#104: General Catalyst Raises $1.5B For A VBO Fund, VC's Interested in VBO's, Brad Jacobs Deep Dive
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Alright, let’s get to it…
One vSaaS Breakdown:
General Catalyst Raises $1.5B For A Venture Buy Out Fund
Earlier this year I wrote about a new category of Vertical Software
Venture Buy Outs.
If you forgot the general thesis…
It’s when an early-stage company:
Builds a game changing product for a specific industry
Buys companies in that specific vertical
Implements their game changing technology that results in the end business dramatically increasing margins
Runs an M&A playbook at venture-scale.
Now I know a bunch of you are reading this and saying, “Luke — this is literally just private equity.”
It’s not, and let me explain.
It sits somewhere between Private Equity and traditional VC.
Private Equity backed services businesses add in a “veneer” of tech-enablement. The reality is they are not technology businesses. They are financial engineering to realize margin improvement and proclaiming that tech is making a big impact when it’s really not.
Additionally, I’m talking about Seed stage companies buying a business, before PE players would EVER get involved.
Well, I somehow missed the news that came out October 24th but General Catalyst raised a $1.5B fund to go all in on it.
Heres what their CEO had to say about it,
“For years I’ve stated that the traditional VC model does not best position founders to transform industries. Transformations require ecosystems of companies to work together with uncommon collaboration - so we created the GC Transformation Flywheel to bridge innovators with adopters to achieve scale. Core to this model is our Health Assurance Transformation Company, which coalesces 15% of US healthcare operations across hospital system partnerships, aiming to use technology to best serve patients. More recently, we extended the Transformation Flywheel by launching the GC Institute, a pioneering organization that connects start-ups with global governments to shape public policy in support of transformative technologies. We will continue to replicate this model across the global resilience continuum, with more announcements coming soon.
We are ready to be the company that drives transformations, global resilience and applied AI for the world. We are powered by early-stage venture capital at our core and excited to dream bigger and co-create with our GC Famiglia of founders, business leaders, and policymakers to expand what’s possible.
Together, let’s Venture Beyond.” — Hemant Taneja
Link to the announcement here.
The smartest people I know are beginning to work on this…
M&A of service businesses
Implementation of vSaaS and AI
Massive EBITDA expansion
Rinse and repeat
Who in our Linear universe is working on this?
One ‘How To’:
👀 VC’s Interested In Venture Buy Outs
Given all the excitement, I thought it’d be helpful to share a list of funds for you at all that have announced proclamations to back companies with this approach…
Access to shared spreadsheet here.
Friendly Reminder:
Go Gift A Copy Of the vSaaS Bible for Your Nerdy Friends This Holiday :-)
One Biz Story:
Brad Jacobs Resources
If you don’t know Brad Jacobs, I’ve wrote about him before, but he is the GOAT, and has built 6 different billion dollar businesses. Each of them serving a specific industry.
Here is everything I could find on him:
Age: 67
Location: Greenwich, Connecticut
Education:
Brown University - Math (Dropped out in 1976)
Net Worth: $4.1 BN
His Businesses:
United Waste Systems (Founded by Jacobs in 1989 and went public in 1992)
Consolidation of small waste collection companies with overlapping routes in rural areas.
Jacobs sold United Waste Systems to USA Waste Services for $2.5 BN
United Rentals (Founded in 1997 and went public in December 1997)
Large equipment rental company in North America grown via consolidation of equipment rental dealers
Brad Jacobs stepped down as CEO in 2003 and as Chairman in 2007. In 2007, the company was at 750 locations offering 600 types of equipment worth $3.7 Billion.
Today, the company has a Market Capitalization of $45.45BN
XPO Logistics (Founded in 2011 and serves as Chairman)
XPO Logistics is a commercial trucking company that delivers goods to warehouses and distribution centers
XPO Logistics has a market cap of $12.27BN
GXO Logistics
GXO Logistics spun out of XPO in August 2021. GXO manages outsourced supply chains and warehousing across borders.
GXO Logistics has a market cap of $6.27BN
RXO Logistics
RXO spun out of XPO in November 2022. RXO provides in trucking brokerage and logistics services using tech platforms to enable real-time visibility and automated processes etc.
RXO Logistics has a market cap of $2.38BN
Podcasts:
Founders Podcast by David Senra: What I learned from reading How to Make a Few Billion Dollars by Brad Jacobs
Invest Like the Best with Patrick O'Shaugnessy: Think Big and Move Fast
Newsletter / Deep Dives:
Q&A Style Interview with Brad Jacobs on his investment into Express-1 Expedited Solutions in 2011.
Jacobs purchased it at a market cap of $72mn, a decade later it peaked at $16.8bn in value before splitting in 3 companies: XPO (LTL Carrier), GXO (Contract Logistics) and RXO (Brokerage Services)
Key Takeaways:
“I was CEO of United Rentals from 1997 to 2003, and I continued as chairman for another four years after that. We grew the company to about $3.9 billion in revenues at the peak of the cycle — nearly $1.2 billion of EBITDA, 750 locations and 13,000 employees.”
“We got there partly through acquisitions, and partly through organic growth by developing greenfield locations — the same strategy used to build United Waste. We bought about two-thirds of the branch locations and cold-started the other third from scratch. I actually like cold-starts better than acquisitions because the return on capital is generally higher. But cold-starts require a lot of patience because they lose money during the start-up period.”
"The business plan was to become the largest equipment rental company in the world and leverage our purchasing power, branding and other advantages of size. Within 13 months we became number one, leapfrogging over Hertz, which has been in the equipment rental business since 1965."
United Rentals Common Stock Breakdown: https://commonstock.com/post/6c907683-bf55-4bd2-8212-1c531f2cad2e
Key Takeaways:
“The equipment rental industry is highly fragmented, and was a good candidate for consolidation according to Bradley Jacobs”
Rental Revenue % by Fleet Type:
Books:
How to Make a Few Billion Dollars by Brad Jacobs
Key Takeaways:
How United Rentals completed 250 acquisitions
How United Rentals benefited from Wynne Systems acquisition
How XPO Logistics expanded and grew into 3 companies
Have a product or service that would be great for our audience of vertical SaaS founders/operators/investors? Reply to this email or shoot us a note at ls@lukesophinos.com