Invest Like the Best with Patrick O'Shaughnessy - Justin Ishbia - Lessons from Acquiring 586 Companies [Invest Like the Best, REPLAY]

Episode Date: September 2, 2025

Today we are replaying my conversation with Justin Ishbia. Justin is the Founding Partner of Shore Capital. Shore is a private equity firm that invests in microcap businesses within industry niches. With $7 billion in capital deployed but an average transaction size of just $12 million, Justin has worked to build a system to drive success for hundreds of businesses through replicable operating procedures and championing young professionals.  The firm has created a moat around volume with nearly 600 acquisitions over the last three years, some of the highest numbers in the world. We discuss identifying growth prospects, constructing a meaningful board, and the business mentality behind main street, not wall street, as Justin puts it. Please enjoy my conversation with Justin Ishbia. For the full show notes, transcript, and links to mentioned content, check out the episode page here. ----- This episode is brought to you by⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Ramp⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Ramp’s mission is to help companies manage their spend in a way that reduces expenses and frees up time for teams to work on more valuable projects. Go to⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Ramp.com/invest⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ to sign up for free and get a $250 welcome bonus. – This episode is brought to you by⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ AlphaSense⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. AlphaSense has completely transformed the research process with cutting-edge AI technology and a vast collection of top-tier, reliable business content. Invest Like the Best listeners can get a free trial now at⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Alpha-Sense.com/Invest⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and experience firsthand how AlphaSense and Tegus help you make smarter decisions faster. – This episode is brought to you by⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Ridgeline⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Ridgeline has built a complete, real-time, modern operating system for investment managers. It handles trading, portfolio management, compliance, customer reporting, and much more through an all-in-one real-time cloud platform. Head to⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ridgelineapps.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ to learn more about the platform. ----- Invest Like the Best is a property of Colossus, LLC. For more episodes of Invest Like the Best, visit joincolossus.com/episodes.  Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here. Follow us on Twitter: @patrick_oshag | @JoinColossus Show Notes: (00:00:00) Welcome to Invest Like the Best (00:03:07) The Role of Early Career Energy in the System (00:07:47) The Importance of Being Thematic and Process-Driven (00:08:25) The Journey of Building a Business (00:09:50) The Perfect Shore Capital Deal (00:15:44) Building Competitive Advantage through Volume (00:19:02) The Role of Board Members in Investment Success (00:25:10) Choosing Industrial Subsectors Over Software (00:29:37) Identifying Industry Leaders (00:34:15) The Process of Identifying Potential Investments (00:37:35) The Impact of Business Consolidation on Reputation (00:46:33) Exploring the Concept of Unfair Advantages (00:51:03) Building Platforms, Not Buying Them (00:52:16) The Power of Operations and Knowledge Sharing (00:57:36) The Excitement of Sports Franchise Ownership (01:09:48) The Kindest Thing Anyone Has Ever Done For Justin

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To see what happens when you eliminate the busy work, check out Ramp.com slash Inverc. Hello and welcome, everyone. I'm Patrick O'Shaughnessy, and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money. Invest like the best is part of the Colossus family of podcasts, and you can access all our podcasts, including edited transcripts, show notes, and other resources to keep learning at join colossus.com. Patrick O'Shaughnessy is the CEO of Positive Sum. All opinions, expressed by Patrick and podcast guests are solely their own opinions and do not reflect the

opinion of positive sum. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of positive sum may maintain positions in the securities discussed in this podcast. To learn more, visit psum.vc. My guest today is Justin Ishbia. Justin is the founder of Shore Capital. Shore is a private equity firm that invests in microcap businesses within industry niches. With $7 billion in capital deployed, but an average transaction size of just 12 million, Justin has worked to build a system to drive success for hundreds of businesses through replicable operating procedures and championing young professionals. The firm has created a moat around volume with nearly 600 acquisitions over the last

three years, some of the highest numbers in the world. We discuss identifying growth prospects, constructing a meaningful board and the business mentality behind Main Street, not Wall Street, as Justin puts it. Please enjoy my conversation with Justin Isbio. Justin, it's such a pleasure to have you joining me today. I remember on our very first call taking more notes about how you were building your firm than about any firm introductory call that I can recall. And I want to start with a line that you said when we first met, which is that the system is the star as you think about building your asset management firm. Maybe describe why that term or idea is important to you and how it applies to short capital.

I followed your show for a number of years and it's been so impressive what you've built. So you guys have a best in class audience and show and I'm on every part to create our price value as a system. No one person creates a star. And so our view have always been like how to create a system, a machine, a process that creates differentiated results outcomes. And I was raised in an environment and said you always look for opportunities where others aren't looking.

And my view of the world is the last inefficient part. of the private market ecosystem is the microcap, and this is where we spend all of our time. This is businesses we define as sub 10 million EBITDA investment. In order why most people don't play here, I think several reasons, I mean, it goes back to the system of the Star Dynamic is that in order to play here, takes more resources than normal. Buying a business with four of EBITDA, no audit, and a management team that is oftentimes no, I would say, running the biggest business that I ran before that day, is different than buying a business that's doing 50 of EBITDA, the professional.

management team that's been coming in together and have run a business three times the size before and now coming down to run it. And so back to the system. To me, everything goes back to the system. Everyone has a role for the organization because I've got a lot of sports as well. How do you become best person at your job day and day out? How do you become the best controller? How do you become the best deal professional? How do you become the best marketing leader? And so the system for us is documentation. I look up to organizations or operating companies like Donnaher, the DBS system. we're trying to create something very similar in the private equity community.

And so everything we do is codified and written down. If you walk in your four walls and you're in our offices, we have the concepts of an idea of someone in our firm comes up when they want to invest in the sector. Let's pick on the veterinary sector because everyone knows the veterinary news. So, okay, idea generation, until the day we sign a letter of intent to that platform, we call that nine things of baseball.

There's literally hundreds of steps that go into each inning has these between five and 15 steps. You must go through. they sign a letter of intent, there's four quarters of closing a deal. We have to make mistakes over and over again. You make a mistake, you actually add something to that four quarter, say, hey, make sure you check with international tax counsel by ABRC. So create a codified system. We close a platform.

We 100-day plan. We have 23 standard operating procedures we put into every business. So we essentially onboard to the shore way of how we do things. But we own a business that's the planting phase, the growing phase, the harvesting phase. And we exit of business is three periods of exit like hockey. A lot of sports analogies, but what this allows to be done is, it allows scale. We've done over the last few years, about 600 acquisitions, according to pitchbook more than anyone else in the world.

Average enterprise value, though, of transactions, $12,000. Wow. Hundreds of them deployed over $7 billion in a three-year time period, but across 586 transactions. So why the system matters is, early career energy, first-time leaders running through their own first platforms, giving these people the tools and resources. and saying here's the rules. I believe we're of see one, do one, teach one. Patrick, come work on my team.

Sit next to me. Let's go do a first deal in the veterinary shift looks like this. Next one, C1, that's the C1. Do one, let's do it together. We'll do it hand to hand. I'll tell you why I'm doing it. The next one, you're teaching me how you're doing it. In order to own something, you have to be able to teach you somebody else.

