Anatomy of a Private Equity Deal ft. Josh Ziegelbaum of Circuit City

Hello, future billionaires. Welcome back to another episode of the Invest Like a Billionaire podcast. Got a really interesting episode for you today. So this is the anatomy of a private equity deal. We're talking all about Circuit City today. So what we're doing is going to be breaking down an actual private equity deal that is currently being offered by Circuit City, a Reg D offering, and really use this as a case study to break down the anatomy of a private equity deal. So what is private equity? How does it work? What are the different things you want to look for? And it's a really interesting strategy where this family office has purchased the Circuit City brand out of bankruptcy several years ago and have really revitalized the brand and going with a digital-first kind of online approach and growing this, this business with a recognizable brand. So it's a really fun episode to kind of get into the nitty-gritty of how a private equity deal works. We've talked a lot about private equity before. I'd encourage you, if you haven't listened to one of our first episodes called the Intro to Private Equity Venture Capital, definitely listen to that before this episode. That would give you a really great groundwork for the things we talk about in this episode. And then lastly, I have to give a disclaimer because this is so, so important that I have not done any due diligence on this company, on this offering. Zero. So you have to, if you're interested, do your own due diligence. I'm not making any representations. I say that in the episode, but got to say it again. This is purely for educational purposes, right? This is an interesting case study and wanted to bring them on because to me it's interesting to understand how these things work really as an education for our audience. If you have interest, definitely go down that path. And look at it, but, you know, realize we have not done any due diligence. We don't really know anything about the offering. You got to do that. Got to get that disclaimer. Lastly, if you are enjoying the podcast, please do us a favor. Hit the subscribe button so you can be notified of future episodes. And if you're a longtime listener and supporter of this podcast, we really appreciate any support you can give us. You can leave us an honest review on whatever platform you listen to this on. It really helps us just build credibility so we can get more bigger guests onto the podcast and always give us feedback so we can improve and make this better to serve you. So with that, let's dive right into the episode. This is the Invest Like a Billionaire podcast, where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you'll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra-wealthy, discuss economics, and interview successful investors. Looking for passive investments done for you? With Aspen Funds, we help accredited investors that are looking for higher yields and diversification from the stock market. As a passive investor, we do all the work for you, making sure your money is working hard for you in alternative investments. In fact, our team invests alongside you in every deal, so our interests are aligned. We focus on macro-driven alternative investments, so your portfolio is best positioned for this economic environment. Get started and download your free economic report today. Welcome back to another episode of the Invest Like a Billionaire podcast. I am your host, Ben Frazier, and today we've got a very exciting guest to have on this podcast. Saw you jump in. We got Josh Ziegelbaum and he is the head of investor relations at a company you may have heard of called Circuit City. And you might be thinking, why are we talking with Josh about Circuit City today? And very excited to talk about this because this is an area of the podcast that, you know, I love to talk more about. And whenever we have a guest that fits this profile, I get really excited. So we're going to talk about private equity today. Right. So we talk about alternative investments. You know, the big three, you've got real estate, venture capital, and you have private equity. And so we're going to dive into the story behind Circuit City and how this brand is being revitalized through private equity. So, Josh, welcome to the podcast. Excited to have you on.

And it's great to be here. Excited to speak with you today about private equity, Circuit City, and add value to your audience. So let's dive into it.

Let's dive in. So give us the rundown, right? You joined as head of investor relations, you know, pretty recently. And this brand is a familiar brand we all are aware of, right? We, you know, especially those who maybe are a little bit older, you know, are very familiar with Circuit City. And, you know, but it had its challenges like a lot of, you know, big retail brands have, but it's really being revitalized through a totally different approach. So talk about the strategy of but how Circuit City is kind of being revitalized and how the business strategy is actually shifting and what you guys are doing.

