Inspired with Alexa von Tobel
00:05:01 · Alexa von Tobel
[00:05:01] S1: One of the things obviously that, I personally really loved about your business was just, you know, a third of The US economy is the small business economy. Right? It's the electrician businesses, the refrigeration companies. And doing right by that part of the economy is just a, I think, a wonderful thing that I'm thrilled you do. When Mark and I first met you back in 2019 and invested in 2020, what stood out was not that you you know, this was an acquisition strategy. It was an attempt to build something much bigger. I remember you had a multi hundred year plan, a two hundred year plan, if I remember correctly. Like Michael said super directly as a compliment, you have more ambition than most people I've ever met in my entire life. And as someone who looks for founders like you all day long, What part of your brain was like, let's go make a two hundred year plan? Like, where where did that come from for the business?
00:06:01 · Michael Brown
[00:06:01] S0: Totally. I mean, look. I think Alex and Kevin and I and I think for a lot of people, we know people have been with us for five years. Right? I I think a lot of us have found this interesting place of fulfillment that in Japan, people call it ikegai, which is sort of like your life's work. Right? And so it's something that is both ambitious and intellectually interesting, but it is good for the small business economy too, both for these retiring owners that they need to retire, their kids went to college, and, you know, they're sort of not a natural successor. And then it's also great for the employees too because as the business performs, they are in stock in the company too. So it's meant to be a win win win. I mean, specifically where that idea came from was, I think, in the early days of being a pre venture founder, right, just leaving, quitting my job in banking and buying businesses and running them with Alex, I think we always wanted to build something that was, you know, durable and long lasting. And and it was actually... I think it was on my thirtieth birthday. Was in Hong Kong, and I was just impressed by some of the companies. They're like Swire and Jardine Matheson, and they started as little trading companies two hundred years ago. That was actually where that came from. It's just like, oh, wow. Like, that is wild that Swire, which owns Cathay Pacific and Coca Cola Asia and half the real estate in Hong Kong or a lot of it, you know, started as little Scottish traders. Right? Sort of two hundred years ago in Hong Kong. And that was really inspiring to think that something really large and really durable could, start so small. And for us, you know, it was just... Look. At some point along the way, you know, if you start a business, right, any business, you're trying to achieve something financially. And along the way, becomes it has to be, I think, to keep wanting to do it become much more than that. And so it's about wanting to actually contribute and create something that was really productive for the economy and long lasting. That was kind of where that idea came from.
00:07:44 · Alexa von Tobel
[00:07:44] S1: So on that note, let's just take a step back. A lot of people assume when a company is going public, as you will, that most of the value is already being created. Yet you feel vehemently that you're in your early innings. Say more.
00:08:00 · Michael Brown
[00:08:00] S0: Very vehemently. Yeah. No, I think we're going it's such a natural I'm glad you asked the question. It's such a natural assumption. I mean, remember it's funny going back to the first time I think I ever really thought independently about this was I... It was actually around the time Facebook went public. And I remember reading all these Wall Street Journal articles that, like, oh, it's over, and this thing's overvalued. Mean, that that was, like, just the beginning. It's the same for Walmart. It's the same for FedEx. It's the for, like, lots of great companies. Like, going public is a milestone. The reason... And and so if you're building a company that has a huge market opportunity to grow, it's actually just... It's kinda like graduating from universities. It's kinda the next phase. Right? And so that's why I think about the sort of venture phase as a relatively short phase. In our case, six years. And the reason why Teamshares has, I think, a large opportunity is a couple of things. So first of all, our addressable market, right, is really, really, really large. So, you know, just at... You know, the the the maximum size of the small business economy in The US is about 6,000,000 companies have employees. Four and a half million are owned by baby boomers or Gen X, and we're starting to buy from kind of the oldest sort of, you know, vintages, if you will, of Gen X owners who are kind of approaching sort of, you know, early to mid fifties. So that's that's a lot of companies. And it's not a TAM that you just... It's not a theoretical TAM. Right? We've had 475,000 businesses come into our software since launching it in early twenty twenty. So there's 15,000 every year of size qualified. Last year, we bought nine and added $24,000,000 of EBITDA to the company. So I think that we're scratching the surface. And there's this sort of perpetual TAM. And our job is to get to heavy, heavy free cash flow positive over the next couple of years so that we can be self funding and continue to scale what our mission is. And then I think in the meantime, the way that just like if you were buying a property, the way that you finance something, is it partially in debt, partially in equity? The equity has historically come from venture rounds, raising capital into the company that is going to go public. And then the debt has come from lenders. Right?
00:10:10 · Michael Brown
And so there's sort of two dynamics that happen for Teamshares when we go public. It's, first of all, the availability and this may take time. It may take a couple of years. I don't know that it's a light switch, but feels something that we can hopefully earn our way into a lower cost of debt that's available to us in the private markets and just a much bigger market. It happens... Sometimes things take two to three quarters to put together a debt facility in the private markets. And and things happen once you're a seasoned issuer in the public markets in a matter of weeks. It's it's literally incomparable. Right? I think everyone knows the cost bet. I don't know that everyone knows the knows the speed bet. And for us, that's very, very helpful because it's the raw material companies and acquisition financing is the raw raw material. And then on the equity side too, I think we're certainly going public with the intention that the equity we raise will get us to free cash flow positive. And I think there's a fairly good math case there. But if there are opportunities in the future to raise more capital and put it to work, That's available. We also now have stock that we can pay for businesses with. So it gives us a it gives us a really nice set of tools. And so what's really interesting, you know, I I don't wanna name example companies, but think of a famous company that goes public. Right? That famous company you think of that goes public, generally, the act of being public doesn't help actually catalyze the business. Maybe more people know the company now. Maybe there's higher trust in the company because you see their financials. And certainly, it's a changing in the guard and opportunity for the shareholders and the employees to have liquidity. But it doesn't actually drive... In most cases, it doesn't actually drive the business model. If you think of us as sort of a factory, a tech enabled factory where businesses and capital come in at one side
00:11:59 · Alexa von Tobel, Michael Brown
[00:11:59] S1: This is my favorite part, Michael. [00:12:01] S0: Right. And so so, like, we've always had the businesses. Where we've had shortfalls versus where we've wanted to be is on the capital. And the capital that has come has been slow and unpredictable. So we have to earn the... Our job is now to earn the trust of public markets investors, right, which is, I think, a multiyear journey. But it's it's a much bigger stage with a totally different cost of capital. And that's really, really exciting to be able to apply that capital to this, what we think, a very productive use for the small to midsize business economy. [00:12:34] S1: Michael, that's a really great point that very few companies can say, which is that actually going public, the act of going public Mhmm. It it supercharges your business model and the levers that you have to continue to grow quickly. And I just wanna hit those numbers again just because they're so big. So there are 6,000,000 small businesses [00:12:57] S0: With employees. Yep. [00:12:58] S1: With employees that are in the category that you go... You're going after. 475,000 have already come through your system in the last five years. [00:13:07] S0: Actively for sale. So that's not just like, hey. There's a business in Chicago. It's like, those are businesses that are actively for sale. Right? [00:13:13] S1: And you are buying, obviously, dozens over the years, but you could buy a lot more. Absolutely. Yeah. Mean growth very, very quickly.