And so this system is set up in a way to allow early career energy, young professionals. I believe private equity world is a hustle game, and the system is set up a way to have talented people who want the ball earlier in their career to have the chance to grow and have a big role in a deal and the system allows for that. And so that's why our systems are star. No one person makes this place go. And we have to say more stars into our system, the brighter the system burns. Poking around of this system for the rest of our call is going to be so fun. And there's so many different areas that you've had this very careful, systematic thinking for how to do great deals and run a great business. Before we do all that, I'd love to rewind back a little bit to the origin.

of the business. And you, like so many of the investors that I've found to be the most interesting, started by, I think you called it your pre-fund. You were doing these deals without a committed capital vehicle. You were sort of a fundless sponsor going around raising capital for great individual deals. And it was you. You started this. And it's easy to say now you've got this big, amazing team, seven billion dollars, hundreds of deals and so on that there's this great system. But it starts with a person. And I'm curious to understand like the formative experiences in those early deals, what you were looking for, why you were attracted to it, and then why the system began to emerge? What was it that made you think about the market this way and want to stay

discipline doing very small deals, almost constellation software style, rather than do what most private equity firms do, which is start to get bigger and bigger and bigger in their deal size? So it wasn't just me. My partner, Ryan Kelly, my partner, Mike Cooper, and John Hennig, the four of us from day one, we were young. I was 31, they were 29, 28, and 27. So we were kids. We were essentially associate levels. What where it came from is, no, originally Ryan and I, Ryan was at Water Street. I was at Valorkei partners. And what we would do all time is we would see a deal as like three or four, we'd be done, an attractive sector. We bring it to our old boss and basically say, here's a roll up in this opportunity in the sector. And effectively

you're heard, you know, in different ways of saying, like, interesting, but you're one of my X number of deal guys, we have to deploy X million dollars per year, whatever may be, doesn't make sense for us to do that. And basically what I heard over and over again was, no one is investing as part of the market because when you're good at private actually what do you do raise a bigger fund when you're not good you wash out so who stays small for a long term answer is really nobody and so we decided if you to have a franchise a microcap franchise that would stay small for the long term but have a bunch of different products and so it was probably formed a days that is when we had a pre-fund like pre-funds are something I think that people

zoom past these days want to go raise the first fund one 200 million dollars like it is really hard raising $200 million. It's really hard raising $100 million. And so the reason why we did it that way, I wish I could say I was smart if this was like plan, but my mentor said to me years ago, it was like 2007 or eight and said, Justin was a good time to fundraise. It's a bad time to invest and vice versa. And he said, when you start, make sure you start when it's a bad time to fundraise. So I knew it in 2009. I didn't know 2009 March was the bottom. I didn't know that was exactly, but I knew it was bad. I didn't know how much worse it was going to get. But I said to myself, well, you got to do it when it's bad out there.

And so I can't raise the capital. I have no track record. I was an associate of a private equity firm. I was a lawyer first and an associate a private equity firm. No endowments can invest. That's how I'd call them? They're like, yeah, come back to the track record. I was like, how do you get a track record?

We went out and raised money when our first was a pre-fund. It was a $10 million community capital vehicle, but a couple important points on that. Instead of raising just $4 or $5 million for the first deal, we raised $10 million of committee capital. And why? So you can do them really good advice that they go for your first add-on, someone who's get divorced, someone has changed their mind,

and by having a community pool of capital, we don't spend much of time raising capital for the second add-on. So having a $10 million credit group to pool is mostly wealth managers, founders of the private equity firms, head of law firms, traders in Chicago. We went to our little network. We didn't have great wealth, but didn't much of all our small offices with 1,200 square feet.

But those very early days, it was about being thematic. And it was about buying a little business where we felt like we were all health care at originally, where the founders were excellent at something, but did not want to do something else, which was usually the business side. So they were a pharmacist. Man, they could mix XYZ and everyone in town wanted to work with them

because they had the best output. And so in those early form of the days, it was pick the right theme, invest in a business where the founder clinically was really sound. We used to say a short couple, good medicine is a good business. We wanted to find a good health care provider that had respect of their peers, invest in this little business, then bring systems and processes. We call it a flash and a dash, a dashboard, and a flash every single week. We have to say if you can't measure it, you can't manage it.

But the very early days, we were very process driven. But this pre-fund, everyone wants to zoom past it nowadays, but you get seduced by the world of Instagram or Facebook or TikTok where everyone raises the first $200 million fund. Guess what? Most people don't start that way. Most people start something very simple. I like to think of a short capital story was not that similar from some associate or VP

and other private firm right now. It takes time. It takes 10 years. If you get it right, you do it exactly well, you have good deals, you will make less money your first 10 years than you would have stayed in the trajectory you were. But after your 10 going forward, it flips a material in the direction. And so I think people want to go pretty fast these days. But I always say, slow down, go buy one good business, buy a second good business.

Make sure those are going well. If you buy two or three good businesses, you will raise a fund one day. But don't think it's because you work at XYZ firm, you're going to spin out and go raise money. And do it now. Do the time is crappy out there. Recession is here or coming, but now you think about it. I'd be raising it now.

I'd be going to invest in businesses when it's a hard time to create enterprise value. Sellers are scared. There's relatively low earnings profile and multiples are relatively lower. Looking backwards, don't do it in 2019 when multiples are tippedocked and easier raise capital,

but it is really hard to get it right because you're going to sell it five years later, probably into recession as opposed to you buy it in 2024. I'm pretty confident. We would not be selling a recession in 28, 2930. So obviously, you were hanging your hat on this ability to stay in the small average deal size. So $7 billion, but a $12 million average deal size is quite something,

which is not a lot of examples of firms that have done that. So with that in mind, maybe describe what is the perfect canonical short capital deal? What does the business look like? What does the multiple look like? What does the prospect for growth look like? If you had to atomize it, how would you describe it? Everything starts for us to industry. So we're very organized around industry themes and thematic.

So pick an industry, we would say, has great long-term growth potential. It's much easier to be playing ball industry as growing than going the other direction. But not talking to the perfect type of deal for us, then 59 platforms and firms history, average revenue, about $18.5, $19 million of revenue. Average EBITDA, $3.5 million, paying about $7.5 times. That's what we've done, levering it two times. So under lever, over-equitized. and usually about 80 to 100 employees.

This is Main Street, not Wall Street, and we're buying businesses, but it's in a sector we believe that you create value by consolidation and scale. And so back to the veterinary industry as an example, value is created by hiring and partner with the best veterinarians. We love investing in industries where there's much more demand than there is supply. So what do we do? I become the supplier of choice. By supply, that means be a place where veterinarians and vet techs want to work.

If you have great people want to work with you and demand where it is, then you have a chance to grow relatively quickly. So we're buying businesses that I think are in a part of the market, that have a price point that is different than what they do with scale for a lot of reasons. Imagine teams have not been developed. They don't have multiple geographies. They oftentimes have customer concentration. But we're okay with that.

These are risks we take. They almost never have audits on QuickBooks. These are all parts of, I would say, size above the country club round, but below where institutional investors, want to invest, Constellation software, market owner is a friend and a mentor. I'm not smart, I know how to copy. And credit copy, they did it all in software.

We've done it in operating businesses, but it's a main street little businesses, where you can aggregate 5, 10, 15, 25 of them or more, and get to a spot where there truly is synergies where your cost of goods sold can go down because of scale. You can have data points on pricing to be able to have better intuition and knowledge on pricing dynamics.

You're able also to shift labor around to have their legalization. So in a route-based business, for example, you have more density than a certain geography creates value. So I want to have multiple ways to win. I think the last thing I'd say is, unlike larger organizations that buy bigger businesses and competitive auction processes, we're buying them these relatively smaller businesses. If we get the first deal wrong in the thesis, it isn't a death blow. Most times in private equity, broadly speaking, someone commits $100 to a thesis.

They're investing between $60 and $80 of that investment for the platform and reserving $20 to $40 for add-ons. We're almost exact inverse. I'm committing a hundred dollars to the thesis. I'll deploy five to 25 for the platform. And what that does is it creates an opportunity to under lever, make sure the management team right. And if the first one is what you thought it was to be, your second or third investment in that sector still can be good

and become the headquarters and the platform later. And so it gives that great opportunity, I think, to increase your margin of safety, increase an opportunity for success. So all that stuff together creates, I think, a really important part of the ecosystem. system. This part is inefficient, and I think by layering operations, you layer in margin of safety, you layer an upside from operations, if I get one or two of our things right, we make three times

of money. If I get four or five right, we make five, six, seven times of money. If we get everything right, returns in the teens and 20 multiple times. And so there's multiple ways to win. I like investing right. There's lots of ways to win up your life on one or two factors. One of the things I'm personally really focused on is thinking about the different kinds of opportunity cost for capital today. As rates have gone up, as the S&P has a certain sort of expected return, call it 10% over the long term, that really to deploy capital away from risk-free rate or very cheap index funds, you need to demand like a really high rate of return.

And otherwise it's just not worth it. You might as well just stash it somewhere liquid and go home. What have been the rates of return in this style of investing historically? Now that you have so many deals done, lots of deals exited, 10 years of experience, just level set us a little bit on the return profile. of a strategy like this, the return on equity. Yeah, it can't be for everybody else for our results. So we've done 59 platform investments.

