E182: Pete Seligman: Navigating the World of Search Funds and ETA

[00:00:00] Ronald Skelton: Today I'm here with Pete Seligman and we are going to talk about search funds. He is a search fund investor. Has bought and did the search themselves. He's been in the shoes of being the searcher and, um, now he's helping others. So I really am looking forward to this conversation. All the way from the other side of the pond. I think you're heading into summer while we're heading into winter over here. So thank you for being on here today. [00:00:22] Pete Seligman: It's great. Great to be here. Thanks so much for having me. Yeah. I'm just waking up here as you're heading into your afternoon. And, um, yeah, we're heading into summer. It's the weather's getting great. [00:00:32] Ronald Skelton: I don't know what it'd be. It'd be so awkward for me, like growing up in the United States to like think that December, November, December and January are summer. But it is what it is. Right. It's like [00:00:41] Pete Seligman: Our Christmas, our Christmas is on the beach. [00:00:43] Ronald Skelton: So let's talk about your kind of, how did you get into this space? Give us your origin story. What is the history of Pete? [00:00:50] Pete Seligman: Yeah, sure. So, so, I mean, I grew up in Sydney, on the beaches here. And I had a relatively, I guess, quote unquote, normal upbringing for a Sydney boy. I then I studied as an engineer. Um, I also did a finance degree. And I started my career as a civil engineer. So, um, in the design space. So when I say that I'm an engineer, I say that I dig holes. I don't write code. Cause a lot of people these days, if you say you're an engineer, they assume that you're in the tech space. But, um, so I did that for a few years and then moved into project management. And then because I had the finance degree, I was looking for an opportunity to exploit that and so moved into investment banking. And so I was looking at infrastructure investments for an investment bank, so kind of that crossover between engineering. And that gave me some really good experience in kind of thinking about financial analysis, due diligence and that kind of thing. And then, you know, was here and in London, I been in Tokyo, I been in, uh, in New York. So kind of a bit of global experience there. And then came home. Just after the, um, the credit crunch that just after 2008, and then joined a property, big property company here and spend a few years in, I guess what I'd call kind of a normal, large corporate general management type position.And go through to kind of 2012 and realize that I could see that corporate path ahead of me and it wasn't a bad one, but strangely, it was a bit too clear. I wanted it to be more ambiguous. And the other thing that I was keen on was, it's not just the autonomy that I was after, but it was also the accountability. And when I say accountability, I mean, I wanted it to hurt when I fell over. I felt like in that big corporate environment, whether it was me or other people around me, when you made mistakes, there was enough momentum in the flywheel that it didn't really matter that much. And I wanted to be closer to the fire on that stuff. And so I hadn't heard of search or ETA or anything like that. And obviously people were buying businesses and doing all that stuff in Australia, but it wasn't a market or a community or a network. Um, but me and a mate of mine decided, why don't we try to buy a business if that's what we want to do. Cause I, I'm not a founder type. Like I didn't have any great new ideas I wanted to start. Any, you know, new software I want to develop or any product I wanted to bring to market. So I thought, well, how can I become a business owner? Well, maybe I just need to find one to buy. And so,in late 2012, early 13, started looking, uh, and by the middle of 2013, uh, the 10th of June 2013, completed the acquisition of my first business. Which was just a small mining services business. So does the measurement instruments on the mine sites. So measuring the material around the mine sites. Had 5 or 6 people in it, including the husband and wife owner who left within 3 to 6 months after that. And I was left as the, um, as the CEO of a business of four people. The good thing is that that story continues. So, um, we still own that business. And now we've got approaching 100 people. Um, and we're in multiple locations around Australia. And so that's, that's been a great kind of pathway for us over the last 10 years. But yeah, originally there's a lot of chat at the moment about HoldCo's. I guess that's what we originally did, um, because we bought that first one. I dropped in to run it and grow it. We then bought, um, 3 more in 2015. And I kind of made myself redundant from the first one. Stepped up into a ball position, dropped into the second one, did the same again, then dropped into a third one. So I would kind of drop in each time, into that leadership role for various periods of time to do the post acquisition fix. Do a bit of growth, either recruit or promote within to then make myself redundant, step back out again. And that was, that was good fun. Great experience. But still had all of those really hard times. I think it was probably was 2017 ish around this time of year. I remember there being a convergence of risks across multiple businesses. And that, um, impending fear of, payroll checks and cashflow and all that, so I've, I've hit that end of the spectrum as well. But we navigated through that well and got out the other side. So then 2020 completely unrelated to, COVID, even