How Investors Evaluate SMB Deals

“In SMB acquisitions, the jockey matters every bit as much as the horse.”

That was the line that stayed with me after sitting in on Jason Ehrlich’s workshop. Jason, Managing Partner at Fruition Capital, is one of the most active ETA investors in the $1M–$5M EBITDA range. And when you ask him what really drives his investment decisions, his answer isn’t the typical checklist of revenue, margins, or growth projections.

For Jason, one of the most important evaluation factors of whether or not a deal is worth investing in is the operator.

While plenty of investors chase the numbers, Jason spends his time getting to know the person who will be stepping into the CEO seat. To him, the bet is never just on the balance sheet; it’s on the individual who will show up every day, lead a team, and pull the right levers inside the company.

We recently had the pleasure of hosting Jason in the Mainshares Network, where he shared his approach with active buyers and operators on how he evaluates SMB deals. His core belief is simple but powerful: it’s the jockey, just as much as the horse, who wins the race.

Why the operator matters just as much as the business

Fruition Capital is a “jockey first” shop that invests in the acquisition of reliable, but profitable small businesses. Through his time investing at Fruition, Jason has learned that while numbers and industry matter, backing the operator in the trenches is equally as important. 

When Jason looks at a sponsor, he isn’t impressed by someone who has only executed transactions. A former banker who’s great at models but hasn’t led a team of people or created value outside of a spreadsheet is less compelling than someone who has been on the ground in sales, operations, or general management.

Jason explained that his excitement comes when he sees sponsors who’ve had “boots on the ground” experience. These are the top qualities he looks for when evaluating the operator:

• Ability to lead under pressure: Has this person guided people through uncertainty or high-stakes situations? Military veterans, operations leaders, and frontline managers who’ve had to earn trust and keep teams moving in tough environments are always compelling operators to look at.

• Taking full accountability for outcomes: Investors want to see that the operator has been responsible for high-stakes results, whether that’s hitting sales quotas, managing budgets, or being the point person when things went wrong. That kind of accountability translates directly into credibility as a future CEO.

• Grit and realism: Jason pays close attention to how operators talk about risk. He’s wary of people who paint business ownership as easy. The operators he trusts acknowledge the grind and have a plan for dealing with it.

He shared the story of a Marine officer who transitioned into operations roles after his MBA. It wasn’t the credentials that impressed Jason most; it was the discipline, clarity, and presence in how the operator communicated. Jason left that call saying, “Whatever business this guy finds, we want to back him.”

The biggest turn-off for investors 

Say you are an outstanding operator that embodies the qualities an investor looks for. It still doesn’t mean you’re in the clear, though. If there’s one surefire way to lose credibility with Jason, it’s showing up with a deck that’s too good to be true.

Optimism can sell a pitch, but unchecked optimism signals inexperience. Investors who’ve seen hundreds of deals know the reality of how messy transitions are. Customers churn, employees leave, sellers don’t disappear neatly, and handoffs rarely go as planned. Operators who gloss over that reality show they haven’t thought deeply about what ownership entails.

The operators who earn Jason’s confidence take the opposite approach:

• They model a J-curve: Year 1 should acknowledge and show potential dips in cash flow and margins before things stabilize.

• Build in extra buffers: They responsibly account for retention bonuses, consultant coverage, and customer attrition in your plan.

• Surface risks directly: Don’t bury them in an appendix; reliable operators put them on the table and walk through their mitigation strategy.
  

Jason shared the story of a deal that looked diversified on paper with ten different customers, each contributing to a material slice of revenue. Diligence later revealed they were all tied together in a buying collective, meaning if one pulled out, the whole block would go. That deal unravelled, but the bigger point stuck: investors spot smoke-blowing instantly. 

Operators who are upfront about the initial risks and instability instead of leaving it for the investor to discover come across as far more credible and trustworthy.

More red flags that kill deals

Even with a strong operator and a realistic plan, some deals fall apart because of issues hiding beneath the surface. Jason walked through the patterns that make him pull back fast, and operators need to be ready to spot them.

Customer concentration: Sometimes it’s obvious, like one client making up 50% of revenue. Other times it’s “sneaky,” like a company that looked diversified across ten customers, but diligence revealed they were all part of the same buying group. On paper, the risk looked spread out, but in reality, the whole block could vanish overnight.

Working capital traps: A business can look profitable, but if receivables lag and growth demands more inventory or labor, the cash position actually worsens as you scale. Jason recalled deals where growth looked exciting in a model until they layered in working capital. Suddenly, the deal flipped from promising to untenable.

Seller dynamics: A toxic handoff, a seller who resents the transition, or one who undermines the new owner post-close, has the potential to kill even the strongest deal. Jason has seen sellers say one thing during diligence and do another after signing, leaving operators scrambling to rebuild trust with employees and customers.

Weak moats: Businesses with low barriers, like agencies, staffing shops, or marketing firms where “anyone with a laptop and a phone” can compete, don’t offer enough defensibility that Fruition typically looks for.

Closing is just the beginning

“If it’s a good deal, the equity will be there. Your job is to find the business. But remember - closing isn’t the finish line. It’s the starting line.”

Jason emphasized that the first 90 days post-close matter as much as, if not more than, the diligence leading up to it. That window is when you set the tone for employees, earn the trust of your investors, and reassure customers that the business is in steady hands.

The seller transition looms especially large. Sellers don’t simply disappear on Day 1, and their cooperation, or lack of it, can make or break the handoff. A seller who’s bitter, disengaged, or sabotaging behind the scenes can drain credibility, fast. 

Conversely, a seller who stays appropriately involved can help smooth the path with staff and customers. Jason urges operators to plan for that dynamic as carefully as they plan their debt schedule.

Just as important is how you carry yourself. The early days aren’t about chasing hockey-stick growth. It’s about stabilizing the business, retaining key employees, and proving you can handle the CEO role. Jason framed it as a credibility test: if you can navigate that first quarter with composure and clarity, you create a foundation for long-term success. If you stumble, you’ll be fighting uphill to regain confidence from your team and backers.

Final thoughts

Jason’s perspective highlights a reality many active buyers underestimate: investors aren’t just evaluating businesses—they’re evaluating the people who will run them.

The operators who stand out are those who combine discipline with humility, acknowledge risks rather than dismiss them, and approach the first months of ownership as the beginning of the real work. 

Yes, numbers and industries matter. But in the end, it’s the operator’s credibility, composure, and ability to execute that decide outcomes. In SMB acquisitions, the horse may set the pace—but it’s always the jockey who carries the race.

Big thank you to Jason Ehrlich for sharing his investing insights in the Mainshares Network! You can follow him on Linkedin or visit Fruition Capital to learn more.

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