Of course. Of course. So before we dive into that, of course, just sort of a concept of my background for the audience here and how I landed in this position with Circuit City. So I've been working in private equity, asset management, and banking for 10 years. Last 4 of which was specifically in alternative investments. So I'm very experienced with private investment offerings, venture capital, and working really on the investor relations side and putting deals together, diligencing them and bringing them to market. Now, with respect to Circuit City and what makes this so special, I mean, this was at once the large— the largest consumer electronics retailer in the United States. I mean, they were publicly traded, Fortune 500, almost 30 years. And in 2009, the company unfortunately went under in the financial crisis. You know, they were operating brick-and-mortar model with high fixed costs, long-term leases, and there's just heavy mismanagement. And it's unfortunate because it's an iconic brand that's very beloved by consumers. It's, it's one that resonates well with, with consumers here in the US and even globally. So in 2009, they went under and then it was acquired shortly thereafter by a company called Systemax. And they operated it privately for a number of years before it was resold to its current owners. Ronnie Shmuel, the CEO of Circuit City, and his family office acquired the brand in 2016. They relaunched it in 2018 and it remains a private company until today. Right. So this is the first time in which investors outside of the current ownership are given an opportunity to participate in the equity of the company. Right. So, so some things that are very different. This is no longer a brick-and-mortar play. You know, we're focusing on technology, really a business for the modern age and bringing and finding consumers where they are, which is online. Right. So, so we're leveraging e-commerce, B2B e-commerce partnerships with national retailers where we can get into their stores and power their online channels. And then ultimately what we'd like to do is build a third-party marketplace for the consumer electronics category. And this is proprietary to us. There's really no US-based marketplace for electronics. Of course, we could think of Amazon, but they're a one-stop shop for everything. So really a dedicated platform where customers can come and, and buy products that are more complex and give them more curated shopping experience. So it's very much a private company. The current CEO, he was looking to raise venture capital about a year ago, going after some institutional investors. And so we had some conversations there and sort of went down that road of raising private capital from, from a larger firm. So we were looking for potentially a larger firm to come and fill out the entire capital raise or the capital needs here, the company. But based on my background, we're about high net worth individuals, Reg D offerings, But when Ronnie and I became close and got to know one another, we soon realized that this is a business that would really resonate well with the public and with the masses, particularly the accredited investor audience that I'm familiar with working with. So we've given investors an opportunity to come in in a private manner to the new Circuit City in anticipation of the unfolding of our business plan, the business plan that I kind of gave you a highlight of. And we have a goal of coming back to public markets over the next 3 to 5 years or potentially selling the business to a larger corporate player who would want to acquire the brand Circuit City and kind of bring it into its fold. So that's kind of what I'm doing and what we're doing differently than, than previously.

Yeah, well, thanks for sharing that, Josh. I think it's, it's a cool strategy. I've seen this happen before where you take a once darling brand, right, that people love. They have a connection to that. Is struggling. And, you know, really what shifted so much in retail over the past 2 decades and, you know, it's become a very difficult category to compete in, especially if you didn't have kind of an online focus or a digital kind of first mentality. And a lot of these retail brands got left behind. But there's still a lot of brand recognition, number one, but also, you know, a brand that people like, right? There's like a connection. And I actually remember, you know, it's fun having— talking about this because, you know, my, my father growing up, he ran a tech company in the late '90s and, you know, big into computers. He's a computer programmer from Berkeley, you know, back in the late '80s and '90s. And so we would go to Circuit City like that was like the event of the day is like going into the big stores and you see all the cool electronics that they had. And it's, it's even for me, it's probably a little bit younger, still has like cool memories that are associated with that brand.

Right.

And that's something that you can't just, you know, can't conjure up out of thin air. Right. So there's, there's a lot of long-term value and brand value. And a lot of times what happened, these, these, you know, businesses that get publicly traded, they ended up, like you said, got mismanagement. Maybe they get overleveraged. They, you know, have too much debt and it's difficult to kind of get out of that. And so the brand goes under and then you can generally buy it for, you know, pennies on the dollar, so to speak, and then have a new strategy to kind of bring this back to the market. So we've seen this happen a lot before. We kind of get into the specifics of, you know, how it works and how you guys structure what the business plan is. Talk about just the category of consumer electronics, because in my mind, like, this has become a vertical and a category of retail that has become very competitive. It has, you know, e-commerce has really taken over in a lot of ways, you know, the consumer electronics category with some of the big behemoths like Best Buy and Amazon, you know, really dominating that category. So what's kind of the strategy? How do you guys expect to play in this aside from the brand recognition, which is valuable? But how do you compete in such a competitive industry?

