Buyers and Builders
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.
00:09:37 · Frederik Brandis
[00:09:37] S1: I feel like my answer is going be really dissatisfactory, but that's just how it is. So I can't say... I mean, I've mentioned the characteristics. I wouldn't say there's like three, four, five, six signals that are like universally true that this is someone great. What I can definitely say as a learning, I think abstract discussions don't make sense. And basically, any context, you should give yourself time to make a diligence on a person. It's very difficult also in any investment context. You invest into a startup, you meet the founder team, especially if you're a smaller investor, two times, if at all, and then they have shown great energy in that call, and you invest. Typically, learnings are very limited. So in my experience, to have a good judgment on a person or on a team, it just takes time. So there are people who give incredible reasons, but you need people who also deliver incredible numbers. I always say there's sometimes a little bit there. There are companies with reasons and there are companies with results, results take time. So you need to find a model that gives you time for them to show results. And given that in our specific model, I mean, I am entrusted with the capital of our investors, and we entrust this capital to our entrepreneurs and founders. So in a way, I leverage myself through these founders to get access to this microcap segment of small companies. So diligencing the people and having an understanding what their strengths are, what their weaknesses are is crucial to our model. And we do that over these extended periods of time. So I meet people long before they have a concrete idea what kind of industry, what roll up they want to build, and then we onboard them into a thing we call now Aven Academy and where we provide them with tools, intros, access to different kind of best practices that we have learned over the years. And then we do monthly at the beginning and eventually biweekly sparings, where we speak about progress, speak about different ideas, analysis of markets, and so on. And if you do this with a couple of teams, even at the same time, the biggest enemy of someone good is someone better. So you see a lot of differences in the different teams. How fast is the team moving? How thorough is their analysis? Have they found something in particular? How active is their pipeline?
00:12:06 · Frederik Brandis
And how self motivated do they go out and meet people? How well do they negotiate potential multiples on which they can buy the companies? So over these extended periods of time, you give yourself a chance to see results. And that's our way to kind of find incredible people. And yeah, we provide, you know, what I mentioned earlier, these tools and sparring and so on. And this comes for us at no strings attached. So the founders can do this with us. They don't have to take their money, take our money once they're actually an investable opportunity. We don't have to give them money once they're an investable opportunity. Of course, if we spend an extended period of time with them, we believe in them as people. They can still be a market that we don't love, and then we don't do it, but per se, we trust into them when we spend these long periods of time. And then we believe that given our strong focus on the segments and, you know, like a very centered and focused strategy where value creation becomes then much easier, so the value that we provide to the founders, and given that we don't ask for anything for, like no special conditions for having worked with them for this extended period of time, we believe that we can build these entrusted relationships with founders. And then we want to be a no brainer partner, that there's absolutely no reason to not take on.
00:13:34 · Mikk
[00:13:34] S0: Now, what about the current environment with roll ups? Because there is a lot of momentum and social proof that backing those buy and build platforms can be extremely lucrative. You've also seen the early days. Where do you think we are currently when it comes to timing? And how should a serious investor also this and also this talented entrepreneur, think about the current environment of building a buy and build or a roll up?
00:14:10 · Frederik Brandis
[00:14:10] S1: You know, buy and build has existed for decades. It's not that we invented something crazy. The thing we've done is we kind of changed the operating model on how we do buy and builds by creating this model that is now I'm in danger of repeating myself more interesting for entrepreneurs. And so per se, this kind of roll up is now a bit, the word roll up Buy and Build is going a bit through the kind of more main street, I don't know, word-of-mouth, but it's been there for long times. I still think we're in the early days. And if you look at the amount of capital that goes into roll ups, and especially in small businesses, versus the amount of companies that are out there and the workforce that is working in small businesses, we are very early. There are thousands of industries, verticals that can be consolidated, and so I think there's huge potential out there. And from a risk return perspective, I think that is probably the most attractive opportunity as a kind of young ish person. So for us, mid-30s is the ideal age to do a roll up. However, I think there's also a massive misunderstanding in the market that people think it's easy, like, oh, I'm going to go out there, this business has been profitable forever, I just buy them, I have someone leading it, and then I buy a second one and done, and I'll be extremely wealthy. Not at all the case. Is... You need... It's kind of what I would describe before, like the the intersection between high empathy, high drive, high rigor is a very rare skill set. It takes incredible amount of energy to go around and meet people, build these relationships. You have to be extremely sensible in how to structure and how to motivate people. And, you know, in the end, you're buying customers, you're buying people in these businesses. For these companies, it's a fundamental change in the history that someone else owns them now to kind of maintain these relationships, build trust, make the change management happen within these companies, and create somewhat a cultural identification with new company. It is difficult, it is exhausting, it takes all of your time, takes all of your energy. And so I think the difficulty is still underestimated, despite me thinking that risk return as an asset class is pretty unique.
00:16:43 · Mikk, Frederik Brandis
[00:16:43] S0: Yeah. Okay. Buy and Build has been around for decades. I forgot to ask in the beginning, how old are you, Frederik? [00:16:50] S1: I am 34. [00:16:53] S0: Okay. So 34, but you were already the early investor of this early breakout win, this success story in Germany, the story of Arsipa. Could you maybe talk a little bit about this? Number one. And number two, when young entrepreneurs listening, some of them this AAA plus quality, what is your take on this Arsipa case when it comes to skill versus timing and luck?