We've exed 14 companies. So it's not a same track record forever, but it's definitely a growth in mass. Our average gross cash on cash has been seven times cash on cash, an IRA are 72%. We've never had a deal lower than three times gross cash on cash. Our median is 5.5 times gross cash on cash. So you're talking about the 50s IRA. So you're talking about 70s gross, 50s net. I'm not saying you do that forever, but that's been the store.

results. And this ecosystem does produce, I think, a really strong risk adjust rate return profile. But it's hard to do it is that the reality is when you're small, you can do it, but then you get bigger and bigger, you raise bigger funds, and it's really hard to stay here. That's just the reality of it because your vice president becomes a principal. When they want to come a partner, you raise bigger funds. And it's harder doing smaller deals. Some of our biggest deals are the most easiest to manage because my managing team are so darn good. It's harder to get it right. There's more risk involved, but I do believe you get it right. Now, you have, I think, an asymmetric shore profile. One of the things I used to love studying in my quantitative research days was just return

on invested capital of public companies. And the norm would be that RIC mean reverts. If it's really high, it gets competed back down. But there were always some platforms, a lot of them are the biggest companies in the world today that would have these bizarrely persistent high returns on capital. And when you investigated them, you found classic business moats. It seems like the same question applies here. Like, what is the system moat as you would describe it? Because 70%, 50% IRAs, these seem so high as to be like almost unsustainable. I mean, obviously, those are certainly high IRAs and even half that would be good. But how do you think about building unfair advantages into what you do so that you can continue to earn really spectacular results?

I wish I could say I was smart enough from the front end to plan this, but I got a little bit lucky, I think our moat is the volume. The number of transactions that we do creates an ecosystem, creates a deal of young professionals, work at short capital, it gives the opportunity to have so many different executives around the table that reuse people over and over again

and try people at relatively small businesses. And so I believe the next 10 years of private equity is all about operational excellence. So we lean really heavy in operations. We have 150 full-time people approximately at short capital over which half of them are our operations leaders. When you're buying a relatively small business

from an honest, good founder, who has nothing but good intent to grow their business, but they often leave a lot of these at a table. the risk they want to take, there's four of EBITDA to go buy a $4 million machine to automate something. They don't want to do that sort of stuff. And so at this part of the market, it's inefficient. And there's an opportunity to, I think, dramatically improve these businesses in the first 18 months. We believe also 80% of our CEOs are first-time CEOs.

We believe in this thing called early career energy. We believe that it takes a really smart person about 18 months to learn 90% of the industry. that last 10% takes five years, $10,000. We bring board members to complement them. I think the opportunity is finding individuals who want to plan a part of the market that doesn't seem as sexy at first. But once you get in there, return on invested capital.

If I'm a founder, I'm a CEO, I understand what's going on. Your profile here is much higher than investing in larger businesses. That's just the reality of it is that I lay out the math all time for board members of ours who we recruit them to our boards and we usually have about seven independent board members

and every company we buy. And they don't get paid any cash company. They get options in their company. If it goes well, they do well, and they also get a chance to invest in those businesses. But the math of them, I say, is they've had it now nine times that someone's off the board become a CEO for us.

When they see, if you get it right, when they look at it, okay, median returns in the product industry pretty good is two times of money. I think that's a good fund in most returns. And so our math, we say, is for us, if you can be a CEO of a large business that has no $300 million equity behind it,

It is quite common to have an equity option pool that in a 2.2.5 times cash on cash, they can have a $29 outcome. That is a middle of fairway, I think, for a lot of CEOs. You can make that as part of the market by the cash on cash profile, getting it right. And it is oftentimes higher probability of success, especially when you can recruit talent. Given a CEO that can go recruit his, her network or two or three awesome people to come to this part of the market, they see the opportunity. And return profile could be six, seven, eight, nine times.

your money because of multiple arbitrage, because of operational improvements, because of the opportunity to invest in these little businesses that have many things left on the table, that founders know that should be done, but they don't want to take the risk themselves. Appropriately so. You know, it's middle of the fairway for us to have three founders who, one is 65, one is 55, one is 45. The guy has 65, more risk of course. He has 45.

Once lean a little bit more, great. We can partner in that dynamic and give them some real upside and give them a chance to differentiate. but this part of the market does create those unique opportunities. You get it right. You're talking about seven times of money. And I think there's no better way than to create value than to compound it and be a leader in a business growing in a really fast pace. One of my absolute favorite encapsulations of your systematic mindset is the way you set these boards up. We talked about it in some detail when we first met.

And I love this idea. The idea of a $3 million, even a business, having a fairly high-powered seven-person board seems ridiculous, unrealistic. But you figured out a way to structure the incentive. and the composition of the board, like the nature of each board member and their background, that's really seemed to been a key part of this system being the star.

Can you just describe that system, the board system, and incentive structure in as much detail as you can? I have to say, I build a board like a basketball team. I don't want five point cards. I want a point guard,

a power forward and center. What is traditional in private company investing before I found on shore, I invested in small companies, about $20,000 bucks, $50,000. What happened normally is that whoever for the most money, it was the board.

And usually they had no relevance, no importance. The guy puts it in a half million bucks and they say to the board. No, that never happens for us at all. And so we want to go, we find we call the Mount Rushmore of that industry. So back to the veterinary industry as an example. I want to identify who by industry standard reputation is viewed to be best in class. I mean, you use sports analogy.

I think people oftentimes know college basketball. Who is Tom Izzo? Who is Mike Chishefsky and who is their family tree? Every industry has their Tom Isle and their Mike Shishvsky. who are in a preemnant basketball coaches. And so we build a board like a basketball team, and we say I want someone, two people who have run a business in that exact same sector,

at least three times the size of what we acquired. So that person has been there and said, I've been through this journey at this exact size and metrics. I want to voice to the customer, want a voice to the supply chain, usually want a functional discipline expert who has been in that sector, like a CFO, who knows metrics called,

and one or two people from an adjacent sector. This board of seven individuals, a lot of times our board members, were first time joining us, they laugh. They say there's more people on the board and there's millions of revenue. We buy a business doing eight of revenue, nine people at the board. So it's a way where we're stacked board, but we're stacking boards in a unique way. That creates a lot of value.

And we'll be clear. This is more secret sauce. I don't mind it because this is how I started. We pay them zero. Pay them zero in cash com. Feed them back. The lead director gets a small stipend to be more involved. We do the lead director and we have six regular board members.

Those regular get zero cash comp, but they get options in the company. in our base case to make $250,000. That's breaking out, very simple, guys. It's very simple that on average, you're over five years. On average, that's four boardings a year. So you're talking $50,000 a year, 12,500 per more me. Most people go, okay, I'm going to join a board for that. That makes reasonable sense to me.

And if we do better than average, then you get much more than that. I've talked to people all the time, but like, well, I can afford that board. I'm like, yes, you can. You give them options that in a base case look like this. And base case for us is three times. And so that's a very reasonable outcome. And so I think when you go spend the time and effort to go recruit that board, that is the most important thing that you do in the thesis.

If you were in my Monday morning meeting, you heard our firm talk about buying a company and XYZ sector, the question that comes out of my mouth versus Tommy every board. Literally, and then there's like a slide that lays out the different avenues, the voice of the customer, the voice supply chain, the voice of the operator, someone's sure our relevance. And there's really four to eight people deep. And the person who is leading the thesis is their job to pick the best group.

group. And on the unique dynamics, he's about a moat, one of the things from the past, but this year we'll close 12 or 13 platforms. So time seven. He's talking about 90 unique board members. So we're talking about a third will be repeat customers for us, but I have 60 new people who will join our family next year. I know they're going to be yet. They'll all be very talented business people. We talked about someone before us phone call, that's one that's very high-end, very talented person. There's a niche out there, people who are 55 to 75 who don't want to work full time anymore, but do not want to do nothing. They fail to retirement. Love the family retirement woman or man. And so these board members bring that experience.

And so we oftentimes back first time CEOs. Over 80% of our CEOs or first time CEOs. I mentioned a minute ago. It takes 18 months to learn 90% of the industry. And the last 10% takes five years. But guess what? My board has that last 10% from day one to complement that early career energy. And so if you partner with a hungry, smart, first time CEO, first time CFO, give them a board. And naturally, of those seven, by the way, five becomes super value add and one or two less so. It's just the reality of it.

I'm very poor predicting who is going to be value at and who is not. It's just DNA of the people. And after they're with us one time. I can figure it out. But you get these really talented people at these boards. And they help in a unique way. Every single member helps a unique outsized way at one point during the life of the investment. Open the door to a customer.

