How to Only Do the Deals You Love with Trevor Jenson

And my hypothesis was, we'll pay him some of the money, but if we can increase sales over those two years, the valuation will be more than 2 million. So when I go back to raise the money from outsiders, from debt, from whatever, now I can. Now I can keep that spread as the 2 million and the value goes up, like, that whole spread belongs to me.

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I had the wonderful experience of meeting Trevor through one of my neighbors, actually, and he said, this guy's got this esports league that he has acquired an interest in and would you like to invest in it? And I generally am not an investor investor in things that I'm not involved in actively, but I really wanted to be involved in esports because I think it's super hot. And I got that when five years ago, my kids asked me. They're like, you know, hey, can you get us tickets to an event? And I'm like, what event? And they're like, it's the League of Legends World Championship. I'm like, okay, whose house is that being held at? And they're like, staples center in la. And it sold out already in three minutes. And I was like, holy crap, that's a big place. And then I like, watch it. So I went through American Express and got the tickets at only like 10 times markup. And they went and they were like, it was sold out.

It was amazing.

And I was like watching videos of it. And it's basically just five kids sitting at a table playing League of Legends, a video game with this giant screen and another kind of nerdy kid going.

And he's exploding through the jungle area and he's doing this, and it's like a football.

I was like, holy crap.

We call those shellcasters. It's just like NFL it is with animated characters.

So I was like, okay, I gotta invest in this area. I learned everything I could about it over those years. And so anytime an opportunity came up with somebody that was even as sketchy as Trevor, I decided that I would make an investment. And it turns out it worked really well. I'll let you talk about the metrics. But I got to meet him, and he's super cool. He lives in an entrepreneur house with a bunch of really cool entrepreneurs. He's done multiple, multiple deals. He's more traditional funding, but that's a really cool thing because it brings some different perspective to you. And he's just a great resource and a super cool guy. And I wanted him to come and he offered to just share some of the deals that he's done. And then I think you guys will probably have a lot of questions for him. So I'm going to let you just kind of talk about. I think it was three deals. The bully bone deal, the esports deal, and one of the earlier deals that you were talking about.

Real estate stuff. Yeah, yeah.

And we'll go from there.

