Acquisitions Anonymous - #1 for business buying, selling and operating - What do Investors want? - Acquisitions Anonymous Episode 79

Episode Date: March 22, 2022

Michael Girdley (@Girdley) and Bill D’Alessandro (@BillDA) are joined by Bradford Hardin(@bradford_hardin), Banking & FinTech Partner at @DWTlaw.In this episode we dive into an investor's mind: What do they look for in a company? And in an deal sponsor/syndicator?We talk about investing, investor needs, networking, content marketing, life cycle + evaluation of deals, and much more.Like our content? Rate our show!-----Show Notes:(0:00) Intro(1:01) Investing in private markets as a hobby(2:59) How do you find deals?(4:45) How would you proceed to raise capital as a CEO?(7:39) Life cycle, evaluation & decision-making process of a deal.(12:26) No-Gos on a deal:(14:32) Why invest in private markets? Understanding diversification, risk & compensation(18:08) How do you look at quantifying an investment?(19:57) What makes a deal stand out?(22:06) A key skill for an entrepreneur?(22:49) How to diversify investment risk?(26:11) Why are monthly updates so critically important?(29:05) What are you looking for when looking at investments & entrepreneurs?(32:10) What is your investing edge? What kind of processes do you run?(36:12) What advice would you give to your younger self?(38:36) Flipping the script! We get interviewed by Bradford(38:59) If an investor passes on your deal, would you like to hear feedback on their decision?(41:08) What are things that you see LPs focusing on that are the wrong things?(43:50) What makes a good investor stand out?-----Links:* Subscribe to the podcast: https://podcasts.apple.com/us/podcast/acquisitions-anonymous/id1533153678 https://open.spotify.com/show/4rbeAODKXwwEOxf905He22* Looking to become a sponsor? Write us an email at [e-mail]* Follow us on Twitter @acquanon Learnings about small business acquisitions and operations.* https://www.dwt.com/-----Past guests on Acquanon include Nick Huber, Brent Beshore, Aaron Rubin, Mike Botkin, Ari Ozick, Mitchell Baldridge, Xavier Helgelsen, Mike Loftus, Steve Divitkos, Dzmitry Miranovich, Morgan Tate and more.-----Additional episodes you might enjoy:#62 Two Landscaping Businesses for Sale - Mike Loftus CEO of Connor's Landscaping#Subscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

Welcome back to another episode of Acquisitions Anonymous, the internet's number one podcast for buying, investing in, and operating small businesses. We're here today with a fascinating guest, more from the investor and deal side of things. Bradford Hardin, Bradford, thanks for being here, man. Great to have you. Yeah, thanks for having me. Can you give our listeners just kind of 60 seconds on who you are, what you do, where you come from, et cetera? Yeah, yeah, sure. So professionally, I lead the banking and financial services practice group at a large law firm, Davis-right-Tremaine. We're a team of about 30 lawyers represent primarily banks, financial technology companies, and some other commercial enterprises like big tech companies and retailers and so on in financial services matters.

The team does deals, you know, a variety of different types of transactions. Myself, I work on regulatory matters and government-facing, you know, problem-solving type stuff. And then, you know, as a firm, we've got a full-service practice. across, you know, really every primary practice group. As it relates to today, I do also spend some time investing in the private markets. So look forward to talking about that piece. Do you typically invest just off your own personal balance sheet? What types of deals do you typically invest? Yeah, totally. That's probably something, yeah, something worth noting. Yeah, I'm not a professional investor. I don't manage anyone else's capital. You know, so when we talk about my

investment process today, there's a heavy hobby element to it. And I think that will come through to a certain degree. But yeah, just investing from earnings and cash flow, basically. That's awesome. I feel like this is probably an aspiration of a lot of our listeners to be doing something like this and people wondering, you know, how do I get into investing on the capital side? I know we talk a lot about operating, but I think there's probably a lot of interest in investing side as well.

Can you kind of expand on us? When you say private markets, I mean, that's a massive opportunity set. You know, what types of stuff are usually looking at or trying to sniff out? Yeah, so a variety of different things, candidly. You know, I mean, most of our assets as a family are held in public markets, you know, index funds, individual public securities. But there's a sliver of our portfolio that is private markets work. And that's primarily, you know, assets that and types of exposures that really aren't available

on the public side. You know, I try to keep pretty diversified within that private's basket. I think the biggest piece of it is real estate related, but probably something on the order of half of it is companies. Most of those are what I would describe as profitable companies of a variety of different sizes. Some large SaaS type operations, some weird things that have come into my orbit like a marina on the Chesapeake Bay, which is kind of a little bit of a passion project. And then small and mid-sized businesses like you talk.

about on the show all the time. Oh, awesome. So lots, lots of stuff to dig into. My first question is, so it's so eclectic, right? So plenty of investors focus on one specific thing and they, you know, kind of build out a network of connections in that industry and they get to know all the lawyers and all the, all the investment bankers and the deal guys and the, you know, all the companies in the space. But it sounds like, you know, everything from small operating companies to a marina, very eclective. So I'm fascinated kind of, how do you hear about this stuff? How do you, where do you go to find these deals? Yeah, that is, I don't think a question with a simple answer.