Refers us to a former employee of theirs who was talented, has a unique way of understanding a software system, versus an add-on. When buying a business is doing 18-note of revenue, we want to grow up to 100 of revenue, you know what you need to a new customer that could bring three-month-of-revenue. You're talking about at first a 15-20% pickup in revenue.

You buy a business doing a billion of revenue. There's no ones that are bringing you a 15% pickup in customer. It's just not going to occur. But I think what we've learned over time is we've got to create a fun environment for these four members too. They have choice with going to the professional time and effort. We put a lot of effort into creating an ecosystem where we have these operating partner summits

where you invite individuals, all of our board members from all of our companies, come down twice a year to cross-pollimate and share ideas and bring perspectives. But it's creating a family and an ecosystem of really talented board members who want to provide advice and give back. Harvard is altruistic, our part of it's financial, all of it's fun, all those things together create a really great board member. And I think it increase the odds of success. All of this is about increasing the odds of success.

And I think if we do all these things, well, I'm not sure which part will work every single time, but it's a system. And I know the system will prove an outcome. I tell our LPs and investors all the time and our future seller partners, I say, I won't promise you the outcome, I'll promise you the process. Our promises bring down. It's clear. And we do the same thing every time.

And we make it better sometimes. But the process is the same. And I think that is, I think, what great operating businesses do, public companies that are the donor like a roper. They do great things by a system. And I think that's something we're very focused on. Why are you doing this in the industrial subsectors versus somewhere like software? What is it about that addressable market, those business models?

Why pick that instead of something like software that by took this system and when did this in software somewhere? Probably worked pretty well. Why not? We may at some point, but we start in healthcare. I always felt like the founders of healthcare businesses were clinicians by training. So I went to Vanderbilt for law school. My cousin, I'm super close to Van derail for med school. His eight buddies and my eight buddies became one group at Vanderbilt, and we're all still

is to this day. He's just the smartest individual I know with these doctors. Man, they just don't get the business out of it, nor they care. It's just a reality of it. And so I saw that enough. I said, okay, I can partner with my cousin who would be his my age, but him when he's 50 and suppose when he was 30 and have him be my business partner. And guys like that create tremendous competitive advantage. And so it was always like we partner with individuals, main street businesses where the founders have a outsized technical skill. Whether that's cutting your eye open for a surgery for a cataract or whether that is, in the industrial sector, someone who's really good at repairing roofs,

or whether in the business service sector, someone that's great at making sure your technology, your outsource IT works really well. To me, it's always about, I believe that people excel at things they love to do. Most doctors did not go to medical school, for example, to hire the front desk person or to evaluate professional development of their peers. Great. You go be a doctor and do what you love to do? And I like to use the words, I want everyone working at the top of their license.

So by that, I mean, what can you only do based upon your expertise and your skill set? And so in a doctor's example, I don't want the doctor who's a cataract surgeon seeing the follow-up patient, the routine follow-up. There's no complications. It's very simple. A nurse practitioner can do that. And they're trained well enough to know. There's a problem here. I need to see the doctor on this sort of stuff.

And by the way, the same thing. The nurse shall only see what the nurse should see. The medical assistant, she's a medical assistant see. And that creates stickiness because employees love doing things that are unique where they can do. What frustrates a doctor is interviewing the front desk person. What frustrates a doctor is having to do some of the most simplistic sort of follow-up or coding and putting into the system.

And so we like to partner with individuals who love what they do are really darn good at it, but want to leave another part of the business alone. They do not want to do it. And so oftentimes, like ESI Software, Software founders usually are pretty savvy business people as well. They started the business because they wanted to create something in the enterprise. They did all parts of it. We started in health care because usually doctors wanted to do good and help people. It was a byproduct of their job to have to do the administrative part of the business.

We say, great. You go be the doctor. We'll be the business part together, best in class, and create a business. That will help more people in the scale. That's just how we think about it. But there's so many different parts of the world that you can create value in. You have to be focused. I tell people, when you have a lot of priorities, you have none.

And so we're very focused. Sounds like thesis generation and evaluation is like the furthest thing upstream at shore and how you think about things. Talk me through that part of the business. Where did these these theseses come from? What makes a good one? What makes a bad one? What's the difference between one that almost gets in,

but doesn't quite really understanding, like, how something gets through that part of the process? It would be fascinating. I want, of course, each invests professional. So partners have between three and seven, principals have between two and four, and vice presidents have one or two. I'll pick your own thesis. Patrick, you may love urgent care, and I may hate it.

I may love veterinary, you may hate dogs. So I want to let the investment professional pick something they find interesting. I find the best investors are curious. You're curious about something, and you want to peel the onion layers back. And so how we work here at a short capital is every investor professional, senior professional, which is a vice president and principal or partner, has thought how many to pick a certain number of sectors they want to focus on. And it can't focus everything.

For us, everything starts what's called a roadmap. A roadmap is essentially a white paper on an industry complemented by the industry conferences and also what we call the Mount Rushmore of the industry. So in every industry, there is a Mount Rushmore of companies and executives. And the industry roadmap will also include the conferences. So your job, Patrick, if you were trying to figure out urgent care industry is you have to, when order to green-letter sector, you have to physically go to one of the industry conferences in person, walk the floor.

You have to identify them out and rushmore, lay about who they are. You have to identify the Mount Rushmore companies. Where are the disciples? Where have they gone? Where are they at today? And the pros and cons. Once you had that as being between a 40 to 60 page white paper effectively, present to a committee. And you can say, hey, I'm Patrick, and I love urgent care.

And so why I think we, a short couple should green light the sector and turn it on. So the whole process goes around that. They present for their peers. It's almost like you're standing up in front of 50 people. The committee's size changes depending upon the vertical. But you present and your peers are press testing. it. And it's part of them. So we're organized through our investment committee process. The team gets assigned. I assigned team members to Patrick who wants to go forth urgent care. It'll be five people

on the invest committee. And if they agree to it, they are with you for the whole life of the journey. So from roadmap, they're going to your board, LOI, platform, add-ons, budgets, exit. And their carry in the future is tied to your results. And so they have their own carry for their own deals. They lead. They're judge on your outcomes as well. And so they're very incentivized to make sure that the thesis makes sense. They have to also deploy capital. We have to also make sure that they're not to saying no to everything. It can be a doctor-known, but it's a five-person team who effectively votes to greenlight your sector of urgent care in that example. And there's smart people asking smart questions and there's trends or tracking. The question we oftentimes ask is, why does the small player win here?

Why does the little guy win? And especially in healthcare, healthcare is inherently a local business. and so that makes a lot of sense there. But other businesses where a small guy wins as well. You know what does not do well. You must be multi-continental. That is not good for us. We're not going to invest in the sector. And so each industry has its own trends,

and we try and identify how wins where the puck is going. And like in the healthcare especially, it's the consumerism of health care. I think something we want to believe in. But it starts with this thematic approach. We're very theme-driven. So in this journey, while you're in that roadmap, you're also recruiting your board members.

You found out who the Mount Rushmore is. before we even present the Route Rushmore, the whole roadmap, you have 15 people you think could be on the board. And you're sharing with them the roadmap. Hey, Patrick, you're the urgent care expert. Here's my one page of my deck. Where am I wrong? What makes a bunch of sense?

You're getting a bunch of industry domain expertise, bouncing ideas off people, making phone calls through LinkedIn, through different search engines. You're outbound. And if you traffic in that sector enough, you will eventually learn the good guys, the bad guys. you will learn who everyone respects. I'll tell you one trick of the trade that we use a fair amount and I look at all the time is you call up the Industry Association, urgent care association of America.

You ask them for their agendas for their last five conferences. If someone spoke twice or more in the last five years, pretty darn good proxy, the industry respects them. I want to meet that person. There are little things like that, that the industry itself, there's always not industry panels about the lawyers and the bankers, but industries promulgate certain people, and you want to get to those individuals are. So for me, everything's not the industry.

Industry becomes the core of it. And then that partner is short capital or vice president or principal, they own it. And their jobs to know it. And they oftentimes may invest in that sector, two, three, four platforms of their career or more. My partner, Ryan, who leads urgent care for us, he's done three platforms, urgent care sector. And what surprised he does more. My partner, Chris, has done at assume three dental deals. And so if your job is to know the sector really well, over time it may change.