That sounds good to me. Okay. Yeah. So let's see, this was back in 2008, there was something called the real estate downturn. I don't know if you guys heard about that, but I am a masochist. So I decided to launch a real estate fund in the middle of 08 because who doesn't do that? So I went and got a master's degree in 07. In 08 came out, wrote a business plan. There was down in Chula Vista, the Bayfront. They were re entitling that for a nice development. So I wrote a thesis and a business plan that, you know, if we bought up townhouses around there that were, you know, they were selling at the peak for 350 and they were down to like 80k a pop. I, you know, thought when everyone thought the world was falling, no one ever thinks real estate's going back up. So it's a good time to buy. But you couldn't use debt. So I had to raise all cash for that, which was really difficult to do when the sky is falling, but was able to raise a bunch of money and bought up townhouses around Chula Vista. We cash flowed those for five years and then sold it for three times what we bought it for. So it was a pretty good splash into real estate. And from there I built a group of investors who basically just kind of gave me a blank check for anything in real estate. So I syndicated a few more real estate deals and always had good returns. Then I was walking my dog and I got hit by a fricking car. It was a hit and run. I jumped in front of the car to save my dog and I got hit and went to the hospital. Internal bleeding, concussion, torn acl, mcl, like almost died. Yeah, yeah, I was. And in real estate you're an independent contractor. So I didn't have insurance. It was a hit and run. So I didn't have any way to pay for any of this stuff. And you're Just kind of sitting on that hospital bed and you see the nurses, like, rushing around and doing all this crazy stuff. And if they're panicked, you know, it kind of makes you panic. I remember sitting there thinking, like, do I want to do real estate? Like, what do I want to do with my life? Just kind of going through this whole, like, who am I? I realized I want to play with dogs for a living. I didn't know how to turn that into a business, but I want to play with dogs for a living. So I started a business that basically took me to consulting with the founder of petsmart. We had a consulting company for about two years. And during that time, I basically put together kind of a business plan on how to acquire a pet business. I got to see, you know, a little over 60 pet companies that had sold in the industry. I got to consult for a couple hundred of them, wrote a little business plan, and went out to raise money to acquire a company called Bully Bone. And that was mostly angel money. The structure of that was interesting because I was buying the company, I didn't have the money, I didn't know how I was going to raise it. Wrote an loi, got the thing under contract, and I was like, I'll just figure out how to do this thing. I got the owner to carry back a big chunk of it over the next two years. And it was performance based, basically based on the sales. So I bought the company for 2 million, and then about eight months later, I was able to raise money at 4.6 million. And just kind of as the company was growing, I was paying out the owner on the 2 million acquisition, but raising money at a higher valuation and basically keeping the spread. So it was a pretty interesting little transaction, Just a deal junkie, like, doing that stuff. And because of that, I got a reputation for being able to raise money and being able to put deals together. So just getting calls three, four times a week from different entrepreneurs who want to do that stuff. You have to say no to a lot of things, but you can also say yes to things you really like. So that's when the esports company came along, and it was just. It was three. You know, kind of nerd isn't a bad word, right? I could say nerd. 3 really nerdy but awesome guys. Like, they're very close friends of mine now. And it's funny because when I went to high school, I played basketball and the jocks were the cool guys. Now the nerds are the cool guys. And, like, they just kind of run the show. With this esports like Wave, that's hitting really interesting to see, but it's also, like, a very inclusive type of business because it's level playing field for anyone wants to play. Girl, boy, doesn't matter. Like, physical characteristics don't matter. So it was really interesting. So I started kind of working with them, and to date, I've raised about 30 million. We were valued at 100 million. We did some acquisitions. I just ran ran point on an acquisition for 9.3 million that we added to the company. Just continuing to do the deal stuff. And speaking of consulting for equity, during that time, Dwight Freeny and Michael Jordan called me and said, hey, we are basically starting a clothing line up in Los Angeles, and we help raising money. And the first thing you think is, like, you guys don't need help raising money. This is a rounding error. What are you talking about? But Jordan likes to stay way in the background, not use his name, any of that stuff, because his reputation's so important to him that if, you know, he can't have things go bad, but if it goes well, then all of a sudden, he kind of jumps on the scene. They kind of wanted to do it the traditional route, so they hired me, and I was getting paid a nice chunk of monthly money and got equity, which that deal never ended up happening. But I was flying around, meeting with all sorts of different people, including. We went out to Tony Hsieh. This is probably two weeks before he passed away. And we're sitting down at Zappos with all these, like, powerful CEOs, me and Dwight Freeny, Michael Jordan on the line, calling in and, like, negotiating this deal. That was, like, way over my head. I mean, it kind of goes to the, like, we all have imposter syndrome, but sometimes you just got to take the leap and, like, take opportunities when they're there and figure it out as you go along. And then that led to. In the esports deal, I was able to bring in brand Jordan, and we did a custom Air Jordan giveaway for our community. They made 23 special pairs of Jordans that we used as prizes. Give Roland one of those pairs, too. He's got one of. One of the 23. Yep. But it just. It's. It's pretty wild where the world of consulting for equity can take you. Anyway, that's. That's my story. Been all over the place. Kind of feel like I bounce around a lot, too, which. Which ends up happening. But if you got a lot of opportunities flowing in, you can kind of pick and choose what you Go after.

What I thought would be good. Does that interest? Kind of interesting, right? A lot of cool, creative deals. Did you talk about the tranching of raising the money on Bully Bone? Because I thought that was really something that people would enjoy. Would you share that and then we'll open up to questions?

