During his recent interview with Tobias, Andrew Wilkinson, co-founder of Tiny, discusses why the best companies to buy are ‘New Zealand’ type businesses. Here’s an excerpt from the interview:
How do you think about valuation? How does that play out? The private multiples used to be much, much lower. They were three to four times free cashflow or revenues. How do you think about that for these types of businesses?
Well, we’re usually looking at the durability of the business. If somebody has a business that’s a sandcastle, we’ll buy anything. As long as it’s a good business doing something good on the internet that we can understand, we’ll look at it. But we’ll pay a hell of a lot more for a competitive advantage and a moat. For example, when we bought Dribbble, which is the largest community of designers on the internet, it’s one of the top 1000 sites. I like to say it’s like a New Zealand business. What that means is that it’s energy independent. It has its own food supply. It doesn’t have any middlemen. It exists away from nuclear war, and frankly, nobody’s paying attention to it. Dribbble is like that because nobody Googles it, they go to it directly.
It has millions of people that go there every day, and it’s a key habit. That’s a business with a moat. That one we’re willing to pay a really high multiple on earnings. But if somebody comes along and says, “Hey, I’ve got a job board for finance people,” and we look around and we go, “This is a good business today, but LinkedIn jobs and Indeed and all these other people are competing and they’re venture backed.” I don’t know if I’m going to pay a huge multiple on that. Maybe I’ll pay two to four. But on the better business, man I’d pay up to 20 times or 30 times if it makes sense. I think that goes back to with Munger and Buffett, they bought Coke at 24 times earnings. It did really well for them because they could project out what’s going to happen, and it was very predictable and there’s a huge moat. I think it just depends on the durability of earnings.
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