Summary

Justin Cooke from Empire Flippers discusses the birth of Empire Flippers Capital and how it addresses the need for investors to acquire online businesses without the necessary skills or time to run them. The company carefully selects operators who have experience in buying and running online businesses and require them to invest their own capital. The operators then leverage this capital to acquire larger businesses and deliver returns to investors. The company aims to scale its operator selection process while maintaining high-quality operators. They also provide a valuation tool for sellers to determine the realistic value of their online businesses. The conversation covers various aspects of investor engagement, operator selection, and portfolio management in the context of a fund that invests in online businesses. It emphasizes transparency, aligning incentives, and catering to investor preferences.

Takeaways

Empire Flippers Capital allows investors to acquire online businesses without the necessary skills or time to run them.
Operators are carefully selected based on their experience in buying and running online businesses.
Operators are required to invest their own capital, which is then leveraged to acquire larger businesses.
The company aims to scale its operator selection process while maintaining high-quality operators.
Empire Flippers provides a valuation tool for sellers to determine the realistic value of their online businesses. Transparency and engagement with investors are crucial in building trust and attracting investment.
Operator selection should consider their experience and track record, as well as the size of the businesses they have managed.
Investors should have the opportunity to interview operators and understand their investment theses.
Catering to investor preferences, such as cash-on-cash returns or reinvesting for growth, can enhance investor satisfaction.

 

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Transcript:

Jon Stoddard (00:01.034)
Welcome to the top M&A entrepreneurs. Today, my guest is Justin Cook from Empire Flippers. And according to Inc. magazine, he's the number one buyer and seller of online websites, SaaS companies, et cetera. And in 2021, he launched Web Street, which used to be Empire Flippers capital, to raise money to help online operators acquire bigger companies and get investors a return. So,

That is what we're gonna talk about today on how you can qualify for that and see how he raises capital. Welcome to the show, Justin.

Justin Cooke (00:37.55)
Thanks for having me on, John. I appreciate it, buddy.

Jon Stoddard (00:39.498)
Yeah, so let's rewind a little bit. You and I have history because many, many years ago, I sold my e-commerce company through Empire Flippers and it sold within 72 hours. So you guys did a great job for full listing.

Justin Cooke (00:51.566)
Thanks, man. I appreciate it. It's crazy when they go that quick, right? You're like, is it gonna sell? Like, what's gonna happen? A lot of our sellers come to us and they're like, what's the process like? Is it gonna be okay? And sometimes they sell really quick and sometimes it takes a lot longer. You were on the lucky end of it. We're talking before the show. One of the things is if you sell for full list really quickly, you're like, maybe I should have got more money. But then if you're waiting three, four or five months, you're like, maybe I should have charged less. So there's always a balance to play there.

Jon Stoddard (01:17.066)
Yeah, this look, I was, I was happy. I, I didn't have any second thoughts. I mean, it's this passed through my head a couple of times, but I didn't have any second thoughts. I was done selling hearing aids for five years, owned it. You know, it was kind of a, I bought it a little bit of distress, turned it around. And, uh, I was happy with the process. So. Yeah. And so.

Justin Cooke (01:38.094)
Cool man, good to hear.

Jon Stoddard (01:41.534)
You've been doing this for quite some time and I know Joe, they all work out of, what is it, Vietnam?

Justin Cooke (01:48.75)
Well, funny enough, I'm in Vietnam right now. I have a home in North Houston. So I spend time there, but I split time. So I do a little bit of Asia, a little bit of Europe, and a little bit of the US. My business partner, Joe, is based out of Manila. And he has a place there. He travels a bit for work and for fun. But he has like a home base in Manila. So yeah, and then we have a distributed team. So our employees work, you know, we have Americans living in Prague. We've got Australians living in Hong Kong. People are all over the world.

Jon Stoddard (02:02.722)
Manila.

Justin Cooke (02:19.0)
It's a new age, right? You can live and work anywhere as long as you have a good internet connection and a phone you can use.

Jon Stoddard (02:25.686)
Yeah, and those sites are being built and sold all over the world too. How many sites do you think you've sold since launch and Empire Flip?

Justin Cooke (02:29.558)
That's right, yeah.

Justin Cooke (02:34.798)
got a few thousand, several thousand. I know the total volume. So we've done about, not quite, I can't say it yet, but almost $500 million in total sales. So about a little over $480 million in total website sales. And we launched the brokerage in 2013.

Jon Stoddard (02:56.462)
So yeah, 2013, yeah. So I have to ask you, what started this, you guys said Empire Flippers Capital. Where did that come from? Where the idea like people kept coming to you and say, hey, I'd love to buy bigger sites, but I don't have the capital.

Justin Cooke (03:16.35)
Yeah, so we had we had a weird scenario where we had a lot of people come in and looking to buy online businesses, you know, Empire flippers is a website brokerage, right? We were a marketplace where people can buy internet companies and anything from e commerce to fba to content type sites. So a lot of people come and want to buy sites and people like I always use my aunt as an example. I love my sweet aunt. She's amazing person. But she was like, I want to get involved in this, you know, how can I buy one of the online business for me? And I was like, I love you.

Uh, and I'm not gonna say her name, uh, but I love you, and but like, you just, you don't have the skills to run an online business, right? Like that's, you gotta go learn the skills first and then you can come by business and people like her that had some money, wanted to put some money into it and just didn't have the skills or the time to run an online business. We had this like, you know, wealthy connection of people that I kept the whole, you wanted to get involved, wanted access to the space, but just didn't have the skills or the time to run the businesses. We're like, this is like.

high quality problem to solve, we need to figure this out. And so we tried to think about like, what we can do for this? Like, how do we, how do we solve this problem? And we realized that over time, we have all these people successful sellers, buyers on our marketplace that have bought and sold businesses with us, in some cases, a few times, in some cases, dozens of times. So look, why can't we leverage that ability, and like take those entrepreneurs and pair them with investors looking to make good returns?

from the space. And so we said, look, as long as those entrepreneurs are putting some skin in the game, right, they get to like leverage up to borrow money from invest not borrow money, but basically get equity investors in the businesses, and they can all benefit from it. And that's what started EF Capital or what became Web Street.co

Jon Stoddard (05:02.706)
Yeah. Well, I'm just curious. I did see this on your site. One of the criteria is that the, they, the investor or the operator invest 50 to a hundred thousand dollars of their own capital. Why, why do you have that when they're already deeply immersed into the business and running the business? Yeah.

