Buyers and Builders
00:00:00 · Mikk, Frederik Brandis
[00:00:00] S0: Most investors spent their careers looking for great companies. Today's guest started much earlier, backing the person before the company even existed. Frederik was one of the earliest believers behind Arsipa, a business that went to do 80 acquisitions, growed over 1,100 employees across 60 plus locations and ultimately sold to one of the world's leading private equity firms, Warburg Pincus. Frederik Brandis, founder and general partner of Aven Capital Partners. It's such a pleasure to have you with me today. [00:00:35] S1: Thank you for having me, Mikk. I'm really happy to be here. [00:00:38] S0: What you do is back ambitious entrepreneurs from day zero to acquire, integrate and scale small service businesses into consolidated market leading platforms. But how it started and what you've talked about previously while I was doing research was sink a cap in the market, not for more capital, but rather a shortage of the right type of investor. And you've even said one who combines capital with emotional intelligence and helps founder realize their full potential. What led you to that insight that entrepreneurs needed something fundamentally different?
00:01:17 · Frederik Brandis
[00:01:17] S1: Yes. So as for many good ideas, it didn't happen for us, or for me sitting in a room and kind of jotting down ideas on a paper, but it happened through kind of experiencing, investing prior. So as you mentioned, we've Arsipa, and at the beginning, we're quite stealth of it. When Arsipa went more public, me, meaning the founders of Arsipa and myself, started to receive a lot of deal flow from young buy and build teams that wanted to do buy and build journeys and were looking into the market for capital. And who is financing typical buy and build journeys? So buy and build meaning to buy cash generative businesses that have been profitable for a long time and kind of consolidating them into a larger organization. And this is typically financed by private equity. And the teams that we then we spoke to a lot of teams and the ones that we really liked had a lot of characteristics. You mentioned emotional intelligence. There's also kind of entrepreneurial drive, high degrees of energy, high degrees of intrinsic motivation. So people that really want to build something, wanting to build new organization, and don't really want to be, I mean, hired or an execution arm for someone. And as it happens for most traditional private equities, if you do a roll up for them, which is kind of the view they take, it's that you're more of a manager or an executor for the strategy for a fund, and you're not the founder of your company and have investors in your back. And that fundamentally changes how you feel about your company. It's also a more comfortable setup, so I don't think there's per se a problem with that. But for the segment of people that we really liked, which is this high entrepreneurial, high empathy, high emotional intelligence, high drive, that is a setup that doesn't work. They don't... They're in their mid-30s. They don't want to report to the investment manager, Carl based out of Munich or London or wherever. They want to build their company. They need institutional backing. They need capital. They need knowledge. They need processes. But they want to have the sensation and the reality of building their own company. And eventually, we saw that many of the teams that we liked rejected this traditional private equity money for exactly these reasons.
00:03:43 · Frederik Brandis
Then again, the idea of putting AAA entrepreneurs onto these kind of more traditional businesses that have the right level of humility and respect to kind of what has been built, but at the same time have kind of novel ideas is so interesting and so risk mitigated that we were, to be honest, astonished that there is no institutional investor in Germany who really fosters such setups. And our teams, what they did back then is they kind of gathered together a lot of family offices, high net worth individuals, all of which kind of backed their journeys. But none of them really took the time or had the resources to really kind of learn from all the different kind of buy and build journeys they've seen or they've backed, and to build these processes from which the entrepreneurs then can benefit from. And so in the end, we saw there's an incredibly interesting asset class with AAA entrepreneurs on traditional cash generative businesses. There's effectively very limited to no competition as no one really serves an operating model that is interesting to the people that we think are really suited to do these businesses. And out of that learning, we said, I mean, we're doing this with kind of private capital means and our network, but you can also do this for others. And with that in mind, I quit my previous job and started building Aven. And with Aven, we do exactly that. We find entrepreneurs, we work with them. So you mentioned in your intro that we back them day zero. We don't really do that. So we work with them day zero, and we're aspiring partner, and we help on these journeys, but we don't financially support until you have a fixed industry thesis, some companies under LOI, but we want to be your partner together from a content perspective. And that's how structure at Aven. We really focus on one specific use case, which is these day zero buy and builds with AAA entrepreneurs. We focus on business services where the core value creation is non AI, also in the foreseeable future. So for us, AI is a productivity gain, but no disruption to the core business model. And yeah, that's what we're looking for. And that's what we're working in. And that's a bit the story behind how we came about it.
00:06:04 · Mikk
[00:06:04] S0: Nice. You mentioned so many times, AAA entrepreneur. Who is an AAA entrepreneur? That's one thing. And I'd like to add here something you mentioned, having this intrinsic motivation. What is the story you'd like to hear when meeting this potential AAA entrepreneur? And is it about his background? Is it about his maybe rough childhood? Or what is it? What are you looking for? What are you happy to hear?
00:06:33 · Frederik Brandis
[00:06:33] S1: So per se, we're not looking for background. And my experience is that good entrepreneurs can have all sorts of backgrounds. And there's no big merit in really selecting for particularly great investment banking, private equity consulting backgrounds, and the hit rate to have great entrepreneurs is not significantly higher. So for us, it's a lot about meeting people, and we try to speak to everyone because I think you can learn inherently more out of a short conversation versus just looking at the background. And then leading into your second question, what makes a triple A entrepreneur? You know, high degrees of... Or in our case, a triple A entrepreneur, high degrees of drive, a motivation to succeed, and a belief to succeed, you will have a lot of adversity. Sometimes it feels like it's not going to happen. And also, you know, building this funds, I mean, I'm an entrepreneur building our funds and, you know, sometimes you're really down because you get 15 negative feedbacks from investors, from peers, whatever. You kind of need to steam through. For the entrepreneurs to be back, you need to have these high degrees of empathy, emotional intelligence. I mentioned that, given that, you know, we don't build greenfield like you would build a startup, but we go to people who have over decades built their legacy, very successful companies, great entrepreneurs themselves. And it's a lot about trust. It's about legacy conservation. It's about well-being of employees. It's about serving the customers. It's about serving the local community in which these businesses are, and having a sense for what's important to a business owner, how to establish a relationship, make them trust you, and not just the owners, but also the employees is an absolute crucial skill in our market. And lastly, I would say it's probably rigor and attention to detail. If you buy small businesses, there's so many processes, so many complexities that you have to cater for, that you have to dig in. Also, create value, you have to always look at these processes, see what's going wrong, what is better in another asset that I have, how can we implement it elsewhere. And having this energy and this also this eye to find detail is, I guess, the third big characteristic that we look for AAA entrepreneurs in our definition.
00:09:00 · Mikk
[00:09:00] S0: I have a few follow-up questions on how do you find those? Maybe more importantly, they come to you, but how do you measure them? And what have you learned over the years? And maybe how are you evaluating someone before they built anything? And what gives you this conviction that they might be this special guy or a gal who goes and builds a meaningful platform for you? And maybe there are some signals or some things which keep repeating, or maybe there is something based on your experience.