Like, in I think almost all instances, these investments have come through people that are in my network. You know, and what I mean by that is the GPs or sponsors of these deals I typically have been exposed to for an extended period of time. Like the Marina, for example, the sponsor on that deal is about. buddy of one of my law partners here in D.C. I'm a, have, you know, boating as a hobby interest. I got connected through my law partner. We started talking about this marina project and, you know, it sort of arose that way. There are other things that, you know, have come to me through different channels, you know, but I think like a lot of investors like me, we struggle with, you know, how to best find deal flow. But in my own experience, it's been.

been a process of networking, just like you would seek out any other kinds of business opportunities, and you have to build that top of funnel without ever really knowing where it's going or where the deals are going to come from. And then as that network of people who are, generally capitalist and business operators and entrepreneurs and so on expands, then the deals start appearing, you know? Yeah. So that's, it's kind of funny because all the investors want deal flow and all of the operators want to raise money. And, and yet still they struggle to find each other all the time. And so you end up with all these kind of intermediary marketplaces that pop up,

you know, on the lower end, the biz buy sales of the world, you know, on the higher end, maybe more like the axial markets or, you know, some other types of things. If you were trying to raise money, if you're on the other side, you know, if you're the CEOs, the operators that you've invested in, how should they go about finding someone like you who has the risk appetite for, the capital for, and wants to invest in a private deal? I guess my advice would be if you're at the moment where you have a deal and you need capital

and you're just starting to look for your capital partners, you're behind, right? Like, I think one of the things that I've learned over the last few years is that the best way to find people like me in general is content marketing. You know, that's what led me to this podcast at the end of the day, right, from a lot of the work that the two of you have done in putting really high quality content out for people who are interested in this type of business. And so what I would suggest to someone who might in the future have a deal, might in the future need to raise some capital, start now.

Like, start creating content, put out ideas, show people the way that you think about the world. Because like I said, the investments that I've made have been through people who I've known for a while. And I've been able to watch them. I've been able to observe how they think because they do it either, you know, in my physical presence or, in public. And most of the time, before they approach me with a deal, I've already thought,

I want to be in business with this person. Like, this is somebody that I like, they're smart, they're ambitious. I like the way that they think about the world. They're insightful. Like, I would make a bet on this person. And that's what you're doing in these kinds of deals. You're making a bet on a person at the end of the day. And we can talk a lot about, you know, what other processes that go into considering a private deal like this, but nothing matters as much as the person who's at the top of the ship. Sounds a lot like the classic advice to bet on the jockey rather than the horse and that the right jockey'll figure it out. Yeah, I think that is basically right, but, you know, and this is partly the power of Twitter, I think it is much easier to

get a much better understanding of that jockey in today's world than it would have been five or ten years ago. You know, I mean, you can just, there are a variety of different ways across a network that's not geographically limited to really get insight into, you know, how somebody thinks, how they work, you know, and all the rest. And that's really what feeds into that, just that sensation really of, I want to make a bet on this person. Awesome.

I'd love to kind of to conduct some of the rest of this interview, kind of through the lenses of examples of deals that you've invested in or looked, that didn't pass on, however it may be. So if we could do the marina, we could do maybe one of the more private operating businesses, too. And remember, this is Acquisitions Anonymous, so you do not need to reveal any names or anything specific if you don't want to. But I would love to hear sort of the life cycle of one of the deals you did, you know, how you became aware of the entrepreneur or the sponsor, kind of how you evaluated that deal and got to the decision to pull the trigger and make the investment. and after that we'll get into what happened afterwards. Yeah, I'll talk about something that happened over the course of last year.

This actually is a fun type investment in the S&B space, but I think it has a really nice story in terms of what the arc of them coming into my orbit and considering the deal was. So first came into awareness of the GPs in that through content marketing, you know, on Twitter. like I came to know about the two of you. But, you know, that was probably two years ago, or at least a year before they started raising for this project. So, you know, I had a good idea of, you know,

that I was interested in being in business with these people just, with these people just from the way that they, you know, carried on in public, like I was saying earlier. The next part was, you know, that person or those people reached out to me and said, hey, we have something we think you might be interested in. Here are the basic parameters of it. Let us know if you want to talk. And then I guess the next thing I did was, you know, I took a look at sort of an investment

plan that I made at the beginning of the year. Each year at the end of the year, I look at, you know, where our portfolio stands between, you know, all the different types of investments that are in there and what, you know, I hope to identify during the course. of a year in the private market segment. I said, okay, is this a match? Just at the very highest kind of asset allocation level. The answer there was like, yeah, it could be.

