Genius or Desperate?: GameStop's $17M Acquisition of FaZe Clan | Ep. 2605

If you're a founder, you're a biological parent of the company.

Just because something's a shit doesn't mean it's worth buying.

If you feel anything's weird, even a little off, you should probably trust that gut.

Sometimes raising too much shit could be a really bad thing.

All right, so here's the deal right now. GameStop just bought FaZe Clan for $17 million, which was valued at $725 million. It actually went public like a year or two ago. Better.com, which is the one where you can get home mortgages, 97% down if you look at the stock. And then Neil, you can talk about this one. So Hopin, they sold for $15 million and they previously raised $1 billion. How much did the founder take in secondary on that one, Neil?

$140 million. Good for the founder. You ended up making up some cash even though the business didn't work out. Props to you.

Yep. And then another one, Hello Bello is one. It's a diaper company that was founded by 2 celebrities. I don't know if you use it for your kids, Neil. But these people, so Hello Bello, this is interesting because they—

Oh, it's Chris Brown's diaper company.

Yep. Yep. So, the 2 founders have like 20 million social media followers combined. And they actually hired an executive that helped found The Honest Company, I believe, which is Jessica Alba's company, which went public, which I don't believe is doing well right now either. But what ended up happening was they launched the first year, they did $80 million in revenue. And then the second year, I think they're on track for like $180 million or something like that. But, you know, their liabilities caught up to them and then they've basically, you know, fire-selling the thing right now. So let's talk about how—

They still have a lot of revenue or they just have a lot of losses?

I mean, their liabilities are— they're losing money, I believe. And their liabilities are like, it says between $100 million and $500 million. So let's call it like $250 to $300. So yeah. Wow.

Oh, because they probably took on a lot of debt and stuff to generate the revenue.

Yeah. Well, I mean, they took on debt because they had to build like a warehouse and stuff because they wanted to build their own products. So they got ahead of their skis a little bit.

Yeah. And this is what Eric and I talked about in one of our past episodes where we talked about how to spend on marketing the right way. It's just not marketing. It's about growing the right way. Sometimes raising too much money or taking on too much debt could be a really bad thing. And dude, you know, funny enough, I bank with a company called CIBC. It's a Canadian bank and they're really good. Even if you're in the United States, they take you. They have a big US branch, but it's a decent-sized bank. When I mean decent-sized, I think their market cap is like $40 billion or something like that, right? Either way, there's not that many companies that are worth $40+ billion. So it's a legitimate business. And I deal with the division that deals with lending and debt and they deal with a lot of private equity, although we're not private equity backed. We're just Bootstrap, and you know it's funny. I was talking to one of my guys there, and he he he breaks down something interesting. Did you know in this time because they see a lot of data, the non-private equity-backed companies are doing extremely well? And I said, "Why? What do you mean by that?" He's like, "The non the private equity-backed ones, they're they were fat. They're happy. They own a lot of debt and liabilities. Interest rates are high, so they're focusing on cutting costs and just paying down debt." And a lot of times they don't grind it out as hard as the founder bootstrapped owned companies. And he gave a great example. He's like, you just went to India. You went from the Mumbai airport to the hotel, spent 3 days, 16 meetings back to backs. I was only eating 1 meal a day because I was strapped for time and jet lagged as well. And then from the hotel, I went back to the airport and flew back, saw nothing else when I was there. And the point he was trying to make is he's like, yeah, founder-led businesses, when times get tough, they start getting creative and they just grind it out and they do whatever it takes to succeed. Well, a lot of these companies that were fat and happy, they're accustomed to not doing any of that kind of grinding, especially when it's needed.

Yeah. Well, here's a saying that I like. It's the founders. If you're a founder, you're a biological parent of the company. And we've seen this, maybe we'll make this for another episode, but you and I have seen time and time again, a lot of the people that have stepped out of the business or hired CEOs, they're back in, including myself, right? And a lot of our mutual friends that we have. And they're back to do the cleanup work. They're back to do the hard work. And sure, they might feel like a 1 out of 10 with the business right now, but at the end of the day, they know what they need to do to get there. And that's, it's kind of, it's periods of this, like this, that a lot of founders, Thrive in because they thrive in chaos in some weird way, shape, or form. There's a lot to do. It's kind of exciting, right? The other thing we'll say too, as this might relate to you, is there will be fire sale prices. I mean, look at Hopin', right? Look at FaZe Clan. FaZe Clan was like one of the top clans out there when it came to gaming, and it's like, oh, we're gonna explode into esports. We're gonna be number one streaming. Da da da da da, right? And $725 million to $17 million, right? What else? What else is there? Oh, here's another thing. I saw this on Twitter the other day, Neil. There was a story shared about how this guy was talking to 2 of his VC friends and then none of them— one guy invested nothing in nothing this year. The other one invested in one company this year. So nobody's really deploying. And so the old incentive of like, hey, zero interest rate environment, let's just go raise a bunch of money, that is gone now. And as we said a couple episodes ago, discipline is back. And that's a good thing because if you're disciplined, you're going to be able to scoop up some things at fire sale prices.

Dude, and right now we're seeing tons of stuff at fire sale. It's just, you got to be patient and you got to look for the right ones because just because something's at a fire sale doesn't mean it's worth buying. You know, I was talking to a company another day and they're willing to sell. They want a transaction really fast. And I'm like, oh my God, this is a good price. But the amount of effort it's going to take—

Why do they want it so fast? Yeah.

The amount of effort it's going to take my team to clean up this stuff, opportunity cost, it's actually going to cost me way more money than if I, Didn't buy it at all.

Yeah. So like, keep this in mind, if you are going to buy something, there's always an inform— the seller always has the informational advantage. And so if you feel anything's weird, even a little off, you should probably trust that gut. Yes.

And Eric's done M&A as well, right? And you've, you've been on both sides. You've had some stuff work out for you and you've had some stuff really not work out and it was just a mess. And it was funny, like buyers are like complaining and stuff. I'm like, well, A lot of things didn't work out the way that they ended up telling you. And when you need to get things fixed, you had to get in there and fix it yourself. And it's not like those people who sold the companies to you really helped you out with solving any of the problems that they knew existed.

Yeah. We'll do maybe another episode on this, but take your time with it. Just understand that 80% to 90% of these deals typically don't work out. And I thought I was better than the ratio, but sometimes you get Humbled a little bit. So that is it for today. Please don't forget to rate, review, subscribe, and we will see you tomorrow. Bye.