Sure. So at that point, I had never raised any money for a pet deal or a consumer product deal, anything like that. I had done well in real estate and, you know, I had hit some home runs on real estate. So I figured those guys will invest in a consumer product company if I launch that. And that was not the case. So I did not have the fund. And that, frankly, gave me more confidence to write the loi and tie it up. But then they said, no, we don't understand what the hell you're talking about. Like, we're not funding this. So then I was just kind of like, how am I on the hook for 2 million bucks? How do I do this? So got really creative. Um, so if you're buying a company for $2 million, it's hard to go out and raise 3 million because they're like, well, you're buying it for 2 million and you're just going to take equity. Like, you have to kind of add some value in there. So what I was saying is, like I told the owner, hey, carry back, you know, 70% of it, but we will pay it out over two years. And my hypothesis was we'll pay him some of the money, but if we can increase sales over those two years, the valuation will be more than 2 million. So when I go back to raise the money from outsiders, from debt from whatever, now I can keep that spread as the 2 million and the value goes up, like, that whole spread belongs to me. That's a high level overview. I can get more specific. But if you guys have questions, feel free to ask.

Good story. When was that?

Probably two years ago. It. Well, when did Tony Hsieh pass away? It was like two weeks before that. Oh, wait, we're talking about. Yeah, Bully bone was. It's 2022 now, so that was probably seven years ago. Six. Seven years ago.

Okay, so then. So I understand that the financing and how you did it, so you spread it out over whatever a year or two where you were going to pay this guy his money. And at that time, the valuation is now 3 millimeter. So now you need to raise whatever 1.7 to pay him off. But now your valuation is 3, so it's easier to raise 1.7. And then the spread which would be at that point, $1 million would be your equity.

Right.

So then the guys giving you the money aren't like, well, what are you doing?

Right.

You're like, well, that million dollars is mine.

Yeah, the company is worth this amount and we're raising it at this amount. And I own the company at that point.

Right.

Which it's a big bet because if the company doesn't increase in value, it goes the other way. Like, I mean, entrepreneurship's all about risk. Like, I had confidence that I'd be able to grow the revenue, but if that wasn't the case, that could have been a precarious position to be in.

Yeah. And do you still own it now or what?

Still? Yep. Yeah, we're at about 30,000 stores nationwide. We're in Walmart, Dollar General, Albertsons, Woodman's. Yeah, we have a pretty big spread now. We're mostly a retail play and you know, we do a couple hundred a month or so on Amazon. So it's a little slice and we're on chewy. But yeah, it's mostly a retail play because kind of going back to what the original business plan is to get maximum value in the pet space. They want to see diversified distribution. They don't want to see a lot of concentration in E commerce because the pet industry hasn't really caught up to kind of the E commerce world. It's kind of like an older, sleepy type of world. So you get those, the strategic buyers, the higher end buyers, pay more if you have retail penetration than they do. Unless you're like a subscription or you have some very specific kind of thing you're doing.

So are you looking to do an exit now that you have all that retail exposure or just cash flow?

It's exit. We raise money. The investors want to see a return on their money. So it's either exit or roll up. We're looking at kind of both options. I want to do roll ups just because I like buying stuff and putting it together and I'll do that stuff forever. But I know the investors like they always want to see liquidity or take some out and roll the rest.

Cool, thank you.

No problem. Who are some of your mentors? It's a good question. So you kind of get a mentor and like, if you're growing like a lot of time, you need different mentors at different levels according to what you're doing. So now it's now because I'm in kind of the private equity world and I want to do roll ups and things like that. I'm really. For me, I like to try and make friends with people. Like, the mentor mentee relationship kind of feels weird to me. I just like, if I want to hang out with the people and be friends with them, I like to go kind of that way more than mentor mentee. But, I mean, every once in a while you run across someone who's just like, show me your ways. So there's. But I do notice as you grow, the people that you kind of looked up to, like, you know, it, it changes. It should be changing. You should be continuing to grow. Unless you get Richard Branson right out of the gate and there's nowhere to go from there. But a lot of times, like, the gap between a guy like that and maybe where someone even where I am and the gap between where I am and he is is probably like, too big for me to even maximize the amount of knowledge I could get from him, if that makes sense. Yeah, I hear you. Thank you. Sure.

