What’s your exit strategy?

Aleph initially invests in a 40–45% equity stake in its Joint Venture Partnerships.

Aleph makes its money the same way that the founding partner does: 1) through compensation for the time, energy, and resources that Aleph supplies to the business, and 2) through distributions of the net income of the business.

Every year, the net income from the Joint Venture entity will be fully distributed to the shareholders in accordance with their respective operating agreements. In most cases, there is only one distribution at the end of the year for the first 1–2 years of partnership. The frequency of distributions through a year of operation may increase over time; however, this is a discretionary decision that will be made amongst the shareholders to ensure the Joint Venture has the operating cash that it needs.

Aleph puts a high priority on making sure all time and energy in a business venture is compensated at a competitive market rate. This ensures that all efforts contributed by partners are fairly acknowledged. To that end, we walk through a thorough compensation modeling exercise where we look at what specific roles the managing partner will be playing in the business (i.e. sales person, project manager, president, etc.) and then construct a compensation plan based on that activity. In most of our deals, it is common for a legacy owner to earn a six-figure income prior to any distributions to shareholders.

Our joint venture structures involve creating a new legal entity (e.g. NewCo) that is jointly owned by Aleph and the founding partner’s legacy entity (e.g. OldCo). This allows for a clean financial start for the partnership, including a new set of books and a new bank account.

Most owners who partner with Aleph do so because they desire more input on their business decisions and therefore value a partner who could help. That said, Aleph’s Joint Venture partnerships are set up as “manager managed” entities and the founding partner is named as the manager. This creates a legal structure where the founder retains their autonomy to make business decisions.

Our Operating Agreements for our Joint Ventures are intentionally structured to provide latitude for the founding partner to make strategic business decisions. That said, the software and tools that are provided in a partnership are often a big driver for getting into the partnership in the first place.

While we don’t have a strict policy, as investors we do consider and evaluate this dynamic with all of our potential partnerships. We have multiple major markets that support multiple partners, and those partners often benefit from a deeper sense of camaraderie and leverage of shared services.

The key difference between a coaching company and a Joint Venture partnership with Aleph can be summarized as follows: Skin In The Game. There is just a natural limit to how much skin in the game a service provider has, as opposed to an equity partner. We make money the same way our partners do and thus have fully aligned incentives. This often means Aleph will step into key management roles and do the work required to help scale the business, not simply advise on what work is needed. In light of that, our level of partnership is comparably more robust and deeper in the tools, infrastructure, and level of engagement.

Aleph has a long-term, “buy-and-hold” strategy for its Joint Venture partnerships. Our driving goal is to scale and stabilize healthy profit in our partner businesses for many years to come.

While there is no exact timeline for this and it is heavily dependent on the state of the company before partnering with Aleph, our partners are typically seeing a 2–4 year runway to building a management team with Aleph that allows them the opportunity to become mostly passive in their business.