00:24:43 · Giuseppe Balzano
[00:24:43] S1: As another mentor of mine says, and he's also the chairman of the company, he will tell you he will tell you, let's try to not go backwards. So all good, but don't go backwards, which is completely different than venture capital. You know? I remember pushing back on some founders growing 15, 17, 20% per year and saying, you know, we should deploy faster. We should grow faster and hire more people. Then what happened is, you know, the the bubble popped in in some geographies, including Italy and and Europe, I would say. US is different. You're you're you're just painting money, you know, so you have cash indefinitely in the future. No. Just joking. But venture capital, I think, also went under stress. You know? And and the way you do deals is very different than in the twenty eighteen, twenty nineteen kind of investment thesis. I don't know if you remember Tiger. You know? I don't like to do names, but it's famous. You know? The Tiger Global started to put hundreds of millions here and there. You know? Or gorillas in Italy. You know? They had an amazing, you know, clash after after an amazing loaf. You know? I just wanted to go far as much... How do say, as far as possible from from that kind of of of of system. Because the only way to make that kind of deals work is you have to go indefinitely in the future. There's no... And we have some sort of... There there are some synergies now now that I'm thinking with some compounders, you know, also new compounders. There is this need of buying, buying, buying, buying. Because if you don't buy, you're not justifying, you know, the the the amount of leverage or the cost of capital or the valuation that you have. You know? And as soon as you start to be more patient, bam, you collapse. You know? And and this is something I never told, so thank you for the interview. What I'm looking for post acquisition is to keep the company as it is. If there is a big opportunity whose return on invested capital is clear, like, have orders in Asia. If we if we hire someone, if we open the office, we will have 50 orders. It's gonna cost us then, you know, that... Let's see if we do the the deal or not. That is clear. I try to avoid those deals in which the founder or the the living founder has an expectation of a lot of CapEx involved, which is tricky.
00:27:16 · Giuseppe Balzano
It's tricky because when you do industrials, you're also accepting that your position in the world is to do innovation. You you want to be technological defensible. So there is a there is a good, how do you say, between, you know, between not doing anything and doing a lot. My company survives if there is cash flow every year. But something that maybe I forget is that I I I want I want the company to have cash flow in the future as well. So maybe I'm protecting, you know, the the the dividends now. I'm gonna have 100% of the dividends, and my shareholders will be very happy for the first five years. But maybe in the sixth year or in the seventh year, there is a big competitor that innovated, and and they just disrupt the market, you know. So we want to allocate a percentage of research and development, but AirgainD must be approved by the board, and I'm technically one of the decision maker in the in the in the board, and then there is the manager of the subsidiary. As you see, you know, for me, it's a subsidiary, you know, of the group deciding, you know, the the the budget. Sometimes I think what could happen is the subsidiary needs more cash. Maybe there is really a big opportunity. Like, maybe we become, you know, the monopolistic player in the board, and we have to expand capacity by 10 x. You know, maybe we need capital. So the group, you know, will will just finance, you know, the the the the the CapEx needed for increasing production. So the way we are thinking is very, hopefully, is very entrepreneurial. You know? We are we are a company. We're not doing a roll up. We're not doing a fund. We're not doing just one deal. We just want to survive, you know, and and build an amazing company for the future. Sometimes we have to make choices which are completely different than what we said. Maybe some years, we will not have any positive cash flow because we have to deploy 20,000,000 in a new new facility to become the the champion, you know, on a given market. We will do that. We will do that only if there is a mathematical financial reason to believe that the project is successful. No one is gonna give you the the, you know, the the stamp. You know, this is 100% sure. But if there is a reason to believe, we're happy to take more risks as a company for the long term.
00:29:48 · Mikk
[00:29:48] S0: And your approach when it comes to calling or writing to those companies, I guess you just mentioned some of those owners are very old in 70s and 80s. You just give them a call or just, I don't know, go and knock on the on the factory store. Are those 1,300 you mentioned, are those active sellers or just a list of companies you're you'd be interested acquiring?
00:30:13 · Giuseppe Balzano
[00:30:13] S1: So you're asking about, I think, the secret sauce of of the company. In the end, if you think, we don't have any IP. So we we are buying IP. The IP of Novaterra is maybe me, hopefully, until my shareholders decides that I can be the founder and CEO. Joking. There is a pipeline. You know? It's it's it's an IP. There's the reputation, maybe. There's the ability to do something, but in the end, we are a vehicle, you know, for now. Maybe in the future, you know, we will be recognized like Berkshire, you know, Constellation. You know, there is a brand behind the the subsidiaries. But clearly, that's not the case for us since we we just started. We we will try to go there. So in the meantime, the the the way we we we approach the the program is to defend the assets as much as possible. So I'm not gonna go into a lot of details on on the scouting process, but the main... The two main strategies are outbound, inbound. On the inbound, you know, it's it's easy. You just receive calls from accountants, notaries, and banks, and advisers, and so on. At the moment, we have 130 mandates. So there's there's an m and a agreement. In case we ended up buying the company, We will pay a a provision, a fee for... As as a scouter, you know, to to these boutiques, like an introduction fee. And the second the second big investment that we have done is on the outbound. Now on the outbound, I think it depends a lot on who is your leader. You know? If you're sending an email to the founder of a SaaS in Canada, and they are doing 1,000,000, and they started five years ago, and the founder is 25, and and then you want to buy them. I think, just, you know, out of logic, it's completely different than trying to reach out to a 75, 80 old gentleman from the province of Brescia that doesn't speak Italian. You know? Because you must know that in Italy, we have thousands of different dialects. You know. So if you Well,
00:32:39 · Mikk
[00:32:39] S0: I didn't know.
00:32:40 · Giuseppe Balzano
[00:32:40] S1: Yeah. If you have a Sicilian and and someone from Trentino, for the Italians, you know, listening, you you will know this. They will not understand each other. Like, there is no way they they know what the other person is doing or saying unless they switch to Italian, you know. But the language of choice for people from Milano, Roma, you know, big cities, of course, is Italian. But if you are 75, 80, and you're coming from the old province of a little town of 500 inhabitants in the province of Brescia. You're not speaking Italian. You know, you're speaking also Italian, but the the first language is the dialect. You know? So the way to approach these guys is completely different. We're we're not sending emails. Of course, these guys will not read the email. Of course, you know, the guys will just maybe read the email and think these are scammers. You know? They want to buy my company and they're sending an email? Like, no. So there is a way. There are different ways, and and as always, it's a mix. You can do events. You do calls. You reach out to people close to the family, and you try to win over the person behind. But it depends also on how much time you have. In the end, one of the other responsibilities of the CEO is to to allocate resources, you know, and it's also... It's not just capital. It's also resources, energy, you know, time, which in the end is capital. But if I have two employees, I cannot tell my employees to write everyone and call everyone and try to do the brute force kind of approach to win maybe someone. So we we are ranking businesses. We know there is a word. There is a domain. From a mathematical point of view, there is a domain of of possibilities. These are... We estimate in Italy, we have 4,500 companies that we like a lot, like, companies that we will buy, that maybe that we will not buy, we we want to buy. Okay? This is different. And so we rank these companies by some filters, which is including also the age, maybe, of the founder, or if there is a second generation working, or if the the trend or the sector in which they are is something that is interesting or not for us, for the world, for everyone. You know? So we have some sort of parameters, and we rank these businesses by the score. And then we have several scouting strategies to try to have a call.