You may change if you want to invest in it again, but you almost become a strategic acquire after a period of time because you know the industry is so well. I tell oftentimes our executives, our board members, they've forgotten more about the industry than we'll over know. But for finance guys, our job is to be most educated on domain expertise, impress you to want to join our team because we're prepared. We want to invest. And then for the sellers, I'm telling the seller is when you,

choose to sell with somebody or partner of somebody, there's two parts of the deal. There's the macro and the micro. The macro is, do you believe in the sector, urgent care? Micro is, do you believe my company? I want to take one of those two off the table. I believe in urgent care. I have a whole machine behind me

with my 50-page deck here to my board members. We create a board before we can buy the company. So you get the industry, we get greenlit, and we recruit a board. We don't have all seven of them, but we'll have easily three or four of them. And they're required to go with us to meet the sellers before we buy the business. And so in these early days, you get the main knowledge, you have people who've been around the table who know the nuances of the industry.

I'm telling the seller, don't worry about the industry and longer because if it's not you, I'm going to invest in urgent care. We're going to invest here. Now, all we have to do is agree upon why you're best in class and why we should together go build something's pretty special. And I think that resonates with sellers and fair amount. Yeah, let's talk about within the given thesis, starting to look at the individual assets, the individual companies, the diligence process and what you're looking for or looking to avoid. Once you get down to the actual thing that you're going to buy, describe in whatever way you want the things that matter most to you. I'd love to keep walking down this chain and negotiation and operations after the close and everything else. But starting with, okay,

we've got a company that's interesting for some reason. What are those reasons? What are you looking for in diligence? Almost always, we're doing a role in the sector. We're almost always consolidating. And so one of the things I look for almost right away is reputation amongst your peers in industry. And there's a really simple test. And I'm hearing people right inside baseball because anyone should do this. I don't think it's rocket science. Use ophthalmology as an example. We'll try and find an ophthalmology company. I'll try and identify in that same town three or four of their ophthalmology practice is in town and call them up and we'll do a secret shop or something and ask them if your mom had to have a cataract surgery and she could not go to your practice,

who would you send her to in town? And I want the company that I'm buying to get in that list multiple times. Now you have to recognize there's always in town a coconut Pepsi. There's somebody that likes each other and somebody doesn't, but people in town know who is pretty good in town. So why it's so important is reputation of that first group is everything, because those who are in the know only want to join the winners. The New York Yankees are oftentimes one of the best major league baseball teams. Very different than the AAA team. There's no way the Los Angeles Dodgers want to join a AAA team. The Dodgers would join the Yankees in a roll-up of the baseball industry does their viewed as best in class.

So I think we have to take it the same way. So reputation. Number two, I want a founder who has a shared vision to grow and has a desire to learn. Back to curiosity, they want to understand and want to grow a business beyond their own means. And they're excited about partnering and they have an open book. Our best founders clinically, technically, you know, there's a baking sweet goods or a doctor or a plumber. We have a water safety business. it's so important that they're really good at their craft

and they're able to identify who are others good at their craft. So to me, it's reputation of industry, technically sound, you don't hear me say management very often, do you? Because it's important, but we're going to go build. We're going to take what you all have and surround you and compliment you. Oftentimes the founders are going to pay a role, but not the CEO. And we're very clear on the front end. By the way, our biggest company is a veterinary company.

We started when it was five of revenue, one of EBITDA, three locations. Today, it's over 400 locations, over 1.3,000, but in revenue. That's founder, veterinarian, and still a CEO. So that's one extreme. That can be one extreme. The other extreme, I can say, Patrick, you're a great emergency room doctor. If we're going to partner, you're not going to be the CEO in our thesis. If you're okay with that, but you want to be the chief medical officer,

we would love you to be the person to help recruit other doctors to this team and sells the value of property why we can help people rural parts of America better than anybody else. And so to me, it's very much reputation, technical skill set, and a willingness to learn and a curiosity and want to grow. Those are the things I really focus on. There's always the minutia of customer concentration and reputation, but reputation is encapsulates so much because this is a role of things. It's not even buying one business and staying still. We're growing our business usually over 100% per year, organically and organically. I would say on average that levered roll-ups have sort of a bad reputation.

Why do you think that is? I would say if you've seen one lever roll up, you see one lever roll. There's snowflakes. Like they're restaurants. They're good restaurants. They're bad restaurants. The same type of dynamic. Oftentimes, when they get bigger also, the founders have already left the organizations.

Now, in the earlier stage, where we start, these founders are very hungry, want to grow these businesses. And we get to under lever. So we don't put pressure on these teams with leverage. We under leverage, sometimes no leverage at all. Also, I would say people point fingers at roll-ups. in a way because the target's on the back of the winter. It's hard to identify all the small little ones. And yeah, when you have 4,000 employees,

you're going to have some of disgruntled. And they're going to some who leave the organization. So you hear more of that noise versus a four location versus a 400 location. I generally believe that roll-ups end up in a better quality of the business. Usually, at least for us, we create usually a technical advisory board. So it can be a bunch of artists and bakers. It can be a bunch of veterinarians. we want to have a technical advisory board.

We're able to bring it together and create a dynamic of what is the best in class delivery of the services. And so we spent a lot of time on that. And so I recognize that more arrows are shot at bigger companies. No one talks smack about the AAA team that talks smack about the New York Yankees. You know why? They're starting New York Yankees. So I think it's easier to point fingers at.

And do bad things happen. Sure. By normal scale, if you have a form of location, it's more likely a one doesn't go as well as if you have four. But I think in totality, those businesses are able to pay their employees better, create a better margin profile, and therefore deliver a better quality of service to the customer and the day. Why do they exist? Because customers keep choosing them over and over again. People ignore that part of it.

It's like, oh, levered business that is part of a levered roll-up. Like, yeah, but the customers keep picking up, want to know why? Because they believe it to be a better value prop than going to somebody who is not part of that roll-up. And it's because usually they can offer more services, hopefully higher quality of care. and there's smart people running them with metrics like net promoter score and other things they've been more sophisticated to identify. This is what my customer wants. I'm delivering it in a very efficient way.

It'll work costs. What have you learned about negotiation? A lot of deals you've done. So people say to me, Justin, you're in private, but you're in finance. I quickly correct them. I say, no, I'm in psychology and sales. Look, at the day, I always tell our team members at shore, we've done now almost 900 transactions. have had zero lawsuits.

If we ever pull out that document in the future, we have to look at it, we've already lost. We negotiate to do our best to have all those sort of things, buttoned up and start our stuff. But at the end of the day, I want people to believe in the growth story. They have to believe that we're building together.

No, lawyers sometimes will try, I'm a former lawyer, recovering lawyer. I understand the lawyer's job. But no, when we're negotiating, the most important thing is negotiating, making sure we have catastrophic downside protection. I didn't make sure if Patrick was on the, front page the Wall Street Journal for doing something uncouth, I need a way to separate.

That's important to me because that has risk. I think the most important thing, especially doing a roll-up, and I think most people would get it is what we have to do is create an environment and a structure so that not you, but if someone else down the road would do something, we need a way to unwind that person. If you wear your shareholder hat, as opposed to your individual hat, I think most of our partners get it. They go, okay, and now if I were to do something wrong, that'd be bad, but you can try yourself. The hardest negotiation is that unwind part.

I know we've never had to dissolve. We never had anything worse than three times our money. But I think the negotiation time where it ends up most often for us these days is sellers negotiating for a larger part of the upside. That's where we end up negotiating. We used to be an 80-20 deal now as being 6040 or 55-45, and that's where a lot of the negotiation comes. But at the end of the day, we prefer it in person. We're not fans of Zoom negotiation.

When it looks on the eye and say, this what we're going to do. Yes, I can't write to the time. down on paper, all the weird things can happen in this world. But if you trust me, go talk to these 25 references. I'd give you everyone we're a partner with. There's trust. And if you look at those documents, we failed you. And so I'm not saying we have an unwound partnerships.

People have not worked out. That's definitely happened. But on the negotiating side, to me, it's being very thoughtful about who you're partnering with in the big picture. That's, I think, strategically. But I'm going to get one level down more tactically. I think I made sure if you on our last phone call, we have a system at short count with our green, yellow, red system.

which basically for every material document in a transaction, a purchase agreement, an operating agreement, a credit agreement, an employment agreement, a lease, there's roughly 15 key terms on every document, and we list all those out. And we have a scoring system internally. I use the simplest term, a non-compete. Everyone knows a non-compete and you sell business as part of the transaction.

