The Exchanges

Q And what was the next step after that?

A I was approached by one of my clients. I did a deal for a small middle market private equity firm based in Washington, DC. And again, getting back to this concept of. What do I enjoy? I, again, I just wanted to be around people who built businesses and of the bunch of different options, there was sort of a banking two point O private equity path of the big firms. I didn't really want to do that. The firm I joined was called Thayer Capital. And of the six partners there, four had been operators or chief executives of, of very large, very well-known companies. And that was very, very appealing and a very flat organization. So that was a pretty easy next step for me. It was sort of the first go around in the heyday of private equity, oh five to seven. So it was a, a pretty interesting seat to have. While I was there, the chairman of the firm did a couple of different things. So they had their traditional middle market buyout fund, but he'd also pioneered a strategy, which he called strategic block investing. And all that really means is he'd go in a company that had gotten into trouble in the public markets by between five and 15% of the company, and they'd go on the board. And they try to fix it and make it better with almost an infinite time horizon. They made investments while I was there. And even in the late nineties that they're still involved with today. And for me, that's …

AI assessment note: “The firm I joined was called Thayer Capital.”

Q So you're now, let's get right to the phase where you're Planning to launch the firm. How do you think about who you want on the team before you start?

A The couple of keys for me were, I'm an analyst. Everything I have to see, touch, feel, and do. The prospect of having a big team or sector analysts or, you know, that can work for a lot of different people. It couldn't work for me. I just didn't feel comfortable not having primary responsibility, again, on a small portfolio of names. The one thing I wanted to make sure of is that We built a middle and back office that was world class or at least could pass muster of a diligence test, right? I didn't want to be lucky enough to have an investor we wanted to partner with come in and check our systems and books and be like, okay, sorry, you guys are too small or whatever the case may be, or you're not ready yet. I didn't want to build it as we go. I wanted to build it right the first time. And so that was an important part to me. And we got lucky and hired a great CFO, who's been wonderful and done that. And then marketing, I would say, whatever you want to call it, business development, marketing, the truth of the matter is in a small firm, it's next to impossible to have someone else sell marketing. You, I think LPs or partners, at least the ones we have, we have 50 LPs in our fund. I know all of them personally, which, and I like them, and I trust them, and that's what has, whatever tiny amount of anything successful we've done, has been a long, long process of just building rel…

AI assessment note: “The one thing I wanted to make sure of is that We built a middle and back office”

Q So differentiation, the concept of differentiation to product differentiation in a space like hedge funds where there are, you know, 8000 different funds just seems hard. How important is that when you're out telling the story?

A You asked a good question about when you're setting it up, what do you think? And for me, even more so than the business itself, I thought about What was different, and how different it is, and why that could be a positive? I think one of the risks you run into in doing something, I wouldn't necessarily say dramatically different than Some funds out there, but then most is then your story becomes, okay, how do I fit you into this box? Don't you think what you're doing is ultra risky? I mean, of those 301st meetings I had, probably 200 of those people told me why what I was doing was ludicrous, and here's how they would do it, and here's what their funds do. And my personal view is, okay, if I think this is the best way for me to run money, you know, to have the thought that someone else would kind of immediately gravitate towards that was Really naive. And so we're intentionally trying to be different, but a lot of the problems, and I would say this to allocators out there, is when you launch and you maybe are doing something that's not well understood in the market, you get a lot of pushback. And then maybe I would even say to myself that we kind of pulled back a little bit and we'd go into meetings and we'd start even being vaguer or more general about what we do. And then you end up sounding like every other fund. And then, so you run into problems both ways. So I think, ove…

AI assessment note: “I thought about What was different, and how different it is, and why that could be a positive?”

Q So you're running these three funds at BlackRock, and one of them is where your heart and soul is, and the other, say, is paying the bills or whatever it is. How do you decide when you feel like you're ready to do your own thing?

