00:23:07 · James Bohannon, Mikk
I guess what I'm suggesting ideally is you have your deal box and then you have sort of flexibility within your circle of competence. [00:23:15] S0: Right? That's so great that you mentioned that. I thought it's gonna be like AI warehouses planes, but now it's it's just like lower middle market as you said and there Yeah. It can be extremely... Okay. Good. [00:23:25] S1: Yeah. I mean, I think even Berkshire, Berkshire had a, they had things that they would never flex on in terms of like investing in honorable people and good management teams and etcetera, etcetera. But then there was flexibility in like the type of business, right? I mean, there was things they definitely wouldn't do, but in like how those deals were sort of done, right? So I think there's a nice balance between, you have your core values of what sort of most important that never moves. And then you have the ability to be flexible in things that sort of, you know, on the other vector, if you will.
00:23:25 · James Bohannon, Mikk
[00:23:25] S1: Yeah. I mean, I think even Berkshire, Berkshire had a, they had things that they would never flex on in terms of like investing in honorable people and good management teams and etcetera, etcetera. But then there was flexibility in like the type of business, right? I mean, there was things they definitely wouldn't do, but in like how those deals were sort of done, right? So I think there's a nice balance between, you have your core values of what sort of most important that never moves. And then you have the ability to be flexible in things that sort of, you know, on the other vector, if you will. [00:24:01] S0: Let's talk about the guys and gals who you work with and about to work with those sponsors, emerging managers. You once in a while getting calls from those people wanting to leave and you said this is the fun part of your job, having those conversations. You've seen a lot. I don't want you to give advice, business and life advice here, but just like the fact that you've seen so much and considering your own background as well, not coming from investment banking and PE, but being like this entrepreneur. And then you have this, what you've mentioned, F2E, which you mentioned on the previous podcast. Maybe you can cover the type of individuals you see and how those conversations look like. And there's clearly people we could call now seeing the track record absolute stats. So how would you describe those people and what you've seen in the conversations and emerging managers?
00:25:02 · James Bohannon
[00:25:02] S1: Look, I think we're in an interesting part of sort of private markets and private equity firms and, you know, assets necessarily aren't trading as much and rates are higher and there's just less liquidity, which means carry is, you know, not been crystallized in a lot of these firms. And a lot of these people that started these firms ten, fifteen, twenty, twenty five years ago, they're in their 50s and they're not leaving anytime soon because they haven't sort of gotten their big payday. And there's a lot of firms in that size. And let's just say PE funds that are like 2 to 20,000,000,000 in size. There's a lot of those, like thousands of those, right? Maybe, or yeah, as we've all seen the stats. And if those 50 year olds aren't leaving, those like 32 year olds are like six layers from the top. And they're like, all right, like I'm not gonna get paid for sort of seven or eight years on this. I don't think this guy is sort of retiring. And like my chances of really making like good money here, I'm just gonna grind away or maybe not that amazing. And in today's world, there is just a huge market for independent sponsor deals and the silver tsunami of businesses changing hands from boomers. So it's like you got all these forces coming together that if you're like 30 to 45 and you're sitting in a seat where you don't own a meaningful part of the GP, unless you're just getting lights out paid at some of these firms, which you can. You If you have one of these like few select seats, you're a team like running, you're the seventh guy on the tack ops team and whatever. But a few from those very few seats or like, hedge funds, etcetera. Like, a lot of people are like, look, I can run out, go find a go find a business, get a couple families to back me, some family friends. Like, I know a few LPs. I can control my own destiny. I have sort of unlimited upside. And then I also have like on the downside, like, look, it risky? Sure. But like I'm buying a cash flowing business that's been around for forty years. So it is risky, but it's everything's risky. Staying in your PE fund job is risky, especially in the world that we're entering, right? Like with all the technological change, etcetera. So I think everything has risks. Everything is hard. Everything sucks a little bit. It's just choose your own hard.