Five years is market. That's the most time it is. If it's four years, that's pretty, I think, pro-seller, anything less than four years is really pro-seller. We have a very simple system. Back to why our teams can grow and people negotiate their own deals is, it's a whole entire system that everyone in our firm knows on these 15 key points. They know they can agree to on their own and know they need to raise up the flagpole.

Everything for me is a function of price and terms. I'm willing to pay you a billion dollars if it's a dollar a day for the next billion years. So whatever may be. And so on the negotiation part, I like to figure out a way that strategically, partners feel like they're part of our team for the beginning, and they're negotiating not in their employee hat, but in their shareholder hat for a long term. And more tactically,

I only give our vice president's principles and partners is the autonomy to negotiate their own deal. I'd leave the very best people on a super long leash, the appropriate check-ins. Give them that autonomy, create the rules, expectations, and then give them a scoring system. They compete with each other.

People love competing with each other, and the best, the light shined on them, and that's what we try and do. It's a fascinating set. I just love all the systems and how they all intermingle. if I was the world's most skeptical but thoughtful LP, and I was looking at all this, I'm sure you'd probably talk to this person, you'd probably picture somebody, what do you think

they would poke in on and say it is the weak point of sure in this whole like system of systems? I think it's that first time CEO, the early career energy, are there enough of them out there who are high enough quality that can scale up the next level? And so I agree with that. So we internally have, I like the home grow. And so we created this program now six years ago. We call our CXR program where we recruit from the best business schools. Stanford, Booth, Kellogg, Harvard, Wharton, Vanderbilt, Notre Dame.

We'll hire individuals that come to short capital. They'll be a chief of staff, a good owner portfolio companies for four or five years. And if they're one of our very best, we'll promise to back them next. And I think we have a unique fund dynamic. I'd be lying to you if I said, I would put a 31-year-old as a CEO of a $1.3 billion revenue business. But my average business is 18 of revenue when I buy it. I sure will. We can a 31-year-old first-time CEO if they performed well in the past.

And so I think our biggest risk is the high-quality talent want to run small businesses. I think, though, there's a lot of makings to it. And so we homegrow our CEOs through this program called our CXO program. We home grow our CFOs. We hire people out of big four accounting firms usually come to short capital for a 30-month tour of duty. They go through this program and the best ones can become CFO. So conceptually, how I think about it is they offset it by recruiting and homegrown. growing my own CEOs and CFOs.

That is the risk of, are you going to trust for a roll-up? A CEO is 41 years old, the first time. And one of the biggest challenges, if you get into a roll-up, and some reason it's not going so well, a CEO is wrong, but there's a big pipeline in this you're buying. It's hard to unwind that and start again. We've done before. That is the biggest risk is that when you're doing a roll-up,

you change leadership, but that's why the strong board. It's why someone steps off the board become CEO. I think that's where I would be, if I was poking holes in my own firm is, can you find enough CEOs and CFOs and leaders? I believe the answer is yes, and we try to home grow them. And also, as we needed to grow our firm, we have a system internally and kind of our all-star tracker. Each company has its own list and our internally of people who think are best in class and we'll use them again in the future. So how I think about it is talent wins. But that talent in the system, I think the system wins. but the whole is enough talent at the velocity that we're building businesses. There's this great book called Innovation Stacking by one of the founders of Square,

where the whole idea of Square's eventual moat was all these small things that are built on top of each other, and then the chain of innovation is itself. The competitive advantage sure really reminds me of this. One thing that we haven't talked about in this theme of innovation stacking is how to decide another fund vertical to go into. You have a real estate fund, for example. like that's like a surprising thing coming out of health care. Maybe tell that story.

Why real estate and what is your philosophy of stacking unfair advantages and how to think about that as you build the firm? I think stacking unfair advantage is core to everything I think about. How do we have unfair advantages? So I view of market cap, all of our funds, health care, food and beverage, business, services, industrials. That's its own product. But real estate is a different product.

And next year, the different product, healthcare advantage fund. I tell our LPs and I tell our team members at short capital, I will only add a new product. Two things are true. Number one, we have an unfair advantage, meaning that odds are tilted of success in our favor because of the dynamics. It helps the number two is help my base business. So real estate. So we have a real estate fund.

We were acquiring so many veterinary businesses, I think, several hundred, that we kept to all these sales leasebacks. And it was slow down the deals. It was causing problems for us. And so we felt like there's an unfair advantage by, I know the CEOs of my vetting company is quite well, there's an opportunity where they want to stay in a location for a long term, but the underlying real estate is owned by the veterinarian, and they oftentimes don't want to invest in that. So how do we figure out a dynamic where we know the location is great, underlying balancing the portfolio company is great, we have an unfair advantage of knowledge

and specific knowledge of the location, and then it helps my base business because I can do things to help the base business to potentially lower the rent and exchange for a longer term on the release. So the lease becomes more valuable in the market ecosystem. You aggregate 100 of those together from the valuable asset because more valuable to the veterinary company by having a lower cost lease or more capital for tenant improvements. So it's a win-win-win-win scenario. The portfolio the company wins because they have more EBITDA or more capital expend. The real estate fund wins because there's an opportunity to elongate the lease in exchange for some things that creates a better value over time.

And our investors win by low-cost capital will work in a more efficient way. So all parts of that makes sense to us. So summarized, I would say, we will only extend products to short capital. Two things are true. We have unfair advantage of health-time-based business. And I know having a real estate fund helped my base business on the acquisition and also the underlying portfolio companies. There's a current conflict. The conflict is not in the buy, though.

The conflict's in the lease. And there's so many reeds out there with public leases. We have them ourselves. Just take the read that's out there, use the lease from somebody else and just move it over and makes the same terms. And so that's how we think about it. But the other products that we do in the future, but it has to help my base business. I have to have an unfair advantage. Talked mostly about what you buy and what you do.

We haven't talked about selling these businesses. Who do you sell to? What have you learned about the relationships with those sellers? You're selling a product. The product is a business to some financial or strategic buyer. What are the features that they look for in a product? And how do you think about that final part of the chain here? So picking the actual buyer, I'm over 14, our 14 sales.

I never picked the right buyer. But prior founding, sure, we're to the other private, I confirm. My partners have as well, I hear in my mind over and over again from my old boss wanted to buy. I can think what they used to say over and over again. And so how I think about it goes back to how we organize. to be able to say industry management company. Back to the very beginning of the conversation on the industry, the roadmap,

industry is growing. And I think about an industry growth of a 15-year cycle. 15 years has got to be my whole period, five years, my buyer's whole period, five years, my buyer's buyer. It's kind of a 15-year time period. We've sold to public companies, a lab core and home-up big public companies. We sold to the biggest, the biggest private equity funds, KKR, TA Associates. We've sold to model private equity funds, and we've done some teamation vehicles as well.

And at the day, I have high confidence in the following statement, If I buy a business in a growing industry that is I'm buying an inefficient part of the market, we make it better, we grow it from single-digit-a to the teens to 30 of EBITDA. We will have lots of buyers, both strategic and financial sponsors. So whether it's as a platform or an add-on, I think I like that situation. I like to invest what we call bar-bill industries, meaning there are usually four or five very large players, and there are thousands of mom-and-pops, but not much of them. I want to go create the new middle.

one, and then larger players want to buy it. And so in the day, I also would say larger funds want to buy, which, by the way, some of my investors are friends of mine who run quite large funds. I hear when I talk to them, they want to buy a business that's a proven track record of acquisitions, organic growth that beats the industry average by at least 300 basis points, one technology stack system that all businesses are on. Because when you have those three things, you can acquire, you can make them better. I want technology system.

They can buy it from you. It's 30-by-D-Dah and go to 100. And so we're basically, we like to say at Shore Capital, we are building platforms, not buying platforms. We like to think of ourselves a lot more like a venture capital firm. And then a venture capital firm's partner with a founder, great founder is an idea, but usually has a relatively small team. And then the venture capital firm works with them hand in hand and helps create a whole entire managing team. We buy businesses like an orthodontics business. We'll buy one practice, literally one practice with one gentleman, one lady, and we'll go hire a CEO, a CFO,

of business development, we'll go build a home player platform. And on this journey, we'll have some mistakes along the way. We'll have added a lot of awesome people. And when we're at scale, we should be in the middle of the fairway for a fund that wants to deploy between the $50 and $300 million for a platform, which is a billion to $3 billion fund. That's where we play. And the buying environment, the inventory that we're creating, I think, has strong demand. So funny here.