So I said, yeah, look, I might be interested in that sponsor sent me a lengthier debt. You know, so go from a one-page deck in that first contact to now a deck that's, you know, call it 20 pages. Still conceptual, still all forecast pro forma, you know, but. much more in the way of detail. So what I did at that point was then spend some time with that 20-page deck, identify what I thought the key issues were

and the drivers of success, and then set a time to have a conversation with the sponsors. And, you know, this is one of the things that I don't yet know if I'm any good at, but is a really important part of my process, which is when I get that first, you know, real deep piece of description about what the opportunity is. I'm not equipped because of the scope of the variety of types of investments and the fact that I'm not an investment professional to really scrutinize all the details of a performer

in the forecast. But I think I can identify what the one or two main drivers are of whether this is going to go the way that it's projected to go. You know, for example, this is a different deal, but last year I invested in something that was kind of a turnaround project in the software space, declining revenue company. I'm like, okay, really the only thing that matters to whether this deal works is if we can, you know, if the sponsor can stop the revenue declines. Can we get it flat or growing to any degree? Because that's going to, you know, change the profitability profile. It's going to change the exit multiple.

Like, that's the thing that matters. So I went into that call with an idea of what those one or two or maybe three things were that I thought were the primary drivers. And we had that conversation. And so at that point, I've made a preliminary determination that opportunity is within the scope of what I'm looking for in a given year. I've decided that the folks who are sponsoring it or syndicating it or whatever the model is are a team that I want to bet on. I've done some work around what I think are the major drivers of success and gotten myself comfortable with that. Something we haven't quite talked about yet, but I've had a chance to look at the terms. And, you know, I mean, a lot of deals I will just immediately pass on because of the terms are piggish or way off market.

Would you be able to give an example on a no-name basis of some terms that you saw that were very egregious? Yeah, sure. I mean, three that come to mind are like fee-load, you know, which I think is a source of both drain on returns to the LPs and also a disalignment between the GPs and the LPs in a deal. So fee load is a big one. You know, what the split of profits over a hurdle is. You know, I mean, used to be a 20 or 30 percent was pretty standard market and things

have gotten pretty flexible. You might say when it comes to that across a few different accent classes. I heard, you know, and I heard somebody on Twitter defending a 70% promote the other day. I was like, oh, boy. Like, this is, this is not the world. Yeah, right. And I'm just not of the view that, like, all that matters is that, you know, what the net to LP returns are at the end of the day. Because these deals have a huge amount of risk in them, you know.

I think that's underappreciated. They're completely illiquid. You have no control. There's no government oversight. like a lot of these enterprises are relatively fragile. They're risky deals. And I just, I'm not going to, I want to share in the upside that comes from that risk to a conventional degree. And then, you know, I mean, there are some other, any non-prorata allocation of the economics of a deal other than profits is, you know, concerning to me.

not necessarily a deal breaker, but I need to understand it. Are you talking about things like an acquisition fee or a disposition fee or things like that? Yeah, it could be that on the real estate side. What's happening with the depreciation? You know, what's happening with any other types of losses and, you know, who's bearing the risk for, you know, illegal liabilities and indemnifications and things like that. You know, what I want to see on that stuff is alignment between the GP and the LPs. Yep. Before we get kind of past the investment decision, I was really fascinated by something you said at the very beginning, which was the first thing you do is compare the opportunity against the private markets investing plan that you've made for yourself at the beginning of the year. And that does not strike me as something that many private market investors do. They probably think that they should do. They probably think they just want to get themselves into deal flow and make individual decisions about the quality of opportunities as they sort of stream through their inbox.

But you displayed, for me, what I think is a somewhat abnormal level of sophistication and rigor there by saying that each year you made a structured plan by the types of investments you were looking for. So I'd love to hear from you kind of how you develop that, you know, what kind of considerations went into picking it if you're willing to share specifically what you happened to be looking for this year or last year. Yeah, sure. I mean, I think we need to start with why do this at all, right? And there are a few reasons that I'm in these markets to begin with, right? S&P 500, very easy to invest in, takes very little time, reasonably reliable outcomes over the long term. Like, that's the easy button. So why are we doing it the hard way?

Right. And this is the hard way. There's a lot of risk involved in these types of deals. It takes a lot of time to prospect for them and evaluate them. Your money is locked up for a long period of time and so on. So I think there have to be good reasons to invest in private markets. And that kind of leads down into the plan that I was talking about. So one of the things that I'm seeking is diversification, right?

