🔺#1 - Berkshire model, a $2M physical therapy business for sale, investing in athletes and more...

Hey Riser!

Welcome to the first issue of the Rise Collective - a publication & community for entrepreneurs who want to operate across the entire spectrum of build, buy & invest. We’ll explore frameworks for bootstrapping, financing, or acquiring businesses and traditional and modern investment opportunities. At least once a week, I’ll curate both business acquisition and investment opportunities. Don’t miss the lifestyle corner, for spotlights on platforms, tools, services, or stories from successful entrepreneurs that can help you improve your entrepreneurial lifestyle.

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Framework of the week

Structure your Holding Co as a corporation

At Protosome, we’ve been refining a time-tested structure for building a tax-efficient conglomerate—one that allows us to potentially pay 0% capital gains, compound tax efficiently for decades, and extend these benefits to our investors and executives. Inspired by Warren Buffett’s legendary strategies, I’m excited to give you a peek into how we’re doing it.

If you want to build your own version of this tax-efficient powerhouse, here are six essential components you need to master:

1. QSBS (Qualified Small Business Stock)

2. C Corp Dividend Deduction

3. C Corp Redemptions

4. ESOPs (Employee Stock Ownership Plans)

5. C Corp Consolidation

6. Subsidiary LLC Passthroughs

Sound a bit dry? Think again. Buffett’s extraordinary success comes down to the power of efficient compounding. Here’s how you can leverage these strategies:

1. QSBS:
When you purchase C Corp shares at “original issue” and hold them for 5 years, you can sell them with zero federal capital gains tax (up to the first $10 million). This exemption can be multiplied across your spouse, kids, and certain trusts, each eligible for the $10 million cap. Plus, there’s no limit to the number of subsidiary C Corps you can create under a parent C Corp, each eligible for QSBS treatment. At Enduring Ventures, our executives and early investors benefit from QSBS just like we do. For example, you can contribute a profitable LLC to a C Corp and apply QSBS on 10x the value of that contribution. Be sure to consult with experts to navigate the specific rules around this.

2. C Corp Dividend Deduction:
When one C Corp owns more than 80% of another, it can deduct dividends received from that subsidiary. This allows you to efficiently move cash from your subsidiaries to the parent company and reinvest it in your best opportunities. Buffett’s strategy was simple: “Just send us the financials and all the cash.”

3. C Corp Redemptions:
How do you offer liquidity to investors who might not want to hold indefinitely? Implement a structured share buyback program. Use some of your free cash flow to repurchase shares at fair market value. The brilliance of Buffett’s approach is that long-term holders automatically end up with a larger ownership stake when shares are repurchased, without needing to invest additional capital.

4. ESOPs:
Want to keep your tax liability at zero beyond the $10 million QSBS limit? Sell to your employees. If you sell more than 30% of your C Corp to employees through an ESOP, you can roll the proceeds into stock of another public or private company (like Berkshire) and defer capital gains indefinitely. ESOPs often access low-cost financing when the company is sizable enough.

5. C Corp Consolidation:
When a C Corp owns more than 80% of a subsidiary, it can consolidate the financials. This means you can offset profits from a successful business with losses from a startup, effectively turning Uncle Sam into your co-investor.

6. Subsidiary LLC Passthroughs:
For businesses with high cash flow or those held in partnership with management, LLC pass-throughs can be highly beneficial. An LLC is created with the C Corp and individual members, making regular distributions taxed at either the C Corp level for the holding company or the individual level for members.

Putting it all together:

1. Establish a parent C Corp, with founders purchasing all common stock.

2. Raise capital by selling common or preferred shares to investors.

3. Acquire or start companies as C Corp subsidiaries or LLC passthrough entities.

4. Focus on compounding.

5. Use cash flow to repurchase shares, go public, or sell shares to an ESOP.

6. Watch your compounding efforts grow.

With these strategies, you’re well on your way to building a tax-efficient empire that could rival Berkshire Hathaway.

