Buyers and Builders
00:09:51 · Giuseppe Balzano
[00:09:51] S1: It's a mix of things. I'm an engineer. So my, you know, my my background is in studying how complex systems and and products and components behave when put together. I did my, you know, my my master thesis and my research period at UC Berkeley, and it was, you know, in the in the field of mechatronics and and control automation. So I like to play with components, with stuff. And, also, I think it's not just a founder fit. You know? It's also a geography fit. Italy, maybe you don't know or some listeners don't know, but we used to be the fifth economic power in the world. You know? We're not that now, but it's not it's not like in the seventies or eighties. And the large majority of that is not serious. Italy is famous for Portofino, Orgoma, Venezia, and so on. We used to be the the second, I think, industrial powerhouse in in in Europe. And and and that less... That that kind of stuff left a legacy. Maybe some companies decided to to leave. Some famous companies decided to leave or to shut down because of the Asian competition sometimes. But there are supply chains. There are SMEs that for the last forty, fifty years have been doing something very good. They are experts maybe in a in a given niche, and maybe, you know, the client is not another Italian industrial company, but could be, I don't know, a North European or a Canadian or an Australian or an Asian company, you know, you still do something very well. So I think what happened is I found the right spot for for myself. I was not living in Italy, so I decided to come back and and do what they call a self funded search. You know? That was the the original idea. You know? Let's buy one company, and let's see what happens. You know? Then I, you know, I just noticed that there were too many companies. This year, we saw 1,300 companies, and just me and one analyst, you know, so he is not a big fan. You know? It's a it's a small team. So that's when I said, well, you know, I can put together my competencies, my background. As an investor, I always and only invested in other industrial or deep tech, you know, solutions. I like to leave you the IP. So maybe Italy is the best spot. And surprisingly, there is no one in Italy doing so for now. Maybe in the future, they will all come. But for now, you know, the competition is not there.
00:12:29 · Mikk
[00:12:29] S0: Before we go, I wanna talk about the cofounder part because that's that's interesting as well. It's hard to find a cofounder for a individual like yourself who plays such a long game. What do you consume in these days? Because if you if you look on X, if you read news, if you whatever you do, it's it's it's so often just quick, quick, quick, fast, fast, fast. But I'm trying to read a lot some some things from 1980s, 1970s, 1990s. There were... It seemed like there were much more patience back then. What an individual like yourself with this extremely long long term hold go focus, what do you consume?
00:13:07 · Giuseppe Balzano
[00:13:07] S1: Well, let me say something on the cofounder. As you know, it's super important. You know, as as an investor, the the the first reason why the companies I backed ended up failing or the project were not delivering the best results is because of a fight between cofounders. You know? So having experienced that many times, and honestly, not having someone, you know, close to me ready to to embark in a in a twenty, thirty, fifty years journey, I just said, well, you know, why not? Then a couple of days ago, an investor of mine sent me a guy from Yale, and, apparently, the the solo solo founders, ETA, performed better than than partnerships. I I need to review the the document, but it was surprising. So I think there is an element of being forced in some way because of your biases and experience and the situation. There was no one to do business with. And, clearly, I was not going on the market looking for someone. We're not hiring anyone. You know? I'm not looking for anyone. Here, this is something to be built together. You know? On the on the second part of the question, this is a lonely, difficult job. You know? You have to deal with investors, with partners, you know, like you. We're having a nice, you know, interview. Maybe it can be helpful for other people. And I need to to do seven, eight, nine company visits per week. Italy is very difficult because logistics is not the best, so you just have to drive. I'm not buying software, so I cannot just have a call. And and these people are 80. They don't fully understand, you know, what is Zoom or Google Meet. You know, they just want to visit you and and see you and have a lunch together. Know? So it's very time consuming. Now I'm in a coworking close to a company I visited two hours ago. So I think the kind of materials and and data points I'm looking for are two. One is real experience. So luckily, I have hundreds of people I speak to. Hundreds. These are all coming from my previous, you know, club deals and other, you know, other founders, other LPs, other GPs. So my network, I would say. And I try to ping them every time there is a there is a chance. Maybe there is a deal I like. Maybe there is a question I have on the market. Maybe there is a governance issue, which could be the case, you know, sometimes. And you want to ping the right people. Okay?