Yeah, I couldn't agree with you more on the brand recognition side, Ben, and the long-term value there for shareholders and for the business itself in terms of capturing market share. And speaking of market share, which is essentially you're asking like, how are we going to compete with the likes of Amazon and Best Buy and carve out a niche for ourselves? So let's look at the US alone. So in the United States, the total addressable market for consumer electronics is just north of $500 billion and growing. This is expected to continue to grow for the foreseeable future. It's a category that, that has some legs to it, of course, with the advent of technology. Now, out of this $500 billion, surprisingly enough, Amazon and Best Buy each control around 10% of that each, respectively, with the balance going to a full swath of other brick-and-mortar and online retailers. So with our business model that we set forth in our Series A investor presentation, we see a path to just over $250 million of revenue by 2028 to hit our projections. So we're talking about a very small fraction of the overall US market. We're not looking to become the next Amazon and, and, and take all of its market share away. We actually only need to capture 0.05% of the US market opportunity to hit our 2028 figures. We're already revenue generating. Company's done over $130 million in revenue to date since its 2018 relaunch. So, you know, we expect like, how are we going to get that 0.5, 0.5, right? So creating a better shopping experience for our customers, customer service reps that are available to address questions for products that customers need guidance for. Right. So there's certain things like when you're buying it online, like a simple consumer good, you know what you want and maybe there's a flood of products on the page and it doesn't really matter because they're very similar. But when it's products such as like laptops, TVs, computers, you know, maybe headphones, not so much. And like the smaller accessory type items that we sell. But there's a need for customers to have that, that old Circuit City type of shopping experience, which is customer-centric, expert-guided sales advice. So that's kind of one facet, of course. Right. And then a major piece in how we're going to capture market share besides just selling directly to consumers and directly to businesses would be through what we call Powered by Circuit City. So it's one of our 4 business verticals in which we're partnering with large national brands and touching their client base by selling our products and their channels. And I'll kind of unpack that and tell you what that looks like. So our first Powered by Circuit City partnership was launched in Q4 of 2023 with JCPenney, a brand many of you also know, I'm sure. And JCPenney is also now private, interestingly enough. So what we've done with JCPenney, we've piloted a Circuit City section in their brick-and-mortar stores. 288 stores have Circuit City branded products that we sell. And then we're also powering the online sales in their consumer electronics category. So if you go to the JCPenney website as an example and you find your way over to the consumer electronics page, There's Circuit City branding and recognition. So from a customer perspective, it's 30 million monthly visitors to JCPenney, more or less just over that. When they don't think of JCPenney as an electronics retailer, right? But they very much know our branding, you know, the red and white logo and, and the connection of Circuit City and consumer electronics. There's not many brands that you could do this with, with, with these, with these partners. So we're essentially connecting with they're 30 million plus monthly website visitors and we're capturing the traffic in their in-store locations without paying any marketing spend. Right. And for the in-store products, they're paying forward and buying the inventory from us. We're not putting it in stores and waiting for it to sell. And then with the online component, it's just directly connected to our APIs and our website. So it's almost as if the person is buying from our site in terms of what we see on the inner workings on our end. So JCPenney is just one. We have several other national partners that we're looking to roll out with in the coming year or two. I can name a couple that are potential. We're looking to potentially partner with Lowe's or Home Depot, and then we're looking at some, some larger, I guess you can call it, accessory stores for vehicles. I don't want to name the name, but think of like these large auto part franchises that you could sell charging cables, things that people would use in that specific area. So there's scale that could be met with this Powered by Circuit City vertical. There's scale that can be met by launching our marketplace. We're talking about just capturing a very small segment of the market. And like I said, the company's already revenue generating. So we see a very reasonable path to, to our 2028 exit that we're expecting and we expect to do it through things like Powered by Circuit City, differentiating factors on our site and things of that sort.

Very cool. Yeah, I love that approach. I was actually going to ask you later on, you know, do you guys plan on having a retail, physical brick-and-mortar retail presence as part of the strategy? Because I talk a lot about our podcast where retail, you know, retail real estate, that is, is kind of, you know, been kind of blacklisted in a lot of investors' minds because, you know, e-commerce has taken over. But the reality is there's still a massive amount of retail transactions that happen in physical brick-and-mortar stores. And the e-commerce penetration, you know, still is climbing, but it's plateauing, right? It's not climbing at the same rate that it was, meaning the overall percent of total retail sales that are just online are still growing, but it's not growing at the same rate that it used to grow. And so I like the strategy because one, you have a much smaller footprint from a real estate standpoint, right, to where you're having to pay a lot of these big box retail shops, right? That's, that's expensive, you know, real estate you got to pay for and you got to continue to drive the traffic. And there's a much lower cost and overhead structure to do that. And then you said it kind of layers in with the online portal. So that's, that's a cool, cool element where you can see this kind of hybrid approach working where you're kind of digital first, you kind of build the systems and, and the, the, the back office to, you know, work for that online presence, but then leveraging other channels for your— like you said, you're getting 30 million visitors in front of them through these partnerships. So that's, that's pretty cool. Let's take a step back and I think talk a little more conceptual about private equity, right? Because I think there's still kind of a misnomer of what does that mean? And, you know, how is this similar or different from real estate?

