00:23:10 · Mikk
[00:23:10] S0: Again, you've seen this big picture, seeing a company going from one acquisition to doing 80 acquisitions and then doing an exit. And again, you're very young when it comes to being a GP and seeing that. So what have you changed your mind since seeing this success of Arsipa now and going forward versus maybe you and considering the things you didn't know before Arsipa?
00:23:40 · Frederik Brandis
[00:23:40] S1: I think the second part of the question is more fitting to me, because given that, at least in the role of space, I had no experience before at least Arsipa, which now is already five years ago. And so for me, it wasn't about changing my mind, it was really learning a more blank sheet of paper. So if I would have done ten years of private equity, I probably would have needed to change my mind, but I didn't. So there's plenty of learnings that we've had, how to create value. So for example, everything is kind of a return on time. So you need to very much balance on how the founder spends their time and what kind of creates value in an exit. We've kind of learned that these very young, ambitious people in their 30s are in a perfect age where they have some experience or they have some presence when they speak to sellers. But at the same time, they still have this energy to go out there and meet people 20 fourseven. Whereas in the more traditional private equity sense, they probably look for more experienced people, a bit older, of course, experienced in a certain industry, and they're better managers potentially, but they're not in the train 20 fourseven meeting people. So we've kind of learned that there's a trade off between experience and energy. And for our specific model, energy, at least at the beginning of our journey is the more important one. You know, we've learned that you don't need to capture all the value in the journey of when you build a roll up initially, but you can build synergies, you can optimize assets, but it's also okay to leave some value creation for the next owner. We've learned very much that it's a business about people. I mean, that everyone kind of says it's a people's business, so it feels a bit like cheap to say it. But especially at this time when everyone talks about AI and how much value you can lift with AI, I think people forget that it's not about the technology. It's really about the distribution and the mindset and psychology of people. And working with people, exciting them for your journey, taking them on board with you is your downside protection because effectively you're just buying customers and people. And to also limit the speeds at which you do a roll up to kind of not have this alienation between a headquarter and different entities is also a big learning.
00:26:12 · Frederik Brandis, Mikk
In the end, for us, the speed of growth for a roll up is not defined by capital or by kind of headquarter talent, but through the psychology of these people, how fast can you actually implement change management? How fast can you create a cultural identification with a new company? And I think the demands of integration, I. E, you buy a lot of companies that are not just owned by the same person, but are actually integrated into something that works as a whole, are increasing. And that, again, puts the burden on this kind of change management or increases the burden on hurdle to change management. [00:26:52] S0: Now, has your view changed when it comes to holding periods and the time horizon when it comes to investments? Because what I mean is there is this being this fund manager versus maybe being this, what is the right way to put it, corporate form conglomerates where you... [00:27:13] S1: I'm hot co. [00:27:14] S0: Yeah, compound for decades. What is your view? Has it changed over time? You're still young.
00:27:19 · Frederik Brandis
[00:27:19] S1: I would say I don't have a specific view. And it hasn't changed that much. I understand that the power of compounding is the eighth world wonder. How we see it a little bit, you know, I want to focus on what we're good at. Why are we good at? We're good in finding these entrepreneurs, young, driven people that work in the long tail of companies, create a vision, create a kind of somewhat professionalized system of a company that then can be further professionalized later on. And we are the right investors to kind of support you in that early journey. So the first four to five years when we have these small companies that are sometimes super under most times super under digitized, so much value to capture, this is what we build our processes for. I'm of the opinion that once you reach a certain size, the processes need to be different. I mean, everyone who did startup investments knows you have like a startup, then you have like a CHA setup, eventually you have a scale up, the nature of the company, the nature of how you do business changes. And I just think there are others who can support better in a next stage of a company, at least to where we are today. So for me, having a kind of change in the shareholder structure to have someone in the cap table then that can build this process and has done it before and kind of helps the company enter the next level of professionalization makes sense to everyone. And so, don't disagree with the power of compounding, but in our model, I think it makes sense to have a change of ownership. At least where we stand today, you can obviously always evolve in different directions to have someone else for the next step of professionalization.
00:29:03 · Mikk
[00:29:03] S0: You're working so closely with the operators. So here I'm trying to compare being an investor versus being an operator and really the difference between inside a machine, being inside the machine versus being responsible for the machine itself. Where do you see the biggest difference or disconnect between investors and operators? And what does each side consistently maybe underestimate about the other's job?
00:29:34 · Frederik Brandis
[00:29:34] S1: I think the difference in incentives is much stronger in venture capital than it is in what we do. You know, in venture, you have the strong portfolio logic, where you need to have an outlier return. And otherwise, it's not really worth your time. So you always push the founders to have that outlier case while when you're a founder, you know, having a €5,000,000 or a €1,000,000 exit even can be life changing. So that creates a bit of an asymmetry in incentives. And I think in our case, that is not as strong given that we as a fund, we want to have no write offs. And so we want to return money in every single investment that we back. And we will fight like lines that every single one of our investments will return money indeed. So there's no case where we ever drop a founder because that's part of the philosophy and also of the portfolio logic. Having said that, I think as with everything in life, everyone underestimates from each other the complexities of the detail, so I think as an investor, I'm obviously through the experience very sensibilized towards it, but I think these conversations that you have with the sellers, the patience you need to have to lead these conversations, the individual, you know, stories that play a role, you cannot, like, you will never overestimate that because there's so many, and as long as you don't do it as an operator, you don't feel really for every story what could be the blockers. Know, I have a board meeting. There has been a company that we've been discussing with six months, and I guess, like, what's going on? How can we bring this to closure? But then, you know, like, it could be that the owner had dinner with a friend of his and or hers, and that person then said like, Hey, have you considered this and that? And then they sleep badly, then they don't want to do it. Or the daughter of the owner said like, Hey, that... Maybe I do wanna take over the company after all. Maybe when I finish my studies, could kill the deal or prolong the deal. So these kind of details and the work it requires from an operator is, I think, chronically can only be be underestimated. Vice versa, I think I don't own the execution in the platforms, but I own the design of these processes.