Justin Cooke (05:16.492)
Yeah.

Justin Cooke (05:21.942)
Yeah. So the reason is, is because, well, we, but also the investors want to know that they have skin in the game. They want to know that they are invested in the business themselves. They put their own money in and it's an opportunity for them to leverage up. So, you know, let's say you're an experienced entrepreneur, you've run businesses, you've bought businesses before, and you've got a couple of hundred thousand dollars, right? That you'd like to invest in a business. You can buy a $200,000 business.

Or you can work with Web Street and buy effectively a $1.5, $2 million worth of businesses leveraging up and getting more equity than you would have a bigger piece of the pie than you would have just buying a straight up $200,000 business. So it's a way for them to scale. Also, what we found is like originally we thought, Hey, we'll get some operators and they'll do, you know, a deal every now and again, but the experienced operators, the ones that are successful, we want them again and again, we want them to do recurring business.

Investors want them to do recurring business. So if we can get them in one quarter, maybe they skip Q2 and they come back and buy another business in Q3. So we want them to scale with Web Street. And as they scale, investors can see their track record because we share it publicly. And so over time, you can learn which operators are delivering the best returns for investors. And to us, like the recurring action of the operators, particularly the successful operators is super valuable to us and the investors that are involved.

Jon Stoddard (06:40.822)
Do you take, do investors look at the individual operator's performance or is it a group as a whole? Because if I go like, Hey, it's like a fantasy football. I'm going to take McCaffrey right now. If he's still available, he's not available, right? Like Mohe Tater is one of your guys is doing well and he's on your site. Then I've interviewed him before. I just like, I want to put my money in versus that guy versus the pool of.

Justin Cooke (06:56.818)
Yeah, sure.

Yeah.

Justin Cooke (07:06.39)
Yeah, so we've done we've done a so are generally our advice is our advice is to instead of selecting the individual operators, we suggest selecting the operators you don't want to invest in. Right. So if there's one or two in the particular funding, and by the way, I should clarify this we right now we're launching a new group every quarter. So we'll have between three and six different operators every quarter and we launched this on a quarterly basis. So of the let's say four or five.

that are launched that quarter, we generally suggest, you know, either invest in all, or maybe take one or two operators that you don't feel so confident in, don't invest in those and invest in the others. The reason being is that you wanna diversify across different operators, across different investment strategies, right? Generally, that's gonna lead to better results. If you pick and choose, you may end up with someone who gives you a 28, 35% return, or you're losing five or 10%. And so it's a little riskier that way.

Recently, the latest round, we're actually doing only an invest in all option. So we're testing it out. I mean, really this is a, aside from Empire Flippers, which is kind of like our main business, this is way more startup style. And so we're iterating and testing different like pricing styles and different like investing options to see kind of which makes the most sense for investors.

Jon Stoddard (08:24.086)
Yeah, so you got like a mutual fun option here and then you got, hey, you got eggs in your basket, just watch the basket, just a couple.

Justin Cooke (08:32.258)
That's right. Yeah, we're testing both options right now. See which kind of makes more sense.

Jon Stoddard (08:35.646)
Yeah. So let's go a little bit of the numbers here. You have Web Street accepted applications for 350 operators and 13 were selected to be in the program. So what, uh, that's pretty small. That's like Navy SEAL small. Yeah.

Justin Cooke (08:53.818)
What's the criteria for that? Yes. So it's pretty straight because it's a startup and because we're so early, but we're only a few, or well, I guess we're a few years into it now, and we're starting to get returns on these that kind of start to make sense, but we're very careful in the operator selection. That's kind of the critical piece. There's, I don't mean to dismiss it, but there's plenty of money out there, even in today's economic climate, right? People are looking, you know,

Jon Stoddard (09:17.75)
We keep hearing about private equity, trillions out there ready to go, right?

Justin Cooke (09:21.482)
Yeah, people are looking for returns, right? So there's money out there. I think the really unique thing we add are like successful operators. People have proven again and again, they're able to buy, run, and execute on online businesses. So that's kind of the secret sauce that we have, right? And that's kind of like why we, I think, are uniquely advantaged to put this in place. So we're very careful in our operator selection, particularly early on.

As we see it, over time, we're going to have to expand that a bit. We're going to be careful about making sure we expand it and still delivering returns to investors. How do we scale that and still have the high quality of operators that our investors are looking for? So we've been very careful up till now. As it begins to scale, we're going to have to figure out how we cross that barrier. If we want to do, let's say, 15 operators per quarter, or we want to do two rounds per quarter or something. That'll be...

the challenges we face. Those are future Justin problems.

Jon Stoddard (10:22.086)
Yeah. So 17 funds closed across five rounds. So what, what did you do here? Did you go to a credit investors or are you going to the, you got the affluent, their Uber and the ultra affluent. Who are you going to here? Is it institutional investors or is it just high net, uh, somebody's broker dealer network of high net worth individuals?

Justin Cooke (10:48.894)
Yeah, so we started with accredited investors. And like, you know, our argument was like, look, we don't want Timmy's college funded mess, right? Like, we want to make sure that these are people that are looking for interesting investment opportunities that have some additional cash, they want to put into kind of like higher risk, higher reward stuff. I mean, these aren't your blue chip stock, but they're not exactly startups either, right? They're cash flowing businesses. These are our businesses deliver returns month over month, quarter over quarter for the operators that run them. So

but still, right, they're risky. And so they're more risky than a, you know, Apple stock, for example.