Right.

A lot of our listeners are real estate, you know, mostly invested in. And so talk a little bit about just what is private equity, you know, how does it work? What are some of the kind of, you know, pileable things that people need to be thinking about if they're understanding you know, what, what this is.

Yeah, it's a great topic for us to get into, Ben. And conceptually, private equity and, and private real estate— I would look at private real estate as private equity, right? But the underlying asset itself is a building or a piece of land, right? So a passive investor, we're looking at this from like a passive perspective, right? They have rights to cash flows from that underlying asset, and then they have rights to proceeds on the sale, right? So to really kind of make this as simple of a comparison as possible, when you're looking at private equity in the sense of operating companies, you can call that venture capital. It's really shares in that pool of cash flows, shares in that company's profits on a fractional basis for the investor, and then a share in the upside, right? And then in order to like kind of wrap your head around that and you look at a pro forma, you know, you look at the cash flows that the company is expected to achieve over time. You look at, you know, the comps are very different, right? So rather than comping out based on the cap rates or on the residential side, looking at sales comps that have happened in the market, looking at private equity, you would have to look at financing transactions that happened with other companies, right? So it is still possible to comp out and, and it doesn't have to be as complex as investors might think, right? So you have to take some more of an apples-to-apples approach, right? Like comparing what companies do in a specific category compared to others, kind of compare their valuations. But really what private equity is in simple terms, it's, it's, it's like owning stock in a company, but instead of it being publicly traded on the New York Stock Exchange, it's in the private manner, right? So, so it's, there's no liquidity per se, right? Or very limited liquidity in many cases. But the trade-off for that and the reason why investors would be okay with owning non-publicly traded companies is that often the projected return profiles could be substantially higher than you would get in public markets. So private equity isn't an end-all be-all for someone's portfolio because there is— there's a necessary part of the portfolio that has to be liquid for, for clients. Right. And for investors, as much as the upside is sort of capped in public markets, you can have trade day plus 2 liquidity under money. Right. And granted, it may be worth more or less than when you bought it, but the good thing is that an investor has ability to access that, right? So kind of just looking at private compared, just to kind of summarize what I said, we are similar concepts like up to what you're buying in public markets, which is a portion of a company and a portion of its rights to its cash flows. We often see, oh, a company got acquired, right? Like a public company. And then as a shareholder, you get your proceeds based on whatever that sales price is. So Private equity is as such where it's, it's in a pre-IPO stage, or maybe it'll never be in an IPO stage where an investor has an ability to get exposure to a certain industry that's not in their portfolio. And the lack of liquidity could often be a good thing, especially in periods where there's a significant drawdown in public markets. My investors that I work with in years like 2022, where there's some sort of like complete zigzag in the market, right, that they're coming in, they're like, oh, I'm very glad that I'm not liquid now because my portfolio remains the same value, right? So it's sort of like a— it could be good and bad, right? The lack of liquidity. But really it's just that it's ownership in a private company. You know, there's often an issuer involved, of course, where you're buying the shares from. Using the Circuit City deal as an example, an investor would be issued shares from Circuit City. So rather than buying them in the secondary market, like on a stock exchange from an existing investor, investor is typically buying those shares from the issuer. And that issuer is using this mechanism to raise capital for, for its growth. Right. And then that investor analyzes the business plan just like they would analyze a real estate deal and they would see the potential upside and they would evaluate the same kind of things. Who, who is the team behind this deal? Are they experienced? In their category? Do they have a history and a track record of delivering positive financial returns? Is the business sound, right? Like the business strategy and everything that's being put forth. So you don't have to be an expert in the particular category, you know, to really get comfortable in these types of things. I would say private equity should represent a portion of an investor's overall portfolio. There should certainly be real estate in it. There should be real assets, there should be liquid assets, cash. But private equity could often have an asymmetric return profile to real estate. So where you're real estate, let's say you're a large real estate investor or a public market investor, market moves, all those assets typically move in tandem. If you're in a private equity, real estate, private equity class or an industry that's unrelated to the rest of your portfolio, it could often hedge yourself against like different moves in the market. So I know that was like a lot, but kind of just trying to speak kind of more generally about what it is and why investors should consider adding private equity to their portfolio.

