I use an unfair advantage to achieve an IRR of more than 50%.

To put that into perspective, Warren Buffett, widely considered the best investor of all time, averages 22%.

A 50% annual return on a £100k investment sustained for 30 years becomes £19B; not that I have any intention of ever getting that far.

This reminds me of one of my favourite Naval quotes:

I do however intend on living a kick-ass life, and that requires a lot of money.

Today I’m going to show you exactly how I do it.

Why listen to me?

After growing my agency to £2m ARR and hitting a plateau, it dawned on me that very few people get exceptionally wealthy by owning or selling one business.

After years of failing to launch multiple start-ups at the same time, I eventually realised that unless you’re Elon, it’s also virtually impossible to be the CEO of more than one business at a time.

Then I came across Andrew Wilkinson.

Like me, he made a bunch of money running an agency.

He used that cash to set up a holding company and buy and invest in other great businesses.

In 2023 after just 10 years, Tiny went public. Today their market cap is over $400m.

I followed a similar path to build BettsCo.

BettsCo now owns stakes in 8 different businesses, doing a combined revenue of over $3m. Each business has its own CEO and I get to help and advise other entrepreneurs during their 0-1 phase, which I love.

My Unfair Advantage

Anyone with cash can start a holding company and buy businesses.

However, you’ll be competing against thousands of other holding companies and private equity outfits.

I wanted to have an edge, so I played to my strengths.

I decided I would only invest in companies that I already knew how to grow.

My marketing agency has helped over 2,000 companies with their lead generation efforts, so I have a lot of data about which types of businesses are easiest to grow. I also have the playbook for how to generate thousands of leads for each of them.

I use that information to find a space I want to invest in, and then I search for companies/founders in that space.

Once I buy a stake in a company, I use my marketing agency to very quickly help them 2-3x their sales efforts.

If I buy a stake in a business for 4x their annual net profit and then double the size of their business in 12 months, I receive a 50% cash return on my money.

For example, let’s say I find a business I want to invest in that is doing $200k per year in free cash flow per year.

I buy 25% of the company for $200k at an $800k valuation (4x earnings), with a clause that says the company has to distribute 25% of free cash flow as a dividend to me each quarter.

My marketing agency helps them to 2x their sales virtually overnight, so they do $400k in free cash flow in the 12 months post-investment.

My annual dividend in the first year is 25% x $400k = $100k.

Not only do I get a 50% cash return on my investment, but I now own 25% of a company that is worth $1.2m-$1.6m, so my stake is worth $300k-$400k. That makes my total return north of 100%.

I then use that $100k cash flow to make my next investment, and so on.

Because I’m only buying 25%, the Founder is still motivated to stay and grow the business, so I don’t need to risk installing a new CEO.

They get a bunch of cash in return for some equity, and after 12 months they own 75% of a business that is double the size. Everybody wins.

Most investors that buy companies with net profits of <$1m are typically only willing to pay 2-3x earnings. With my unfair advantage, I can afford to pay 4x, which allows me to win more deals.

I have now used this approach to buy a minority share in several businesses, and I plan to do a couple more deals every year.

If you think your business might be a good fit, drop me an email at [email protected].

Investment Criteria

Of course that all sounds great in theory, but it requires me to pick winners.

So what do I look for when assessing investments?

1. The Founder is a badass that will succeed whether I invest or not. I look for energy, integrity and intelligence, in that order (credit: Shaan Puri). It’s also imperative that the Founder’s growth goals are aligned with mine.

When assessing Founders, I love this quote from Andrew Wilkinson:

“What I've realized is that people will do what they want to do. No matter what, they will always default to the thing they know and that they want to do, even if you debate them or explain it to them. And so, you're kind of the rider on the elephant with people. And you just have to hope the elephant's going where you want to go." 

2. I have run a marketing campaign or been involved in a similar business before, and I know exactly how many clients my marketing agency can help them acquire and at what cost. When you know the CAC and the average profit they make per client, it’s a simple math equation.

3. I expect the business to be around 10 years from now. I’m not here to make a quick buck and flip the business. The key to wealth is compounding over many years, so the business has to work long-term.

Should You Copy Me?

For the vast majority of people, the best and lowest-risk way to get reasonably wealthy is to start a business and funnel the cash into an index fund that returns 7-8% per year.

If you can make £150k a year running a small business and put £50k a year into an index for 30 years at 8%, you’ll have $6m in 30 years time.

If you are running a business but need help improving profits and cash flow, I would recommend speaking to Tom Griffiths. He used to work at JPMorgan and now is CFO to many small businesses. He helped me get a better grip on my numbers, and improve cash flow and profits.

If you want to take a similar approach to me, I highly recommend spending 5-10 years starting and running businesses first. To successfully pick winners, you have to understand how to run a successful business. I did a degree in Entrepreneurship, launched 10+ failed projects, spent hundreds of thousands of pounds on failed experiments, and spent six years building my agency before I started BettsCo.

If you want a competitive advantage, become an expert in at least one distribution channel such as SEO, paid ads or affiliate marketing. That way when you come to buy/invest in businesses, you’ll know which businesses can be grown profitably and how to help them do it.

Whatever path you choose, make sure you enjoy it and it’s sustainable.

In the end, it’s just about staying in the game long enough to find the gold.

Go get it!

Lee

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p.s. I am not a financial advisor and this is not investment advice. Tread your own path.