And what I mean by that is just not that this is just an asset class other than stocks, but, you know, most of our assets are high beta type stocks that are very correlated to the broader, you know, U.S. economy. I live in one of the large, you know, economic centers in the U.S., which is generally a high beta kind of geography. So a lot of my life is sort of tied to the national economy. a result of that. I work in a large institutional setting for large institutional clients that have kind of beta exposure to the national economy. So I'm looking for things that are not that way,

right? So if somebody is running a business that's transporting the elderly to and from nursing homes, that is a much different set of, you know, inputs and drivers to its performance than everything else that is happening in my financial life. So when I'm thinking about that private investment, plan. I'm thinking really deliberately about, you know, how can I get some exposures to economic drivers that are not present elsewhere in my life? So that's, that's, you know, that's part of what goes into my plan. And part of, frankly, what's really attractive about a lot of S&B opportunities, like I mentioned, the transportation business just now. Like, you know, there's no way to get access to whatever factors drive that business in the public markets. There's just no way, right?

the other thing is I think you need to be highly compensated for the risks that you're taking here. So I do some thinking about what sort of return hurdles are important to me. We're in a time when a lot of asset classes have really rich valuations. And so, you know, as I was thinking about this at the end of last year, I'm like, okay, well, this is probably not the year to invest in X. because maybe I'm wrong, you know, been inaccurate in every forward five-year forecast I've ever made, but these things seem really rich, you know? And so I'm not going to focus my attention on those things this year unless I just see something that's a total unanticipated outlier.

So is your return hurdle like a fixed number, or is it a, do you wouldn't say a sponsor or a promoter of a deal comes along and says, okay, we have 30% or our, or, our, projected four times MOIC or seven times MOIC, is that how you're looking at it and that's the lens? Or are you doing something different than kind of that quantification of it? Yeah, well, I try really hard to not rely on any single quantification. I mean, even if it's a combination of IRR and multiple, I really want to be able to understand what the range of outcomes is on a deal. And, you know, that's one thing that I will very often ask sponsors if they haven't provided it. Like, okay, run some scenarios for me that look different from the base case in the following

ways. You know, and generally, they're happy to do that. So, yeah, I'm looking at that range of outcomes that are, you know, kind of plus or minus a standard deviation. There's always those tail risks, but, like, often you can't anticipate those. So, you know, I'm looking at that range. And then I think very critically, like, you have to do some thinking about, what the confidence level is in that rate of return and how it compares to private markets. And like I said, at the beginning, I do think you need a pretty wide delta between a public market hurdle and a private market hurdle, even if it's a relatively predictable private market deal. So, you know, it's relative, I guess, is what I would say. but I do certainly feel like it needs to be healthy

compared to what you can get in a more liquid type of vehicle. Right. You talked about you like to see sponsors or syndicators kind of talk about the different potential scenario outcomes, you know, downside, you know, home run type scenario. I was going to ask what other things do you like to see out of folks that are pitching you deals? Like what sort of things will set a GP or a promoter

apart versus just a regular Joe off the street or the average one. Yeah, well, I mean, a variety of different things. Like, to me, I need a certain degree of experience and professionalism and sophistication among a team

because I don't want there to be any risk that I need to get involved in the operation of the business. Like I just, you know, I have a day job. I have other things that want and need my attention. And so, you know, I am looking just myself for a certain degree of professionalism and experience and sophistication. So that's important. I also think like very simple

communication is a big plus factor for me. Like the reason that this deal is compelling should be very simple to explain. And I tend to get a little concerned when that's not the case. You know, there's a lot of explaining going on and the case is just not clear. And that doesn't actually mean that there's a substantive difference in the underlying merits of the business, right? It's just if one person can explain it very simply and succinctly and persuasively, that tells me that they're a clear thinker and that there's a clear case for this business. By contrast, if it's a very complicated story or it's not communicated well, then I just don't know. Like, is it actually a complicated story or is this, is it just not been communicated well? And there's no way for me really to tell

the difference, given the amount of time that I have available to, you know, spend in Terry. The interesting thing, too, is that the skill of communicating clearly and succinctly is a critical one for even leading a company, let alone raising a fund, you know, at this point. So you're kind of testing that in the offering memo. Yeah, yeah, totally, right? And I mean, I think that is one of those skills that will serve any entrepreneur well, you know, being able to tell a story is important to raising capital. It's important to selling your product. It's critically important to recruiting people for your team. You know, I view that as among the most important skills for someone who's going to be in a

leadership position of a company. Yeah. Absolutely. I wanted to continue to push on just one thing, which is sort of this allocation of capital outside of just, you know, my public market exposure or my private market's exposure. Because I really like the way you kind of thought about what I'll call kind of career beta, right? Like as a corporate attorney, like, the market's doing great.

firms are buying other firms, you know, like there's all kinds of economic activity. You know, you do well at your day job, right? It's kind of analogous to like the engineer that works at Facebook and then also buys a bunch of tech stocks, right? Like if like your stocks go down, you're also going to lose your job. Like there is total correlation here, right? So I love what you're saying about looking at your entire personal portfolio through the lens of your career, which is probably the major earning lever that many people have. if they're not full-time entrepreneur, right?