Jon Stoddard (11:24.566)
Yeah, how do you quantify that risk? Sorry, interruption, but how do you quantify that risk?

Justin Cooke (11:29.67)
Yeah, it's interesting. I mean, basically, you know, everything comes with a certain amount of risk reward. And so we're looking for investors that are that are interested in potentially getting 20 2530% returns with a bit more risk. And so that's kind of what we're shooting for with investors is 2025%. There's no guarantee of anything. And caveat, but like, that's kind of what we're looking for these investments. Now, as interest rates go up, right, there's more pressure to deliver.

Jon Stoddard (11:49.291)
Yeah.

Justin Cooke (11:59.526)
Um, investment. Exactly. So I mean, we're still fine now, but I can imagine if interest rates went through the roof, it'd be more challenging. Um, but like right now we're fine. And I think investors are super happy with the returns we've delivered so far. Um, yeah, if we're able to continue at, you know, 18 to 20, I think we're like, I don't know the exact number, somewhere between 15 to 20% cash on cash returns, uh, for the investors across the board that we have right now.

Jon Stoddard (11:59.554)
higher, you needed a higher RRR, yeah.

Justin Cooke (12:27.21)
So that's really good. I mean, I, you know, I have my personal investments and stuff. Do you have real estate or whatever? And like, it doesn't deliver that kind of like somewhere around 15 to 20% cash on cash.

Jon Stoddard (12:31.99)
How much was that again? You said 20%?

Jon Stoddard (12:36.702)
Okay, so roughly on the high end, five years to two X multiple on the Vista Cabell. Yeah.

Justin Cooke (12:42.534)
Yeah, yeah, we're expecting, particularly on the exit, somewhere around 22 to 25% for investors.

Jon Stoddard (12:49.066)
Now, do you have numbers in there what that looks like? You have to buy a certain company to weigh the risk. It's gotta be generating enough revenue, it's profitable. It's not a distress company or anything. It's gotta be this size of revenue and you see the arbitrage of what it can do and it's gotta move in or turn it every two, three years. What's that number?

Justin Cooke (13:13.674)
Yeah, it depends on the strategy of the individual operator. So like that's part of the vetting process is we're looking for operators that, um, that meet a kind of criteria that meet a plan that kind of like vibes of what we're looking for. So the operators are coming in and say, look, I want to buy a distressed property and like 20 X the business, but it's a very low chance success. That's not really what we're looking for. We're looking for, yeah, we're looking for like, you know, cash returns, dividends. That's basically the types of businesses we're looking for. And

Jon Stoddard (13:34.734)
Too much for ask. Yeah.

Justin Cooke (13:42.102)
That even gets wonky too because like a content site, right, is like much easier to deliver straight up cash returns, but there's like some Google risk or whatever. But like an e-commerce business or an Amazon FBA business, let's say that business is super successful, right? One with inventory, then you're constantly dumping cash into inventory for growth, right? And so like a very high growth FBA or e-commerce business...

delivers much lower returns. So you're banking on the growth a lot more. And so we try to like, we try to mix it up in terms of like the offerings we have. We were very straight up about that. So like, on an e commerce or FBA business, don't expect like it may take 12 to 18 months before you start getting like a fair amount of dividends as they kind of figure it out. They kind of like scale up.

Jon Stoddard (14:27.362)
So you suspend the dividends for 12, how many? 12 to 18 months?

Justin Cooke (14:30.89)
Well, look, I mean, even in a content type site, from the time you invest, let's say you invest and then it takes a kind of month or two to kind of close the round, right? And they have a couple of months to up to three months to pick out the acquisitions. And then there's typically a delay between when they start earning and when they actually get those returns. So you typically say around nine to 12 months on any business to start getting a return. It's even slower for like an Amazon FBA business or an e-comm business that has high growth.

where they buy it and it's like a trajectory that's great because you're constantly reinvesting into the inventory. And so a lot of your profit, a lot of your dividends effectively get tied up in inventory as the business grows and grows. And so there's different, like depending on the business model, depending on the internet, you know, tight business, there are some that deliver better cash initially than others. Does that make sense? Yeah.

Jon Stoddard (15:22.742)
Yeah. So they see, these are actual funds, right? You have SEC legal termination of funds. You go out and they have cash in the bank. And then you pick these investors, I mean, these operators and they say, well, you got 3 million to spend and you need to spend it by, what's the imperative there? What's, yeah.

Justin Cooke (15:43.806)
Yeah, so it's a short timeline, which is right now it's three months, right? And we've had situations. It's quick. Yeah. Sometimes most of the time, most of the time there. So there's a couple of times where they weren't a, I think at least once it's happened for sure once, maybe twice.

Jon Stoddard (15:49.526)
So they gotta have three months, that's pretty quick. Can you create some kind of characteristics that are unattended consequences, yeah.

Justin Cooke (16:06.262)
where the operator wasn't able to find the businesses or the businesses they found weren't approved by Webster. And that's the other thing is that we have to approve the businesses they're going for. Just, we hold some caveats because we're like, look, if you're going for e-commerce business and you completely, and your experience is in e-comm and you completely pivot and you're like, hey, I'm gonna buy content sites or Kindle ebook businesses or whatever. We're like, nah, nah. I mean, like you just don't have the experience for that. Like maybe you'd be successful, but like not in this, not for this fund, like that's not gonna work.

Jon Stoddard (16:28.942)
EHHHHH

Justin Cooke (16:35.35)
So we do have some caveats on like limiting people. And there were times where people were looking at businesses that just didn't really fit the criteria. But there have been at least once, maybe twice, where we weren't able to get the acquisitions under the three months. And in those cases, we just returned the money to the investors. So that's kind of the, that's another risk you have to take into account, is that your money may be sitting for two or three months while we try to make the acquisition and can't. A lot of times, funds will do like commits.

where like you're committing the funds, we don't actually send the funds until the acquisition of the deal is being done. In our case, we actually hold the money up front, right? So that's a disadvantage, but the real advantage to the operator having the cash on hand is they're able to move very quickly and get deals, yeah, get deals that other people might not be able to if they only had commits.

