Fellow Shareholders—

2023 was a year that reminded us of the virtues of patience. There were times over the course of the year where we feared that we may have nothing new to report. Several opportunities went painfully far into diligence before we had to walk away. Just when we thought we may never find something we could get excited about, our patience was rewarded by two pleasant surprises that seemingly came out of nowhere.

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These proprietary acquisitions were “special situations” (as they are called in the finance world). Enduring Ventures has become increasingly well known and respected among entrepreneurs as a buyer of choice, particularly when the situation is complex. Our ability to move quickly, our permanent capital base, and our team’s operational experience allowed us to buy these excellent businesses for a fraction of their intrinsic value. 

We are pleased to share that Scribe Media and YR are now part of Enduring Ventures. Both businesses were acquired with recycled cash flows, requiring no dilution of our shareholders. We’ll share more details further on. 

Beyond these unusual situations, it was a tough year to be a buyer of businesses. Many businesses were sold on peak 2022 earnings, which were often heavily and favorably influenced by the shocks and corrections of the pandemic and zero rates. Our view was that the only reliable historicals for the businesses we evaluated were 2018 and 2019. This obviously made it tough to find a deal worth doing at a price that was mutually agreeable. Several of our bids were laughed off unceremoniously. 

As we need to remind ourselves in times like these, our aspiration is not to build an empire overnight, but to build a long-term compounding machine. This requires us to protect the downside and move methodically, yet also to be aggressive and creative when the situation warrants. The more we stay true to it, the more successful we seem to be. Our goal is to own the best businesses we can find run by the best leaders we can find. As long-term owners, our obligation is not to deploy as much capital as possible, but to steward our businesses with care and diligence while always keeping an eye for the next opportunity.  

To be honest, it is frustrating sometimes to play the game in this way. It is not the game that is incentivized in the press or mainstream financial markets. We are not immune to the things that make other mortals feel good. We are not ashamed to say that doing deals feels great - we love the excitement of the process. We love announcing a deal to our shareholders. It can shake your self-confidence when nothing new happens for a while or you walk away from an attractive deal after months of diligence. As a capital allocator, often the best thing to do is just watch the pitches go by rather than swinging. There is always another pitch around the corner.

Besides the operations of the existing companies and the acquisition of two more, we also started three new platforms in 2023. These platforms are structured as entrepreneurial partnerships with talented capital allocators. 

We believe this structure provides a model to scale beyond our founders, whose ability to pursue new transactions is substantially limited by the demands of the businesses we already own. We hope to eventually achieve Berkshire’s platonic ideal of: “send us all the cash with some yearly financial statements”. That’s not our reality today. 

These three platforms are:

1. Enduring Capital Partners - A framework to allow exceptional capital allocators to build their own empire in partnership with Enduring Ventures. 
2. Enduring Hospitality Group - A real estate private equity group led by Marley Dominguez, a veteran in the hospitality industry. 
3. Arising Ventures - A holding company dedicated to the turnaround and restructuring of venture-backed companies - led by KJ Erickson. 

In our existing companies, we decentralized two groups of businesses in 2023. Rango and Snowball became collections of individually managed businesses rather than more traditional roll-ups. We found that a roll-up strategy does not play well with the more methodical nature of a holding company. It is a great way to deploy lots of capital in a short time, but is less ideal for patient holding given the high overhead costs involved.

In our existing companies, we’ve seen good progress across the group: 

1. Dolphin Pools had its best year of earnings in history. 
2. Our hospitality business (still in stealth) manages over 500 rooms with record cash flow.
3. UpCounsel recruited Winston Cook as CEO and substantially expanded its business. 
4. Rango upgraded its networks to provide fiber-speed service without wires. 
5. Snowball partnered on the acquisition of one of the largest HVAC companies in the West.
6. Ecosafi, our clean cooking utility, expanded to Uganda and signed a Series A term sheet. 
7. Enduring Planet launched a CFO-as-a-Service business to complement its grant advance lending business. 
8. Financial reporting and accounting have been upgraded and automated.
9. Enduring Ventures has more cash on hand than ever before.

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You may find our financial reporting in this letter frustratingly vague at times. Since we are not a public company, and many of our businesses operate in competitive industries, we’ve decided to take a bifurcated approach. This letter will be made available publicly, easily accessible to all shareholders including those who participated via syndicate. We will separately make a detailed financial report and management call available to those who are major investors into the company. 