Yeah, I love that. Thanks for the explanations. I think that's very helpful. And yeah, I like some of the comparisons that you drew to real estate because there are a lot of similarities, right? And, you know, private equity a lot of people, they throw that term around or gets thrown around a lot and they don't really think about what it means. It's just you're investing in equity and the private markets, right? Not, not public markets like you can go buy on the Nasdaq or the New York Stock Exchange. And in a lot of ways, valuations of both real estate and businesses are very similar, right? Because it's generally priced as a multiple of the net income being generated. Right. And so in real estate, That's called cap rate. And it's usually, you know, that fluctuates depending on the class of real estate and the type of real estate and the age of real estate. But, you know, say it's somewhere between 5% and 10% cap rate, that equates to, you know, a 10 to 20 times, you know, within business terms, EBITDA is a lot of— is the kind of common metric for cash flow, kind of proxy for cash flow that, is what the multiple is generated off of. And in private equity, it's usually, you know, depends on what type of business and the size, all these different things. But it's, you know, sometimes usually less than that. And so from one standpoint, you can buy more cash flow, you know, in private equity, you know, buying businesses than you can in real estate. The flip side is you don't always have hard assets backing it, right? Generally in business, you're buying goodwill or you're buying, you know, the potential future value of this cash flow being, being generated and, you know, the hopes of hitting that business plan. But in a lot of ways, too, right, with the business plan for Circuit City, it's, you know, here's the current cash flow right now, here's what the valuation is now, but here's where we hope to get it to by generating, you know, these new strategies and, you know, new ways to generate revenue and efficiencies that we can gain over time. And then will have an exit and maybe it's a sale to a larger competitor or might be going public on the stock market. You have an exit. It's very similar to real estate in that sense, right? Where you buy a property, you add value to it, you improve it, you improve cash flow, you sell it down the road at a higher valuation, hopefully, and can turn a profit. So, you know, I think that's, you know, a lot of the similarities there. Talk a little bit about— because some of the differences in private equity are, you know, the equity can be a little bit different in the sense that in this case, you said this, the brand, the business was purchased by your CEO and their family back in 2016. And you're going out to the market to sell shares. You're selling at a certain valuation that's, you know, presumably higher than it was purchased for. And you're not selling 100% of the equity. At least my guess would be you're not going to sell all the equity in the company, right? There's— you're selling a portion of the equity. And that may— it might be a little bit different than a real estate where if you're going and buying a property and you're raising equity to go purchase it, you're generally— the equity— new equity coming in is the whole equity for the whole project. But in, you know, these businesses where there's kind of follow-on offerings, where it's kind of a later-stage business or kind of a growth, you know, infusion of cash like this is, you're not— you're not buying all that. So talk a little bit about that, of kind of maybe the spectrum of, you know, just pure venture capital, seed money, first, first money in versus an A or B or even a later round of financing coming in to maybe achieve a different goal than the earlier money.