Jon Stoddard (17:17.634)
Very quickly. Yeah.

Now, do you approve the deal structure, the capital structure of how it's purchased? Well, I need to buy 90 or 100% of this company all cash. Like, no, you don't. Get 50% cash, get 50% seller financing.

Justin Cooke (17:39.818)
Yeah, so when we originally started out, we had all the deals were purchased through our main brokerage Empire Flippers. And there's an advantage to that. There's some capture on our side because you know, we're part of both companies, that's great. But like, yeah, what we realized is over time, we need Web Street to expand beyond just Empire Flippers, right? Because we want them to be able to buy from a wide swath of businesses. We don't want the investors returns tied just to like deal flow from our brokerage.

Jon Stoddard (17:52.3)
Yeah, yeah, yeah.

Justin Cooke (18:07.926)
We want them to be more widely available. And so we've opened that up a bit. And so that.

Jon Stoddard (18:12.666)
That would be, I would say that's actually probably a conflict of interest to the best interest of the investor.

Justin Cooke (18:18.678)
It is but like when we're just starting it out, right, we were just starting it out, and we told the investors, look, we don't we don't know this is gonna work. There's three main things we don't have answered, right? Like, are we going to be able to raise the funds to buy these businesses? We don't know. And we were very straight up with that. We don't know if we're going to raise the money from enough people. Are we going to be able to find the operators that are good enough and like are able to, you know, do the acquisitions and like operate the businesses effectively? We don't know that either.

Number three, are we going to be able to deliver returns to the investors? Right. And so we've got the first two solved and we're in the process of solving the third. So like from like the first webinars and the first conversations we had with investors, we were just like, we don't know if this is gonna work. And so if we're going to do that, like might as well work with the businesses we're super comfortable with that in part of the rules, we have like a, like a operating process that's like super, like we know the business, we know how to vet the businesses, like we've done this for a very long time. And so we know for us, like for sure.

what the earnings are and we check all that. We have all kinds of processes to make that happen. But if we're buying from broker Kalamazoo and wherever, you know what I mean? We gotta vet their business. That's a completely different process. And so we had to grow into that. Yes.

Jon Stoddard (19:29.89)
Yeah, yeah. Or like, I'm not picking on, you know, traditional brokers like Sunbelt or somebody like that Transworld and they're selling an e-commerce company which they're usually selling HVAC companies. Yeah.

Justin Cooke (19:43.114)
Yep. Yeah, that's right. And like, you know, no, a lot of the traditional brokerages and they have, you know, they do a lot of like local businesses, businesses with real estate, much more traditional mom and pop businesses. And there's a real need to sell those businesses, obviously, and companies like soundbite, you know, they've got nationwide exposure, they've got like, they're in so many different markets, that's interesting. But they're not as effective at the internet businesses we are we focus only on internet businesses. If you have a local component, you know, that we're just not interested in that.

And like, I'm not saying like there's plenty of ways to make money. And a lot of those guys, the symbol guys and the other kind of like, um, the traditional brokerage is they're like, look, there's a huge opportunity right now with the boomers, um, you know, selling their, selling their businesses off, trying to get rid of their mom and pop businesses, there's wide opportunity to swallow us up, but I agree with that. That's true. And that's super interesting, but like the problem with like a local business, you have this like local component.

Right? So that's fine if you're in, I don't know, Sacramento and you're buying a car wash business in Sacramento and you plan on staying in Sacramento. And that's kind of like your thing and you want to run it or you want to be involved in it personally. But like, you know, we're, I don't know, I'm an internet kid. I'm a little older, 40 ish, right? But I'm still an internet kind of kid. And, you know, I just see the value of like buying an online business and like the sellability is great because you can sell it to anyone in the world. They can run it from anywhere in the world.

You're not limited, right? So you can, you know, instead of having my car wash in, in Toulouse, right? You can have an internet company and go to Bali for three weeks, enjoy the beach, go back to the hotel room, put bang out a couple hours on your laptop and you're good to go. Like that's amazing.

Jon Stoddard (21:22.174)
Yeah, I have to mention one of the greatest tools you do, because you aggregate all these online businesses, you get a really realistic valuation of the inner business, what they're selling for, because most people tend to go, oh, I put in 100,000 hours, it's worth $10 million. Well, you're only doing 1 million in revenue, dude. So go to Empire Flippers, put your metrics in, they'll tell you what businesses are selling for, because they've sold over 1,000.

Justin Cooke (21:48.674)
Yeah, we have a valuation tool. If you go to empirevotors.com, you can take a look at it and like put in your actual, I mean, you can put it whatever numbers you want and you're going to get numbers that are whatever. But if you put in your actual numbers in your business, you're going to get a realistic valuation and a range on what the business will sell for. If you want to hold out and like take a little longer to sell your business, you're going to be at the upper end, you're going to see the range and get a good sense on like what you can sell your business for. So yeah, I mean, you know, there's that

One of our real problems at, I'm wearing both hats today, but like one of the problems at Empire Flippers, the brokerage, is you do get sellers that come in and they say, hey, I want, you know, $1.5 million for my business. That's what I'll sell my business for. And we're, okay, well, let's talk about your numbers. We're like, well, buyers will buy your business for about $800, $900, $1000 right now. And they're like, well, that's not good enough. Like, well, why? Right? Explain to me. So we have to kind of be the bearer of bad news in some cases.

Because, you know, everyone has these like, um, look, I don't blame them. I'm in the same boat, right? Like I think about my business. I want maximum value. I want to sell for as much as possible. I totally get it. Sure. Of course. Nothing less, right? Not, not, not 99, not 95, a hundred million only.

Jon Stoddard (22:52.342)
should sell for a hundred million dollars gosh darn it that's what I'd sell for yes yeah

It's because Mr. Beast has always anchored to the bigger number.