The Making of a Great Lake

Imagine our journey as one of building the sixth Great Lake. We stand at the precipice of a giant crater. We just need to fill it with water. Every day we go out and look for well springs that we can divert into our lake. At first our lake starts with a puddle. Not big enough for anyone to swim in. But as we tap more springs, the puddle turns to a pond, and then a lake. Little by little at first and then faster as we go along (due to the effects of compounding). 

Those well springs are cash flowing companies. The cash flow is the water that goes in our lake. The lake is the strength of our balance sheet and the intrinsic value of the businesses we own. The larger the lake, the greater our opportunity to find and buy more well springs. 

Sometimes we find a spring that predictably and consistently generates cash flow (we love these). These ensure that the lake is a bit fuller every year. We also have projects that will not generate a trickle for a number of years, but may turn into mighty rivers over time that quickly fill our lake. Those are our long term growth companies.

Over the long run, companies within a holding company obey the same power laws of the stock market or venture capital. A few of the companies will contribute the bulk of the value creation, but it is very hard to know in advance which those will be. The great power of a holding company is its patience. It can take measured, long-term bets when a more short-term-oriented investor would give up. Your managing directors are continually calibrating our investments of time, energy, and capital in the most promising new streams. 

After nearly five years, we have a promising pond rather than just an empty crater. We’re continuing our search for new streams to fill our lake. 

It’s a simple journey. Certainly not easy. But simple indeed.  

Welcoming Scribe Media to the Family

On the third day of on-site diligence, we arrived at the Scribe Media offices to find a padlock on the door of their gorgeously decorated but largely unoccupied office. We knew the company was in financial distress, but there’s nothing like a landlord changing the locks to put a fine point on it. Distressed acquisitions are not for the faint of heart. 

We first heard about Scribe’s failing finances from Eric Jorgenson, a good friend of ours and one of Scribe’s successful authors. Scribe is a publishing company that turned the traditional business model of publishing on its head. At Scribe, authors pay for the production of a world-class book, and in doing so keep full control of their IP and full ownership of their royalties. 

The business model is attractive: highly scalable, no CapEx requirements, differentiated product. Only a few years before we came knocking, Scribe was flying high. It had published bestsellers such as “Can’t Hurt Me” by David Goggins and was seeing rapid revenue growth. Unfortunately, Scribe did not grow its financial management capabilities quickly enough. When the growth wave slowed, the company was spending far in excess of what it could afford. It quickly had a crisis on its hands. 

Navigating the complex world of credit restructuring, we struck a win-win deal with the company’s bank. The bank had called the company’s loan due, so the business was perilously close to going into full liquidation. We acquired the brand from the bank and hired some of the core team of Scribe’s longest-serving employees…and within a few months, we were publishing books under the Scribe name.

The only problem was that we didn’t have a CEO. It became painfully obvious that there was one person who was perfect for the job. They not only had startup & growth experience, a large online presence and an amazing network; they had also been a successful author with Scribe. The only problem was that our friend Eric was not looking for a job. 

After some long conversations about the future of publishing and how we might work together, a deal was struck.

The acquisition closed last July, so the turnaround is still very much in progress. We’re pleased to report that the business is now breaking even on a cash flow basis and had its best month in Feb 2024. We expect this business to be a substantial contributor of cash flow in the years to come. As a scalable, high margin business with low capital intensity, we believe it can do that rare trick of both distributing cash flow and growing year over year. 

This sort of acquisition is exactly what our shareholders pay us to do: put together acquisitions that nobody else could while minimizing downside risk and maximizing upside potential. 

YR & The Future of Customization

The acquisition of YR and ConfigureID in late 2023 was a special situation as well. The companies had been acquired by an ambitious apparel startup in 2020 & 2021. YR specialized in interactive retail customization for big brands such as Ralph Lauren. ConfigureID powered the online “configurators” for brands such as Luxottica and Monclar. Together, the companies formed the backbone of a software strategy for a company building out customized apparel manufacturing technology called CreateMe. 

Run as growth businesses following acquisition, the software businesses had been asked to substantially grow their footprint and engage in large engineering projects. Costs had grown faster than revenues, creating a substantial burn rate for the company’s investors to fund. As the exuberance of 2021 faded, investors in CreateMe asked the company to focus on its hardware platform by divesting its software platforms. 

Company management had a tight timetable to find a new home for the software businesses. We liked the software’s sticky business model. Once big brands had embedded the company’s software in their workflow and businesses, it was very difficult to remove. Many investors were only interested in a software pure play, but as cash flow buyers, we saw great appeal in the combinations of services and software licensing that the business model revolved around. 

