The First Question: Where Does the Return Come From?
When I evaluate any private market opportunity, my first question is not about the projected IRR. It is a more fundamental inquiry: what is the engine that generates the return? If the answer involves financial engineering or a dependence on the next investor paying a higher price, I am not interested. My capital is allocated to assets that generate cash from the daily operations of real businesses. This is the only durable source of returns I have ever found.
This brings us to the category of merchant receivables. Stripped of jargon, this involves providing capital to small businesses in exchange for a portion of their future revenue. The return is not generated by market sentiment or interest rate speculation; it is harvested directly from the top-line revenue of thousands of operating businesses across the country. But understanding the engine is only the first step. The more critical analysis for any serious investor is understanding how that engine is protected. How is risk managed not as an afterthought, but as an integral component of the asset’s design? At Salvare Fund, we approach this through a framework of four distinct pillars.
Pillar One: Radical Diversification
In most of my portfolio—commercial real estate, direct ownership in a private company—concentration is a feature, not a bug. A single tenant issue or a shift in a specific industry can have a material impact. Merchant receivables operate on the opposite principle. The foundation of risk management here is radical diversification across thousands of small, uncorrelated positions.
The fund’s capital is deployed across a vast number of businesses in non-cyclical sectors: auto repair shops, local pizzerias, dental clinics, and small-town retailers. The failure of any single business is a statistical rounding error, not a portfolio-level event. This is not the diversification of owning 50 different tech stocks, which are all subject to the same systemic risks. This is diversification across thousands of micro-economies, each earning revenue for fundamentally different reasons. The performance of a mechanic in Ohio has no correlation to a medical clinic in Florida. This granular structure is the first and perhaps most powerful layer of capital protection.
Pillar Two: Systematic, Data-Driven Underwriting
The second pillar is the discipline applied to selecting which businesses to fund. This cannot be a qualitative, relationship-based process. It must be systematic and rooted in data. We are not betting on a founder’s vision; we are underwriting the existing, verifiable cash flow of an established business.
Our process analyzes months of historical bank and processing statements to verify daily revenue consistency, seasonality, and overall financial health. We seek businesses with a durable history of operation and predictable sales patterns. The objective is to identify stable operators, not high-growth startups. This is a crucial distinction. We are not venture capitalists; we are cash flow investors. The underwriting process is designed to filter out volatility and select for predictable revenue streams.
Pillar Three: Structural Protections and Repayment Mechanics
How an investment is structured is as important as what is invested in. Unlike a traditional loan with a fixed monthly payment, a merchant receivable is repaid through an automated daily debit of a small, fixed percentage of the business’s daily sales. This structure is inherently self-regulating and risk-mitigating.
If the business has a slow week, the repayment amount automatically decreases, preserving the business’s operating cash. This flexibility dramatically reduces the likelihood of a default cascade that a rigid loan payment can trigger. Furthermore, the daily collection mechanic ensures we are being repaid from day one. There is no 30- or 60-day grace period. Capital is returned to the fund continuously, reducing the duration and risk of every position. This structure places the fund in a senior position relative to most other creditors.
Pillar Four: Complete Alignment of Interests
Finally, I do not invest alongside anyone who does not have their own capital at risk in the same vehicle. At Salvare, the managers are significant investors in the fund. Our capital is subject to the same terms and experiences the same outcomes as our clients’ capital. This is not a trivial point. When the manager’s personal net worth is on the line, the focus remains squarely on capital preservation, not on asset gathering or fee generation.
This alignment ensures that every decision—from underwriting standards to portfolio construction—is made through the lens of a principal. It transforms risk management from a theoretical exercise into a tangible, personal imperative.
A Different Kind of Asset for a Permanent Portfolio
Most investors believe diversification is simply owning more things. I believe true diversification is owning assets that earn money in fundamentally different ways. Merchant receivables generate yield based on the health of Main Street commerce. This is a source of return that is refreshingly uncorrelated to the daily volatility of public equity and debt markets.
Intelligent investing is not the avoidance of risk, but the deep understanding and deliberate mitigation of it. Through this four-pillar framework, an asset class that might seem esoteric becomes a clear, logical allocation for the investor focused on building resilient, long-term cash flow.