Justin Cooke (23:05.23)
Oh my god, we're just like social media stuff. Like we see all these crazy numbers. Like I can do that too. I mean, one of our kind of things in businesses like we broker online businesses kind of for the rest of us. I mean, sure, you know, there are billion dollar companies out there. There are these magical unicorn businesses where, you know, it's like one person running it or maybe one person, a couple of VA's in the Philippines or India or whatever. And they've got this crazy valuation. Amazing. That's not you.

That's not me. That's not most businesses. That sounds awesome. And I'm not saying they don't exist, but most of the time they don't exist. You know what I mean? Most, most businesses are built on people on process on like, you know, years of just doing the work and like, you know, you're going to, you may sell your business for $300,000 or $800,000 or $1.7 million. Maybe that is, or is not retirement money, depending on where you live or where you're from, but like.

Jon Stoddard (23:41.719)
Yeah, yeah, yeah.

Justin Cooke (24:02.514)
It's a good payday and you can do it again. That's what I think is the key to this is like, look, if you want to sell your company for $500 million and you will not accept anything less, good luck to you. Most of you won't make it. Some of you will. You'll crush it. You'll do better than that number. And those people, they're going to do it anyway. But for the rest of us, having a nice exit at $1.3 million and being able to repeat that process is key. That's the magic. Can you build a business, make it profitable? Can you do it again? Can you do it again after that?

Jon Stoddard (24:27.288)
Right.

Justin Cooke (24:31.918)
Can you do it if we gave you money? Could you do it for investors? And can you do it at scale? That's the key. You make that win, you're making a shit ton of money.

Jon Stoddard (24:40.578)
Then you're going to be invited to the Web Street program.

Justin Cooke (24:45.5)
You invite the West Street program or you're going to come to our meetups. We'll do a meetup in Thailand. We'll hang out with you at a villa. We're having a good time.

Jon Stoddard (24:49.495)
Yeah.

So let me go back to that question is how you get the operators to pay for these. What's your mandate on that? To say, yes, you can buy it 100% cash or no, it needs to be 50 so we can leverage, debt can leverage the IRR returns.

Justin Cooke (25:11.562)
Yeah. So we tell them this, we tell operators, look, you're going to have to put some skin in the game. I mean, most of them have that anyway, that's not really a problem, particularly the ones that have been successful. So it's not like we're not inviting operators that don't have cash and don't have a ton of experience to like, try to do it. Some of them apply, but like, that's not really a fit for us. We want people that have experience that have done it before, in many cases of sole businesses before, maybe they're not the best at buying businesses, maybe they haven't gone through the buying process, but they've built and sold.

multiple times. And so those are operators we give a shit about, right? Because maybe they haven't bought before, but we can help with that. So like at Web Street, we have advisors that are not brokerage related, that are not even a Web Street related that are contractors, third parties that can help them and guide them and advise them on the best way to negotiate and what deals to look at and what not to and help them figure out what's the right fit for them.

So yeah, in terms of like them buying the business, I mean, it's, it's a given that they're putting cash in, but that's not really a problem for the operators we're selecting because they, they have some experience. They put money in before the fact that they're able to leverage up and you know, they're putting in $50,000 for a million dollar site or a million dollar batch of sites is not a big deal. Yeah. And that's also a filter for us, right? Like,

Jon Stoddard (26:24.602)
That's so small. Yeah.

Justin Cooke (26:30.91)
If you don't have the 50,000 or 75,000 to put in a million to 1.5 million dollar portfolio, you probably just aren't the right operator for this, right? Like, look, you can buy another business if you've got, you know, 30, 40, $50,000, buy a small content site, kind of scale up, get some experience, right? Figure it out. And then do that a couple of times. And then we're happy to work with you at a web stream.

Jon Stoddard (26:55.33)
So what are you seeing now? You tested the, from buying businesses from the pool of empire flippers listings, and then you're going out. What are you seeing now with these 13 operators? Do they just go off market deals? Or are they going on market deals, which is at usually at a higher price?

Justin Cooke (27:14.666)
Yeah, so I mean, it depends. Right now we have them shopping at a few other places. So like there's some other brokerages quiet light, they're shopping at what we're biased because we're in the industry. And so we look, I mean, a good deal can be anywhere. So a particular brokerage might have a good deal. So, you know, they're going to go anywhere to find the deal. But there are some that we know happen to be better than others and quiet light, F international, those are typically good brokerages.

where some others were a little more skeptical or sketchy. We'll take a good deal from anywhere, but there are certain brokerages that we know that are better. And so we're trying to stay with the on marketplaces that we know are just gonna be, you know what I mean. Now, off.

Jon Stoddard (27:56.088)
Yeah, I-

I got to tell you, there's two places I would look at, was Quietly and Empire Flip versus Semi-Business. Joe was really helpful. Yeah, Joe Valley.

Justin Cooke (28:03.562)
Yeah. Yeah, that's cool. And like off offline deals, we're good with offline deals to Web Street doesn't have as much of a name like as Empire flippers. And so not a ton of people are bringing Web Street deals directly. Now Empire flippers has some deals, right? But like that goes through Empire flippers, they're separate companies. And so they're not like, we don't cross over that way. Like Web Street is run by different company, run by a different partner, one of the partners in five numbers completely separate.

So like Joe and I actually, just so you know, John and I, we talked about this, but like Joe and I have backed out of Empire Flourish. We don't work directly day in day or week a week in the business. We have someone running that business for us. And then our managing partner over at Web Street runs that company. So we're backed out to the investors kind of advisor role now.

Jon Stoddard (28:50.562)
Yeah. So I do have to ask you that. So you was like, hey, we need to raise some funds so these operators can go buy. It's like kind of like a search funder model almost. What was your elevator pitch to investors? Hey, would you like to invest in some online business and operators and we'll, I don't know. What's the chance that we're gonna lose our money? Well, it's a hundred percent.

