The Exchanges

Q Okay. Why is it that ten million is that number? That gets you guys excited.

A So, ten million is a rough number that you've clearly proven there's something here. There's not only product market fit like a venture capitalist thinks about, but there's also real scale. Separately at ten million, the problems that you face start to be really problems of capital allocation, and that's where we can help the most. Kind of from zero to ten million, you're getting your first customers, you're figuring out what the flywheel is. There are investors who are fantastic at that. Where we're especially helpful is helping you think about how to make your financial stronger, potentially acquiring smaller businesses. That's actually one of the number one reasons to work with us and things of that factor. So it's just what we're good at is what we love. And it's also where we think we can add the most value.

AI assessment note: “Separately at ten million, the problems that you face start to be really problems of capital allocation”

Q Why go for a majority and in some cases accept less than a majority?

A Yeah. So the benefit of majority is control and it allows you to really run the playbook that you think makes the most sense. Now you obviously have to have the team operating it and there's still true partnership there. In some cases, people aren't ready. To have a majority owner. They are ready for a 25, 40% owner who has a real say around capital allocation and other things that matter. But in some cases, um, people are just ready for a significant minority owner. So when you think about that, back to your question earlier, The real bottleneck for any strategy in investing is just high quality people. I'm a big believer that when you find someone who's got something special and they're doing something special and you diligence them from all possible angles to realize that they are exactly the kind of person you want to partner with. That's the kind of person that even if it turns out to be a significant minority, you absolutely have to think.

AI assessment note: “benefit of majority is control... In some cases, people aren't ready”

Q So what are the hardest things that you see people face going through this kind of a transition?

A The hardest thing is letting go. And I've seen this from friends and folks we've backed who even sold their business successfully. You spend years and years and years building this thing, living, breathing it, And then there comes a day where it's someone else's and there comes a day where your daily routine is very, very different. And what I've noticed is that sometimes people almost just want to like go start the new thing all over again. And of course they're at a different stage in their life. They're 1020, 30 years down the road. The market they knew so well, 10, 2030 years ago has changed. And so I've seen a couple of different reactions people have had to this. One friend who I thought was going to jump right back into the deep end, got really comfortable being like, you know what? I'm semi-retired. You know what? I'm actually retired. And so, but that was still a process. It took about like a year to watch unfold. There are other folks, they just kind of busy themselves with projects and whether it's a, you know, a software project they're developing themselves or something else, they just go right back into it. Now, whether it reaches the scale of what they did previously is TBD. By far the, the hardest part is just letting go of this thing you created. Cause at the end of the day, as much as a business is a business, it's also a creation of the entrepreneur.

AI assessment note: “The hardest thing is letting go.”

Q What do you mean by empty calorie revenue?

A There's a lot of the times that you'll get a big contract, but the big contract is eaten up by all the costs that are required. To serve that big customer sort of the quintessential example is sometimes naively people want to serve a Walmart or a similar giant like that, but they will find a way for them to get all of the value of that contract, as opposed to something that's much more repeatable and much more profitable for the firm. The other thing we like to do with every company is to have them actually look at their unit economics per customer. So what I've found from bootstrap businesses, like we target on, for instance, is they'll be like, well, my revenue is X and my profit is fraction of X. I'm good. But if you actually look in the middle there, sometimes you'll find similar to the story we just had about, you know, empty calories. There are some customers that are losing money on, and you have this moment where you're like, how did you not know you were losing money on this customer? Like, well, but my revenue is X and my profit is a little bit less than X. I'm like, no, no, but profit can go up if you actually fix that contract right there. So that's a big part of what we do every time we come in.

AI assessment note: “a big contract, but the big contract is eaten up by all the costs”

Q Is there no way to sue them to regain control, even if you don't own all the equity to, to maintain or regain some sort of control over the decision making to stop them from destroying the company?

A So non-attorney, I'm gonna put a big disclaimer right there. What I would say in general is I don't usually think there's a recourse like that because at the end of the day, you made a transaction. Transaction was exactly, you know, like short of fraud or anything like that. There's not a lot of lawsuits that happen in the U S for things like this, to my knowledge. And that's ultimately a good thing because it encourages us to take risks. I mean, you know, you're in Europe right now, Europe has a very different risk taking culture based on liability and things like that. We have much more of a entrepreneurial culture that it says you make a bargain. You get the benefit of the bargain. You don't get to come back and, you know, decide that you just want it back for free. Now you've seen people sometimes try to buy back their stake in the business, but it's just gets really messy.

AI assessment note: “I don't usually think there's a recourse like that because at the end of the day”

Q So when you Convince your, you have like a board of directors. So like, how do you, how do you handle the actual process of, um, acquire, like acquiring, uh, the equity and all of that?

A For us, it's pretty straightforward since the co-founders are the deciders and we're also the ones who are really working with the companies directly. In most places, it's exactly what we described. There's a board, which is usually called an investment committee and that investment committee would You know, take all the layers of folks on the team who've done the work, sit around a table, figure it out. But in our case, my co-founder Gordon and I are the ones meeting the, meeting the entrepreneurs, getting to know them, underwriting their business. We do have a checklist. We do have seven things we're looking for specifically every time we meet a company. And then we have a really extensive checklist that is meant to just kind of put speed bumps in your decision-making. Cause the number one thing about investing is you don't want to fall in love with ideas. It's one of the reasons I think sometimes like true entrepreneurs, operators are not always It's good investors because the secret to operating and being an entrepreneur is you just run at the problem. The secret to investing is sometimes you take a step back and be like, hold on, let me actually think about this because it sounds good, but that might not be the way it plays out. So in our case, anytime someone's talking to us, they're dealing with the deciders. And that being said, the deciders still do everything we can t…

AI assessment note: “my co-founder Gordon and I are the ones meeting the, meeting the entrepreneurs”