Yeah, let's do that. So yeah, there's of course always a pre-money valuation that would be advertised at a given stage for a company. Right. And for a seed stage company, which for those of you don't know, that's a very early stage, it's like the first round a company would raise. Those valuations would often be lower than what you would find in mid to late stage, such as A, B, C, and so on. So to determine what valuation you should pay, right, one, you can look at the current cash flows, things like that multiple on EBITDA. Often companies aren't profitable, right, at this stage. So you can look at— or some aren't not even revenue generating, right, in certain cases, right? This wouldn't be us, but just to draw that. So you really have to like look at— look, think of it compared to real estate. If you're looking at an industrial deal instead of multifamily, you're going to compare the industrial to other industrial properties. So you would do the same in private equity across stages and across asset classes and business types, right? So if I'm looking at a Series A round for a technology company, that would be very different multiples and means by which you would calculate what, what fair value would be than a Series C stage of like a brick-and-mortar retailer, right? Which would create way more compressed multiple, right? So you're right, kind of going back to what you said on Circuit City, it was purchased and then now it has a certain valuation. How do we determine that? Right. So what we did in our case, we hired a third-party valuation firm. That was able to look under the hood. They did a discounted cash flow model, which basically looks at future profits that the company is going to make based on its model and its business plan. And then they discounted to today. And then we also used what's called a VC investor method where you look at other companies that have had liquidity events, private and public. You take multiples of their top line because often growth companies are not profitable. So we look at top line in certain cases for technology, growth stage sort of companies. So we did a third-party analysis. Uh, he bet— we backed into an evaluation just north of $200 million. We did several analyses and then we further discounted it to make it more attractive for our Series A investors. And then we kind of backed the model up a little bit to make it all agree to $187 million. So it was a third-party analysis. They look at future cash flows. We look at future profitability. We look at comps in the market. And then we determine indicative pricing. And then the pre-money valuation is different from how much is being raised, right? So you could sell 10% of the company, 50% of the company. So that's something an investor needs to look at, right? How much of the company is being sold in the offering, right? Not just how much is the valuation. In our case, $25 million capital raise. So you take the pre-money valuation, you add that, and then that will be the post-money valuation for that particular opportunity in question, right? So an investor may not know, well, how much should an e-commerce company trade for, right? So a lot of this is public knowledge, right? You could find data or you can hire firms to find data that's publicly available to see what transactions are happening in the market in this category. And then what makes this different? Should it be valued more? Should it be valued less? Things like the intellectual property, like the Circuit City brand that has a value. Right. So certain things that our real estate-focused investors like about our particular opportunity is that there are some underlying assets that have liquidation value in the brand. Right. And we call those properties. It's intellectual property. Now, it's not a hard asset like a physical property, like the homes that we're in and the real estate that we own. But we've received several LOIs for acquisition just for the brand without the business. So there could be some real assets that a business even has. Right. Intellectual property is sort of in the middle because it's not actual physical, but some businesses have real estate that they own, right? So I was working on a prior venture. It was a private equity deal. I won't name the name of the company, but we were acquiring coffee farmland at scale, thousands of acres of it. And it was owned by the company that the investors were investing in. So in this case, this is a private equity deal, right? They're buying equity in a company. Private equity operating company deal, but the company owned real estate. So is that a real asset business? So there's really a fine line. It's not just like everything's real estate or everything's operating company. Some of these operating companies have liquidation value, right? They'll have real estate on their balance sheet. They'll have assets on their balance sheet, whether that's inventory or other things that can be sold. So there are some tangible things involved here. It's not all it's not all smoke and mirrors, so to speak. Right. So as you kind of understand that, maybe the asset class should become more appealing, I would say, for investors.

Totally. And I think it's a great point, right? Intellectual property can be extremely valuable. All right. You think about how valuable are the golden arches for McDonald's, right? Or how valuable is the recipe for for Coke, right? I mean, these are classic examples that they don't have. You can't go, you know, into a physical building and see, you know, the value of this property. But those are so recognizable and are kind of form the basis for a lot of the value of these companies that they have a massive amount of value, right, if they're going to be sold. And so similarly, you know, Circuit City has its name brand and there is value inherent in just that intellectual property aside from potentially actually true real assets, which you made the point that there was not always, you know, black and white. So definitely a great point. And you mentioned valuations. A lot of times valuations for businesses use very similar methods that appraisers use for real estate, right? You mentioned discounted cash flow. So you're looking at what's the kind of future cash flow that we can expect to generate based on a reasonably achievable business plan and discount that at some discount rate for value today, that present value. And a lot of times they use, you know, competitor sales, right? What are other types of competitors that have sold, you know, this kind of— in this industry, at this kind of range of revenue, etc., etc., similar to real estate? Are you getting comparable analysis of other properties that have traded? So there are methods that are very similar to that. And I would assume— I mean, you know, don't put you on the spot, but I would assume you guys are able and willing to share, you know, some of these valuations to investors that want to—

Absolutely. Yeah, absolutely. Anyone that wants to see it, I'm happy to connect, share our Series A investor presentation for Circuit City. I also have the valuation analysis that was completed by that third party. Happy to share that report as well.