though that kind of came through at about the same time. I was trying to work out what to do next. I was, I successfully made myself redundant again. And so the obvious choice was to go and buy another business, dropping a CEO, just rinse and repeat. But I was looking for something a bit different. I didn't want to raise a private equity fund. I didn't want to do bigger deals. I really liked the size of business, but I didn't want to be the CEO. And then I came across the concept of a search fund. Which, and for me, so a lot of people, when they come across the concept of a search fund, they're coming to it with the lens of an entrepreneur saying, Oh, this could be a great way for me to become a business owner. For me, when I came across the search fund concept, I thought that's a great way for me to be an investor. Because I didn't want to be hands off. I still wanted to be engaged. I love the idea of being involved with the operating business. And I really, I guess I would also say that I enjoyed the idea and I'm still in the middle of this, of the next phase of my own evolution or my own education is me learning how to help someone else go through that process rather than me doing it myself. And that's a significant part of that role as a search investor. So yeah, fast forward to today, I've spent the last four years, going deep on, on search investing. I'm backing, I think it's, uh, soon to be 12 searches, um, predominantly here in Australia, a bit in New Zealand. And, we're just about to launch the first search in, in China. There's potentially some in Indonesia. So, um, we're the real focus on Asia Pacific. [00:06:28] Ronald Skelton: Awesome. That's cool. Have any of them made acquisitions yet? [00:06:31] Pete Seligman: Yeah. So we've had quite a few this year actually. So in Australia, the first search was launched in 2019. Alex made his acquisition, I think in 2022, early 22. The next search was launched by a guy called Rob, and he made his acquisition slightly before Alex, just in 2021. I backed Rob, I was late to the party on Alex. Um, I backed Rob in his search phase, followed on into his acquisition, 2021. And, so that was really the first one. And then there was one or two more, through 2022, but then this calendar year, there's already been, um, five acquisitions in the search fund space in Australia, slash New Zealand. Which is huge growth. And so yeah, five out of my 10 have made their way through the completion of an acquisition. [00:07:23] Ronald Skelton: So let's stop for just a second. For those of you who are listening and maybe you're just getting into this space, a search fund is a different, just a different way of buying companies. It was born out of the Ivy league. It started at Harvard. I think the second one, I'm pretty sure the second one was done at Stanford. And, pretty much is, is exactly what it sounds like. It's a funded search, in the traditional original sense, it was funded by alumni and people in the college and investors they knew, and the Ivies would like, they would stick together. So the Harvard professors would know investors that would be interested. They would take their key students and the students would do a project and want to raise money and, um, they would fund the search, meaning they might, if it's a single person, they may raise so much to live on for the first two or three years of the search. And then those investors who funded the search, also had first ride or refusal to the acquisition. So they can invest in buying the actual company. So that, that catches everybody up. If you don't know what a search fund is, it still has a lot of the parameters of raising a fund like a small equity fund. In the United States, you still have to do a private placement memorandum. There's still some documentation you legally need to do. But that's what we're talking about here. What, what Pete's doing right now is brilliant in the fact he's taken that out of the Ivies. In the last probably eight to 10 years, I think they started in the seventies, don't quote me, but, late seventies, early eighties, maybe. They, it was traditionally Ivys and top schools. In the last 10 years it become more popular, and now you're taking it to areas probably in, in two, 2019, might've been the first one they've ever seen in Australia. It might be in the first, uh, do it. And it was typically MBA students, that were coming out MBA programs and, uh, doing the searches. Now, it could be a good operator, it could be anybody. [00:09:06] Pete Seligman: Yeah, absolutely. And I think that's a really good point to make. The structure and the clarity of that structure coming out of those Ivy League schools and having the history of decades of experience of going through that structure and implementing it, means that the structure itself, what I typically refer to as the vanilla structure of search, is a really well trodden path. And that's a really nice thing to fall back on in terms of thinking about opportunities. But it doesn't mean that you need to necessarily stick with vanilla. And I often say to people, if vanilla doesn't work for you, there's ways in which you can add features to it that might suit you better. Now that will change the scope and market of your potential investor base because there are people out there that just want to invest in vanilla. But equally, there are people out there that are interested in investing in other structures as well. I think definitely in Australia, there's still, and I'm, I'm trying, I don't, I'm trying to think through all the searches we've got in this marketplace