Deal Evaluation Trinity

A framework for evaluating business deals based on Tiny's acquisition strategy, focusing on practical metrics over complex financial models.

Core Deal Evaluation Philosophy

• Focus on basic, tangible metrics rather than complex financial models
• Look for immediate improvement opportunities rather than long-term projections
• Price should make deal a "no-brainer" rather than requiring perfect execution

Key Metrics to Consider

• Current Revenue
• Current Earnings
• Day 1 improvement opportunities
  • Price increases
  • Headcount optimization
  • New product launches
  • Operational efficiencies

Deal Pricing Framework

• Start with simple questions:
  • Would you pay $1M for a business earning $1M?
  • Would you pay $3M?
  • At what price does it stop being obvious?
• Focus on price points where multiple things don't need to go right
• Avoid deals requiring perfect execution

Why Complex Models Don't Work

• Discounted cash flows (DCFs) often act as "comfort blankets"
• Assumptions in models are usually made up
• Quantitative analysis becomes commoditized
  • Everyone can do basic financial modeling
  • No edge in standard analysis
  • Real edge comes from qualitative assessment

Real World Example: Facebook IPO

• Barclays used standard DCF model
  • Assumed 3% terminal growth
  • Valued company at $200B
• Reality:
  • Grew 30% annually for next decade
  • Reached $2T valuation
• Lesson: Basic first principles thinking beats complex models

Better Approach

• Think about fundamental questions:
  • What percentage of market could use this?
  • What are the obvious improvement opportunities?
  • What price makes this a clear win?
• Focus on getting deals at prices that don't require perfect execution
• Look for immediate, tangible opportunities to improve the business