Yeah, yeah, great. And I, you know, I used to be a commercial banker. I did, you know, kind of small middle market M&A transaction financing. And so I got to see a lot of these valuations. And it's, you know, it's such an incredible just perspective to see, right? Because you actually see the thought process of how these appraisers and valuation experts go through the businesses and create a substantiation for why this is the value of the business, right? So as an investor, whenever you can, right, is get your hands on appraisals, get your hands on valuations and read through that because it is such a great education on how these things are valued. And then you can really see and understand here's the kind of leverage, you know, pieces that if this grows over time, that creates a massive amount of value down the road. Right. Here's kind of the points of where the business plan can really outperform or maybe underperform if it doesn't hit that part of it. So definitely encourage people, if you can, and you read these, these tax presentations, to do so. Another point you made I wanted to hit on, which, which I would agree with, is the liquidity premium, or really in this case discount that you get as an investor investing into private equity businesses versus public equity. Right. So what you're doing at Circuit City is really no different than what any other consumer electronics business that is publicly traded is doing from a business strategy standpoint. Right. The difference is you can go buy, you know, Amazon or Best Buy. I know that Best Buy is public, but, you know, make the case that it is, you know, on, on one of the stock exchanges, whereas you can't for Circuit City. But generally, if you're looking at apples to apples, you have to pay a pretty high premium for a business that is publicly traded, that's called the liquidity premium, right? And that's because you have the benefit of being able to buy and sell to a liquid market, you know, really pretty, pretty quickly generally, whereas a sort of city kind of locked in for a while. But a lot of times you get a pretty substantial discount in the same thing as with what happens with real estate, right, versus a REIT versus buying direct property ownership, there's a pretty big discount that you're taking, you know, having no liquidity or limited liquidity. But that can actually be a benefit because the valuations are usually much, much lower relative to, you know, the underlying metrics. And then as that value increases, ideally, then that becomes, you know, can generate, you know, more asymmetric returns. And so just talking conceptually here. I haven't done any due diligence on Circuit City, so I can't make any recommendations at all. But I just want to make the point that generally you can't find, you know, better, you know, risk-adjusted returns in private markets purely because of lack of liquidity. Right. That in and of itself creates— so you got to be willing and able to take that risk from having no liquidity for a period of time. So One of the kind of last things I want to talk about, and, you know, I talk a lot to investors about the capital stack, understanding the capitalization of any investment. It's very, very important to, to understand where you're coming in at in the capital stack, understand what type of debt or other kind of debt-like, you know, capital is in. In front of you as an investor. And can you talk a little bit just about how Circuit City is capitalized? And you're talking about this mostly in real estate where it's, you know, senior debt, sometimes mezzanine debt, preferred equity, equity. There's different levels of the capital stack. You talk a little bit about capitalization of Circuit City and maybe how investors should be thinking about that or look at that, you know, as a business versus real estate. Yes, of course.

Of course. So this is a company with limited to no debt currently. Right. So and the way that an investor would find that as they're diligencing this opportunity or any other is looking at the company's balance sheet, of course.

Right.

So the capitalization is as such, they're— the pre-money valuation is $187.5 million. That $187.5 million is equity owned by the CEO, the founders, the family office, and key personnel. So investors coming in will be shareholders alongside of the current cap stack, right? This is all laid out in our private placement memorandum. We have a Class A and a Class B structure. The only difference between Class A and Class B is the Class A is voting and the Class B is non-voting. Everything else is identical in this case. So the bulk of the $187.5 million is Class A. A small fraction of that is Class B, and then we're issuing $25 million of fresh equity, which is Class B non-voting equity for our investors. So we're selling approximately 11.5% of the company in this capital raise. So what that means is the investors own 11.5% of all sales proceeds when the company is sold down the road, or 11.5% of all cash flow that's coming from the business, right? So we break that down on a hypothetical level for investors, of course, our materials. But what investors really need to know when they're looking at this or they're looking at anything else is how much equity is outstanding. In this case, $187.5 million. How much is being offered? What percentage am I owning? And what's the fee structure, if any? Right. That's also a very important one. Many times these private equity deals, they're wrapped up in a fund where people would invest in 10, 20, 30 different deals through a fund manager, and that fund manager identifies opportunities for them. They pick them out, they have an annual management fee, they'll have a carried interest typically. In this case, it's really more of a venture-style deal. It's a direct placement with Circuit City Holdings directly from the issuer. So there's no intermediary with asset management fees. There's no carried interest due whatsoever. It's direct ownership in the underlying business. Now, investors also want to know that their interests are aligned with that of the management team, right? So those that own the $187.5 million, that's pre-money, you know, they're not going to realize liquidity either unless the company is sold or unless it has an IPO or some sort of liquidity event. So we're heavily aligned with our investors and building this to be the largest business that could be possible. Now, we don't have infinite ambitions. We have a 5-year pro forma that we laid out. For our investors. We're seeing a path to $264 million in top line total revenue by 2028. And then based on the comparables that we've identified, which there are several, we applied a multiple to that and we expect to have a $1.6 billion valuation going into 2028, which is our expected exit year. That could certainly change, right? It's based on a specific set of assumptions. But this is kind of going back to your point earlier. Coming in at this level of a company under $200 million with a name like Circuit City, you're just— you can't find that in public markets, right? The companies that are very well known that you find in the public market space, of course, there's microcap and small cap, but I'm talking about the more well-known. They're much more mature. They're further along. The earlier investors that were already in private, they already made money on the way up for it to get where it is. So it's often a very more mature state, so to speak. So yeah, just to summarize where we're at now, it's all common equity. There's no preferred debt, there's no debt outstanding except for a line of credit that is used to acquire inventory. So it's an inventory-backed small line of credit that we use to, to buy and sell product. Beyond that, we're fully capitalized by equity. So very different from the old Circuit City. We don't have long-term leases, high debt. Very lean company with a strong balance sheet.

