Should you invest in real estate?, $50M offer > $1B offer?, From $1B to $600K - Cameo's downfall?, and Your business is only worth what someone is willing to pay

0:00When I was talking to Ken, I saw I was, you know how you and I have talked about how like when we've seen our investments in the past like the best investment has been our business. So I made that point. And I was like, hey, should everyone invest in real estate? Because that's kind of what we've been sold growing up. Like, you know, our parents are always like, yeah, you should buy a house. You should do this, blah, blah, blah, blah, blah. Right. And for many people, the house is the most expensive thing that they own. And he and then he was like, so I was like, you know, for us, from what you've seen, and then I also brought up our friend, our mutual friend, Steve.

0:28I was like, you know, we're just really locked in on our business now. And then Ken was like, I'm going to challenge you on that. and he was like, the reason you should have a business is so you can buy a real estate. And his reasoning for that is like, you know, all the tax, all the tax benefits you get, everything. I'm just like mad, but I don't want to think about this stuff. You know what I mean? So I think this is something worth us exploring again. So he's saying have a business, make money and then go buy real estate to save on taxes. I think his point was, and I did thank you for talking about that.

0:57It's like he had a friend that had an exit for a 2 billion,$2 billion. I think at that point, yes, okay, deploy into your savings account. I look at real estate as a savings account that you don't want to touch. I think maybe that's what he means, but at least for us right now, I just don't think it makes sense. And I look at the depreciation that you get in real estate. You get great depreciation from just buying businesses as well. I get so many wealth advisors who pick me like, hey, have you looked in real estate? And have you looked at more stocks and all this kind of stuff? Have you thought about diversifying outside of technology?

1:29I'm like, no, I like technology. Like, oh, well, you got crushed. I think it was 2002. Like you got crushed in 2002 or 2000, not 2001 was a good year, 2002. And I was just like, yeah, but 2023 wasn't too bad. And 2024 is looking out great. He's like, yeah, but you're only in tech. And I'm like, yeah, I like the focus. And going back to the business, I understand it. It's not that a business or real estate or anything, one or the other is a better investment or worse investment. the question is, is what are you better at? And if you're better at one thing and you understand it, you're more likely to do better at that than something else.

2:06I bought a lot of real estate and lost money. And people always say, if you buy real estate in good neighborhoods, about a lot of real estate in Beverly Hills, California, which is a great neighborhood, I've lost a lot of money in real estate. And it doesn't matter that if you listen to the folks or what they say, or these tips, sure. If I hold it for the long haul, yeah, I would have made money, but I just don't like real estate and I haven't had the best luck versus running internet companies. You know, Mark Moss brought this up. So he basically said, this is kind of a, you know, related note, but what do you think the hurdle rate is that you have to clear annually based on all the inflation stuff going on?

2:46I don't know, but let's call it 10 plus percent. Yes. Okay. So he said, I think it was 10%. So like, you know, you have like 3 % for like, he mentioned like, one thing is 3%. The other thing is 2%. And then you have 10%. And it adds up to 15%. So that's the hurdle right? I forgot the three things that he said, which is interesting. And he's like, so my point here is like, he said, Eric, there's only two things that have grown faster than 15 % in the last 20 years or so. What do you think those things are? Real estate and technology? technology and bitcoin technology and bitcoin right and and he brought up a good point because you know there's a difference between investing and savings when he he considers those two like real estate and bitcoin as savings where you put money into it and you don't want to look at it again and you expect it to appreciate over a long period of time right i think that's a good heuristic to look at it and i know we're not an investing podcast but um you know this is the benefit of being a marketer and going to speak at these things you get all these additional insights So we're trying to share these insights with you guys.

3:47I'm a big believer to stick to what you know. And I've always enjoyed investing in stuff that I understand. I remember when I was younger, and I think you were similar, we would just go buy websites on random stuff like hosting or casinos and optimize them for SEO and conversions and just make money. Like you had a retirement home website or a gun website, right? It's just like they all make money. Gun website still does well. um but like i think it's the problem with us in the past is one we want to results tomorrow or yesterday i should say we want to results too quickly and we weren't willing to wait for the results and we were so we're too optimized for the revenue more than anything that's what i would say so the quickly is my biggest issue that's why i don't hold the real estate because people told me like you know if you just hold this real estate for another few years you'll make like 10 percent 15 percent i'm like but my returns in technology are way better than this especially my own business it's not hard to clip way more than even 20 returns a year so i rather take the loss and just redeploy it and go get better returns i gotta take a minute to tell you about the agency owners association this is a peer group for agency owners think ypo or eo but for agency owners and i just wanted to read you a couple of testimonials so this first one comes from carrie and we asked her what do you like most about the group she said having a group of people to discuss and bounce ideas the leads are great too yes we share leads in this group as well.

