Hello Freedom Seekers!
Thanks so much for joining today, as you might notice. I switched up the format here to keep it as simple as possible. I honestly really like the UX of the base template on beehiiv. So going to keep it that way. Additionally, I am going to keep the sections as dynamic as possible going-fwd to just send out the highest quality information. On the docket for today:
Something Big is Happening
Financing Hack Deep Dive
Something Big is Happening
2 weeks ago, I shared the concept of leverage on this newsletter and how it changed the game for me on how I thought about “work” - that I must put myself in a position to take advantage of the available types of leverage to make money.
Well, Something Big is Happening, and I think a high percentage of the population is not aware of it. As I mentioned in a past edition, I don’t think AI is going to take your job tomorrow, but I think it is going to be extremely difficult to have full certainty of your job’s existence in 5, 10 years. The old narratives around AI penetration limitations are losing credibility every day. The problem is you have to “see to believe” and so many people just don’t have the time or the interest to do so. Two companies that I recently interacted with blew my mind:
1/ Boardy: fully autonomous “match maker” between capital raisers and capital allocators. The dialogue was insane. The AI cleared it’s throat, went off on human-esque tangents to subsequently course correct, would make awkward pauses…the whole thing. The craziest part? I knew it was AI, but consciously let my guard down and settled into a human-to-human feeling conversation. I spoke to it like a human, knowing it was a bot. Need a data point to be convinced? Boardy raised it’s own $8m Series A. Yeah, you read that right.
2/ Raynmaker: fully autonomous, AI-native “sales org.” I haven’t interacted with the tool directly, but I am friends with the two co-founders, Joe & Garth. It wouldn’t feel right to share confidential financial data, but they have gone from Idea (July) → Go-to-Market (November) → Meaningful Scale (now). The craziest part? The tool sells itself. They literally sell their autonomous sales system simply by selling to their prospects with the tool! No humans in the loop, full sales cycle management from initial outreach to close.
IMO - there has never been a stronger call to action to buy or start your own business. As an employee, you are a line item on the P&L and the opportunity cost for your role gets lower and lower everyday with AI. However, as a business owner, this is fantastic news, your costs have the potential to go down significantly.
If you are focusing on acquiring an online business, Flippa will quickly become your go-to. IMO it is the most comprehensive platform out there in terms of active listing coverage. See below for the free 3-month link.
Make sure to redeem by Feb 28
Financing Hack: Pledged Asset Line
My approach to ETA is different from the “traditional path” in a number of different ways (and for a number of different reasons). One of them is my financing strategy.
The “persona” I believe I speak the most to is a high-income earner that is 25-35 years old, who is desperately aspiring to design a life where they have freedom of time…aka no longer having a grueling white-collar job that takes time away from the people and things they love most.
My financing strategy here applies to this high-income earner that has:
Been diligent in saving & investing a meaningful amount of money
Enough time under their belt for compounding returns to start taking place
Resulting in a financial (primarily stock) portfolio worth a couple hundred thousand dollars. You may be reading this saying, “Yeah that is absolutely not me”…that is 100% ok. You can probably still benefit from the concept.
If that is you, I would highly recommend continuing to read…
So, what is a pledged asset line?
A pledged asset line is a line of credit where you are “pledging” your stock to borrow against. The use of proceeds is entirely up to you (I believe the only caveat is you cannot use it for margin trading in another account). However, this “concept” is how the rich get richer and barely pay any taxes. Let me illustrate…
If you are Elon Musk and your TSLA stock alone is worth >$200 billion. What is the most tax advantaged way of receiving cash to fund your lifestyle?
Earn W2 income as CEO → paying income tax
Sell stock, use proceeds → paying capital gains tax
Borrow against stock → 🙂
Oh yeah.
So if you are a high income earner and have a financial portfolio with meaningful value, the financing decision is clear between selling stock vs borrowing against stock. Now the question is borrowing against stock vs SBA (or other private capital sources for that matter).
To boil it down, the main things that matter here for this decision are:
Positioning: with PAL you can position yourself as a cash buyer (because you are) which introduces major competitive advantages over buyers with financing contingencies including timing & transaction certainty
Cost of Capital: because your collateral is extremely liquid, your cost of capital is relatively extremely low. Just ask yourself which is a more secure borrowing base:
$500k of SPY stock that is being directly held by the lender; or
Small business future cash flows and intrinsic value (under new ownership) held by the borrower
Transaction Certainty: transaction certainty goes both ways; the Sellers’ POV as well as the actual transaction certainty. SBA kills good deals all the time.
Brain Damage: there is a “hard to quantify” cost of the amount of brain damage that takes place in securing a financing partner, especially SBA. The # of calls, logistics, etc.
To summarize, I am re-sharing a quick n dirty comparison table (below) I created a few months ago to illustrate. Base rates (Prime & SOFR) have come down to ~675 bps & ~370 bps, but the difference is still notable. For reference, I was able to negotiate a PAL to SOFR + 265 bps (current effective rate of 6.28%)…pasting that below the table here too. Yes - you can negotiate these.
So I think the biggest question in my head when I discovered this is why the f*** is no one talking about this?????? This is a total hack and there are SO many ETA folks that come from high paying W2 backgrounds that have a meaningful nest egg that they could borrow against. Well…
Every single course, guru, etc. preaches SBA for a number of reasons; however, I would argue that the #1 reason is the highly lucrative and behind the scenes referral business where they get an origination & referral fee for a closed facility with a partner…and yes, it is a percentage…so you guessed it. The bigger. The better.
Which also ties into the narrative of needing to go big. It might not all be about de-risking your investment through scale ;)
So to wrap…if you feel like you fit into this scenario, I would highly recommend checking with your broker to explore their pledged asset line products. I personally went through my existing broker and then negotiated via:
Publicly available rates (such as Interactive Brokers)
Private rates provided via direct inquiries to other brokers
Threatening to move all assets
And as always, if I can help in anyway, reach out.
Think I missed something?
Think I mischaracterized anything?
Have any other thoughts or questions?
Want me to focus on something specific in an upcoming issue?
Let me know! Reply to this email, shoot me a direct note at [email protected] or connect & DM me on LinkedIn. I’d love to connect with each and every one of you to help in your journey.
~Mitch
