Michael Arrieta worked across the tech world at fast-growing startups and large-scale IT enterprises alike. Now in the private equity space, he’s thinking small.
He’s thinking about small, family-owned service businesses, that is.
He founded Garden City Equity, an Atlanta-based private equity firm, to invest in the “very practical, simple, unsexy businesses” that underpin the US economy. “I always thought boring is beautiful,” he told Hypepotamus. “I just like something you can actually touch and feel and see. I just craved the simplicity of simple products with everyday people,” like what you see with homecare, dry cleaners, roofers, and pest control businesses.
The team behind Garden City sees opportunities for innovation and sustainable, community-level growth in these types of service companies. “We’re really trying to reimagine private equity, reimagine service companies, and incubate ideas,” added Arrieta.
It just closed a $51,450,000 oversubscribed round to do just that.
A Different Look at Private Equity
Garden City’s investing thesis centers around community. Unlike the traditional “buy and flip” model seen across private equity, Garden City was built as a holding company with plans to permanently hold a business while introducing little or no debt (think Berkshire Hathaway for small to mid-sized businesses).
Garden City plans to invest in service-oriented businesses that have been around more than seven years and have at least $2 million of true owner earnings or profit per year. Those include the essential services and residential companies that kept the economy running and families safe during COVID.
Introducing little to no debt while buying the company, Arrieta said, will helps service companies “focus on growth and not on making debt payments.”
That provides an important opportunity for Garden City and for the company owners alike, as the US economy prepares for the “silver tsunami” of retiring Baby Boomers.
“Baby boomers were the most entrepreneurial generation in our country’s history,” added Arrieta. “Right now in America, there are over 250,000 small businesses that are in between $1 and $10 million of net income.” Many are currently owned and operated by people past retirement age or those without a liquidity or succession plan.”
The intention behind holding on to such companies is to create a people-first culture, bring tech-enabled solutions to the table, and connect owners with their advisors and investors to help a service company continue to grow.
Garden City’s investing thesis and hands-on approach have attracted an impressive list of advisors to date across the tech, business, and philanthropic worlds. Those include “mission-aligned and value-add investors” in Atlanta like Salesloft’s Kyle Porter and Rob Forman and Fulcrum Equity Partner’s Jeff Muir.
Other investors include Horst Schulze, founder of Ritz Carlton Company, and Rick Smith, former CEO of Equifax.
Technology & Innovation in the service industry space
Pest control or roofing might not seem like industries most ripe for tech-enabled disruption. “If you don’t know the problems that exist in [that industry], what engineer or product manager or entrepreneur is going to create it?” Arrieta added.
The team behind Garden City sees an opportunity to implement existing software — or bring in engineers to develop new industry-specific solutions — to help service company employees do their jobs better.
That innovation also expands into the traditional thought model behind private equity and investing in general.
“We’re not an impact investing company. But are we creating impact? Without a doubt, we are. We’re sitting down with every single worker, from the guy who pours his cement to the person who answers the phone, and we’re asking Who are you? What are your goals in life? What do you love about working here? And what do you wish you could change?