Riding Unicorns: Venture Capital | Entrepreneurship | Technology
00:28:20 · Dan Lifshits, James Pringle
[00:28:20] S1: I was actually listening to that, and he was finding lots of parallels. It's it's fascinating conversation. [00:28:25] S0: Yeah. It was it was really great. He actually isn't doing the roll up model, but as I'm... As I was hearing you think, speak there, I was thinking, I wonder if he could get up to market a lot faster by buying some companies, like some health businesses, like buying GP practices or something. So, so down, obviously the roll up model is it adds a whole nother level of complexity. You're not just building a product, you're building an M and A organisation as well. So how does that affect the skills required from the founding team and who on the team has taken the lead role on the M and A side? And how has that learning curve been and how many acquisitions have you actually done? Sorry. There's loads of questions there, but Yeah. Just keep No problem. I'm sure there'll be other people thinking about roll ups. And so it'd be great to hear how that all comes together.
00:29:13 · Dan Lifshits
[00:29:13] S1: I think I would agree with you that on one end, we've been talking about that it's effectively almost like buying the customers in a bulk Reality is it's obviously a bit more complex than that because, yes, it comes together with some preserving the existing teams and existing brands and existing processes that you then need to change. And sometimes building from scratch is easier than changing what already exists, as you obviously guys know. So I I agree. I think that this is not for sure an easy business model that, in my view, requires at least three core skill sets around which you're building the business. I would say that first and foremost, you need to have a really, really strong operator that understands how to run a tech enabled version of the service of the business of such. And regardless of effectively how much more efficient can you get with what you're running, it's still always gonna be quite a labor intensive business, meaning that it always gonna be running a huge operational business, number one. So you need to be a very strong, diligent operator first and foremost. That's where I believe that all the experiences with, like, ride hailing and some others comes very nicely together. Second, you're right that you need to have a very strong tech first transformation mindset, the likes of kind of volunteer, forward deployed engineer type, changing the processes and adopting the existing service processes to exchange it into software. So you either need to have a very strong technical person that understands the applied AI, very practical implications of that. And it's sometimes different people from the top AI researchers working on the, let's say, fundamental models itself, because application layer and the fundamental layer are slightly two different things. So we need to understand having the existing operational process, how can I reengineer that with the most progressed existing technologies? So this is number two. And it can be very strong product person, can be very strong technological person. It's amazing if you have someone that brings in some experience from that industry straight away, because then you know already what you are solving and how you're improving that and you know the kind of incumbent status quo.
00:31:18 · Dan Lifshits
And then you write that skill set number three that is required is capital strategy, capital fundraising, debt to equity, M and A, kind of running the M and A process, building out the proper origination function, the proper deal execution function. Effectively, this is stream number three. I would say honestly that I think that this business model is almost like merging two businesses in one because effectively on one end, you have tech enabled operational business, your likes of Ubers and deliveries and everything, as well as you're executing side by side, it's almost like a roll up type buy and build. And effectively, it's a combination of two models where I definitely would say that I don't believe that this is a business model that can be pulled off by a solo founder. I think that you need to be two founders, at least, if not even three, where I think the three skill set needs to be operator more like M and A capital guy and more like technical guy. That would be, I think, the best mix. And it's definitely not a business model for kind of faint hearted or for the first time founders or for other people, because I mean, it does require rolling up the sleeves and doing lots of hard work kind of yourself. However, I think that if you are a strong operator and experienced founder, second time founder, I think that this is one of the best business models that you can do to apply your knowledge and skills at form. And the way that was split, we have three co founders out of which two of us focus more on all things business matters, where we co share quite a bunch of things and I think start splitting more and more as the business obviously gets bigger, where I focus more on product fundraising, some of the bigger M and A opportunities. And Aelia, the second co founder, covers more of everything else effectively, like integrations, operations, finance, legal, all the internal things, so kind of lots, lots of day to day stuff. And our third co founder fully owns all the technological stream, Dimitry. So, I think that in our case, we've been quite lucky with a way that's quite complimentary skill set and exactly fits pretty much what the business model requires to have you as the founding team. But again, I think that this is in a way a coincidence as well.
00:33:24 · Dan Lifshits, Hector Mason
When you look at it from the financial thesis standpoint, when we've been looking at it from the standpoint of we want to build a new wave of letting agency or tech first platform, and the only way to do that is through acquisitions. It made sense for us, our skill sets, but we weren't looking at obviously from the standpoint of financial thesis of AI roll ups. [00:33:44] S2: How with your experience buying companies at this point, how repeatable have you made the process? Like, is there any way to make this a streamlined, repeatable acquisition process? Or is just every acquisition is too diff... To be able to run a playbook?
00:33:58 · Dan Lifshits
[00:33:58] S1: You get to unify lots of things. I think this is where private equity playbooks come handy very well because effectively, you can preserve a lot of this knowledge. And especially when you're doing the same size and the same configuration type deals, it starts getting to be a bit cookie cutter at some point. I think whenever you're completing kind of tenth ish deal, it's already like a cookie cutter, at least what we're experiencing on our front. Again, every deal is still unique. Every deal has its unique combination of shareholders and owners and what is the succession plan and who stays and what are the current roles and responsibilities operationally in the business today. So obviously, there are some tailored adjustments you need to be doing. But a lot of things with regards to due diligence, process, your heads of terms, SPA, what things you check against, what is your integration plan looks like in terms of steps is kind of the same. Yes, obviously, it's maybe the feeling of the part of what exactly you do is slightly different, but the broad strokes, it gets to be already playbooked pretty well. Think the second thing obviously that gets different is whenever you grow in scale of acquisitions, Whenever you've been doing acquisitions of like 1 to 3,000,000 revenue business is one thing. Whenever you start buying business at 10,000,000 revenue, it's second thing. You start buying business at 100,000,000 revenue is like third thing. But again, on the deep down level of like branch operation in each agency, it's quite repetitive.
00:35:19 · Hector Mason, Dan Lifshits
[00:35:19] S2: Yeah. And how do you select the agencies to buy? What sort of criteria do you match them again or mark them against? [00:35:26] S1: It's super evolving criteria as we go because we keep learning and keep feeding back if some things need to become a bit more controlled, effectively, in a way kind of what we buy. But one of the key things we've always been looking at is effectively that the business, first off, is growing, and it means that it has very good operational practices in the business as status quo. Second is that the customer base is that it's letting focus the business and that the customer base is highly fragmented. Usually, that will be the case. Most often, it's very rare when you will have concentration of the revenue coming from a few landlords, usually kind of institutional only. Most of the landlords in The UK are moms and pops kind of private rented sector landlords, meaning that by default, usually it's fragmented, but we check for that. And some other things such as strength of the management team succession plan, but usually, it very well blends into the growth of the business, because usually is growing quite often, it means that the management team there is pretty strong in the business that you acquire. And there are many more secondary criteria, but this is one of the key ones that we'll have.