Buyers and Builders
00:19:37 · Mikk, Frederik Brandis
[00:19:37] S0: Okay. I had this question, which I really wanted to ask. It was like, at what point in your career did you realize that backing people might actually matter more than finding the perfect business? Here, I would like to change this question and ask from you. As you mentioned, you were thinking of starting a search fund, but you decided not to do it. Instead, some time went by and you partnered with Felix and Stefan and you built this Arsipa group. So what were the lessons there? What was the thought process for you of making such decisions during your late 20s? [00:20:19] S1: I'm not sure I fully understand the question. So the decision to invest into Arsipa or the decision to not do the search fund? [00:20:26] S0: Not to do the search fund, and then time went by and the opportunity came and you were able to Makes
00:20:33 · Frederik Brandis
[00:20:33] S1: sense. I mean, doing a search fund is a substantially different way of doing business than doing a roll up. It's considered... We mentioned ETA. It's kind of two different ways to do ETA, but what you do on a daily basis is super different. A search fund, you buy a large company where you ideally operationally really change the company. That company is typically not in an urban area, but somewhere rural, and you have to travel there Monday to Thursday, at least to kind of have an impact on the company. As a matter of fact, I did not want to move and spend Monday to Thursday alone in I don't know where and live there. To me, my time was very important. How I spent my time, I work hard. I still work hard every day, but I try to at least sleep at home as often as I can. And what you do in a roll up is very different because it's much more transactional. You probably travel much more, but it's less about discussing operational levers with your senior management. It is more about meeting a lot of people. And it's more transactional. It's more building relationships, which, at least to my character, fits more. So I think there's also no judgment. I think one is good and the other is also good. But just for me personally, I prefer this transactional business. And I did not do Arsipa as an operator. I mean, I'm even one layer above that, so I'm an investor. And I think, to me personally, roll ups offer this very obviously unique way to create value. And I'm doing this fund now because to me, it's a great combination of thinking big picture, working with people, and developing strategies. But at the same time, we as a fund are very operational, not because we execute for the founders, but because we build a lot of processes. In the end, our vision is to enable microcap buy and builds at scale. And there's so many things that you have to do as operator team that you have to from legal perspective, from an operation perspective, from a process perspective, from a partnership perspective. And we want to build kind of the operating system for founders to do this. And that's why I love what I do now because I have this big picture thinking. At the same time, I have this huge operational kind of not burden, but job to do. So I can be an entrepreneur in many different perspectives now.
00:23:10 · Mikk
[00:23:10] S0: Again, you've seen this big picture, seeing a company going from one acquisition to doing 80 acquisitions and then doing an exit. And again, you're very young when it comes to being a GP and seeing that. So what have you changed your mind since seeing this success of Arsipa now and going forward versus maybe you and considering the things you didn't know before Arsipa?
00:23:40 · Frederik Brandis
[00:23:40] S1: I think the second part of the question is more fitting to me, because given that, at least in the role of space, I had no experience before at least Arsipa, which now is already five years ago. And so for me, it wasn't about changing my mind, it was really learning a more blank sheet of paper. So if I would have done ten years of private equity, I probably would have needed to change my mind, but I didn't. So there's plenty of learnings that we've had, how to create value. So for example, everything is kind of a return on time. So you need to very much balance on how the founder spends their time and what kind of creates value in an exit. We've kind of learned that these very young, ambitious people in their 30s are in a perfect age where they have some experience or they have some presence when they speak to sellers. But at the same time, they still have this energy to go out there and meet people 20 fourseven. Whereas in the more traditional private equity sense, they probably look for more experienced people, a bit older, of course, experienced in a certain industry, and they're better managers potentially, but they're not in the train 20 fourseven meeting people. So we've kind of learned that there's a trade off between experience and energy. And for our specific model, energy, at least at the beginning of our journey is the more important one. You know, we've learned that you don't need to capture all the value in the journey of when you build a roll up initially, but you can build synergies, you can optimize assets, but it's also okay to leave some value creation for the next owner. We've learned very much that it's a business about people. I mean, that everyone kind of says it's a people's business, so it feels a bit like cheap to say it. But especially at this time when everyone talks about AI and how much value you can lift with AI, I think people forget that it's not about the technology. It's really about the distribution and the mindset and psychology of people. And working with people, exciting them for your journey, taking them on board with you is your downside protection because effectively you're just buying customers and people. And to also limit the speeds at which you do a roll up to kind of not have this alienation between a headquarter and different entities is also a big learning.
00:26:12 · Frederik Brandis, Mikk
In the end, for us, the speed of growth for a roll up is not defined by capital or by kind of headquarter talent, but through the psychology of these people, how fast can you actually implement change management? How fast can you create a cultural identification with a new company? And I think the demands of integration, I. E, you buy a lot of companies that are not just owned by the same person, but are actually integrated into something that works as a whole, are increasing. And that, again, puts the burden on this kind of change management or increases the burden on hurdle to change management. [00:26:52] S0: Now, has your view changed when it comes to holding periods and the time horizon when it comes to investments? Because what I mean is there is this being this fund manager versus maybe being this, what is the right way to put it, corporate form conglomerates where you... [00:27:13] S1: I'm hot co. [00:27:14] S0: Yeah, compound for decades. What is your view? Has it changed over time? You're still young.
00:27:19 · Frederik Brandis
[00:27:19] S1: I would say I don't have a specific view. And it hasn't changed that much. I understand that the power of compounding is the eighth world wonder. How we see it a little bit, you know, I want to focus on what we're good at. Why are we good at? We're good in finding these entrepreneurs, young, driven people that work in the long tail of companies, create a vision, create a kind of somewhat professionalized system of a company that then can be further professionalized later on. And we are the right investors to kind of support you in that early journey. So the first four to five years when we have these small companies that are sometimes super under most times super under digitized, so much value to capture, this is what we build our processes for. I'm of the opinion that once you reach a certain size, the processes need to be different. I mean, everyone who did startup investments knows you have like a startup, then you have like a CHA setup, eventually you have a scale up, the nature of the company, the nature of how you do business changes. And I just think there are others who can support better in a next stage of a company, at least to where we are today. So for me, having a kind of change in the shareholder structure to have someone in the cap table then that can build this process and has done it before and kind of helps the company enter the next level of professionalization makes sense to everyone. And so, don't disagree with the power of compounding, but in our model, I think it makes sense to have a change of ownership. At least where we stand today, you can obviously always evolve in different directions to have someone else for the next step of professionalization.