So with the PetSmart situation, you're able.

To consult rapidly, it sounded like, with a lot of companies.

Is that correct? And if so, like, how did that happen?

How were you able to get into.

So many pet companies doing consulting? So the founder of PetSmart reached out to me. He saw the story. So me getting hit by the car, it was covered in the news. We were like on the Today show, and it got some good priority. And I guess the founder of PetSmart saw that, and he had a house in San Diego and a house in Arizona. So he just reached out and we started talking. And I had launched like, lighted collars and leashes so other people wouldn't get hit by dogs. I didn't know what I was doing. I was like. So after about a year or so of that company, I just kind of gave up on it. Like, folded it up. And the second I did that, the founder of PetSmart reached out to me and said, I've been waiting for you to do that. Let's start a consulting company. And then it was just like, as soon as we put that banner up, every company who's anyone came to us and just kind of wanted to be. Wanted us to consult for them. And what was the nature of the consulting? Everything you could possibly imagine. I mean, it really was. It was help us raise money. It's help us get distribution, help us design products, help us with brand strategy. I mean, what you find, a lot of people think that there's just like one thing. If they just find this one thing out, their company will like, get on track. It's never that way, but it's always a bunch of random stuff. We ended up turning down a lot of stuff, but I probably worked with maybe 200 companies over a year and a half or so, but it was just all across the board. I would say the reason that consulting company actually didn't work is because we weren't focused on one specific niche we were helping with. We should have picked one thing versus like we were helping. No matter what they came with, if it was a big enough company and they were funded or had some firepower, we would consult for them. And whatever it is, you just can't be experts for everything. I think that's ultimately why the consulting company kind of failed, was we're just all over the place awesome sounds, which is good for me. Like who's trying to learn the pet industry? I get to learn a little bit of everything, but wasn't good for like a company and being known for anything. Sounds awesome.

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So I've never raised money, but if I were to want to do a fund, what would you suggest other than find someone who's done it and just do what they tell you? Is there anything else you tell a person who has never done it?

So raise a fund. Like, tell me more about the fund idea.

Yeah. So I sell on Amazon and my idea was all of these companies that are wholesaling to Amazon sellers are losing a lot of money. So if I were to go buy these wholesaling companies, spend a tiny bit of that money to improve their Amazon presence, we can 10 sometimes 10x their revenue. So the fund would be to buy the wholesaling companies. Does that make sense?

Yeah. So are you asking if I was in your position, what would. What I would do?

Yeah.

So if you were raising a fund is difficult, you'd probably have to find partners who did that. And if I was a partner in a fund, what would motivate me to help? I would think if you could prove out a model that that works, then you just have to shop around to like find people. So if you can get two or three companies and then actually execute on your model and have valid metrics and show that you went through this process and it works. I'm not saying that, that a fund would pick that up, but that's what I would do. I would show actual concrete proof that this system works and then try to find partners who are interested in something like that.

One thing that I think a lot of people don't think about that maybe you can speak to, is that I think a lot of people think I want to raise a fund and I want $4 million to go do deals. That's really hard because it's a blind pool, right. I don't have anything. It's so much easier if you had identified a company or a group of companies that you went. So would you maybe speak to that just for a second?

Yeah. So even, even using that example, if you were to go out and do three or five of these deals, you would know, okay, the average price of each deal is this. The average. You would have all these metrics around what it takes to do that. And that would become kind of your thesis for the fund. Because if you just give them a blank number, they're going to say, okay, what does that buy me? What is that? They're going to want to know specifics of how that lays out and how.

Long before the cash is deployed. Because nobody just wants their money set sitting there for two years while you find five companies.