A The light bulb went on for me, in particular, around one deal. It was sort of the setup I had waited for We bought a big slug of a company from, in a sort of complex transaction that gave me a really good insight into the business and also a great price. Ultimately that business ended up getting sold and I looked at the end of the day and I Because I was a fiduciary across large dollars, I couldn't size it in the way that was, I should have for what was this incubation for what I wanted to do, and that was fine. That's how it should have been from a fiduciary perspective, but I just felt like I was sort of halfway stepping into this thing that I wanted to create, and I wasn't really doing it as well as I could have. I didn't feel like I was concentrated at a place like BlackRock. I was The outlier. And so there were all these sort of mathematical backs and forth with, okay, what's the efficacy of what we're doing? Why are we doing this? And there was a governor on what I wanted to do. And so I approached the client who seeded this fund at BlackRock and I said, would you support me if I did it independently? And I was really lucky that they said yes.

AI assessment note: “The light bulb went on for me, in particular, around one deal.”

Q As you start investing, there's this known truth about investor behavior, whether it's a manager or an allocator that people chase returns. You've had some good periods. You have some weaker periods of performance. What happened from your perception of the outside interest?

A It's noticeable. It still is. We had a good first couple months. There was a lot of interest. We had our fourth month. We were down meaningfully in that Nothing had really changed. Our four month total was great. Our first three months were really good, and our fourth month was a drawdown. It was evident within, again, four months that that was the behavior that you could see it in call volume, email volume, all of that. And so even our second year in business, we were relatively flat and had a couple of really good months at the end of the year and January, February, March of the next year, there was a ton of interest and then you're flat for a while or down a little and it's crickets. And so what I would say is important is through those periods, you can kind of tell. Who believes in what you're doing for the long term and who doesn't? And for us, would it have been nice to raise more money and we had to compound that and it would have been good, I think, but truthfully, what volatility in our performance and sort of our lack of success, if you will, fundraising, it's now allowed us to really focus in on working with really good people who believe in what we're doing for the long term. We've had drawdowns this year and We had a deal that was going to happen and broke, and it was our largest position, and I didn't get a single phone call from one of our 50 LPs in a very bad mo…

AI assessment note: “you could see it in call volume, email volume, all of that.”

Q How old were you when you first got interested?

A I was probably 11 or 12. I mean, I, like, did everything. I swept the floor, washed cars, and they'd let me tag along. You know, I had no business being in the meetings I was, but they'd let me sit in the corner and just listen, and that was the first taste, and obviously was young and didn't really know what I wanted to do, but that's where I first got The bug. I thought it was cool, and I loved what they were doing. The people, and the place, and the growth, and it was the coolest thing to me, and that's really what I felt like I wanted to do. I wanted to be an entrepreneur. I didn't know what that meant, or how that would progress, or anything, but that was the first taste, and that was a very lucky and very cool experience for me.

AI assessment note: “I was probably 11 or 12.”

Q What skills did you feel like you missed from that experience?

A Spending like a year of your life learning how to make a very rudimentary DCF model doesn't really apply In the real world so much. It's amazing how much I learn every day being around people who actually Run businesses for a living. You can't really learn it without doing it. I thought I could be as prepared as I could be, but really my whole career, I'd kind of been left in a corner and they're like, pick a good investment. And if you can do that, then you can kind of have a decent career. The subtleties of managing people and running an organization, I tried to learn either through a book or through a professor or through talking to as many people as I can. And it's hundreds and hundreds of people. You can't really learn unless you do it. And I've learned so much over the last three years of even just managing my tiny little business.

AI assessment note: “The subtleties of managing people and running an organization”

Q All right. So once you get going on the investing side, you're still having meetings, right? People are still coming in. You still would like to attract capital. How do you balance what you want to do, sort of sit in your office, do your thing, visit companies with that sort of necessary piece of continuing to grow the business?

