Buyers and Builders
00:11:22 · Cyrus Hessabi
I pick up the phone and I sell software to services businesses, I say, hey, I'm creating a million dollars of value for you per year. I'll charge you 100 k subscription fee and you know, that that... Now you use the software to improve your operations. That has been what's been going on for the past twenty, twenty five years. Or I can say that I'm not gonna go go to Salesforce or build a software company and sell the software. I'm gonna go to the... Reinvent the services business itself myself. I'll go and build the account. If I'm so passionate about transforming accounting, I'm just gonna go and build my own accounting services business, and I'll use AI to have much better output, much better service, both efficiency improvements and effectiveness improvements vis a vis my competition. And therefore, I will beat my... The suite of incumbents that exists because I will be enabled by a much better cost structure and a much better set of outcomes for my listeners. I think that's how I would define it. Then what I was doing at OpenOcean, I'll give you the kind of high level view, I don't want to make my answer too long either. I mean, I was in an investing job, and so it took some time at the beginning to get the thesis going as well. And think a team at OpenOcean is the most open minded, technical and deep that someone might ever come across in the venture landscape. So a very unique group of people. And I mean, what we're doing as a team, including myself, who was kind of leading the charge on this front, was thesis building, kind of understanding what is the realm of industries where we can spend time. What actually lends itself? And I think the way we thought about that was what can AI do today? You know, can it repair a HVAC unit? Maybe not, but it can definitely summarize documents, automate calls, manage the customer interface. So we're thinking, what does AI do? What are the jobs where the labor does things that AI can do? And what is the dollar impact that it can be in terms of gross margin expansion, improving productivity. And then you'd start from that and then go into finding founders who were looking to build businesses in those realms. Now, of them were roll ups, some of them were not roll ups. We can get into that too. But yeah, that was kind of the crux of it.
00:13:37 · Cyrus Hessabi, Mikk
I say 80% of my year, of time there was spent on either industry evaluation, DO evaluation, or of course supporting our portfolio of companies that we like to this space. [00:13:47] S0: And industry wise, which was the, if we can say the hottest, which was like, okay, you saw something, you saw some data, you were like, okay, this is very exciting because I guess there are still some industries which are not that maybe open about it.
00:14:03 · Cyrus Hessabi
[00:14:03] S1: Agreed. I think, and I can get into that in more detail, I think there's two dynamics at play. I think there's definitely industries where lots of founders have gone into now. I guess a year ago, it was maybe not as active. But I think that such industries would be property management, and you've seen there's lots going on in Europe, in various areas of property management, right? I think in IT MSPs, because IT support is a big space. I think accounting and tax, actually, I gave the example, but there's lots of activity going on there. Various insurance workflows and insurance services from back office, the brokerage, to things like that. And maybe also to some extent legal is fairly active, like some areas of legal. I'd say these are kind of... They give you a big five of where... If I did a word cloud of, you know, the industries I heard about the most, it would probably be those five. I'd say to you, I think there is now opportunity in more niche services to some extent. I think the reason these five quote on so much is because they're big markets. So I can see how in a VC, you know, investment committee, you can pitch a massive fan, which I think goes with typical VC investments versus some of the other niche markets that I have in mind could be smaller TAMs. No, I think I would summarize this honestly, it was only positives. I'm personally incredibly grateful that I had the chance to even work with that team and have that platform to do so. I think I like... I can talk about my work now as well around ETA and backing structures and incubating roll ups more from a private equity standpoint, if I may say. But by all means, the the time kind of spent on the venture angle of AI enabled services has been exceptional.
00:15:51 · Mikk, Cyrus Hessabi
[00:15:51] S0: Okay. And if we sum up your journey so far, number one, engineer, then sales, then VC, and now private equity, Shore Capital Partners. [00:16:02] S1: Right. Engineering, Keith, was my educational background, but yes. Correct. [00:16:07] S0: And what is your role now? And how have been the first weeks, months? What have you been doing? And what's the plan for the next, say, six to nine months? [00:16:20] S1: I work on a team at Shore that supports searchers, so people who are looking to acquire business. There's two kinds of searchers that, you know, I would work with. One is searchers looking to, you know, go after a roll up strategy, doing a buy and build strategy in, know, various niche services sectors, typically businesses between 1 to 10,000,000 of EBITDA in an attractive fragmented services sector with, you know, ideally some supply demand bottlenecks, you know, various demand drivers. You know, we can get into how to how we kind of divisions these things, but that's kind the high level. And of course, some traditional search as well, which doesn't necessarily have to be a roll up, but more kind of buying an attractive business and growing it through other means.
00:17:06 · Mikk
[00:17:06] S0: Hey, another quick pause from the podcast. AI is great, but every single business still needs a newsletter. And if you're running a company and you don't have time to do all that, you should maybe outsource this. And that's where today's sponsor comes in. Spacebar Studios. They write weekly, monthly newsletters. They do all the research. They put together all the content and they hit send. And the best part, they are masters at growing the list. And currently they are running a very special offer where you will get 10,000 subscribers in the first ninety days or you don't pay. So if this is interesting, go and talk to David and Brandon. They are the founders of Spacebar Studios. Again, proud sponsor of this podcast. If you want to have a call with them, go to spacebarstudios.co/ inquire and book a pre call with them. Now back to the episode. And now as it's still pretty fresh roll for you, what would you say those early because you've seen so many different industries, there are not too many people with background like yourself and you having this many people have this gap in between of those different industries. You don't have it because you understand and you are this bridge. So my question to you, what advantages do you feel it gives you all your previous background now when it comes to backing those searchers who maybe want to acquire different businesses in this one to ten million EBITDA range?
00:18:49 · Cyrus Hessabi
[00:18:49] S1: I think there is everything in the trade off, right? There's some advantages and some disadvantages. So if we keep it on the advantages, I think the main advantage is probably, and probably will be allowed unconsciously every day, but it's probably just like a broader set of references that you can draw from when you think about how, you know, what how to execute on a great deal, you know, or what are the different value creation areas when we're considering backing an opportunity and, you know, looking through its growth avenues, looking through its transformation avenues, basically looking at a SWOT, you know, look at a SWOT matrix, right? Strength, weakness, opportunities, threat. I think it just helps you cover more points in that matrix overall. You know, I think for a lot of the businesses I'm looking at today, the AI risk is significant for some of them, right? And I think it helps to have had some experience thinking about, you know, what exactly is the bridge from, you know, narrative to reality, either if someone is pitching an AI value creation path or if someone... Or if we're trying to assess the true threat that AI might might pose. Like, for example, you look at a health care staffing business, and you might think, oh, AI is gonna come tomorrow because AI is so good at matching people. But then you have other considerations, right? Like, do people really wanna adopt it? Net of all things. Does it integrate with kind of existing software suites and the difficulty around that? Or, you know, what what would... How much data do you actually need to train this to have a proper matching? What are the consequences if your matching doesn't work? I mean, I'm kind of giving you an example on the fly here. My point is it helps to have had, like, this sort of background for that situation, given its relevance. Right? And then for example, I think the other thing I'd say is, I think a lot about sales, and like how to build a winning sales organization, how to, you know, what drives people to buy. You know, think you generate your IRR every time one of the company's salespeople is in a room and select, right? That's literally how you generate your top line. So just thinking about that, but I think there's also disadvantages, right?