A Unique Asset Class for a Volatile Time
Investors have been facing an unpredictable and uncertain market environment for much of 2025, with many asset classes being extremely volatile. Investors are increasingly seeking out more stable and predictable assets, often trying to diversify their portfolios with investments that are uncorrelated to the public markets.
One asset class that continues to fly under the radar is investing into small and medium-sized businesses (SMBs), partially because of how difficult it is for individual investors to enter the space. However, bigger players like private equity firms and institutional investors have been flocking to the space, spurred on by consistent returns and a glut of SMB owners nearing retirement age with no succession plans.
What makes SMBs different?
SMBs can provide steady passive income from businesses that are already cash-flowing and profitable, in contrast to more speculative asset classes, such as venture capital, which often chase future profits. SMBs also can be more transparent and straightforward than other asset classes, as their business models are relatively easy to understand - think of your local laundromat, plumbing company, or pool service company.
Since SMBs don’t typically follow the market, they’re ideal for diversifying your portfolio. The success of the investment primarily depends on how well the business itself does, not on the stock market or the overall economy. Some businesses are recession-proof or even do better during economic uncertainty, while others are more affected by broader economic issues, like recent tariffs.
What types of businesses to target?
An illustrative example of a potential deal on CapitalPad
In a time of high volatility and a potential economic slowdown, what types of businesses are best to invest in? What sectors are most insulated from a potential recession?
Home repair and maintenance businesses, such as plumbing, electrical, roofing, and HVAC.
Essential commercial services, such as auto repair, laundromats and dry cleaners, childcare, and healthcare facilities.
Essential industrial services, such as meat packing, waste management, infrastructure support, grocery stores and discount retailers.
What types of businesses could be most affected by the current economic environment?
Businesses that rely on discretionary spending, such as luxury retail, restaurants, hotels and travel-related businesses.
With the current uncertainty over tariffs, any business that relies heavily on imports or foreign sales, particularly manufacturing businesses that use goods from overseas.
SMBs are generally more stable and can help protect against economic uncertainty—especially the aforementioned essential services. They also give investors a way to diversify with assets that don't follow the stock market, and often provide passive income.
However, for everyday investors, it is exceedingly difficult and nearly impossible to assemble a diversified portfolio of SMBs on your own. Most people don’t have the capital to buy a small business outright, let alone have the time to operate it or oversee a third-party operator. Not to mention the time it takes to source, research, and invest in even one good deal. Fortunately, there is now a way to invest in this unique asset class.
Who is CapitalPad?
CapitalPad is a platform that offers accredited investors the ability to invest in highly-vetted SMBs. It has hundreds of registered users and has closed multiple deals, raising several million dollars for investments into HVAC, home remodeling, manufacturing, and many other types of small businesses.
Co-Founders Travis Jamison (a 5x entrepreneur) and Donza Worden (Former Private Equity Principal & Independent Sponsor) have heavy experience both running and investing in SMBs and understand the difference between a good and great deal.
How does CapitalPad pick its deals?
Every deal that makes it onto the CapitalPad platform has been heavily screened, with the team considering a number of factors before ultimately accepting less than 1% of the deals they’ve been offered. Among the factors they evaluate are:
Valuation. After looking at the financials of the company, does the valuation make sense? Is the entry multiple reasonable?
Deal Sponsor. Do they have a successful track record? Are they a sophisticated operator?
Company Profile. How long has the company been in business? How many people work at the company? Is there key man risk? Too much leverage? Is it cyclical?
Value Proposition. Does the company have a unique and sustainable business model, or can it be disrupted by a new competitor?
Concentration Risk. Do a small number of clients make up the vast majority of a company’s revenue?
After evaluating an opportunity in depth, the team asks themselves whether they would invest in the deal personally - only those deals that get a “yes” will make it onto the platform.
Why invest with CapitalPad?
Without years of experience and a large amount of capital, it is virtually impossible to assemble a diversified portfolio of SMBs on your own. Through CapitalPad, investors can do so for significantly less than the cost of buying a business on their own. Not to mention avoiding the work of operating the business or hiring an operator to do it.
With CapitalPad, there is no need to research hundreds of deals, be forced to invest a large minimum, and try to keep track of it all. CapitalPad targets SMB deals with high potential returns, typically around a 30%+ IRR. All investors have to do is pick what deals they want to contribute to.
On the platform, investors can research each deal, explore the investment presentation, data room, and financial projections. They can also directly ask questions to the sponsor, and participate in an FAQ interview led by CapitalPad. If someone wants to invest, they can simply request an allocation. CapitalPad then sends wiring instructions and documents to sign. After closing, you can track your investment as you build your cash-flowing SMB portfolio. CapitalPad doesn’t charge a management fee, instead taking a percentage of future profits, meaning they don’t make any money unless you do.
The Right Asset Class for the Current Environment
Now, more than ever, is a great time to invest into SMBs and create a passive income stream while diversifying your portfolio. CapitalPad makes investing into profitable SMBs easy. Ready to build your portfolio?