Like, your biggest investment is your career, the DCF of your career over the next, over your working life. And that has a certain amount of exposure to certain industries or industry beta, you know, kind of the economy generally, et cetera. And then you've got your public markets exposure. And those might be somewhat overlapping, right? So it's very possible you could accidentally be very leveraged to just, is the economy in boom or bust generally.

And then using the private markets very deliberately to try to, buffer that, you know, with sort of like an inverted, you know, wave on when things are bad in the public markets, maybe at least they'll be good in the private markets. Yeah, for sure. Yeah, it's almost a hedge or a different kind of factor exposure, you know, because like my, my, maybe the marina is a little bit leveraged to the, to the macroeconomic cycle, for example, but the, you know, the elderly transportation business is not, you know, I mean, it's just a totally different set of factors. The other. thing that, and maybe this will be interesting, I bet other people are also in this situation.

I'm, I'm a, you know, a lawyer-entrepreneur. Like, I have the restlessness of an entrepreneur when it comes to what I want to be thinking about day to day. And that's been a challenge for me to manage in my career over the years. Like, I've been doing this for 15 years, more or less the same thing. And it's, you know, it's going very well. And I'm just starting to, you know, kind of experience the compounding curve turning up in a really meaningful way, which is very rewarding. But I also need to figure out a way to stay engaged in that work for another 15 years, if that's, you know, if that's what I want to do. While at the same time, you know, always being interested in these other things that are coming and going.

And so a couple of years ago, I realized, well, I don't have to go buy and run another business to learn something about it and see how it operates and get exposed to some. different executives and ways of thinking and operating, I can be a passive investor and still kind of scratch that itch. And so I get to, it's been a really great way for me to stay focused on my law practice, but still, you know, have an opportunity to learn on a pretty continuous basis about other kinds of businesses and meet other people who are doing very different things. So that's, that's, I think, one of the aspects in which what I'm doing here is very different from what a professional money manager doing.

It is a hobby in addition to all the other contributions that it's making. Michael, I know you want to add something, but I'll just add one thought from my own perspective as an entrepreneur. I raise money from a bunch of angels, you know, for my business and recognizing exactly what you just said, Bradford, about how so much of the value you are getting is not monetary from making these investments. You're scratching your own itch. and this is why the monthly update is so critical if you are the entrepreneur or the sponsor because the monthly update is where you scratch their itch. Essentially, the investment is the subscription to like the most expensive monthly newsletter

that there is, which is your monthly updates. And, you know, so they can sound smart when they go to the country club and they can talk about the other, the companies they're invested in and how they're doing and macroeconomically, I'm an e-commerce company, right? So my investors can sound with it and, like, on-trend when they talk about e-com. And I recognize that that is a tangible value that I provide to them, right, by investing in the company. Yeah, 100%. Yeah.

I mean, this podcast may be the coolest thing I've ever done. I get a little bit. I hope not. If so, I have some work to do. But there's another piece of it, too, right, which is I run a business, right? I lead a 30-person team of lawyers. We probably have an equal number of staff that are supporting that practice. and lawyers are not great business people.

You know, just we're not. We're not trained that way. We don't have that experience. We all came up in the same kinds of environments. There's not a lot of divergent thinking. And yet, I've been able to expose myself to a bunch of entrepreneurial people through this work that I've been able to fold back into the way that I'm running the law practice. Like, we used EOS to do our strategic planning process last year.

And it was great. And you would never see something like that in most law firm settings, right? Your strategic plan would be this lengthy memo that was drafted by committee and like it would get prepared and then it would go in the drawer and then two years later it would come out. And so, you know, I got that idea from being involved in this community and it's already paying off tremendously. So, yeah, there's the hobby and prestige thing about it. But it's also actually helping me learn more and improve and do better in my own business. Yeah, super smart. I wanted to add, like, the number of times I run into people who are, say, 10 to 15 years ahead of where we all are in their career and they've been specialists in doing the same thing for 30 years and are absolutely totally miserable.

Like, it's over and over. Like, I lost half my hearing four years ago, and I went to a bunch of E&T specialists who all happened to be like 60-year-old white men because that's, I guess, what they are. But, like, they would find out I'm an operator, and instead of wanting to talk about my deafness, they wanted to talk about how bored they were. Just like, oh, my God, come on, guys. Like, you're killing me here. Like, I don't care. Like, let's talk about my ear. But anyway, so, you know, I wanted to ask about this.