We were especially pleased to see that the entrepreneurial founding CEO of YR, Tim Williams, and much of the core team from YR (based in London) had stayed with the company after the previous acquisition. They were excited to get back to running a lean, profitable company as they had before the acquisition. In partnership with their team, we closed on a carveout in record time - a little over two weeks after starting diligence. Our balance sheet capital, experience in turnarounds, and nimble decision-making structure won us the deal. 

We were rewarded for our speed and collaborative approach with favorable deal terms and asymmetric upside. We see a clear opportunity for the company to build on its blue chip client roster and grow sustainably under our ownership.

As with Scribe Media, this acquisition was completed with recycled capital from our existing, profitable businesses. Our shareholders now own two additional high quality businesses without investing another dollar of capital or being diluted by the issuance of more shares or parent-guaranteed debt. 

Thoughts on Private Equity 

Our chief competitors as buyers of small and midsize businesses are typically private equity firms. We hire talent from this industry and are often compared against it in our strategy. From our vantage point, a contrarian take has emerged on the industry as a whole. We believe that what was once a highly entrepreneurial niche in finance has become overcapitalized and overdependent on management fees. Furthermore, we believe that it is sitting on large, unrealized losses today and will substantially contract over the next decade. 

Early on in our journey, we took a look at a wonderful HVAC business in a less than wonderful market. Its primary market had a declining population and the business’s EBITDA had gone from $2 Million to $10 Million in a year. Not surprisingly, it was trying to sell at the higher of those two numbers. We put together a well-considered offer at a reasonable multiple of the last three years earnings. We were laughed out of the process. 

We later learned that private equity paid $150 Million for it (15x peak earnings). We just didn’t get it. How does that math work?

We read up on the history of private equity. The deals that launched the industry were astoundingly good. Gibson Greeting Cards was purchased for $80 Million in 1982. $79 Million of that was borrowed, allowing the buyers to purchase it for only $1 million in equity. This was not a small company: Revenue of $300 Million, Profits of $40 Million. 

The buyers of Gibson made an enormous windfall when the company IPO'd 18 months after acquisition at a $290 Million market cap. Everyone in finance took notice, and the private equity industry took off in earnest. 

Since the 80’s, private equity has gone from a niche for opportunistic dealmakers to a mainstream form of capital allocation. Along the way, an interesting thing has happened. Early private equity firms typically IPO'd their businesses or sold them to strategic acquirers after they had executed their operational improvement plans. Today, most businesses bought by private equity are sold to other private equity firms. This insulates the industry from much of the rationality imposed by the public markets, allowing the game of musical chairs to continue much longer than you would expect. 

As more capital flowed into private equity and interest rates went lower, everyone won. Private equity firms typically use 50-60% debt in their acquisition of businesses. When rates go down, as they did almost continuously from 1982 to 2021, the new buyer has more buying power (and more competition), so typically pays a higher price. 

One can simply conceptualize this. Let’s suppose the same business that earns $10 Million is bought and sold by private equity at different time periods. Let’s assume it has no growth prospects, but is quite stable in its earnings. Let’s also keep constant that lenders will want a 4% spread above the federal funds rate, and that equity investors will want an equity risk premium of 10% above the price of the debt. 

We can then have two variables:

1. The cost of debt based on changes in the federal funds rate. 
2. The amount of equity required for an acquisition.*

‍*If interest rates are lower for longer, lenders require less equity (the company can service more debt on the same earnings base).​​ There is also more competition for yield, so lenders become more competitive with each other, more optimistic in their assumptions, and less strict on covenants.

With changes in just these two variables, we can see that the same business bought for $50 Million in 1982 would be sold for $178 Million in 2021 without any improvement in the actual business. It is worth remembering that private equity funds operate on a roughly 10 year cycle. If interest rates were substantially lower at the end of the cycle than the beginning, the managers looked like geniuses. While rates declined secularly, capital flooded into private equity despite its high management fees and long lockups. 

It is also worth noting that leverage magnifies returns (and losses). Let’s take two examples from our simplified scenarios above…

In example one, a hypothetical private equity firm bought in 2001 and sold in 2011. Ignoring cash flow in the interim (let’s assume that cash flow paid for interest and CapEx), this lucky firm netted a 2.25 times multiple on their equity, despite no improvement to the underlying business. 

In example two, a hypothetical private equity firm bought in 2021 and sold in 2023. Ignoring cash flow in the interim (let’s assume that cash flow paid for interest and CapEx), this unlucky firm had their equity wiped out completely.