already, and their education backgrounds. I'm pretty sure we're still 100% MBA grads. Doesn't mean they've come from the Harvard, Stanford, ISE schools, but I think they're all still 100 percent MBA grads. But one thing that I have seen happen more often, which I'm excited about, frankly, is that non MBA,people are coming to the market and thinking about doing a search or even just ETA. So like entrepreneurship through acquisition is the universe, right, of this activity. Of which search funds is just one part. But I've seen, I've been contacted by people in the last 12 or 24 months. You know, it might be a guy who is a plumber, for example, and he is in his late 30s, and he grew up on the tools and then, has grown his own business to a certain size. Has experience as a general manager in his own business, plus leading teams in that blue collar space. But now he's kind of thinking to himself. Well, imagine if I actually had a company that was bigger than this. Like, I've got an experience in working with these types of customers and these types of employees. Like, what would it look like for me to actually just take it a step up? And someone like that, absolutely. It doesn't have, finance education doesn't have MBA, doesn't have any of those things. But one thing that he does have that a lot of other people don't, is practical experience, running businesses of that type and dealing with those stakeholders. So the thing for me that I like about the breadth of people that might come to it, is that it opens up more and more opportunities for the model to be deployed into different areas of the marketplace. And I think that's really, really exciting. And the last point I'll make on that front would be, inherenting the model is the fact that you're supported by the investor group. And so if there are holes in their experience or capability, those holes are there to be filled by the investors and to coach them, to learn those holes over the, over the journey, in exactly the same way as an MBA student has never led, a team of 15 plumbing technicians, right? And so they need people around them that can help them learn. So equally, you could go through the process of educating yourself on other sites. So. [00:12:10] Ronald Skelton: Yeah, one of the things I learned, I've interviewed, we're doing this now. I've interviewed one search fund investor out of Europe. And then the guy, one of the guys, David Dodson from Stanford university, who invests in search funds now. And one of the things I learned and I didn't know beforehand is, I always heard that the search takes between 18 and 36 months, but I didn't realize it was engineered that way. Most of the search fund investors, they want it to, they don't want this, they're not actually looking for somebody that's going to get a business in the first three weeks that they decide to fund the kid out of college. There needs to be, there's some lessons to learn along the path, right? There needs to be, there's some thickness of skin of getting told no and stuff that needs to be developed as a, you know, develop somebody into a leader,that may or may not have that skill. Not every MBA is a kid right out of college. And I didn't do my MBA until I'd been running businesses for like, well, I went back to, to college because I was like, I could probably use this. I did my MBA in my thirties. [00:13:08] Pete Seligman: And that's the other thing we're seeing a lot more now as well, which I really like is, is frankly more experienced and older people thinking about doing a search. You know, I've spoken to people recently that are in their 40s that are thinking, you know what, this could be a good pathway for me. And I see that it absolutely could be. I mean, one of the, the risks that I would, probably say would be in the textbook for that would be, you know, is someone in their forties open to continue to learn? Can you teach an old dog new tricks? And because you definitely need to learn new tricks if you're going to take this journey. But as long as you can satisfy that requirement, then absolutely you bring a whole wealth of experience to the market as well. And so I'm, my starting point is always, start as broad as possible in terms of the opportunity, because then we're going to encourage like the broadest range of, of deals and businesses and transactions and journeys as we can. [00:14:04] Ronald Skelton: So what is the approach look like? How does somebody, yeah, whether an MBA program or, I think, i, like you said, it's pretty much, still the MBA program in Australia. It's probably in the high percentage of that here too. So I wouldn't say a hundred percent, but probably I would be surprised if it was below 75 percent of the people doing search funds don't have an MBA. Um, you know, or the 25 percent don't. I would imagine it's at least higher than that. That's me, that's a swag. Scientific wild guess. That said, what is the process? If I'm like, if I'm near graduation, I think entrepreneurship's my route and I'm, I think I'm going to do the search fund. What is the conversation I need to start having in my head and the prep work I need to start doing paperwork wise and stuff to have something worth presenting to a guy like you? [00:14:55] Pete Seligman: So, so I think for me, um,there is a, let's call it a journey. Sometimes that word gets overused. And so tell me if I overuse it, but, but there is a journey that you need to traverse in, in that thought process. And I see it happen in real time with almost everyone I speak to that's considering it as a path, right? And a lot of that journey