A We tried to be as efficient as we could, so we went to three pretty big conferences our first year where we probably met with 50 or so people at each one. Sort of a speed dating concept, but we met a lot of great, really thoughtful, smart people. If folks would come to our office in Boston, we'd Be happy to take a meeting, and then I'd travel occasionally, but not that often, and so it wasn't really by choice or by design necessarily. The only marketing we have is if we can be half decent at our day job, and so we really tried to be as efficient as possible when we met with people, and we've done a lot better at that over this year than we had certainly in the first two years, because you just don't know, and it's, it's not fair to have expectations of someone sitting across the table That they will or won't give you money. But if someone emails me and says they want an hour of our time, at least in the first two years, they said, great, I'd love to do that and happy to spend time with you. And I think as an emerging manager, it's really hard. I can now sort of understand if there's sincere interest or if there's not, and we're just much more efficient about that. I couldn't have learned that other than going through the process.

AI assessment note: “We tried to be as efficient as we could, so we went to three pretty big conferences”

Q And so you have your team, maybe you get some office space, and now you've got your first anchor investor. How do you go about going to market with the story?

A We were very lucky in that a lot of people wanted to help. Prime brokers were great. Capital introduction. We were invited to conferences. We did whatever the sort of playbook of hedge funds 10 years ago, we got handed that playbook, and we did it. We tried. We launched in 2016, which was a, I wouldn't say necessarily a great year for capital raising. We weren't as successful in doing it, but, you know, we would meet with pretty much anyone who wanted a meeting. I mean, that was a lot, a lot, a lot of people. We probably did, gosh, 300 or so meetings in our first year, which looking back on it is completely ludicrous, but we didn't know what we didn't know, and through that I learned a ton. To be fair to the people sitting across the table, I didn't really know how to explain my process very well in ways that it's so intuitive to me that it took me almost probably at least 18 months to sort of figure out how to even describe thoughtfully what I do, and so we didn't have a differentiated way to go to market, which I think we kind of do now, and we kind of learned and got better and take a little bit of a different tack these days.

AI assessment note: “Prime brokers were great. Capital introduction. We were invited to conferences.”

Q You mentioned earlier this combination of being very focused on the people you're going to work with and also not getting it all right on day one. What was that experience like?

A I think it's just this overarching theme of, I just didn't know what I didn't know, and I'd never really managed people in a business. I had folks work with me and for me, but it's very different in an entrepreneurial setting. Both from a, who you want to partner with you from a investor perspective, and who, who you need around you to be your best, perform at the highest level you can at your day job. When you start a fund, you have a small window in time to build a team, and you can get really lucky with that, or you can make some decisions that aren't reflective necessarily on the people, but just it wasn't going to be a fit, and that happened to us, and it was A learning experience. I wouldn't say it was fun, but it happened. And the good news is all of these things happened at a stage of our business where there wasn't a ton of risk. We didn't have a huge asset base. We didn't have a ton of people. If there's ever a time to learn these things, it was then. And so that was the way for us. I think that's from a lot of the entrepreneurs I talked to. It's so, so common in our business, in the asset management industry, it's viewed so differently than it is in a regular company that of course teams are going to iterate. And of course you're going to try to find the right people. And of course you're going to try to build the right culture. And that isn't necessarily a fit for e…

AI assessment note: “I wouldn't say it was fun, but it happened. And the good news is”

Q From those early days, you've actually done quite well and grown. How did the business evolve from, this is just hard, and we didn't give, our expectations weren't right, and it was going to take a lot longer, and now you're three years later. What started to click?