00:27:38 · James Bohannon
Someone said to me recently, which I sort of love, choose your own pain points. And I think the opportunity right now to choose your own destiny and buy a business and actually have people that are supportive of it is more enticing than ever because there's a market for it and there's a huge amount of demand as shown by what we're seeing at Maguire Woods, not just from Family Capital that really started this ecosystem. Call it in like 2007 is probably when a lot of this market really started going. Maguire Woods is ten years old. But deals like this where there's a real market for it and a real desire to do these deals is probably since around 2007. There's a real market for it. So you got a market for it. It's going to cause people to want to do it. And there's people that are excited to meet you, etcetera. So like the phrase f two e, Andy Freeman coined that phrase from Brickell Point. So I can't take credit for it, but I've used it before and I wanna give him full credit. It's it's basically identifying someone that has been an op... That has been an investor and an operator before and has a little more wear on them. It's not search. It's not ETA, it's not someone that's like gets an MBA and then just go gets a job as a CEO. It's someone that's got like fifteen years experience, looked at a lot of deals in a particular space, maybe has made some more money and is sort of betting the farm on doing a deal. And you're basically, you're aligning so well. You're finding a very high quality, high IQ, high energy investment professional who's fifteen years in and they're betting their whole career on one deal, that's a pretty good bet. I mean, if you find the right jockey there, like, you don't even have to look at the deal. You know I'm saying? If you're like, look. This guy is, like, super smart. He's went to an Ivy League school, worked at a bank, worked at a private equity fund, and he's betting his entire career and all of his savings on buying this business. Like, that's a pretty good, like, indicator of alignment right off the bat. And that's where sort of talent selection and references is so important in this part of the market. And so I think like backing someone like that is sort of Andy talks about is highly interesting because the alignment is so good.
00:30:12 · Mikk, James Bohannon
[00:30:12] S0: Now, if we take a step back, this individual you just described is listening. The decision is made maybe sixty, maybe ninety days ago. And he's listening to this and okay, there's this interesting family office. And he would like to start building a relationship with this family office. How would one approach this process in a way which you have seen works well, which is not maybe too aggressive, but has led to a great outcome when it comes to maybe it's introductory, maybe it's raising capital, maybe it's finding a talent, maybe it's finding a co founder, you name it. Something great came out of this from this cold email or high at the conference. But how would you describe your experience seeing someone doing it in the right way? [00:31:03] S1: Yeah. And this is someone that has that has sort of already left or they're still [00:31:08] S0: could be could be both like listening now. It's just you got him thinking maybe that's me.
00:31:16 · James Bohannon
[00:31:16] S1: Yeah. I... It's a great question. So I think there needs to be an element. There's like this weird... It's very much like dating. Where is like if someone is out there, like, so desperate and you see it in their eyes and they're trying to meet everybody and you're like, alright, this person like clearly like can't raise any money and it's like gonna be bad. But if someone is like, it appears like, oh, this person is like confident and professional and has a good base of contacts already, there's just gonna be sort of more demand around it. Now I say that kind of glibly sort of half kidding, but there is a lot of similarities to that. I think finding someone that is... Has a really strong, like, that aligns with the thesis of what they wanna do and then is having select conversations and very thoughtful conversations with families. And then that name is sort of passed around amongst the family office community. Like that's the best way is to meet and engage with a family or two and have those families introduce you to a couple more families and just keep adding it one by one and tell your story, get someone excited about whatever thesis, offer to share notes on what you're seeing out there in the market, stay tastefully persistent, right? So persistent and aggressive because I think the LP wants to see that, But in a tasteful way that makes you want to root for that person, not in like an obnoxious way like 12 emails, why you responding type of thing. Ari Emanuel just came out with a book. He's some great references on how to be tastefully persistent and even being self deprecating, etcetera. But I think, look, referral is always the best. I think asking for the referral is a good move. And then I think when there appears to be some buzz around an ISP, it's like, and I see it all the time. Like right now, there's probably like, there's like three or four that are coming out of it. They're like up and comers that like people are talking about, which is awesome. The other thing that's interesting is like 2007, I mentioned, maybe like 2010 is like kind of the early, like the first class of these ISPs, the Garnet Station guys were early. I always talk about them. I'm a huge fan of them. They now have a big $6,000,000,000 organization. But once upon a time they were independent sponsors and they were early in that.