Of course, incentives being the most powerful force in business, any firm that bought at peak prices is unlikely to sell the business for as long as they can service their debt (or extend it). They can justify marking it at cost or even higher in their reporting to investors (making their fund look higher performing than it actually is). They will justify this by laying out a clever growth strategy, recruiting some new management, etc. Maybe it will work, maybe it won’t. In this example, earnings would have to roughly double just to return the original equity.. 

Since private equity funds operate on 10 year cycles, we should expect to see a delayed effect from all of this. Multiples will likely take 5-7 years to contract, as funds raised in 2020-2022 still have lots of dry powder and plenty of motivation to deploy it. Sellers and investment bankers will still expect to see prices from “the good ole days” and will be loath to reset expectations. Private equity GPs will still be able to raise funds based on track records from the good times, and won’t have a day of reckoning until 2030 or beyond when 2019-2022 vintage funds mature.

We share this view not to cast shade on our competitors in the business of buying businesses. We are a rounding error on a basis point of the industry as a whole. The very best private equity GPs will certainly continue to make their investors money. We share this view instead because it helps us think more clearly as capital allocators about the broader context we operate in. 

We sometimes describe our target situations as “too small, too weird or too much work for private equity”. This is still going to be true for the foreseeable future. If and when the day of reckoning does arrive where the private equity industry meaningfully contracts, we expect to be an eager buyer of larger businesses from our much larger balance sheet.

Looking to 2024 and Beyond

It’s hard to believe, but we’re nearing five years into this great experiment in building a modern compounding conglomerate. We’re especially proud that we’ve stayed true to our vision of acquiring quality businesses that we intend to hold long term while keeping a low overhead at the parent holding company. We manage our growing family of companies with a head office team of four, including your two Managing Directors. The only way this is possible is our partnership with high integrity leaders and our focus on the “clean plate club”. Our leaders focus on running lean, efficient businesses that do one thing really well. There’s always more you “can do”. We ask them instead what they can remove. 

We’re pleased with our corporate structure’s ability to recycle capital in a highly tax efficient manner and fully align our shareholders. All of our shareholders have an 8% annual minimum gain until share price doubles that are locked into their shares, allowing them to have patience as we pursue slow, low risk growth. We continue to prioritize a strong balance sheet and minimization of risk. 

The most valuable asset we’ve built in these early years is not on our balance sheet. We’ve learned invaluable lessons about business acquisition and business quality. This allows us to focus our energy much more effectively on the highest leverage ways that we can win on behalf of our shareholders. 

In 2024, we will more aggressively grow the team. Our new recruits will deploy both our balance sheet capital and syndicated capital from our friends. These syndications will allow direct ownership of cash flowing businesses at reasonable prices on an LP-friendly structure - something many of you have been asking for. Enduring Ventures will be both a shareholder and General Partner in these acquisitions. 

Overall, expect more of the same (in a good way). The machine is cranking along. Our cash flow businesses make sure the bank balances go up each month. Our growth businesses recycle capital into bigger swings at fast-growing, technology-enabled markets. As a shareholder, you benefit from the uncapped upside of our growth businesses with the reliability of our cash flow businesses. 

We expect to do an updated valuation of the business in 2024 and have a liquidity window planned shortly thereafter. We accepted only a few handpicked new shareholders in 2023, so we’re excited for this opportunity to welcome in some new shareholders for the next leg of the journey.

As always, we are grateful for your support in this journey. We hope to see many of you at our shareholder event in May. 

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Sincerely,
Francis Xavier Helgesen & Sieva Kozinsky
Managing Directors, Enduring Ventures Inc.

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Enduring Ventures - Major Shareholdings

Cashflow

• Dolphin Pools (Pool Construction)
• Rango (Rural Internet Service Provider - four subsidiaries)
• Big Island Motorcycle Company (self-explanatory)
• Stealth Hospitality Business 
• Enduring Retail Audit (Software to Audit Retail Payables)

Growth

• UpCounsel (Legal Marketplace)
• Scribe Media (Professional Publishing)
• Snowball (HVAC/Plumbing - five subsidiaries)
• YR (Software for Customized Apparel)
• EcoSafi (Clean Cooking Utility for Africa)
• Enduring Planet (Clean energy finance)
• Jyve (Gig Work Marketplace) 
• Alto Studios (Content marketing)

Investment Platforms

• Arising Ventures (Tech turnarounds)
• Enduring Hospitality Group (Hotel acquisitions)
• Enduring Capital Partners (Generalist acquisition entrepreneurship)