5:09This one from Alian, he says the ability to really post whatever I want and need. And the group responds great experience members getting a lot of insights from conversations with other members getting a lot of value from sessions from Eric getting advice from others as well. And so if you want to grow your agency faster, and you want a peer group to do so just go to marketing school.io slash agency. This is a group that both Neil and I created. And our hope here is to create a vibrant community of agency owners and do a lot more with it in the future. So again, at marketingschool.io slash agency, and we'll see you inside.

5:39I want to pull this up over here. So you pulled up one of my older ones. So can you see this post okay?

5:49Yes. An early investment I made in a public company wanted to buy them for 50. It's hard for me to read, but go for it. I'll read it. I'll read it. So this is Jason Lemkin. So again, he founded EchoSign, sold it to Adobe. So he said, so he's a VC. so an early investment i made a public company wanted to buy them early for 50 million dollars the startup hadn't raised much money they said no years later they sold for 1 billion wow just one note the founders made about the same they would have years earlier in the first deal because you figure when you sell for a billion the founders probably own like five percent or something like that um so i i think it's food for thought right it's we talk about trade-offs and this is a good example of trade-offs dude i know so many people who raise a ton of money i'm in Brazil here, there's a company that raised money at a$4.5 billion valuation, public, right?

6:38I'm not saying anything I'm not supposed to. And they, they raised this money in 2021. All right. The market was at all time highs. They raised it from sovereign wealth funds. Uh, they took some chips off the table is my guess, what it sounded like. And they raise, uh, call it a few hundred million dollars in the latest round. Well, now they have more competition. They have people who, not just more competition, but they also have people who have released competitor products to them and are charging like half the amount for the same thing. And they're still growing, but their growth rate is slowing down.

7:17And from my understanding, and I could be wrong, but what I heard from someone was when they raised money, it was three times higher than a buyout offer that they had. So call it a one end change or 1.5, right? So if they're at 1.5 billion valuation, they should have just sold that thing. Because now I know hindsight's 20, 20, you have slower growth, bad economy. You're burning a lot of money, although they are profitable, but their growth has just slowed down and they have tons of competition. who's just undercutting their pricing for the same exact product. It's going to be hard to get the multiples that you once were and you've just raised a ton of money.

7:57Yep. So, I mean, nowadays, it used to be like the wisdom four plus years ago is like raise as much as you can, right? Now it's like, no, hold off as long as you can because then what happens is you have more optionality. Yes, and it's so funny, dude. Someone asked me the other day, why didn't I? Oh, I haven't raised money yet. And we've had a lot of term sheets. Well, the problem is the moment I raise money, my optionality just goes out the window. I have to think of someone else and I'm not trying to be selfish. I don't mind thinking of others. And I do with my current team and my co-founder, but still, if you have someone else on your cap table with preference in which they get their money out first, it really changes the dynamics.

8:34And in some cases you don't have control anymore. You can't do the things you want to, like you, the way, the reason you've gotten to where you are is because like, you've, you've done things you might want you wanted to, but also at the same time, like there is sometimes it is helpful to have like other perspective and potentially a board, which I think you eventually will have down the road. Well, I've raised money in the past from previous companies and I've had good investors. Yeah. Not the current one. Um, but I've had bad luck when I've raised money and I've had good luck when I've raised no money.

9:03My biggest corporations have been the ones I raised no money for the ones that I raised money for did not work out and the ones I bootstrapped have done really well. Yep. Yep. All right. So, okay. We talked about that one, but, um, Neil, this is one that you, that you revived over here. And, and, um, ironically enough, I know the founder and I've met him a couple of times. Um, so he's also, um, you know, in YPO. And so, um, this story over here, let me just share my screen. All right. Can you see this? Okay. So this tweets from Matt Paulson, he says, surprise this business account cashflow when it's mostly just taking a cut off creator payments.

9:40So this is from fortune magazine. It says cameo went from$1 billion unicorn with major investors to a$600 ,000 court settlement. It can't afford to pay. Um, and so what's our initial take on this, Neil? Well, I have no, no idea how this happens. So cameo is a startup where you can have like a celebrity say something like happy birthday. Yeah. So, okay. Let me give you an example. Thank you for calling that out. So, um, you can have Kevin O 'Leary, you can pay him like a thousand dollars or something i need to say something right um for example i know acquire which is a company we both put a little money into um they had the guy from silicon valley russ hanneman right the guy that like you know the doors close like you know we need doors that close like this not like this right um and so they kept paying him to do all these videos and it was cool to have like brett farve the quarterback or like you know kevin o 'leary or any of these people but anyway you're paying these one-off um payments to creators and um you know it shot up really high during uh 2020 20, 20, 21.