is best served by having as many conversations as you can, because it's, the thing about, ETA or search funds or, um, or becoming a searcher or even regardless of all of those terms, becoming a business owner, it's very much more than I would say, any other career path, it's very much a life decision. And so in, given that it's a life decision, you need to have a lot of self awareness around what it is that you're trying to achieve for yourself as a result of going along that journey. This isn't like, Oh, I might take a job here for three years and then that'll help to build my CV for the next job that I'll take for three years. And, you know,it's not a career path thing where there probably is more optionality, regardless of which decision you make incrementally along the way. You really do need to be ready to go all in and you need to be ready for that journey to be long. And so I think it's always worthwhile soaking in it for a while. And doing that in partnership with as many people in the network as you can. So speaking to other entrepreneurs that are halfway through their search, other entrepreneurs that are halfway through their ownership journey. A whole range of investors, um, to get various perspectives. Even going and meeting with business owners, not people that are necessarily looking at selling, but trying to work out how you could, even just shadow someone for a period of time to learn, learn, what does a day in the life look like? Like, what's it gonna look like for me? I think that reality is really, really important because you need to make sure that it's gonna fit for you. There's a whole bunch of other things that you can learn. Like there's a whole bunch of technical stuff you can learn. You can, there's a whole bunch of books you can read. There's documents from Stanford. There's whole primers of stuff online that you can soak up, and educate yourself. But I think for me, the most important thing is really sitting back and reflecting on whether or not that journey is going to be something that suits you. Because, it's not easy, but that doesn't make it bad. It just means that when it's not easy, you need to be comfortable. It's the kind of not easy that you're going to enjoy. So, so I think for me, starting point has got to be that self awareness piece and getting as much exposure to as many different perspectives as you can, to confirm, yes, like that's absolutely the journey I want to go on now. The next step after that is okay, what can I learn like, and there's heaps of stuff. Stanford in particular puts out a whole primer of documents that gives you everything you could possibly want to learn technically about it. And then after you've been through that layer, that the great thing about the marketplace and I'm happy that in the Australian and in the Asian market, our community has followed the same path as what it seems to have followed in the US and Europe in its growth, and it's one that's very open. There's a, um, an abundance mindset in the community, right? So everyone's very happy to talk, happy to share, happy to help educate, if there's a new searcher that's coming to the market, or even frankly, a new investor. It doesn't take long for them to navigate their way through that network and have conversations with multiple people who are very open and transparent and helping them to get their head around the process. So,so yeah, in summary, I'd say step 1 is trying to absorb and expose yourself to as many parameters of that market as possible to determine that it is actually something that you want to do. [00:18:43] Ronald Skelton: Yeah, I didn't stumble across that set of Stanford documents until I'd probably interviewed a, I'd probably paid 10 or 15,000, $20, 000 worth of mentorships and interviewed about 150 or 160 of you guys. And then, I started Googling it and I found it and I was like, wow, that it's really in depth. I'll put it in the show notes for this show. I'll include that. So I'll put a note in there that we will include the link because it's buried there a little bit under some stuff. It is, yeah. But, uh, for an email address exchange and all, I think there's a little survey you got to fill out like five questions or something, 10 questions. It is in depth and it's very educational. Even though I'm not doing a search fund, there's stuff I'm, those attorneys, Stanford attorneys drew up all the legal contracts you need to do a search fund. In that document, there's example, I think there's even example, private placement memorandum. Everything, everything you would need is in there. So there's stuff I pulled out of there and like, okay, Hey, next time I do a contract or something, I'm gonna have my attorney, this is a great clause, you know. [00:19:36] Pete Seligman: Letters of offer and yeah, all that stuff. I mean, so, so there's no, and that's why I guess what I say is this, no shortage on the information side, like if you're trying to learn about it. That's that, frankly, is relatively easy. The harder bit is deciding to do it, right? And that's why I think it's such an internal thing around. Is this something that's going to fit me? And can I find my people? I think something that I spend a lot of time speaking to searches about in particular, particularly when they're doing their cap raise, is that they'll be speaking to investors trying to raise capital and the feedback that I give to them is, is as much about them finding their people as it is about them finding the capital. And so there will be investors that they just don't fit with. And that's okay. Just keep moving