Little Engine Ventures (LEV) is an investment partnership of experienced business owners. Daryl Starr and Mikel Berger are active day-to-day. They are also among the first seven limited partners to put their hard earned cash at risk of loss. Since the August 1, 2016 inception, the group of limited partners has grown to thirty-seven and the investment minimums have gone up. Starr remains the largest partner.
Starr began his entrepreneurial journey at age 13 when he rode his bicycle seven miles from the family farm into town in order to open up a bank account so he could begin buying and selling compact discs on the school bus. His father was telephoned to approve the bank account, and gladly encouraged the ambitious young man. Additional enterprises were attempted with varying degrees of success and failure. Ask him about buying control of his applied economics class, trading options while in college, buying consulting companies, or developing a nationally scaled SaaS enterprise. Avoid asking about intensive grazing dairy farms and grocery delivery businesses.
Berger began his entrepreneurial journey during graduate school when he cofounded a software development company with one of his professors. He considers himself an accidental entrepreneur. His fascination with problem-solving, and quick wit, made him a natural at scoping complex situations into complicated, backend heavy software solutions for small to medium sized, entrepreneurial-led manufacturers and service companies. His honesty and forthrightness garnered trust and endeared him to many long term clients.
Starr met Berger at church and became one of Berger’s clients. After 10 years of working together, in a client-vendor relationship, Berger was among the first to ask, “What’s next?” and, “How do I get involved?” Caught a little off guard, Starr had to give it some thought. After more than a year, Starr finally had an idea capable of holding his attention. He thought the format ought to help some friends and family profit from his experience. He first pitched the idea to Berger, who immediately asked for 6 months to hire his replacement at his software firm, so he could make Little Engine Ventures his top work priority. Six others joined with more trepidation (and less favorable terms.)
While Little Engine Ventures depends upon the work and investment of many people, the firm’s partnership mentality is witnessed in this genesis story. The trust these two cofounders share, and the trust imparted by the initial cohort of partners established a pattern of conduct and hope in the future, for everyone the group would come to encounter.
The partnership maintains an evergreen structure that reinforces long term thinking. There is no “harvest phase,” where the firm is forced to sell investments. Instead, free cash flow is first allocated to existing businesses that produce hurdle beating results (>50% ROTA.) Then, cash is made available for purchase of new enterprises. The primary aim for new enterprises is geographically-dominant, cash-generative, service businesses within 150 miles of Lafayette, Indiana. Since these situations usually develop infrequently, cash may be invested in hurdle-beating marketable securities. If sufficiently deployed (>60%,) the partnership will hold meaningful amounts of cash in anticipation of really exciting opportunities. Basically, the hurdles for new investment go up as they get more invested. The results have been compelling thanks to a handful of star performers.
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