Justin Cooke (29:14.194)
Yeah, yeah. I mean, like, so we're I mean, our whole business ball, you know, this from Empire flippers, we're very transparent, very honest and open about kind of like what we're doing, what the risk factors are. And it's changed a bit. I mean, like, I think the initial pitch was way more sketchy as a look. I mean, here's the thing. We don't know if this doesn't work for you. We don't know how it's gonna go. Again, the three things we don't know if we're gonna be able to solve these problems. But kind of like, here's what we think we can do. Like, you know, what we want to do is

in the gambling niche, which isn't the best comparison. But like, look, this is kind of like you're going to the racetrack, right? And in this case, you're going to be investing in the jockeys. So you're investing in the jockeys, they're going to pick the horses, the jockeys, and Web Street is the one picking the jockeys and giving you a high selection of jockeys that have experience. So let them pick the horses, you don't pick the horses. Why not pick the people that have the most experience with the horses, pick the horses you think are likely to win.

Jon Stoddard (29:51.128)
Yeah.

Jon Stoddard (30:12.322)
Hey, that's a good story. Cause many, many years ago, when we raised capital for TurboSquid, Intel came to us and told us exactly that. It says we don't pick the horses, we pick the jockeys. And they invested, yeah, $5 million in that TurboSquid when we did it. That's the exact story, yeah.

Justin Cooke (30:12.35)
that was kind of our like initial pitch right and that kind of makes sense. Yeah.

Justin Cooke (30:27.095)
That's funny.

Justin Cooke (30:30.814)
Yeah, that's cool. So we're in an interesting position now. You're asking how we raise money. We just raise it directly from accredited investors. We just started and like I don't have all the details on this so I can't share exactly. But we just started some crowdfunding. So that's kind of like a supplement to it. And because I don't know we used a company called WeFunder Reg 5 something. I don't know. I don't know the details.

Jon Stoddard (30:48.342)
506C or D? Yeah.

Jon Stoddard (30:58.334)
Yeah, it's a five oh six C or D. It's, yeah.

Justin Cooke (31:00.33)
That sounds right. Yeah. So we threw a company called Wee Funder and it was kind of a supplement. And the reason we did it is like we got beat up a little bit from people. They're like, look, why are you? I don't know. Why are you leaving this for the elite investors? Like, what about us? Like, why can we not get involved in this? And we were like, I gave the Timmy story. I was like, I don't want you putting Timmy's college fund in this. I'm like, okay, I'm not gonna put Timmy's college fund. Let me put five grand in. You know what I mean? And I was like, I don't know, like, we want to be, you know, like, it

Jon Stoddard (31:25.335)
Yeah, yeah, yeah.

Was that the minimum investment or you just threw that number?

Justin Cooke (31:32.002)
Well, that's what we were asking for like 1000, 5000. The minimum investment directly is 50 or 60,000. But we're asking like, how do I do? Yeah, but they were asking how can I do like 1000 or 5000 and we're like, we don't want Timmy's college fund like 1000 isn't Timmy's college fund like I just want to be involved. And they kind of beat us up in there like, look, why are you making the super elitist? Like, you know, you're a company that like supports

Jon Stoddard (31:33.794)
Yeah, okay.

Jon Stoddard (31:39.278)
Okay, so this has got to be a credit to Vestors, yeah.

Justin Cooke (31:56.798)
regular investors like you guys came up that way. Like, why are you keeping it from us? And I was like, shit, man, that's a pretty good point. So I'm kind of

Jon Stoddard (32:04.09)
So you adjusted your fish. You go, he's right, because we're selling e-commerce companies to people that, you know, it's $200,000 to a couple of million. So yes, yeah.

Justin Cooke (32:13.378)
So we're like, well, here's the thing too. So like we have buyers and sellers, whatever, that are buying larger businesses. But let's say they just wanna put a few thousand dollars, let's say every quarter into, let's say you're a content site builder or an SEO, right? But you're deep in SEO, you're deep into content sites and you want exposure to e-comm, right? You wanna put in 5,000 a quarter or something, like why not give them an opportunity to do that? They don't wanna learn e-commerce and they wanna learn and buy a $200,000 e-commerce business.

They want to invest in people that know how to run and have experience running e-commerce businesses. And so they diversify that way with their online businesses. And so it's like, yeah, that kind of makes sense. Um, so we did that and look, I mean, look long-term. And this is the kind of like secret that these are the kind of behind the scenes backdoor conversations we're having is that long-term we think it's really going to be institutional money in the space, right? So like our, our view is that it's the operators that are key.

The institutional players are gonna get involved and they're gonna put in the big money, right? They're gonna we're gonna have a we're gonna have a fund of money. That's kind of like pre-buying the businesses and then we can sell a piece of that But our thought is we always want to carve out a piece for like both our original investors and the smaller investors So our plan going forward is to always have a piece of the companies a piece of these businesses that we're setting aside for our audience our early investors so that they can get a piece of it to

Maybe it's funded majorly by the investment companies and the large institutional buyers, but then we'll just carve out a piece for our audience. That's kind of where we're coming.

Jon Stoddard (33:50.742)
Yeah, so just a word of caution, and this may happen, may not happen with the bigger checks is that they are, you know, they have more leverage and they can be meaner versus a whole bunch of little checks that they have voices, but they don't have enough, they have a lot of power.

Justin Cooke (34:01.954)
Sure. Yeah, yeah.

Justin Cooke (34:07.902)
We looked at this with Empire Flippers where we were considering, we were looking at venture capital, we talked some private equity groups at Empire Flippers. The VC companies wanted like, I mean, their requirements for growth were just through the roof. Like they wanted us to risk it all. They wanted just like...

Jon Stoddard (34:26.294)
Yeah, this 28% IRR, that's, you're not even in the right ball field.

Justin Cooke (34:29.61)
Nothing. They don't care. If you're not 10Xing, it doesn't matter. You're a loser if you don't 10X the business.

Jon Stoddard (34:34.442)
And even though if they have 30 portfolio companies in their deal, 28 of them will not make that. Yeah.