until you find the investor that you do fit with. Cause the investor group globally, definitely, but even in particular markets is quite diverse. And so there'll be some people that you just, you know, for whatever reason it doesn't fit. You need to find your people. [00:20:37] Ronald Skelton: I found myself, I've always been pretty good at raising capital, for the real estate world and even for this space. And, uh, the rule of thumb I've always used and I'll share it right here so everybody that's thinking. When you need money, ask for advice, and when you need advice, ask for money. You know, if you go to somebody and go, Hey, I really need a lot of your time. I need help mentoring me through this. Here's what I've got going on. And you really show what you know, a lot of times like, Hey, I don't have the time to mentor you, but when you're ready, I'll fund it for you. I'll help you do it. They'll, they'll actually, cause they'll believe in you. And then when you need money, like, Hey, I really need an investor for this. I need this. And then, a lot of times the pushback as well. I can't do that, but I have time. It's an interesting concept. It's worked in the real estate space and it's been working in this space. So, [00:21:14] Pete Seligman: Well, I think it resonates, it resonates in the search space because, cause search investors, one of the reasons that people should be coming to the search space as an investor is because they want to deploy more than just their money. They want to deploy that advice piece as well. And so that, that approach definitely should resonate there. [00:21:33] Ronald Skelton: So we talked about where to find the information. Stanford has a great resource. There's a bunch of, there's, I've done a bunch of interviews. There's a bunch of other podcasters and their contents out there. You can go to what I refer to as YouTube university. You can crawl through YouTube, find what you need to find. Learn. You could crawl through Stanford docs and do that. You can learn what you need to learn. Where do they find their people? Where do they, not the investor side. Let's talk, we'll talk about that. That's the next phase. For right now, you did say met network of people are already doing it. People are already in the middle of the search. I know a few resources, but from your perspective, where did you tell people to go meet others in this space and others on this journey? What do you suggest? [00:22:09] Pete Seligman: So I think my suggestion would be it's different for each market. Like I think if you, if you think virtually and you think globally, there are things like search funder. com is a website that's quite a big network. I'm not super active on that platform, but I know that other people have found it very, very useful from a searcher point of view. And I think that connects you globally quite well. I think if you keep an eye on kind of traffic on LinkedIn around things like the conferences. So Harvard, Stanford, ISE, Chicago Booth, like you, you name it. They've all got conferences that are happening around the world. And if you keep an eye on the traffic around that, you can identify the particular individuals that are at the hub of that spoke of network, if that makes sense. And so I think virtually you can kind of navigate that quite quickly. I think then when you get locally and you want to get the face to face stuff, which obviously, as we all know, is super valuable and much deeper when you get that face to face connection. It depends on the market. So in North America again, I haven't been there with my feet on the ground for a few years, but my sense is that there are lots of small pockets, depending on where you happen to live. Lots of small pockets of small groups of people that are getting together on a regular basis to talk about search or self funded search or entrepreneurship through acquisition or whatever, right? Like there are lots of those little communities out there. From an Asian perspective, that's what we've been trying to do with the ETA forum, which, last year we had our first event 2022. And that was the first time really in this time zone, I guess, there was any kind of physical event that brought together people in the E. T. A. or search fund community. And to be honest, when I set it up about 18 months ago, I literally thought it was going to be like 30 people at a long lunch at a local pub, right? Like, that's what I set out to achieve. By the end of it, we had 150 and we booked out the rooftop. So that was quite encouraging, but we did it again this year and, and we attracted over 200 people this year. Just last month or a month ago, two months ago. But again, that that provides a good kind of face to face network. But then even if I think about, even in the Australian market, there are then smaller pockets of people like there's a crew in Melbourne, there's a crew in Brisbane, there's a crew in Sydney. And they've got their own ways of kind of staying in touch. And so you end up with kind of these overlapping networks that are really, really useful. Like, but specific example, I got, a guy reached out to me two weeks ago. Brand new to the market, just thinking about doing some sort of ETA search. Based in Melbourne. I had a 15 minute chat with him online. And then I said, yeah, look, it sounds like something you should definitely learn more about. Let me connect you with the Melbourne crew. And so I just wrote an email with like five names on it. And then within 15 minutes, he was connected to another 20 people that are all active down locally with him. And