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Comment by ochoseis | Hacker News Reader

There’s a whole world of folks who do this, with acquisitions and sophistication ranging from really small businesses[0] to ones in the range the article discusses[1]. It does seem like a numbers game where it makes sense to pool the risk.

[0]: https://www.amazon.com/Buy-Then-Build-Acquisition-Entreprene...

[0]: https://www.amazon.com/gp/aw/d/B01KP33K4Y

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They aren't buying them for the business upside, but to force the business to buy its own ecosystem of Fintech products.

Doesn't make any sense to do that without a financial upside as well, as the businesses are unlikely to spend more their entire valuation on fintech products (and 84 mom and pop shops owned by the VC signing up isn't much of an illusion of growth to boost the fintech companies' valuation either)

The financial upside is that they also own 85% of the company shares, so get 85% of the profits, reducing to 20% over 20 years by selling shares back to the employees. Selling here implies they'll also make profit from that too.

Employees who'll likely withstand lower than market rate wages and/or poor conditions because of sunk-cost fallacy. Sucking up profits from both the captive businesses using software licensing, revenue, and employees (as they buy shares from the startup) is well-thought-out evil genius, OR a path towards fully automated luxury worker-led communism, but I'm guessing it's the former in the guise of the latter.

The article said diluting, not selling, so I don't think it does apply here that they'll profit from that process.

The fine article says:

"we sell our stock back over time to the companies until it becomes 80% employee owned"

That’s how it looks on the books but it has to be part of compensation - it’s booked that way in the GL with the company paying for the shares as incentive out of earnings. Employees in these kinds of business just aren’t going to be buying stock in the company they work for.

Right, but as the small company is on the hook to buy the shares from the parent company, before passing them to the employees as comp, the parent company gets cash for their stake.

Juicing growth for a pump and dump scheme probably.

> the businesses are unlikely to spend more their entire valuation on fintech products

If the fintech company has a controlling interest in the business (more than 50% of the share ownership), what's to stop them?

"force" sounds so dark. Small businesses use all kinds of solutions to run themselves. They want to end up with a product that they can pitch to external businesses, it's more like they are using these acquired businesses as market research and testing.

Are they forced? You would imagine contractual in someway they might be but should the owners be able to tender out and shop around ?

That's one helluva customer acquisition model.

I don't have a link handy but I know this is big for the veterinary and dentistry industries. Companies are buying up all the clinics.

thats usually PE backed

called consolidators I believe. It's pretty genius.

Entire model is about buying dental practices with cash, profit share with the dentists and then do all back-office work with economy of scale.

Pocket any efficiency gains and reinvest in more dentists, rinse and repeat.

I think this model might be a huge opportunity in Mexico.

Bad for the patients though because "efficiency gains" usually translates to "give patients expensive treatment they don't actually need"

Less bad if you add some nuance. Some dental procedures are “you might not need this right now” or cosmetic. There are bad incentives that can be at play for sure - but procedures aren’t a clear line of “necessary”/“not necessary”.

Many of them are, though. I suggest you read this article: https://www.rd.com/article/how-honest-are-dentists/

Thanks for sharing that. Good read. Everyone who reads it should know upfront though, that the article was published in 1997. I didn't notice until the end.

So multiply all of those prices by >2.5x to account for the inflation of costs.

Safe Harbor I think buys marinas as owners age out of them. A marina tends to start out small and grow over time under a single owner, until they are successful yet unattractive for any one other individual to plunk down $x million. So they get bought up by the big org and it gets harder to find reasonably priced mom and pop marinas.

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