Yeah, very true. Identifying targets. You know, I, I did this with these guys, but also I have all these targets. I have, you know, interest with them or initial communication and kind of mapping out the whole plan. Like so, you know, they operate on a two to five year timeline. They try to get it, you know, two years or something. So you have to show that you can turn those things over. So also, like, you may be able to improve it 10x, but then you have to demonstrate that there's an exit market for that and how long it gets, takes to get to 10x. And then when you sell it, like how long and then the kind of buyer pool for that, that's with Bully Bone. When I went out to raise money, I basically, like I said, I analyzed 62 pet companies and here's, here's all of them. These are the ones that got 10x on EBITDA. And they got it for these specific reasons in this timeframe. And then if you show that to an investor or a private equity firm, here. Here's what the exit market looks like. Exactly. Here's all the examples. So if we buy here and get to here and here's the plan, then all of a sudden that's like a fundable kind of strategy.

Did you talk about putting the deal book together basically? And like what you did with Bully Bones saying, you know, here's the metrics, here's the all that. Did you share that with these guys?

I didn't, but I mean that's. So I obviously had. You have to find a way to get information and there's ways to do that out there. Pitchbook and you know, you can hire groups if it's. If you're doing smaller deals, you need to aggregate data. And luckily I was in that consulting company, so I had access to a whole bunch of data. But basically another thing I did was I went around to M and A brokers and just said, if a perfect company fell out of the sky and you could have 40 bidders on it, what does that look like? And they all said different things, but they also said similar things too. And then that was kind of like the basic framework. And then I went out to get the data to like validate whether that was true or not or what parts of it were true. That whole process probably took six to 12 months to put that whole thing together. But it really going to the people who sell the companies is they're the ones who know how did you find.

The M and A brokers?

You can. So if I was doing it from scratch, I would look for press releases of companies that were either acquired or raised money in my particular field. And then there's always like a little blurb at the end of who represented who or who was involved or who facilitated the transaction. That's usually an easy way if you can't get enough data that way. I would look for any companies who have done what you've done or want to do. And then I would reach out to them if they've done any financings or any acquisition or anything like that. See if you can make friends with the CEOs or the different people in that to get information. But also kind of dangling a carrot in front of if you can find out who those M and A brokers are. Just say something like, hey, you know, I have this company. We're doing really well. We're getting ready to exit in two or three years. I can't really disclose the financials now, but I want to make sure I'm building this towards the exit. So we're just kind of want to validate some assumptions and then you know, hopefully you're open to us reaching out to you for the process two or three years down the road and they'll share that information with you as long as you frame it like hey, I'm growing and I may exit and I'd love to develop a relationship with you, but can you validate these assumptions? You can gather a lot of data that way.

Any other questions before we let Trevor go?

One more.

Okay.

Hey man, nice dash. Thank you. Do you acquire IP in the pet product space? Look at that. I probably have a different outlook on IP than most people because like if you have ip, it's a checkbox on a diligence checklist for the private equity firms. But if Petco copies you, are you going to like sue them? Are you going to go after them? They'll drag you out forever. I mean it's almost like it's its own job function to enforce the ip. At least in like small nimble companies. It becomes more and more necessary as you get bigger. But IP for me is kind of like at least until you get to a certain level, it's kind of a distraction. It's kind of like Shark Tank, like what's your patent? That kind of stuff. But really like it scares people to a certain degree. But if anyone ever violates your patent, it's so hard to like go after that and enforce. It takes a lot of time and money. But it is a checkbox on the like diligence checklist as well for like people when they're acquiring you. And it can make the company more valuable if you, if you have that. And there are certain industries where it's like non negotiable, you better have ip. But in pet toys specifically, where everything's kind of like what are you going to like the way the dogs chew the toy or something? It's hard to develop IP around chew toys.

Yeah.

Okay, cool, cool. Thank you. Cool. Awesome.

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