then by coincidence, I'm down there next week and they're actually having one of their catch ups, next Monday afternoon. So like, relatively quickly, because, I think it goes to the heart of the community nature. Which seems again, like it's something that I think, I don't know whether it's inherent in the model, inherent in the volume of the marketplace. But every single market, like, and I've spoken to people from Brazil, from Spain, from Germany to UK, wherever, Canada, every marketplace is so open and transparent. That the network effect it happens very, very quickly. It's like a grass fire. Like, you know, as soon as you introduce yourself into it, if you do the right things very, very quickly, you'll be introduced to a range of other people. It doesn't really take that long. [00:25:54] Ronald Skelton: It's interesting. You guys come up with cooler names. Like, we do meetups and you guys do catch ups. Now we know how to meet people in the industry, right? We know how to find others doing what we're wanting to do. And that's a brilliant thing to do. I always joke, uh, I picked this up from a friend of mine. He's never seen a phone number. He was afraid to dial. So I'll call, I'll call somebody I'll reach out to, I mean, it's, we've been trying to reach out to people like Shaquille O'Neal and stuff for this show. And like, we just send a message. I've been publicly calling him out on Twitter. He hasn't responded yet, but eventually I'll get him on here. A lot of people don't understand. He owns over 400 businesses. But, uh, you know, being able to reach out to people and connect with them and learn from them, I initially, if you'd asked me 20 years ago, 15 years ago, I'm getting older now, If that was a good way to do things, I say, well, people are too busy. They wouldn't want to, they won't want to help you. And I've learned the exact opposite. Successful people want to help other people succeed. If you show ambition, especially, the younger guy, when a young guy calls you and he's got young and ambition, man, people want to help that. But they still, if you show true, honest, earnest, like I'm trying to solve something and I'd like to, like, like your help, people are wired to help each other. More so than you would ever imagine. [00:27:03] Pete Seligman: I agree. I agree. And I think also, like, one of the things that,that person, the person should be looking for is they should be trying to network themselves with helpful people. So, so it almost self selects, right? If you reach out to 10 people, and seven of them don't respond, it's like, okay, well, they're not the helpful people that I want to be networking with anyway. Right. Like, so you kind of end up finding the right people because they are the people that respond. They are the people that offer their time. Like, you know, so you're finding your way through the network in the right way. [00:27:36] Ronald Skelton: And I think it's just like anything else. A lot of people they think it's all about the numbers. They think investors want to make a, they want to pitch an investor return on investment. And I think in any investor, in any space, especially in the ETA space, I think it's better off to sit down with somebody and go, what do you get out of this? What is it you're trying to accomplish? Cause a lot of times the investors, they're set. They're really not trying to get eight points, right? They're eight percent or ten percent or double their money. If you really look at and try to just really get at the heart what they're trying to achieve, you'll know whether you're in alignment with them or not, right? A lot of times you'll find out, you know, just because somebody says I want to give back and I want to help and that's all that's the answer of a lot of these investors. I want to give back. I want to help. I want to see people succeed. It doesn't mean you're going to get your money because they're still logical. They're still smart. They're going do make smart bets. You still have to be a smart bet. But if you head into it with a pitch and you don't really know what they're trying to accomplish, I think you're pitching the wrong, you're standing there on the mound facing the, the second base and throwing the ball in the batters at the other end. You don't know where you're throwing. So, and so many people approach it that way in business. Same way as the business owner. You get them on the phone and everybody's like, well, how much do you want for your business? Yeah, that's the wrong, that you know in my mind that's the wrong question. First question is what are you trying to, where are you trying to get to? I kind of joke, I've got a different sense of humor than most. I can, so I can pull off things and a lot of people can't. One of my favorite things is like out of all the things you could be doing in the day what has you on the phone with an investor looking to buy businesses? What has you talking to me today? Yeah. [00:29:04] Pete Seligman: I agree. And, and I like, one of the things that I spend a lot of time thinking about, and frankly also talking about with my co-investors, is this concept of owner's mission? Which is, why are we actually here? And obviously one of those factors is financial, right? Absolutely. Like, and, and the returns in search are, have historically been fantastic. So, you know, like the, the returns are good. And as you say, if there's a deal that's coming up, people aren't going to ignore the financials, they're an element. But I also think that definitely part of the mission from an investor's perspective in the search