Buyers and Builders
00:41:20 · Giuseppe Balzano
[00:41:20] S1: Oh, yeah. Absolutely. I'm a... I started full time two years and a half ago. Mhmm. No salary, nothing. Just, you know, let's do it. You know? So some family offices, was saying, they maybe did some deals with me, you know, convincing them on another story in which I was the obligator. The the first answer is, but you never bought a company. You've never been a CEO, so how are going to do it? So yeah, the short answer is tough. How I did it, it's a matter of brute force this time, so you speak to other people, And and some some people will just, you know, decide to not invest. Some other people will be very helpful, and maybe you convince one out of 100, but that person is gonna introduce you to five people, and all of them invest. So in the end, you you want five people out of 100, you know, because there was a connection. I think that was that was what happened, you know. So it's a matter of finding people that like you as a person, like the idea, and and then and then they think you're credible enough, and you have a story, you're... You have you have energy, you have the passion, you know, you have nothing to lose, which is my case, to to do that. You know? And and that... That's that's what happened. On the liquidity side, that was another tough conversation, and I lost investors because of that. They wanted to see in the shareholder agreements, you know, a close with maybe, like, a put, you know, or some some kind of promise on my side that the deal would then end in six years or seven years or eight years. No. Like, this is not what I'm doing. You know? So the the conversation ended. Some of the times, I I must say that we ended up having an honest conversation, hey, Giuseppe, you're 30. I'm 65. So, okay, you wanna do this for fifty years, but I don't know if I'm gonna be here for fifty years. My first answer is, well, your kids are lucky. Sometimes it didn't work as a... As an answer, unfortunately. So in that case, there is an handshake. There is an handshake. There is a promise, best effort on my side that I'm gonna buy the the shares when they want to liquidate, which is not the best outcome, of course, for for them, clearly. For me, it's better than than giving dividends, so it's a sort of a buyback. I think it's fair.
00:43:41 · Giuseppe Balzano, Mikk
Hopefully, you know, they know that they are not expecting a liquidation in five years because it's not gonna happen. So I was very, very, very brutal, honest in every meeting that this is gonna be a long term project. Of course, you know, this is a this is a private market. So if one shareholder find another shareholder and they... They're able to to find a compromise and and buy and sell the position, who am I, you know, to say no, unless the guy is a is a bad guy. So I think in this way, I managed to convince someone, but very little. If you if you put together all the people I try to convince and how many people I have in my cup table, is ridiculous. [00:44:22] S0: You're an engineer, very systematic, data driven. Do you have or do you want to share any data when it comes to how many people you talk to and how many people eventually ended up investing?
00:44:36 · Giuseppe Balzano
[00:44:36] S1: Oh, yeah. Absolutely. So if I put together two years of... Less than two years of fundraising, because as I told you, I started as a, you know, let's buy one company. So my my first pitch was let's buy one company. Then I had to change the pitch. This is an holding company. I lost one investor. So if I put together what happened in two years, clearly and without any issue, I spoke with more than 120, 130 between, you know, funds, holdings, angels, maybe not investors because it's easy to say I'm an investor, then I don't know if you're an investor. You know? So in the end, yeah, I think more than 200... More than more than 100 for sure. And how many people decided to invest is 15. 15, 16. Out of which, half and half, like, eight, I found, and and the other 50% are introductions from people that decided to invest. You know? So there is a reputation, credibility kind of chain. You know? So for whoever is raising capital, again, it's either you're you're very strong, better than me. There are many out there. Or you have a better pitch maybe because you had done something for fifteen years and, you know, it's clear that you're gonna make it. Or the gradient to to embark in a in a probability game. You just have maybe one percent of probability to convince someone. So out of 100, one, two, three people will say yes. Unless your thesis is so strong, so easy to understand, so naive, but at that point, as an investor, I would be suspicious, you know, if you're doing everything right. There must be something new in in the equation. This is what works for me.
00:46:30 · Mikk, Giuseppe Balzano
[00:46:30] S0: And you have this international background. You were studying in US, working in US, now going back to back to Europe, back to Italy. 15 investors. How many of them are from Europe? How many of them are from US? [00:46:44] S1: 7075% are European. Could be also 80. I need to check. I I don't have this estimate. But the the large majority are Europeans, and out of that, the majority are Italians. Again, you know, this is my my background. You know? I'm coming from here. So it was easy to to bet, because I think in the end, what they did two years ago, one year and a half ago, was to bet on something, because I didn't have any deal. I didn't have any any deal flow. I didn't have any team. I just had an idea and some slides. That's it. So the first person I convinced is is the first person that I started the call with. He is a person that know me and trusts me as a person. You know? You have to start with them. It's either you convince your family and friends or network or the chance, I think, the chances of raising a proper holding company with lot lot of equity, you know, to do deals. It's it's it's it's low. Now, of course, you know, it is it is becoming easier and easier. I think the model starts to be properly understood in Italy. In other jurisdiction, it's very easy. So the chances are higher. But for me, so my experience in the last two years, very difficult. [00:48:11] S0: How do you structure the deals? Just curious. How much how much depth, how much equity do the do the owners roll equity? How does it work?
00:48:20 · Giuseppe Balzano
[00:48:20] S1: No. No. My my my assumption is the cost of equity of issuing shares of my holding to people that are not going to be involved in the business is too high. So I find... I always find... Try to find ways to buy 100% of the business, maybe with some sort of deferred payments, you know, it could be convertible notes, it could be a loan, maybe, But I try to do less, so I don't issue equity to new people. And then I finance every acquisition in an efficient way. So it's a mix of equity and debt. The amount of debt depends on the deal, of course. You know, if there is a big EBITDA, a super healthy cash conversion, I'm very happy to level the company. Technically, what we do is to drill down debt at the holding level. We don't put debt in the single deals. Why is that? It's because of the psychology the psychology of the founders. They they will tell me... They would tell me, so, Giuseppe, let me understand. You're buying my company with my cash or with my business? Good idea. So they they will they will never allow me to do it. She's not in Italy. Or maybe it was me not not convincing enough. So what I do is I just find a deal that's, you know, include buying 100% of the business in two, three years, and and I finance the acquisition with my resources. It could be equity. It could be debt. It could be deferred. You know? There's some other things we do. But there is one transfer from the holding to the to the founders. There is no difficult structure in place.
00:50:15 · Mikk
[00:50:15] S0: How is your day to day look like when it comes to you driving around Italy, managing those two companies? What do you change when it comes to the management team to hire a new CEO? Do you don't touch it at all? What's what's the current situation?