Justin Cooke (34:40.238)
They don't give a shit. If you're not 10X or more, you don't matter. You can 5X and you're a loser to them. They're like, that's a right, whatever, right? What do you mean? We 5X to our business. So yeah, VC is a crazy beast. And look, there's a need for it, right? There are businesses that without capital that's like super competitive or there's enough research that needs to be done.

Jon Stoddard (34:47.583)
Yeah.

Justin Cooke (35:03.494)
AI is a good example, but like there's so much research, so much work that needs to be done behind the scenes. So the payoff is so potentially high that it just, it's only a VC funded model. Right. But then there's like the private equity groups, which are a little, they're, they have their own requirements, but they're less strict, less miserable than some of the VCs can be on growth.

Jon Stoddard (35:22.666)
No, no, no. I mean the 20% to 30% IRR, that's what they'd be looking for in a five-year turn. Yeah.

Justin Cooke (35:26.542)
They're interested. Yeah. And then there are also like there's debt options too. We've talked to recently we've talked to some debt companies about how can we involve that but with rates going up and like, I don't know. Yeah.

Jon Stoddard (35:42.722)
Double-edged sword there. Amplifies your performance, but also pretty hard on the cashflow.

Justin Cooke (35:48.674)
higher risk for Web Street too. So we've held off, but like, yeah, we need to, we need to get a little further on the model, I think to play that game. Yeah.

Jon Stoddard (35:57.47)
Yeah. How did that those first conversations with investors go? Like the first one you had and goes, Oh, okay. I'm going to write you a check for that. Like how'd that go?

Justin Cooke (36:08.834)
It wasn't as bad as you'd think because we were so straight up about it. I think if we were like, I don't know, if we did the whole like, let's say we're doing the road show, like the podcast road show and we're just like, Oh, we got these crazy returns, no money involved. You're going to cry. Like that's not. That's it works for some people, I guess, maybe I don't know, but like we went to our own audience, right? And we said, look.

Jon Stoddard (36:34.454)
First. Yeah, there you go. Yeah.

Justin Cooke (36:35.39)
Yeah, we're like, here's who we are, you guys know who we are. And like, we had them raise their hands if you're interested. Like if you're interested in this, we don't know if it's gonna work. But you'll be our first investors, we're going to give you preferential access to like future rounds. If you want to get involved, we're going to be transparent about it all along the way. And if it works, that's awesome. We'll have a nice little and this is kind of a thing like, I think I see it now kind of where I'm at personally, but like

It's fun to get involved in funds that are kind of crushing it. It's like something you can tell like your peers. I got, we have other entrepreneurs, I mean like masterminds and peer groups, whatever. I'm like, yeah, you know, I got this investment. It's pretty cool. I'm involved with these guys. It's kind of fun. And you talk about it. And so I'm at like the small ball game of that. So if you're worth 50 million, a hundred million, you're talking about that at the country club. It's kind of a fun, you know, bullshitty, braggy kind of thing to talk about. So that's,

That's where I think they're at.

Jon Stoddard (37:34.934)
Yeah, let me ask you about the size of the business. Now, let's take Moheat Tater. I had him on my show and normally he buys a business X size. I don't really know what the size is. So you're on your site, it says, no, if you're an operator with us, you can four extra leverage. Meaning I can buy something four times the size of what you're talking about. But what if the operator doesn't have that experience to run a

Let's say 5X, round it up. 5X larger business.

Justin Cooke (38:08.202)
Yeah, so we look at it. You know, I couldn't tell you exactly what the requirements are on like the operator selection. But like if you've been successful at like buying, you know, $5,000 sites and turning them into $20,000, you're like, Hey, I want to buy 500,000 I want to buy three $500,000 sites, I think I need the same thing. That's not really the same ballpark. So we're looking for people have run or grown businesses that are in the ballpark. What's that ballpark? I mean, I don't know exactly. I can't give the specifics. But

A good example would be, yeah, if you're buying $5,000 or $10,000 small type content sites and trying to buy a 10x or 100x larger business that doesn't exactly apply across the board. 3x to 4x? Yeah, okay. That makes sense. 4x to 5x? It's in the ballpark. Yeah. I mean, in some instances, I wouldn't say all, but in some instances, we have people that already have portfolios of businesses that are running. So...

They've got teams, they've got some economies of scale, they've got finance handled, they've got customer service. So in some cases, like service businesses or, um, uh, you know, some, uh, businesses have like specific SEO requirements. They've already got a team of people in place to kind of handle the changes there. So those are good operators. Sometimes it's just a partnership or a trio that have got a couple of businesses under their belt and they're looking to add more. So it depends. I mean,

Jon Stoddard (39:22.074)
So those are good operators. Sometimes it's just a partnership or a trio. We've got a couple of instances in the development.

Justin Cooke (39:32.79)
But yeah, it has to be at some level of scale that makes sense to the businesses they're looking to buy. And we talk about it. So like for every investor, like they can see, um, they can see the operator's track record. We shared what they've done previously. Uh, there's an interview with the operator so you can hear directly from them what kind of their plan is. They've got their feet. Uh, no, we've interviewed the opera, pre-interviewed the operator. Uh, but we've asked, you know, we try to ask.

Jon Stoddard (39:33.038)
Yeah, it has to be at some level of scale that it seems to be super important. Yeah. So the...

Jon Stoddard (39:52.75)
So the investor gets to interview the operator? No. Oh, okay.

Justin Cooke (40:00.558)
challenging, interesting questions so that they have a good sense of kind of who the operator is. Yeah, you want a sense of like who you're dealing with, right? And like, from us at Webstreet, we care, we want you to invest, but we don't particularly care which one you're involved in. So like, you know, if you like this guy, don't like that guy, it's, you know, we're not biased in terms of who you pick, we want you to work with us, but like, we don't care who. So we're trying to like...

Jon Stoddard (40:04.214)
You kind of test it in its knowledge.