It sounds like you've done a number of deals, and it sounds like some of the sponsors and syndicators and people you've invested with, you've gotten, I mean, irregardless of money and the returns, like, what are the things that the ones you're most satisfied with in terms of who you've invested with? What are the things that those people have done kind of post-investment?

to where you're like, wow, these people are really doing a great job. Like, what are those two or three things? You're like, I wish everybody did this. Yeah. Well, and this is maybe just a continuation of some of what made the opportunity great coming in, but clarity of communication, you know, that is great. The other thing, I mean, obviously the outcomes are critically important, so I feel like I need to mention that one.

So great communication. great outcomes. And then, Bill, this is further to your point. Like, I don't want to run these businesses, but I really like getting a phone call or to, you know? Hey, we're looking at legal services business in Arizona. Like, how should we be thinking about that? And, I mean, you know, I love to talk about that for 30 minutes.

I can't spend the next two weeks on it. And like, but I would love to react to that. Like, let's talk about it. It's interesting to me. I don't want to be 60 and miserable, you know? So, like, let's talk about it. So I think if you've done a good job raising capital, you will have a really diverse and interesting and skilled base of LPs. And even though, you know, I'm the guy with the I put the limited and limited partner t-shirt on Twitter, you should not hesitate to like make use of that group.

I think, I think like, you know, Angels, obviously that's kind of part of the culture. But I don't think it needs to be limited to that kind of investing. Like, if you're running a company and there's somebody who's broadly involved, they can help you, you should ask them for help. Some of the biggest smiles I have ever seen on my investor's faces are when I have done that, or when I've called them and said, like, hey, I got this problem. Like, I'm trying to stop between these two things. Like, can you help me? Because a lot of times, you know, these are guys that had very dynamic, interesting careers and they're retired now.

You know, and like, they want to taste. They have so much to share, for one, so it's incredibly valuable for me. But also, it's super fun for them to help a younger person, you know? Yeah, and this is something that I say a lot. For your listeners, like, do not be shy about asking people who are in a position to help you for help. Like, don't hold back. There is no reason not to ask. People who have been really successful love supporting other people who are trying to be successful.

It is, like, a lot of fun. And so if there's somebody like that in your network, like call them, email them, tell them what you need, and they will want to help. You know, they might not, but what's the worst that can happen? They just won't respond or not help. Like, there's a very low downside to that. Bradford, I wanted to ask you kind of how you think about edge,

like investing edge of how, you know, what's your angle? And kind of the thing that came to mind was, you know, you looked at the dry line deal last year that we did. and like you found an error in our legal docs and you're a lawyer and I was like, wow, this is really great. Like somebody read these things. But like, so that's obviously an edge, right? You have legal expertise that other people don't. You know, how do you think about edge?

Is it important to you or are you methodical about it? Are you strategically trying to leverage things that maybe you have that other investors don't? Yeah, I struggle with that candidly. You know, I'm not a professional investor. I studied finance in college, but that's been a long time ago. I barely remember anything I learned then. So I struggle with this. I struggle with how to find deals that will give the diversification that I'm looking for

and still be within my circle of competence. But I guess what I've just tried to do is sort of use a simple process that relies on my experience and intuition to make judgments, you know? And I do think that, you know, as a lawyer, the docs are one of the things that I really do know how to read and process. And, you know, that's an area where, you know, you've just described a circumstance where, you know, like, yeah, I'm the one that actually reads all the documents, you know. And that's not necessarily an investing edge. but it is part of the way that I consider the materials and I think I can learn a lot of different things from that.

One of the things that I'm looking for when reading the documents is do they match the materials that I've seen before getting these documents? And sometimes you see things in there that suggest we have like a little bit of a candor or trust issue. Some material thing that's not great for the LPs might have been omitted. so that could be concerning. There could be mistakes like you were just describing Michael and to me the most important thing

about what happened after I brought that to your attention was how the team responded. Because that tells me everything about whether there's an issue with carelessness or whether this was just a mistake and like that team is going to jump right on top of anything that doesn't go perfectly right. And of course in your case it was the latter

and that was very encouraging and confidence-giving to me. So that is definitely part of it. I also feel as though, you know, and this maybe is incorrect, but it's just informed by my own worldview that if you read the documents, you can understand a bit about how the person is going to run the company. You can see what conflicts of interest might arise because of what they're permitted or not permitted to do. You can see what's, I mean, for one, you can see what's disclosed conflicts of interest.

In private deals, there are pages and pages often of disclosed conflicts of interest. You can at least read those and internalize them and, you know, sort of make them part of your evaluation of whether you're getting a good risk-adjusted returns. But you could also think about other ways in which, you know, some conflicts or non-alignment might be presenting themselves in the way the deal is structured. So, you know, I, edge is is not something that I have in the conventional sense of, like, being a specialized investment professional with a differentiated lens where I can, you know, go into a market and say, like, that asset is mispriced. You know, that's, that, in a way, that's what the GP is being paid to do. So I have to, I have to rely on that and just bring my own experience to bear as best I can using the tool. that I have available. Yeah, dig it.