You describe all these elements that I'm just picturing this big, effectively like a money machine. The widgets themselves are companies and platforms and you're perfecting the factory, if you will. What parts of the factory floor do you think are interesting or surprising that we haven't talked about yet? So I think it's our focus on operations. And so again, I'm not smart. I know the first round capital is a venture capital firm. I got to know a little bit and copy what they've done. I think my factory floor is what I call our operations team. We call our portfolio performance group and a group called the Centers of Excellence. Oh, I buy a business is 18 and a revenue three Vita.

My marketing department, the person who runs it is not somebody who's run a very large business. What we do at Short Capital is we have a Centers of Excellence, a gentleman named Adam Werder, he runs my marketing centers of excellence. He's a team underneath him as well. His job is to be the node. And for our 43 portfolio companies, his job is to create a cohort of the head of marketing from all 43 companies.

and they all four times a year get together, twice by a Zoom, twice in person, and countless email interaction in between. And this is my factory floor where I call it lift and shift. I am getting the newer companies to where you need to go faster. And an example of that would be orthodontics business. It's a BDC sort of marketing engine, no SEO marketing and sort of direct marketing to a customer for orthodontics. It took us years to build a platform to get to the right system process metrics we use. About a year ago, we want a med-spot business. The marketing is very similar. It's B2C as well. And so we lift and shift that Adam's job is to help recruit, take the incumbent marketing leader, work with them and they're the right person for a long-term

grade. If not, over time, work with the CEO to help top grade that individual, but then lift and shift, assistance and processes and tech stack from marketing and the orthodontics business and apply it to the medspa business or apply it to the veterinary business. There's so many different personas we have, that things change a little bit. But the whole entire journey is, I think, some of the secret sauce. And it's not reputable unless you hire the right people to do it. I have a billion-dollar company resources and applying to a million-dollar companies. And so the one named Julian Larimer is a leader of our division. She's a former private equity back CEO, incredibly talented. She runs the whole entire group, roughly 13 functional disciplines,

effectively a senior management team from a Fortune 500 company that work at Shore Capital, and their job is to help every portfolio company in that discipline get better. Chief Data Officer, Chief Technology Officer, Head of Human Resources, Head of Talent. All these people help all four or three companies and elevate all of their games. I think you told me that this is a crazy stat if it's true, that nobody above an associate level has ever left shore. How have you made that happen? There's a lot of people, a lot of years, a lot of companies. Talk about career trajectory in the system there.

So we have 150 full-time people. So if you're a vice president, a principal or partner, not one person has ever left short capital. But associates go to business school and then come back. But a VP, I think we have about 43 or 44 people who are in that bucket. Not one person's ever left. And what's the philosophy behind it. So I think a little bit of it is hard to be 35-year-old and looking at the founder who's 46 and say, when they get my chance.

But having the different verticals, health care, food and beverage, business services, industrials, my most talented healthcare vice presidents went on to become principals in my business services fund. The same thing, industrial. So there's a little bit of a waterfall where the homegrown talent moved to a new vertical. My dad always taught me a couple of things about treating your people well, but he said two things. Justin, pay the market comp or a little bit above market comp. And most importantly, people don't quit their friends.

So my job is created an environment where they come friends with each other. And so that means holiday parties. It means we have a thing called a party. and we sell a business, you have them in celebrations. It's important for, I think, leadership to know each other's spouses. And so I think it's really investing in your people because if I'm a seller of a business, the thing I fear most, if I have a friend who sold a business, a private equity firm, I want to drill in really carefully who is the partner on my deal and who will be with me of this journey.

Because this turnover in those ranks, it's really hard and decreases your odds of success. So I think it's core competency to private equity in my business is to make sure that people stay the same when they're partnering with a founder and a business. And so I guarantee you forever, ever be here the same way? The answer is no. It's not realistic forever. But for 15 years now, no one's ever left. And I think it's because people don't quit their friends.

And my job is to create an environment with friends develop, pay them in a way that I feel really good about. And I have financial upside. And again, I go back to you a really long leash with appropriate check-ins. Where goals, nerds, and goals-oriented, people know their own goals, set their own goals, and they know when they're performing. Yeah. I love the idea that.

I think you pay for people's dinner if they want to go out of, if there's three people or something like that. Like every little detail is so thoughtful. Three or more, one ago, I didn't know, I'll pay for it. One of our younger guys names, Tim, I won't say his last name, but Tim, you know who you are? He had like a big build of a club one night. And he said, there was three of us. And I was like, Tim, I'm paying for it this one time, but clarifying point, if it's a bill over X dollars at a club, it doesn't count anymore.

I mean. I love it. Always freak the system. Everyone in the team loves the kid. He's a great young man, and he's awesome. But I was like, it's meant for me, not a club bottle service somewhere. And I'm not paying for that for everyone for long term. He follows his roles, and he's a culture carrier, and I want to create nodes of culture carriers, people who want to be here.

It's a very high bargain with the vice president, though. But he makes vice president, I'm basically telling you, I view what I'm saying to you, I want you here for a career. That's what I'm saying to you. It's my job is for that environment. They want to be here. You obviously love sports. You have spent a lot of time thinking about sports, the leagues, teams. You're now an owner.

Talk about why you love this so much. And more importantly, everything you've learned about becoming an owner of major sports franchises. Yeah, so, no, my brother and I are best friends, and we were fortunate enough to become the controlling owners of the Phoenix Suns about a year ago now. February it closed, but we signed the contract in December last year. First of all, we're stewards of a community asset. We don't own the team. You know who owns the team? The fans, the X million people who live in Phoenix, that's who owns the team.

And there's a lot of knowledge between private equity, investing in sports and metrics and numbers. But we buy a business. We didn't. We partner with Phoenix Suns. Yes, anyone who works there. The first day, Matt and I met. with every person, you know, we had a town hall meeting, we all sent a survey out that said, tell me the two things that we should keep doing here, tell me two things you stop doing.

We did all the time of short capital also. And we got over 300 employees, roughly, we got 270 some responses. And I read every single response. And I think it's important. This isn't the glamorous part of, you know, partnering and running businesses, but the details matter. And you hear themes of the coffee sucks. Okay, that's an easy win.

How do I make some easy wins along the way? But the sports business is a complicated business. I view sports in private equity very similar. There's a scoreboard at the end of the game. In private equity, it takes 10 years for the score to flush out. In the NBA, you can see tonight if you wonder, we lost. But there's a lot similarities, and I love that there's a zero-sum game in sports. There's only one champion.

Matt and I talk about it all the time. In 30 years from now, people look back at, hopefully Matt and I's ownership and stewardship of the Phoenix Suns and the Phoenix Mercury, which we're really excited about the Phoenix Mercury, is that no one says, oh, they improved the EB the March by 400 base points. I don't want to know really competitive and they win championships. At the day, we have four pillars. And like, all our business is short capital.

It's goal-oriented. It's values. It's core values. And so at the Phoenix Suns, number one, want to create a raving fan experience. It's got to be an amazing fan experience. People forget, it's not a sport. It's entertainment. These people have choices to spend their money at a movie theater at a driving range or

a basketball game. So I want to create a raving fan experience. Number two, take care of your voice. I want a place where there's a great place to work and people are happy and they want to be there. Number three, we're a community asset. Get back to this community, be stewards this community asset, and do right by this community. Number four, win, win championships. Do it win in everything they try and do. And so sports investing has become, I think, a bigger trend the last decade or so. Now, we're big fans of it. I don't think there's going to be

more NBA teams in the near future, maybe one or two, but beyond that, but there'll be more people throughout America. And at the end of the day, I think it's an intellectual property at its core that is much like the highest and best type of real estate, the corner state made in New York. Phoenix Suns are going nowhere. Phoenix Mercury are going nowhere. And so it's a fun opportunity, and it's a really opportunity to give back to a community

and hopefully create memories. Matt and I grew up playing sports. My best memories were my mom and dad and I, Matt, going to games. We didn't have the best seats in those days, but our heartbeat was watching Art Detroit Pistons, winterless, and hopefully create an environment like that. That's the fun part about sports. It's a platform for good and for change

and get a lot of positivity. And so we're really excited about that. Has anything surprised you so far about how the league, the teams, the ownership, the ownership's function and work? Anything been really surprising? It's much more of a partnership amongst 30 teams and I thought it was. Between the white lines, it's fierce. Basketball operations, like, no, it's like, no, it's a zero-sum game.