10:36And I thought it was a cool business. But in the back of my mind, I was always like, man, it's not really, there's so many one-offs and there's such micro payments. They're not big payments at the end of the day. And they're only taking a small cut of it. It's hard to make the numbers work at the end of the day. That's what it really is. So Cameo, it's not that their valuation isn't as high or it could be lower, it could be higher. I don't know, based on that article, it just means they don't have tons of cash in the bank account, but their assets are still worth something what who knows yeah i mean there's a response to the tweet over here so so the valuation i i kind of agree the valuations was a little high um not a little high it was a lot of high but this guy said they only processed 132 million in their best year if they managed to pull 100 basis points on 132 million i don't even know how they kept the doors open let alone get a one billion dollar valuation so i think going back to your last point this might be a case where they raised a lot if we just google it real real quick um fundraising let's just look at how much i think cameo charges more than 100 basis points um they raised over 191 million over five rounds um uh cameo takes 25 okay but still it's hard to make the numbers work How much have they raised?

11:55$191. Wow. So if they're doing$130 million in revenue, they're taking... $33. $133? So$132 million times 25 % is$33 million. Okay, yeah. So$33 million is what they did in revenue for their best year. I don't know how someone gave them a billion-dollar revenue for something that does$33 million a year in revenue. Yeah. Well, billion valuation, you mean? Yeah. One billion valuation. That's kind of crazy to think about. Yeah. I mean, but keep in mind, also guys, keep in mind the time, like 2020, 2021, everything was up. Everything was crazy. Like I know a lot of relatives, we'll just put it this way, that like we're giving me stock tips, advice, like stock tips, stock advice.

12:39So Cameo, let's say they do 60 in revenue now. Maybe they're making, you know, I don't know, call it 20-ish percent on average because some celebrities may want more. I'm taking a guess because they probably negotiate. So maybe they're doing 12 million in revenue. I'm taking a wild guess here. That sucks. The number one challenge for businesses is hiring. And more specifically, the number one thing I get asked for all the time is Eric, where can I go find an amazing marketer? And the reality is right now, when you think about the world, we have inflation that also means wage inflation right now.

13:12And it means that when it comes to hiring talent, you can't spend as much as you would of in the last couple of years because it's just become too cost prohibitive. And so we've partnered with one of the best offshore recruiting firms when it comes to marketing. They've been a great asset for us. And I believe that they will be a great asset for you. All you have to do is go to marketingschool.io slash hire. Again, it's marketingschool.io slash hire to learn more. You can fill out the form there and we're going to place you with the best marketing hires that we can help you find. Neil, you actually have an episode over here or a topic on your business is only worth what someone is willing to pay, which I think is related to this.

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14:16You can also stress less knowing that Shopify's award-winning customer support team is on standby 24-7 to help with any issues that arise, allowing you to get back to business as fast as possible. This Black Friday, join the thousands of new entrepreneurs hearing for the first time with Shopify. Sign up for your free trial today at shopify.com slash marketing school. That's shopify.com slash marketing school. Go to shopify.com slash marketing tool and make this Black Friday one to remember. Dude, it's so funny how people think their businesses are worth so much. I was dealing with a company, and I won't go into the details.

14:55We're looking at it. We negotiated a price. They agreed upon it. They agreed upon the multiple, and all of a sudden, their EBITDA is down by roughly half. Well, it doesn't matter if you think it's worth the safe amount. just because you had a bad year and you think that oh my previous years were good but the last two i've struggled so i'm worth what i used to be worth well that's up to you the reality is people buy based on what they can see not what the future predicts right and uh you really see that in this market and a lot of marketers are going and buying companies now not just from a business aspect because a lot of marketers are like oh you have a lot of traffic and leads you haven't done cro you're not getting that many, uh, uh, that much revenue, we can optimize for conversions and really boost the numbers.

15:44So you're seeing a lot of markers require stuff for traffic acquisition purposes, but the sellers, a lot of times just believe their companies are worth their arm and the leg. And it goes back to your worth what people believe you're worth based on, you know, market conditions, not anything else on a quick side note, you should lower your monitor just a little bit. there you go yeah yeah all right um oh you have your ipad flat huh yeah i mean you know i think also talking about like you know i'm at this real estate investor thing you know people love doing deals and all that i think it's it's important to understand what your buy box is like what what what do you actually want to swing at right so um you know for warren buffett he's like you can just wait for the fat pitch you can wait forever and just swing when the timing is right right So I think you need to understand what is actually synergistic for you, what's actually complementary to what you're trying to do.

16:37Let's say you're an agency. What are the upsides to doing this deal? And also, what are the downsides? I'll tell you before, like I made the mistake in the past of not doing enough due diligence. And if you don't do enough due diligence, sure, you might get the deal done quickly, but you're going to pay for that at the end of the day. Dude, totally. And, you know, time, you just have to be patient. And I think it was you who ended up telling me Warren Buffett or Berkshire Hathaway is the biggest holder of treasuries, right? out of any corporation. Yep. That is it for today. Please don't forget to rate, view, subscribe and visit marketingschool.io slash agency to apply for the Agency Owners Association.

17:12So we're changing it to application only now. And if you're qualified, we'll give you a call and yeah, we will go from there. We will see you guys tomorrow.