Very cool. And, you know, one of the kind of last point I want to make too is, you know, I'm, I'm not going to say any names on the podcast here, but, you know, I know a lot of people have invested in a similar approach, right, where there is this kind of social media influencer who was going and raised a fund to go buy these legacy brands that had this intellectual property, this brand recognition, but had either gone bankrupt or had gone through some challenges and tried to resurrect them with more of a digital-first kind of approach. And I don't know all the details, but I've heard it's not going very well. Right. I know investors have invested in this and it's not going well. You know, and I think a few points. One, I want to make the point that investing in businesses is inherently risky. Any investing is risky, right? But, you know, there's a business plan that has to be achieved. Now, presumably, Cirrus produced a lot of revenue. That's, you know, reduces some of that risk. But it's possible that you don't hit the business plan, right? But then number two, it's also doesn't throw the baby out with the bathwater. It doesn't mean that this strategy, you know, isn't working because another, you know, example failed. So talk a little bit about how you guys are different and We talked before, you know, you have such a deep expertise in consumer electronics that kind of separates you guys, as you know, in this particular business strategy.

There's tremendous opportunity in the intellectual property space. And you're seeing people like the person you mentioned create a vehicle to roll up brands and then relaunch them and attempt to bring them back in an online format. Now, certain people do things the right way and certain people do it in what you could say is the wrong way. I would say that there are some positive things that we could point to in the market where this has been done correctly. I'm thinking like Toys R Us and Macy's, that kind of venture that they have there, that Sephora in—

you know, what is the right way? What is the wrong way? Like, just give some, some high points on, on those things, because I think that's important to differentiate.

So there's multiple right ways. In multiple ways. But just to make a couple examples, just using the Toys R Us, the same example that I had, it's a licensee model in which Toys R Us licensed its brand to Macy's so that they could sell toys under that brand. Right. And they get paid a certain amount of— from their sales. Right. So Macy's is just leveraging the Toys R Us brand to have credibility in a category that it otherwise would not have credibility in and drive revenue in a category that it otherwise wouldn't sell product in. Toys R Us is very lean and making, I would imagine, a substantial amount from, from that business relationship. And it seems to have been done correctly from what I can tell. Toys R Us was acquired post-bankruptcy for a large amount. I don't have the exact figure, but it was north of $100 million, if I understand correctly from my sources. And it's a very hot brand, right? Looking at what you see like store in store with like a CVS inside of a Target, right? Or a Starbucks inside of a Target. I think that was done very well where they're leveraging like an existing brick and mortar setup, strategically putting in a brand that resonates with that and drives incremental revenue for everybody. And then kind of just shifting over to like this blanket buy intellectual property and launch an e-commerce. That's also something that's been done, you know, in a larger fund model, an individual and a group, they went out to purchase like a series of brands that are, you know, that were old retailers that are well-known and then kind of rolling them up into one vehicle, relaunching them online. My understanding is that this group, they're social media marketers and very strong influencers. They're not e-commerce operators. Right. So there's a very difference between a marketer and an operator. I'd say what we're doing on the Circuit City side, the team is not made up of social media marketers. We're made up of e-commerce and retail veterans with decades of combined experience. So the core competencies of our team are in the business itself that we're running, right? So a lot, a lot of companies can be shown to be more attractive than they might be through videos, social media campaigns and whatnot. But really what matters is what are the operations of the business? Are you just taking a company and relaunching it with like a Shopperspy skin and like a logo on top? Or are you building a business with multiple verticals that has long-term shareholder value? And I would say we're doing the latter.

Yeah, I love that. It's a great, great explanation. And Josh, we appreciate it. This has been very educational and love what you guys are doing. Again, have done due diligence, so I can't make any recommendations. And, you know, if you are interested, you got to do your own due diligence. But Josh, what's, what's the best way for folks to reach out and hear more about what you guys are doing to get their hands on your presentation and the valuation report and all that?

Yes, yes, please get in touch with me. You can reach me at josh@circuitcity.com. You could also connect us, connect with us through our IR address. It's investor.relations@circuitcity.com. And if you want to check out our website, invest.circuitcity.com is the best way to find us.

Hey, perfect. Josh, thanks so much for coming on the show. Appreciate it.

All right. Thanks, Ben. This is a great conversation. Nice chat.