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Build corner

The Emergence of AI-Powered Services

Services businesses, especially knowledge-based ones like legal, financial, and healthcare, are gaining investment dollars in Silicon Valley. These sectors are now being transformed by AI, which automates complex tasks, unlike previous technologies focused on physical tasks. Initially, software companies fill adoption gaps, but as technologies mature, middlemen often get squeezed out, leaving infrastructure providers or full-service deliverers to thrive.

AI can handle many tasks for services firms, but some industries, such as law and healthcare, still require a human touch due to credentialing and trust needs. Future successful companies will likely integrate AI into their services rather than just selling AI tools.

Today's AI solutions require skills in prompt engineering and model tuning, leading to profitable companies acting as knowledge work contractors. For instance, EvenUp uses AI to help injury lawyers by creating demand packages from medical records. However, as AI advances, these core value propositions risk losing value due to easier production of high-quality outputs and increased competition.

Legacy service providers, despite their experience, may not dominate the AI opportunity due to low technical aptitude, misaligned incentives, outdated organizational structures, and slow cultures. This creates opportunities for AI-native services businesses that prioritize AI, align business incentives, and foster innovative cultures.

AI will make certain roles, especially revenue-generating ones, more valuable. For example, senior partners at firms like McKinsey could use AI to sell more efficiently, while associates produce high-quality work faster. Companies like MakerSights have transitioned from selling tools to offering AI-powered services, combining AI efficiency with human expertise to deliver greater value and drive growth.

Not all services are suited for an AI-human hybrid model. The best categories involve highly automatable workflows but also require human judgment and relationship skills. They should have regulatory moats, require high trust, and offer pricing flexibility. Wealth management, for example, balances automation with personalized advice, offering opportunities for AI-native firms to provide superior services at lower costs.

Rather than just transitioning SaaS to sell outcomes, a new class of AI-native services firms will emerge, integrating human expertise with AI to transform markets. These firms will offer efficient, trusted experiences and replace incumbents by leveraging each technological wave while maintaining a human touch.

This is what my company Basis is doing in the concierge care space, enhancing the abilities of wellness operators, longevity and other MDs.

If you’re looking to build a venture-backed business, this is a hot category now.

See 20+ ideas in our startup ideas library (🔒 members only)

Buy corner

Source: Broker
Type: In-person service
Industry: Healthcare
Asking Price: $2,200,000

EBITDA: $564,000
EBITDA Multiple: 3.89
Deal Summary: Physical therapy and occupational practice in Florida, that’s been in business for 13 years and does no online advertising.

Deal Memo and access (🔒 members only) - get a detailed breakdown of how I would analyze this deal, how I would add more value and get in touch with the broken on the deal.

Invest corner

Vestible is an interesting, new alternative investment platform that allows people to invest in an athlete’s future earnings. This has received both SEC and FINRA clearance.

Baron Browing an NFL rookie linebacker for the Denver Broncos is the first athlete to open up the ability to own up to 1% of his future earnings. Over $100k has already been invested since the offering went live in May.

This could go beyond athletes, and extend to celebrities, creators, influencers, comedians, musicians, gamers and so much more. Imagine being early on investing in Mr. Beast. What if you could have helped sponsor his earliest stunts?

What do you think?

Lifestyle corner

Spotlight tool of the week - Onda 

Membership clubs continue to grow in popularity across the world. They are a great resource to expand both your professional and social network. I’m a member of several professional clubs including OnDeck and Hamptons, but these are predominantly virtual networks. Membership clubs like Soho House which is a global club, or clubs that operate in a few key cities, e.g. Lulu’s in London and now New York, place a bigger emphasis on the in-person social aspect of meeting other people, whether for personal or professional.

Onda offers a membership that gives you access to a number of different membership clubs across the world, which is especially useful for frequent travelers, like myself. Depending on which membership tier you choose, you can get access to Soho Houses, Socialista, Little Beach Houses and many more, which typically require paying separate memberships for each.

Disclaimer: I’m a member, but I receive no benefit from recommending this platform.

From around the web:

• How Noah Kagan makes and spends his $3.3M annual income.

• The monthly expenses ($60k) of a 35 year old worth >$100 million.

Additional resources

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