A It just was sort of one-off. To be honest, you have to be grateful for and take Pride in very, very small wins. So it's, hey, XYZ, great entrepreneur, great investor, or good person, likes and trusts you enough to give you a small amount because they believe in you. And that's a huge win. You're not gonna get really paid on it, or it's not gonna change anything, but that, I promise you, if you keep working with those people, you're amazed at how then they'll tell another person. And we're starting to get calls now being like, okay, what's the next thing you're working on? Inbounds. Like, we want to do more with you. And it's, it's all incremental. You know, no one's walking in the door with enormous nine figure checks, but it's just these little things that start to build on each other. And it's natural to have doubt initially of, okay, this person said no, or they gave us a token amount of money that maybe they're just being nice because they don't want to like offend me. But once you start to change that perception from, okay, maybe they're just being nice to, oh, they actually, like, kind of like what we do, and you build that relationship, everything just takes, it takes years, and those things are finally starting to happen, and that's been, It's been really cool. When I was at a big firm, I managed huge amounts of money for very, very large investors. Now I manage a littl…

AI assessment note: “it's just these little things that start to build on each other”

Q One of the things you haven't talked about is brands. And so you worked for a middle market LBO shop, you worked for a small hedge fund, and then you go to BlackRock. How important do you think branding is, say, early in your career as you're trying to learn?

A I wouldn't say I ever had a conscious plan. I just tried to go to the place that would give me the most responsibility. There wasn't really a master plan around branding. It just so happens that I worked at what is now one of the largest hedge funds in the world during oh eight and oh nine because they were pretty much the only person who was hiring. And BlackRock gave me At 32 years old, the opportunity to go from being a senior analyst to being a portfolio manager, and that was an opportunity I was incredibly grateful for, and I got to learn a ton, and There was no master plan around either of those. I would say both of those experiences probably gave me a different sense of how hard it was to raise outside capital than it should have been. You didn't have to market. You just get a phone call being like, XYZ client wants to send you a large pile of money. Would you take it? And you say yes. And then that's how it works, which is obviously very, very different from, uh, the experience of starting your own firm. So again, the process for me has always been Try to throw yourself into as deep of a pool as you can and figure out how to swim, and I'm grateful that those firms gave me the opportunity to do that.

AI assessment note: “I just tried to go to the place that would give me the most responsibility.”

Q What are the couple of biggest misconceptions that you had about starting a fund that you've since learned?

A I think the hardest thing to do, and I really admire this in some of the smaller managers out there, there are some people who just want to invest and don't really have any of the externalities that we want as validation. I mean, that I admire. It wasn't me. I didn't want to just manage teens of millions of dollars in the suburbs by myself at the Bloomberg. Could have done that. Probably it would have been fun and fine, but I just, I really wanted to build something, and so I think calibrating expectations appropriately for what that means other than a small select handful of people, I think the problem you have as an emerging manager Is if you're not in that handful of folks who have spent years and years and years building relationships with large LPs at their prior firm, and you don't have this whole sort of social proof or have to get a now phenomenon at your open, it's really difficult to raise a lot of money unless you do it for three, four, five, six, seven, 10 years, right? Like, I think everyone in our industry gravitates to the handful of successes every year as opposed to the reality of building a great business over time. Pretty much every manager I admire or look up to started the same way we did. You know, it just was 25 years ago, and you kind of forget that. For whatever reason you want to chase some middle ground, you know you're not going to be the biggest and…

AI assessment note: “everyone in our industry gravitates to the handful of successes every year”

Q and wealth management firms moving to Ridgeline gain a decided advantage. That's why customers call it miraculous, game-changing, and an awakening. If that's not how you would describe your investment management tech, request a demo at ridgeline.ai. And now back to the show. Was there a moment in time that you remember saying, oh man, from the beginning of that in a really good way or a just eye-opening way?

A First year or two, I probably had that feeling, I don't know, once a week. I never thought it would come easy or quickly. Obviously I thought perhaps there were a range of outcomes that would be from half decent to pretty good. There's just such a fine line between those outcomes, but you never know. There's never a perfect time for anything. And so I just wanted to get started. And I just wanted to do it, and I felt ready, and my belief was, as long as one person believes in me, I'm gonna work really hard to try to figure this out, and that was more exciting to me than any of the potential, you block out the negative, and you just go.

AI assessment note: “First year or two, I probably had that feeling, I don't know, once a week.”