So, you know, it sounds like, and we didn't ask exactly how long you've been on this journey, but it sounds like a number of years now. You know, what, as you look back over the past few years of experience that you've had doing this, you know, do you have any things you wish you would have done differently? Like if you could go back and give Bradford advice five years ago

before embarking on this journey and investing in these private deals, what would you tell yourself? Well, you know, I struggle with that. I guess for the second question in a row, But because my first answer was going to be that you need to look beyond real estate. Like I think a lot of private market investors start with real estate. I understand why it's easy to understand. Everyone knows what a building looks like and what the basic revenue model is.

We all have experience with real estate from, you know, or many of us do from buying and selling houses. But, you know, often that's not the private market asset. class that has the strongest returns on a risk adjusted or other basis. I mean, like I said, I have plenty of assets there, but there are other fish in the sea, so to speak. So on the one hand, I would encourage myself to look broader and, you know, look into the ETA community and the lower middle market and private equity and so on. On the other hand, actually, I think the way that I did it was just fine because, you know,

I was able to develop a sophistication for this type of investing in a relatively low-risk way of like, you know, relatively stable real estate investments and then a little bit more adventuresome real estate investments and then, you know, some op-code prop code type of stuff. And then now, you know, kind of fully into privately held businesses. And I do think that they are a little more difficult to, I know that they are more difficult to evaluate. For one, they're all very different, you know, or at least there are a number of different sub-industries that you can get into.

But they're just also without, you know, a substantial asset there, securing the deal. Things can go a lot more wrong if you're wrong than with the wrong team. So, you know, in that respect, I think actually it was a fine way of kind of getting up to speed in these markets over a five-year period. Awesome. Well, Michael or Bradford, is there anything else you guys want to add before we kind of wrap this up? Yeah, can I put some questions back to you two?

Oh, flipping the script. Yeah, let's do it. Whoa, whoa, whoa, whoa, we'll do the interviewing here. Go for it. Go for it. Yeah, because look, you have investors in your audience as well. I listen to the podcast and always enjoy it. So here's one. If you send a deal to a prospective investor and that person decides, to pass. Do you want to hear from them about why they made the decision to not invest?

Yes. Yeah. Yeah. I mean, sometimes it hurts, right? But definitely yes. Okay. Why? Because there's a chance that's something you missed. Like, it's a chance that someone else, you know, that you could address with the future people that you approach. You know, like, for example, I am passing because these terms are way off market. Okay. Right. They might have heard what the terms were on Twitter, right? And they might, you know, not, they might go, oh, shit, I didn't realize that. You know, and they might want to know that. Yeah. There's, you know, I think, I think that raising money for a deal is a consultative sale. Like, it's not a transactional sale, right? And so you're very much trying to identify what if anything can match what you have with what somebody else wants. And so I think that's one thing from a kind of game theory.

standpoint, I want to hear why somebody's not interested, even if the answer is, I think you're a dufus, because, like, I want to get better over time. I view, I view syndicating deals or raising money from investors for deals as, like, the best free consulting period. Because unlike PWC or any of these consultants who come in or McKinsey, who have no skin in the game whatsoever, like, this is somebody who's looking at my deal with real skin in the game, and I know I'm going to get a real, real look at it. So I want to hear from them why they're passing. And it could be, it's not consistent with their thesis. The returns aren't good enough. I've gotten that answer before. You know, those are all things where I'm happy to get it because, you know, knowledge is power

around this. It makes you, makes you better for the next one and more successful. So when you're involved in that consultative sale process that you were just describing, Michael, and both of you have mentioned that you've raised capital, what are some things that you see LPs focusing on that are the wrong things. You know, that just don't matter, even for them. Yeah, the legal docs.

No, I'm just kidding. No, I mean... Dushay. No, I... I've had people so worried about some nuance paragraph of whatever, you know, and they're looking,

they're looking at the forest floor, looking at where the bugs are headed, and instead of actually just worrying about the fundamental thesis, or like you said, you did, every deal has one or two core bets that you're looking at, and you're saying, okay, well, is this going to happen? Is this going to happen, right? And that's how you can evaluate the deal.

So, you know, the routine pattern I see, and I love everybody I talk to, but they are slightly more frustrating when you have to spend hours answering nuanced questions for somebody that has no bearing on the deal whatsoever, right? It's just like, you know, they're the ones that are like, take me straight to the 500-page data room because I want to read every single thing about how some transaction happened 14 years ago leading up to this

current deal. And so I would say that's kind of the lens. I like your approach of, okay, I'm going to look at the thesis of the deal, and then I'm going to work top down from there. The ones that I see get stuck are the ones that are so worried about bottom-up things. And then as a GP or a syndicator, it's very frustrating because those people a lot of feel like they're the ones looking really hard for just an excuse of why they're not going to do the deal. And they're oftentimes part of groups. There'll be like five people that invest together.