Justin Cooke (40:26.486)
give you the best sense of the operator so you can make the most informed decision. And then we've also got, we lay out their thesis. So whether you agree or disagree with kind of their plan, in some cases, you know, the operators buying an e-commerce business, they're like, look, you know, I don't, I'm not going to be doing distributions for a while because I really want a business that's fast growth. And so it's going to be 18 to, you know, 21, 24 months before we're able to do dividends, right? Or, you know, you

you know, I want to buy a business that's bloated. And I want to cut costs and get you know, distributions out really quickly.

Jon Stoddard (41:01.974)
Yeah, just reinvest the profits right back into the business. Maybe I can five X this business in a couple of years. Yeah.

Justin Cooke (41:08.51)
Yes, so they lay out their thesis and you kind of like choose the ones that you buy again Like I said before like our fund now or coming up soon. I'm not exactly sure where we are with it, but it's gonna be

Jon Stoddard (41:18.804)
Are you on the road show again? Ask him for money.

Justin Cooke (41:21.458)
No, no. But but well, I honestly, John, I don't really do this. Mike, our operating partner normally does the interviews, I'm happy to do it because I don't know, you reached out and I'm happy to deal with you. But like, I don't I don't do the circuit. Generally, I'm not that pitch man for it. I'm just, yeah, just here because I like you at a previous conversation. It's fun.

Jon Stoddard (41:33.644)
Oh, thank you.

Jon Stoddard (41:42.158)
because you like me, because I sold a business to you and you made some money from it. It could be it. Yeah, yeah. Yeah, that's right. That's right. It's cash. Hey, I got a question. Are some of these investors asking for a step up, some kind of multiple on their money on liquidation preferences?

Justin Cooke (41:45.698)
That's helpful, yeah. We made money together, it's good.

Justin Cooke (42:00.306)
Sure. I mean, you know, we get specific requests all the time. And honestly, we just, it is what it is. You're getting what we have. We don't do special treatment for any particular investors. We probably will have to depending on the amount of money that eventually may go in. But like, it's a very standardized process from an investor perspective. And we have to keep it that way. Otherwise, it gets really messy for us. And we have invested at different levels getting different preferential treatment and like,

Jon Stoddard (42:25.646)
Oh my god.

Justin Cooke (42:29.002)
So we keep it very standardized. Now for large institutional investors willing to put in $20 million into the next four rounds or something. Yeah, okay. Okay, we'll do some deals for much larger amounts, but I mean, if you're putting in $50, $100, $200, $300,000, it's the same exact deal.

Jon Stoddard (42:35.99)
and they won 1.7x. Your dollar's worth $1.76. Really? Ha ha ha.

Jon Stoddard (42:48.426)
Yeah, cash on cash. I gotcha. Man, that's fantastic. So where do we go? Where does the...

Justin Cooke (42:52.554)
But John, one more thing I'll mention, you know, it's funny because like when we originally set this up, like cash on cash returns, like distribution or dividends, like that's a winner, right? What we find is like for some investors, not all some investors love this. They're like, yes, that's the thing I want. Or like for my portfolio, that's what I want. Some investors don't love it at all. They don't like the tax implications they want. They would prefer we take the distributions and just dump it into growth. Yeah, so it's interesting. And like,

Jon Stoddard (43:18.114)
keep rolling them over. Yeah.

Justin Cooke (43:22.922)
we're seeing that and we're taking that feedback and we're like, okay, can we do something with that? We have nothing in place right now for that. But like our thought is like, how do we how do we cater to that audience? So we're like just trying to listen to our customers and our investors and say, okay, what can we do for them that kind of makes the ones that aren't doing it because of that, how can we do something that makes sense for them? So right now we're really a distribution of cash on cash deliver cash returns business But we're trying to cater to those customers too. We don't have anything yet, but we're working on it

Jon Stoddard (43:50.358)
Yeah, I do have a question. Now that you're going for bigger checks and these guys are not as familiar or these people are not as familiar with the types of investments they'll be making versus your audience of, you know, X empire flipper buyers and sellers, right? Now they're asking completely do different questions. I mean, what, what does that look like? I mean, I know that you're not in the road shows. You have somebody else doing.

Justin Cooke (44:06.239)
Yeah.

Justin Cooke (44:15.362)
Yeah, so we've had a few of those conversations and been kind of told, wait and see. So we'll wait and see. We want to see track record. So we're just getting the point now where we have enough track record, enough returns to where they're starting to come back and we're opening the door to more conversations about actually getting them involved. But we haven't done it yet. So we don't have the institutional money. We don't have that yet. We're still working on it. We think it's probably...

Jon Stoddard (44:24.3)
Mm-hmm.

Justin Cooke (44:41.166)
12 to 24 months away before we have enough track record. We haven't exited the portfolios yet. So all the businesses that we've purchased from all of the rounds are still on the books. And so what we want is a full clean break, right? Where we've done the deal, we've done the returns, we've got the exit, and we've got a full return for the investors. So once we can do that from portfolio one, portfolio two, and we're working on portfolio three, we think we'll be in a really good position to do that. But we're still probably...

we're looking to sell like the first businesses from that, like in Q four ish and then probably next year by the end of next year, we'll have another, uh, number of businesses sold and be in a position to do that. I think.

Jon Stoddard (45:24.35)
I do have a question from your website. Do portfolio managers receive a salary from the... No, and why is that? What's the rationale for that?

Justin Cooke (45:29.802)
No. Yeah. The rationale is they're getting a they have skin in the game. They're getting a big enough return on the deals to where we want their focus and interest and incentives to be aligned with the investors as closely as possible. And so rather than paying them a salary, we want their incentives to be aligned with the returns the investors are getting. So that's our thing.

Jon Stoddard (45:58.478)
Okay, that's fair enough. Yeah. Awesome Justin, that was fantastic. I loved it. Yeah. Good to go. Let me hit stop and it's gonna upload.

Justin Cooke (46:04.002)
Cool. Are we good to go?