Guest: Ujwal Velagapudi
Podcast: Acquiring Minds
Hometown – suburbs of Detroit (he’s 30-ish)
Bought and sold a dozen cars on CraigsList (CL) while in HS / college
Always made a profit, and learned negotiation and hustling through it
Commercial building for sale on CL – seemed a great deal, 75yo seller owner / occupier
Fire damaged red brick building – 7 Mile in Van Dyke
Was a year out of college
Did entire lease + purchase agreement (PA) himself
Grew this commercial portfolio to 12 units – mixed use, light industrial – at this point was earning ~$5K/mo
Still had day job – supply chain management in aerospace, quit in 2018
But always interested in passive income
Then explored SMBs – pizza, night club – all on CL – spent a lot of time on deals but they all fell through
Finally saw a bar for sale – near Red Wings stadium – rich history, but the arena was being demolished and relocated
Had been bartender in college, even though he didn’t drink
75 seat bar, no kitchen, did some food trucks + temp chefs – $100-200K gross, 1 full-time bartender
Put in LOI, 4 days later had a signed agreement + down payment
Purchasing by himself – knowing it was mostly for his education – “wasn’t for the money”
Hired completely new team eg bartenders – also on CL
Ultimately couldn’t extend the lease, owners wanted him to leave so they could demo the building
Was initially there every day after his 9-5 job – slowed over time
Owned it for 1.5 years, then liquidated everything he could
Also on CL – saw a gym for sale – Snap Fitness, hot gym in area
Personally loved sports, exercise
Bought with cash for $75K – closed deal in 3.5 weeks – was making $50K (so 1.5x multiple), but LA Fitness had just moved in next door
2900 sf, prime downtown location in small Detroit suburb, yoga studio, tanning bed, weight lifting
24/7, keycard
Sold for 2.5x purchase price to his gym manager – had started as a customer, became assistant GM and then GM for him, and eventually bought it over
Always prioritized happiness and efficiency over maximizing profits, outsourced a lot of work, used tech as much as possible (video cams, PoS, DocuSign, etc)
Only spent 10 hours total in that gym – managed it like it didn’t rely on him, relied heavily on financials / reports instead of micro managing
Bought an ecomm business – Amazon FBA selling hats, bags, gloves – negotiated the heck out of it, thought he got a good deal
Offered $180K, $90K down ($500K revenues?) – was a well-known online brokerage
Then he discovered it had a lien, because seller took loan from Amazon which was automatically deducted from earnings
Seller tried to hijack the account, got FBI involved
Seller was a felon with drug issues
Took a big hit, ultimately liquidated it on EmpireFlippers (good experience)
In 2018, multiple income streams, quit full-time job, spent a few months in Thailand, had gone for an entrepreneurship conference
Spent a few months on the beach, 4 hour work week, but “it was so boring”
Increasingly difficult to find good M&A deals on Craigslist – back then there was a lot of misclassified deals, 80 year old sellers
Now brokers are picking off everything, sellers more sophisticated, marketplaces more fragmented (eg, FB marketplace)
After ecomm, purchased minority ownership in consulting business for niche insurance software
Moved to Texas for it, 20 year old company, was acquired by Oracle
Had monopoly in a very niche business as systems integrator
But covid hit and really hurt business
Oracle refused to sell it back to him
Wasn’t able to compete with new startups
HiByron
MicroAcquire – saw a promising target, LOI in a few days, closed sale in 5-6 days
Acquired for 5-figures, $2.6K in MRR, US-based virtual assistants + tooling (geared toward online business
owners), $44K in trailing 12 mo revenue
Like a staffing agency + tech platform
Lot of R&D gone into it, great base, he was excited to own business
Great seller transition – SOP, tutorials – seller was focused on a new project
**Likes to close very quick, helps him w/ sellers – “I’m a cash ready buyer that will close within 2 emails” – has standard set of questions, very attractive to sellers
Living in Mexico now
Let someone take over HiByron (the VA biz) – 60/40 split for any new revenues (“phantom equity”) + 1 year vesting
Has grown considerably with new management
From $2.6K MRR to $45K MRR – specifically one big new customer (a vendor to OnlyFans)
Latest acquisition: Vending business
Talked to a lot of brokers, shared requirements, looked in Mexico & Canada too
Looking for $multi-million deal
3 targets:
1. Chemical distribution (60 yo biz) – lost to strategic acquirer
2. Tech biz (phone systems securitization) – lost to PE / group of investors
3. Vending biz – jukebox, arcade games, ATMs – bars, restaurants – “seemed super weird to me”
Reviewed financials – very stable business – 7-figure cashflow, 50/50 split, labor is biggest OpEx
6 month process to close – all his previous M&A experience really helped, sought financing from 100+ banks and lenders, dealt with a lot of rejection
Main issue: Entirely local – had to be around his base, maybe at most a 2-3 hour radius
End consumer is B2C, but direct customers are B2B (eg, restaurant or theater)
80-90% shutdown during covid
Vending biz primer
Owns and places equipment
Sends own collector + technician for operations
Two critical elements – 1) service + 2) customers
Service – If jukebox goes down at 11pm, you must take care of it asap; if broken, order parts and replace in 1-2 days
Customers – gotta baby ‘em, one of few vendors that actually PAYS the customer – mutually beneficial, perfect alignment
Don’t wanna be 1+ hours away from customers
In vending, LOTS of one-man shows, small route that they do everything for, biz plateaus
A few are vending aggregators – buy multiple routes
Lots of vending sellers came to him after he bought the first one
Bought 3 more since that first purchase
His operation is biggest in the state, but doesn’t compare to national operators
Cash-flow is now multiple 7-figures