And there's the one of them who gets targeted to be the no man. And it's just like, ugh, like you're just wasting my time. If you want to say no, just say no, but they're looking for an excuse to do it. So that's kind of the fundamental problem that I see with people who just think themselves into not doing deals. You can always find a reason not to do a deal. Always find a reason. So that's what. That's, why groups are killer. I totally agree, Michael. Like, group decision making is brutal because with stuff like this, as you mentioned, Bradford, you know, these are high risk opportunities. So the more people you put in a room with veto power, the lower the chance that the group is

going to decide to pull the trigger. And by the way, this goes for Angel groups, but this also goes for, you know, funds with big investment committees, right? A lot of times you might get one partner on board and you're going to move them into the yes column prematurely. And you don't realize that they haven't gone to IC yet. And then they go to IC and it moves very quickly out out of the yes column. So I'm now, I've learned to be very, very specific about learning who the decision makers are and who has veto power over that decision and when they will be looking at the opportunity. So, and this is my last question, maybe the other side of the coin that we were just talking about. But when you've been raising money, what have been the characteristics of

the prospective investors that just made you think, wow, you know, that is a good question. That is a good process. This person is really standing out as, you know, trying to get to yes in a way that is noticeable compared to the others. One that jumps out for me is when, whenever they guess the thing that I haven't told them yet, like, you know, because, you know, you as the money raiser, right, you can only cram so much into the deck or into the pit. right? And there's probably stuff that you have in the longer term vision that you think is maybe a little too out there or a little too, you know, pie in the sky. You don't want to distract people with, right? But a lot of times, a couple times I've had investors that said, okay, I get everything

in your deck. But like, what if we also could do, if we succeeded all this, we could then do that. And I go, yes, you really get it. Right. Like you're, you've gropped everything that's in the deck and jump forward to what if it works? They're asking what if it works, not what if it doesn't work, right? If it works, they can get really excited by the upside. I love that. Michael? Yeah, I think it's really great when somebody's like in the place you're at where it's like, okay, here's my core investing thesis, here's my parameters, here's my methodology, here's what I'm evaluating, here's how you fit or don't fit into that, and then keeps you appraised of how they're going to run that process and

sexual expectations of it and what they need and what you need to do. That kind of regimented clarity of what their approach is going to be is just amazing. Like I had a person in the last deal

and he was like, I'm going to want to talk to some references later. So he did two things there. One, he set our expectations. And then secondarily realized that at this juncture in the process, when he's just getting his head around the thesis and thinking about everything, he was not going to ask for that until later on, right?

And it was like, oh, okay, like, thank you for telling us your parameters. Thank you for telling us who you are, what you're looking for, and then what your process is going to be in timeline. And, like, that was just amazing. And even if it was a no, I felt like I was treated fairly and considered. And this person ended up saying yes, so it was fine. But even when people passed, then they say thank you. And I'm like, okay, great.

Like, that was wonderful because you felt like they valued their own time, but I also felt like they valued our time because we're all just trying to move the ball forward. So that's the thing I like. Yeah, and you knew where you stood along the way, right? Absolutely. Yeah, I mean, I have a group that I have a group that I've worked with a couple times. And I'm pretty sure they don't ever tell me the truth when they pass or say yes. Because I'm starting to not believe it. I'm like, wait a second.

Like, I don't think, you know, this pattern doesn't really work. And they're good people, but I just think that's their culture, which isn't as much fun on the syndicator side, right? On the promoter side. Yeah. So in the end, what matters is are you working with high-quality people and some more fun than others? And these are a high-quality group. So don't get me wrong. But yeah, it's funny.

And that's the thing I also like about it. It's the psychology of getting to work with all these different people and seeing their lenses and how they think about different stuff. That's just so fascinating to me. Like, I find it to be a ton of fun. Awesome. Great. Well, thanks. I appreciate you hearing me there at the end.

That was awesome. That was really fun. Yeah, that was great. Cool. So let's wrap it up. So Bradford, we'd like to kind of give all of our guests a chance to do like a call to action here at the end. If people can help you out in any way, where they find you on the internet, things like that. Yeah, sure.

So follow me on Twitter. I'm at Bradford underscore Hardin. If, you know, so I always like meeting new people. that way. And of course, if you need the kind of legal services that I provide, send me an email. I'd love to connect. And if you are syndicating a private deal, I'm sure you would like to see it. Yeah, right. Of course. The topic of the podcast. Cool. Well, awesome. Thank you for with us Bradford. This has been another episode of Acquisitions Anonymous. We will see you next week.