Rollups From Hell Vol.2 - Tiny Ltd: from Berkshire Hathaway dreams to a bombed-out internet HoldCo

Disclaimer: Unless noted otherwise, views and analysis expressed here are the author's own and based on public sources. The article is intended for informational and entertainment purposes only. This is not financial advice. Please consult a professional for investment decisions.

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The tiny Victoria (pop. 92,000) is the capital of British Columbia - the Canadian province facing the Pacific Ocean. Victoria is an unlikely hotspot of serial acquirer activity. And yet, it is home to 3 of those: SureSwift Capital (a SaaS-turned-services HoldCo); Redbrick (a digital media HoldCo); and Tiny Ltd (the self-styled “Berkshire Hathaway of internet”). 

In the trio, Tiny is the largest (as measured by revenue), the best known, and the only one that’s publicly listed. Tiny’s 32 portfolio companies are said to generate pro forma revenue of C$250M (US$180M). Its market cap is +/- C$200M, or c.$150M.  

The Tiny brand is inseparable from Andrew Wilkinson’s - its founder and the largest shareholder. Andrew is the poster child of doing Entrepreneurship Through Acquisition the fun way. Andrew’s memoir (with the typically understated title “Never Enough: From Barista to Billionaire”) is rife with lines like these: 

“Once a barista in a small cafe making $6.50 an hour, Andrew Wilkinson built a business valued at over a billion dollars by the time he was 36 - and yet, his path to success was anything but a straight line”. 

And yes, Andrew is a devout disciple of Berkshire Hathaway:   

Unfortunately for public investors in Tiny, so far the line has been a downward sloping one. In 5 years, Tiny’s share price has shed 88%, while share count has grown >6x. 

In fact, Tiny is looking less like the Berkshire Hathaway of Internet and more like the archetypal Bending Spoons takeover target!

Some perspective:

In December 2020, at the height of the COVID era ecommerce boom, Tiny spun out and listed its Shopify arm, WeCommerce. The retained assets, let’s call them “rump Tiny”, generated C$83M in sales that year, compared with C$21M for WeCommerce (source). 

WeCommerce raised C$60M at a C$192M pre-money valuation (C$7/share). The Wall Street titans Bill Ackman and Howard Marks took a combined c.30% stake. 

Unfortunately, after a short-lived spike, the stock began to tank, dipping below C$2 in early 2023. Andrew and his co-founder Chris Wilkinson attempted a reboot by injecting the “rump Tiny” into the listed entity. The resulting combination was assigned an equity value of C$911M, or C$5.12/share.     

The plot twist is the fact that Andrew and Chris had kept 98% of the “rump Tiny” compared with <30% of WeCommerce. Mr. Ackman applauded the pair’s decision “to go all-in and merge [...] substantially all of their assets, with WeCommerce”. 

Whether this noble gesture was entirely voluntary we may never know… but one transaction caught our attention: the “rump Tiny’s” purchase of Beam Digital, a digital agency, days before the merger announcement.

Previously, Tiny had owned 25% of Beam; Andrew, the remaining 75%. Then:   

• On 20 May 2022, Beam entered into a C$60M revolving credit facility from two banks

• The same day, Beam drew C$50M from the RCF to pay a dividend to the shareholders

• On 31 December 2022, a 75% stake in Beam was transferred to Tiny in return for Tiny stock 

Translation: a leveraged recap that added C$50M in debt but only C$12M in cash to Tiny’s balance sheet.   

Fast forward to today, adjusted for the 8:1 stock consolidation following Tiny’s graduation to the TSX Main Market, the share is trading around C$0.90 (C$7 actual). 

It’s not our call to opine whether Tiny is under or over-valued. Remember this is not investment advice! Still, we find it hard to reconcile Andrew’s investment guru public persona with the nearly 90% decline in the market value of his investment vehicle. 

To be fair, Tiny’s investment principles are sound:

It is just that Tiny itself doesn’t seem to have followed them. Specifically, our analysis has identified 3 key deficiencies in Tiny’s business model: 

1. Subpar asset quality

2. An unstable capital structure 

3. A random capital allocation strategy

We will go over each one in detail. But first, let’s take a step back. 

The beginnings

Imagine it’s 2006 and we’re in Victoria, British Columbia. 

Andrew’s first business, Metalab, is doing well. It is a website design agency that went on to ride the ecommerce wave. Metalab’s revenues grew from C$250K in 2007 to C$3M in 2012 to C$20M in 2020 (source). 

In 2009, Andrew co-founded Pixel Union, a Shopify themes vendor. In 2014, he sold 80% in Pixel Union to Teligence, a Vancouver based family office. He used sale proceeds, plus the profits from Metalab, to fund M&A, starting with Dribbble, a social network for web designers, in 2017. 

Tiny bought back Pixel Union in 2019, after Teligence had allegedly increased revenue and profits 10-fold (press release), albeit from a small base. Andrew wasn't impressed, referring to a “ruined” business in a NYT interview. 

Apparently not ruined enough for a MONSTER flip. According to this deck: 

• Tiny reacquired 80% in Pixel Union for C$15M in partnership with Bill Ackman and Howard Marks

• It “optimized the business for growth and made a number of acquisitions” (adding C$3M in EBITDA - see below)

• The rebranded WeCommerce listed public in December 2020 at a C$192M pre-money valuation

The rest you know. 

To paraphrase, Tiny took control of Pixel Union / WeCommerce for 6x EBITDA and flipped it to public market investors 20 months later - at 40x EBITDA. Now that’s what I call multiple arbitrage! 

Deficiency #1: Subpar asset quality 

Tiny is structured into 3 verticals: Digital Services (the largest, representing 40% of revenues pre Serato acquisition - more on that below); Software & Apps (c.40%) and Creative Platform (c.20%). 

The revenue profile of Digital Services - which includes Metalab - looks like this:

Digital Services are highly profitable with a ~30% EBITDA margin and ~0 capex. But also almost 0 growth and almost 0 recurring revenue. 

The growth challenge is even more pronounced in the Creative Platform vertical, which includes Dribbble. 

This was Tiny’s narrative from May 2023:

As it turned out, 2022 marked a high point:

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