00:15:41 · Giuseppe Balzano
So this is a real experience, and, luckily, I'm I'm very full of senior people that can support my journey. On the other side, it's more, as you said, these quick and dirty, you know, data points, and maybe, you know, in a given day, you have 30, 40, 50 ideas, you know, coming from a leading, could be blog... Blogs. I have subscriptions to all the the holding, you know, roll up and and value investors kind of news... Newsletters. And maybe, you know, out of 50, 60 ideas, 59 are not interesting. You know? But there is one or two sometimes that that I like. At that point, what I do is to forward the email or the tweet or, you know, the interview or whatever to another email I have, which is a personal email that has a label with the with the object saying... The the subject saying, you should you should read this or you should listen to this. So I have a warehouse of of interesting material that I can, you know, consult when I have time. It can be, you know, at night or on a train or when I drive, you know, I can listen to podcasts or to interviews. It's very easy that I can just, you know, pull pull and and and and use. On the other side, you know, this is not time efficient. You know? Maybe you you need an information on one specific company, and the only way to form an opinion is to spend five hours straight on that article or on that, you know, numbers. Of course, you do that. I think it's part of of your job. I think as a CEO and founder, but more as a CEO, I think our two responsibilities are to set the direction, like deciding to go north, east, you know, twenty degrees, twenty five, and find people that can do the job better than me. These are the two most important jobs. And on the second, there is an annex. You also should be able to convince these people to stay when when they realize that they are the one leading the boat, you know, that you decided to direct maybe in one direction. You know? So it's a matter of finding the incentives. As someone said, you know, show me the incentive, and I will show you the outcome, and I will tell you the outcome, and and and finding the right direction. I think with this combo of industrial engineering heavy Italy SMEs, I think there is something here. There's a big thesis. I think we can we can make money. We can do a successful business without any issue. So the risk is more on the execution side.
00:18:17 · Giuseppe Balzano, Mikk
So what I'm doing now is to spend a lot of time with people that can join the company for the future and understanding the personality behind the the the business profile. [00:18:29] S0: Can you talk about the two acquisitions you've done? Because you mentioned like you've done... You've seen like 1,300 companies. That's a lot of companies to choose from. So these... And based on your experience and what you want to build and all that, there are some specific criteria. And could you please elaborate of why those companies and what those companies are doing?
00:18:50 · Giuseppe Balzano
[00:18:50] S1: Yeah, absolutely. So these are two engineering companies. So they do little components in two different fields. One field is the pharmaceutical and food. I don't know if listeners are aware, but Italy, of course, as food suppliers, you know, I think it's it's easy to to to to assume. But from a pharmaceutical point of view, Italy, Germany, and Switzerland are very important exporters. So we have big supply chains of of suppliers in in the same field. You know? So this specific company is a company doing one component that goes in the machines, in the machines with which the pharma and food companies make stuff. Could be a drag. Could be some pasta. Could be something else. But in these big, you know, lines of machines, there there are some components. I'm not gonna deep dive on on which com... Which component, but there is one component that is critical for checking the quality of of the products. And the company we found is the only one active in Italy doing one specific niche of a niche in in both supply chains. So they are solving an issue for both kind of companies. It's interesting because it used to be different. You know? Fifteen, twenty years ago, maybe there were 20 companies like that. But little by little, they became maybe distributors or commercial branch of big companies, or maybe they just went out of business, which is something that in in Italy happens very frequently. I I don't have the stats, but, you know, in in the order of hundreds of thousands of companies shutting down every year, you know, and sometimes it's because of, you know, a second generation transition happening. So now this is the only one doing what what what we want... What we wanted to do, so we are gonna buy it. The second company is in a completely different space. It's in the agospace, avionics, agospace, to not say anything more. And and they do a little component as well. So imagine helicopters or airplanes. You have a lot of commands. Maybe there there are buttons. There are levers. There are valve bolts or little pumps or, you know, indicators or lines. You know? There are many stuff. One little component, these guys have the monopoly. They have the monopoly in in the European market, and it's big enough and niche enough to be interesting. Because when you put together avionics, helicopters, and planes, you want to have some sort of sovereignty.