But people are quite collaborative. Some of the people you know, they're well-known when we joined the league. Like I said, next to one of the guys at lunch, he said, said, congratulations. You're brash, you're young. I was the same thing. You'll make much of mistakes, talk me in five years, but have fun all the journey. So people are very helpful. At the day, we want to create a great front for the fan, and MBA is a great opportunity, and the other teams want to help each other. You want to help each other. I want your state to be full and my student to full. I know who I want to, quote, quote, lose is I want the other

sports, or I want other entertainment options to lose to the benefit of the NBA. But I think The camaraderie and the voice to help each other, I think, has been something not just in the game, not just in sport, but outside. I'm doing something in Oakland for something. I'm in Oakland for something and meet somebody. They able to open a door to somebody that's been really helpful along the way also. You talked about Mark Leonard before, and you're just like a benchmarker. You remind me of Mitch Rails who were facing any new challenge. Interestingly, also doing this exercise with the commanders right now. If it's about the stadium, he's meeting with 30 stadium owners and stadium operators.

If it's about something else, he's benchmarking constantly looking for great ideas. And it seems like you've done that. Who apart from Mark stands out as key individual people or firms that you've learned from? I've learned from people. Sequoia Capo. They've been great to me. They've been great to me. They've been there's different.

Sequoia heritage, more specifically, there is a group. They have a network. And I've learned from them of the power of a network and introducing really talented people to each other. People with professional success are very selective values. time. Creating an environment of bringing the best and brightest together, I think creates a lot of opportunity for success and unique outcomes. So I think some of the people over there, Kevin Kelly is one that can keep Johnson, too, that I stand out a whole bunch. More specifically in the private equity, one individual who I've learned a ton from, a mentor of mine, his name's Kent Doughton.

He's the founder of Keystone Capital. He's, in my opinion, amongst the most humble and successful people ever come across. It's a steady hand in the wheel and doing the right thing over and over again. also a gentleman named Jim Forrest, who was at Windpoint Partners for a number of years. He is now the chairman of Shore Capital. He is an operations leader at heart. He's always thinking about the customer, the customer. Mark Leonard had been a great friend for me, and I've learned a ton of from how he thinks about growing businesses and how he thinks about having a very disciplined

on process. And then there's a professor at Harvard Business School, went for executive education. They wrote a school there named Boris Kreusper. I've done a ton from as well on process. And he studies Mitch and other people. the DBS community. And I think if you said pick one business that I aspire to be most like on a consistency in process, they stop her. There are people, Donnaher leaders who are on the boards of my businesses, so recruit people from Donna Her who are retired to be on our boards. And so

those from people, I think that at the end of the day, you have to find your own niche of individuals who want to support your vision and want to be around the table and have a good heart that want to help people help me in the way up and help me. And I want to be able to do that to others as well. My guess is that you're effectively never satisfied with the system. It's obviously evolved a lot. It keeps improving. Where does it feel the most incomplete to you today?

How do you most want it to improve over the next five years? Most incomplete, I think. You're never complete at the short capital level of operations. I get frustrated when I hire a new team member and their first two weeks on the job, their 10 business days aren't scripted almost by the hour. They need to know where to go. The onboarding experience, I'm very much into experience and process.

Making sure when we made a mistake somewhere else, it's probably gets the whole entire team. And so you have a thing called what we learned. Every time we close a platform, we do a one or two page around what we learned and we share the whole entire firm. How do you balance with scale, efficiencies, and knowledge sharing?

That's the hardest thing I do every single week, trying to balance those things. It's more efficient for very small people who have to know things, but it's way more valuable for knowledge sharing. I think of short capital, like an academic teaching hospital. My job is to teach our principal's, vice presidents, and partners, all the mistakes we've made elsewhere. And so I think the biggest challenge is we've made mistakes, not making the same mistake twice, documenting it and making sure that it's front and center, having a system around it. So we have a short capital playbook on the operating things.

Like, for example, we made mistakes in the past where we did not renew a lease at a portfolio of a company at an important location, and the landlord extracted the pound of the flush out of us after the fact. What we did that. The fact is now all of our businesses are required to have a thing called lease query. I don't care if the system was called lease query and all of our leases of all the day of points in the system to make sure we never had that mistake happen again. So there's prompting. And so I think the biggest way to improve the organization, I think it's hiring more and more talented people, getting tighter and tighter on processes, making incredibly clear and reducing the likelihood of making the same mistake twice. I say all the time at short capital, very rarely is there a problem with first impression. When you have 35,000 team members and you have 100 locations and you have everyday things

are appearing, the same mistake can't happen twice. How we reduce the risk of that and that's through knowledge sharing but doing it an efficient way. Is there anything about how you spend your personal time that you wish was different? I wish there was more time, I would say, to work with sellers. I'd not let a deal in short capital in seven or eight years now. I miss some of that relationship with building with sellers. Those early as a short capital, the board members I personally recruited, I was one of four partners, and I was the lead partner on a lot of those early deals. As the firm gets bigger,

my job is to run short capital and give people resources they need and remove obstacles for the system and the whole organization. But you kind of miss the newer boards that created a lot of great people, some really talented people, and just don't know them the same way as those early boards. It's almost like your high school buddies. You know them better than your work buddies. Not that you don't like your work buddies. I like them a whole bunch. It's just that my high school buddies have a little special place in my heart. And so leading a deal, negotiating a deal, working with a founder, recruiting a CEO. I do less that.

I'm just coming into the very end of it. But no, I do miss one of the best questions I think that an LP has ever asked me. And if I was an LP, I'd ask people's same question. Do you think you're a better investor or a better manager and why? And I think, at least for me, the right answer for short capital is I have to be a better manager. I love investing. I love buying companies. But to create what we want to create and build our system grow, we want a system to grow.

It's a manager. You're a leader of people, your imagine system and processes that increase the likelihood of success of many things at once, as opposed to having very effectively leading one deal. But that is not going to create the same value for our investors and for our team members. And so I think it's my job to create an environment of kind of see one, do one, teach one and let our best people do things that they've seen done before. I would very eagerly read a long white paper or HBS case study or book about all these various systems. I'm really thankful for your willingness to share the very specific details of so much of what's behind shore. Most firms are not willing to do that, and I think it's pretty cool that you've done it here today. I am sad and forced to go to my traditional closing question.

I could go for you on this system for hours and hours with you. What is the kindest thing that anyone's ever done for you? That's a great question. I've heard you've asked it before. I was fortunate to have lots of mentors and from people in my life who made a really big and positive impact on me. But one, I think, actual piece of advice someone gave me. and I've acted on the last decade for sure. And I'm proud of my telephone to some people that work in my organization.

Because the advice is this, try and have one friend in each decade of life. So a friend of the 30s, a friend of their 20s, friend their 40s, 50s, 60s, and 70s. And the idea behind it is you truly have a friend in each decade of life. When you go to those moments in time, you're actually to call upon them for their wisdom, their experiences, and whether it's not losing a loved one, a mom or dad, oftentimes happens most often in your 50s or so or 60s. if you end up having a child that often happens most often in your 20s and 30s. But it's a really great piece of advice that on the personal side helped me a ton, but also the

professional side. Things you go through and experiences you have in your 70s and you're winding down your career, the emotions that you may be going through and friends have shared with me, things along the lines of all my peers aren't working anymore or really hard to try and go get new business and promise someone to be helpful when they're kind of going, are you going to be around here in five years? And so some changes that you know coming for me, at least I'm 46. I'm hearing that in 25 years. That could be a possibility, aware of that fact pattern,

how to prepare myself best for it. And so having a friend in each decade of life is something that I've focused on. And it's pretty great value for me. And I hope others try to dive it. Justin, you built a fascinating business. I'm excited to do this again in five or ten years and see how it's all unfolded. Thanks so much for your time. Thank you so much.

I hope you want to do it in the future. I'd like to think we're an inning two of Short Capital. You build an amazing podcast and following. So thank you for opportunity to share our story. Thanks for your time today. If you enjoy this episode, check out join colossus.com. There you'll find every episode of this podcast complete with transcripts, show notes, and resources to keep learning.

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