Investing through the partner equity model
After making 10 investments ranging from $25k to $1.4m, we’re rapidly self-analyzing and iterating to identify the kind of investments we’d like to focus on. We wanted to outline what we’ve learned and made clear where we will now focus. First, we approach everything with a ‘student of the game’ mentality. We’re always learning, and as we’ve invested, we’ve been reminded of how much adventure exists in growing a business. In our experience, learning and adventure is a winning combination.
To grow a business the quality of the founders and leadership teams is critical, but our experience has shown that the structure of the relationship is also very important. So we started investing, we’ve found great partners to share in this adventure, and we explored a number of different investment models.
First, we tried…
Angel / Seed — we’re not excited about a ‘spray and pray’ strategy, and we don’t believe you can genuinely help 40+ companies which is what it take to make the angel model work.
Private Equity — we’re not a fund, we don’t have LPs, and we want to partner for decades not just a few years then flip.
So, we shaped…
Partner Equity — we’re making long-term (decades) investments with committed capital that is patient. We are operators that have scales global companies, so when we say “we help” is genuine, and proven. This model gives our portfolio companies time and autonomy while allowing them to benefit from our experiences, relationships, and capital. For a founder/CEO, knowing that their investors won’t require an “exit” on an arbitrary timeline is very valuable. We are clear and transparent upfront with our expectations and believe we can offer the best long-term home for many businesses. Simply put, we want alignment and empowerment.
In this “partner equity” structure, we are open to buying out founders and/or early investors. We’d like founders to retain 10–30% of the equity in the business — but if a full buyout is their goal it will be considered.
To achieve these goals Saltwater is focused on making majority investments or full acquisitions of profitable businesses. To emphasize a key point, we would love to continue to work with the founders/leadership team as partners for the long-term.
Our Current Investment Criteria:
Technology-driven (but does not have to be software)
Profitable, >$1.5M EBITDA
$3M – $15M revenue
We invest only our own capital, which gives us the freedom to make the best long-term decision — always optimizing for a positive outcome but not growth at all costs.
In this ongoing learning process, I’m confident we’ll continue to evaluate and evolve our approach. But we are certain that a partnership equity approach which means — put people first, show respect to a company’s history, and optimize its future — will be a winning approach over the long-term.
Reach out if you’d like to have a conversation about your company: firstname.lastname@example.org