Investor Profile – Good for wealth building but also institutional investors, pension funds, and family offices seeking more predictable, lower-risk returns with a structured exit strategy.
Returns Comparison: VC vs. PE
Now the real question: Which one has better returns?
For the 2010s, VCs did better. According to one study, VCs returned 17.2% annually for the 2010s versus 15.8% for PE.
But that trend has reversed over the last few years.
Private equity has edged out VCs the last several years - but both have returned more than the S&P 500 in that timeframe in the aggregate.
So which one is best for you?
Remember you (an individual) don't have enough capital to invest across hundreds of VC investors, or funds. The "median" VC fund does not perform well. The top performers lift the scores of the industry.
You as an individual need to optimize around decisions to turn 1 dollar into 2 dollars. The highest probability, lower risk path going to look more like PE and less like VC.
🔑 The coolest Holding Company Story I've heard...
Last week I talked with a guy who started a holding company by accident. The story is awesome. If you have time for only one podcast this week, make sure you listen to this one.
15 years ago, Rafael bought an industrial supply company with a business partner. Soon after, another promising business, in a completely different industry, fell onto their lap.
Fast forward to today, and they've acquired nearly a dozen companies in several verticals, including a couple of restaurant chains, outsourcing, and medical claims.
Listen to this interview if you really want to see all the details on how a holding company is built.
🔑 One interesting deal
This deal is interesting, with some dangers
What I like
My experience is limited in this space, so I'm going to call out a few items that stand out:
- Established business (30 years in business)
- Reasonable multiple, but maybe a little high (4x cash flow after backing out real estate). Worth appraising the real estate and seeing if you can lease back to drag down the purchase price
- Owner is open to seller financing
What I don't like
There is a lot more to learn about this business. I would not go into a manufacturing company as your first business, unless you have specific industry experience.
Have a great week,
Sieva
Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.
