ETA Update and Why ETA is Compelling for Entrepreneurs and Investors - #3

As we’ve discussed in the previous two newsletters, Entrepreneurship Through Acquisition (ETA) offers a unique and often counterintuitive path to entrepreneurship. Unlike startups, which face an 80% failure rate, ETA focuses on acquiring established businesses with 10–20 years of proven profitability.

These so-called “boring” companies often provide essential services their customers can’t do without which makes them more resilient to budget cuts or economic downturns. That same stability that makes them attractive to entrepreneurs also makes them compelling for investors.

Why ETA Makes Sense for Investors

• Proven Cash Flows: Established businesses with consistent earnings ensure stronger financial stability.

• Sticky Customers: Long-term relationships reduce revenue risk — most clients don’t want to switch vendors.

• Baby Boomer Exits: Over 2.3 million U.S. businesses are owned by Baby Boomers. As they retire, they create a steady pipeline of quality acquisition opportunities.

Typical Investor Expectations

(These vary by investor and are often negotiable, but here are general guidelines.)

• IRR (Internal Rate of Return): 20–30%
  
  

• MOIC (Multiple on Invested Capital): 4–7x
  
  

• Exit Requirements: No fixed exit date; liquidity options available
  
  

• Ownership Limits: Due to SBA restrictions, no single investor can own more than 20% of the total project cost
  
  

How the Acquisition Process Works

Once a searcher (entrepreneur) identifies a target company, the goal is to reach the Letter of Intent (LOI) stage — typically a 90–120 day window. During this time, the searcher conducts:

• Legal and financial due diligence
  
  

• Quality of earnings analysis
  
  

• Financing arrangements with debt providers and equity investors
  
  

The typical deal structure is 70% debt and 30% equity. Debt may come from commercial or SBA loans, and sometimes the seller provides a “seller note” to remain invested in the company’s success. And the remainder comes from equity investment from the Searcher and Private Equity Investors, Funds and Family Offices.

At this stage, equity investors who’ve shown prior interest gain access to confidential information and financial models to evaluate participation. While not legally bound until closing, investors generally commit early to help the searcher meet LOI deadlines.

Progress Update

I’m pleased to share that three investment partners/funds have expressed interest in reviewing deals I source. Based on current targets, we have more than enough capital committed, though I continue to meet with additional partners for larger or more specialized deals.

This week, we made a bid on an IT Managed Service Provider (MSP) in Florida. Although our offer wasn’t accepted, the experience was invaluable — it helped us formalize investment partnerships, refine our financial model, and streamline future offer templates.

Deal Pipeline Snapshot

Deals Reviewed: 100+
Deals Under NDA: 23

Rejected by Me (87%)

• Too Small: 5 deals — $8M total
  
  

• Already Sold / Under LOI: 4 deals — $55M total
  
  

• Geography: 1 deal — $1.8M total
  
  

• Valuation Too High: 8 deals — $35.4M total
  
  

• Not a Fit: 2 deals — $8.2M total
  
  

Rejected by Owner/Broker (4%)

• 1 deal — large IT companies backed by Private Equity funds made offers 70% above our offer
  
  

Active Pipeline

• New Opportunities: 2 deals — $6.4M total
  
  

• Under Review (NDA Signed): 2 deals — $28M total
  
  

This business is all about volume and persistence — a true numbers game.

If you know of someone considering selling their business, I’d love an introduction. And if you or someone you know would like to learn more about investing in these types of businesses, please reach out to me.

Thank you for following along on this journey. Stay tuned for the next letter where I will talk about technology in the ETA space.

Best regards,
Damon Johnson