space is to help create more business owners and to help, nurture upcoming CEOs. And so that is always going to be a factor. And so that's where, if people ask me, what are the attributes I'm looking for in a searcher that I might back. The things that I jumped to first are things like grit and perseverance and coachability and those, those attributes. Like, sure, you need to know how to add up and you need to know how to write a sentence and you need to know how to, you know. But if you assume that you've got like a reasonable level of those technical aspects, it's these other things, do you know how to deal with people? Can you build rapport? Like it's, it's those aspects that are going to be really important. And the ability for the investor group to help coach those searchers through that process. [00:30:25] Ronald Skelton: Do you find that there's certain backgrounds that really lend to being great search, you know, somebody, a great person to back in a search? I'll give you an example. In the sales room, if I'm ready to hire a sales guy, here in the United States, we still have door to door salesman. You probably do the same thing. There's a couple of companies out there and that's a tough gig, man. Canvassing door to door and selling something, especially something expensive, tough gig.If I'm looking for a sales guy and somebody tells me they are Cutco salesman, which sells in fancy knives or a rainbow vax, something, you know, expensive, multi thousand dollar vacuum systems. First thing I say is like, cool. How long did you last? Lasted more than two years. Cool. What was your highest salary point? If they're making serious money, I'm interested because they know how to sell. That's a tough sell. They know, they have the grit to stick with something. It's not easy. And if they're making money doing that, they can probably sell anything. Is there like a, something that shows you a background or a, or something out there that shows you like this person's probably going to be pretty good at this? [00:31:20] Pete Seligman: So if I go first to that grit concept, there are a few backgrounds that, that I think resonate well in there. And I'm yet, there are a couple of people swimming on the fridges, on the fringes in this kind of, with this background, but I think, high performance sport, I think it's an interesting background. Someone that is willing to put in the work, to wake up every day and put their body through hell and their mind through hell, frankly, to get to that high level of performance sport. I think that shows the level of grit and determination. It also demonstrates coachability because you can't get to that level without taking instruction. So I think high performance sport is good. I think a military background is an interesting one. And there are a couple of searchers here, um, one of the searchers that I've just, invested in an acquisition with, is from a military background. And I think that there are a few attributes there. There's obviously great. I think there's also really good in terms of teamwork. That's and discipline. Um, so I think that those attributes are really, really good. I think that there are some edges of the military background that you probably need to polish off, in order to kind of resonate in a small business environment. But I think that there are some fundamentals there that are really useful. I also think that, that background of dealing with things, in a first hand basis and kind of seeing problems and be willing to face them, kind of front on are really useful. And you can even look to family backgrounds for that. Not necessarily even experiences. So there are other searchers that I'm backing that maybe their career has been more of a normal professional career, but their parents were small business owners. So they grew up, like sitting in the warehouse or waiting for mom and dad to finish work at midday on a Saturday because they had to go in and you know, like they've kind of been born into understanding what that looks and feels like. It's not foreign to them. So I think having business ownership in your family is really interesting. And the other one that, that I'm seeing a few times actually is, people that have come through, whether it's them or their parents, from a farming background. Like agricultural, like living on the land type background. Where, you just have to get stuff done, right? Stuff breaks and you just have to fix it. And like, you can't like just go back to your office and like design a plan. You've got to get out and fix it. You got to put boots on and fix it. So I think those are the things that I think show really interesting backgrounds. All of it, basically all coming back to this grit and perseverance and this ability to say, you know what, when something goes wrong, like I'm going to be there too. We'll work out a way of fixing it. In New Zealand, they've got a really cool saying called number eight, number eight wire. So number eight wire is a particular gauge of wire that you get on a spool. And there's this kind of general, it's almost cultural in New Zealand, where you can always fix anything with number eight wire. People use that concept when they're even sitting in business meetings or board meetings or whatever. Like they use the phrase, like, what's the number eight approach to this? Like, how do we just deal with it right now and fix it as best as we can. And you need a lot of that with small business, I think. [00:34:27] Ronald Skelton: It's funny as we use a lot of parallel, parallel things here. Here. It's billing wire. Like, so the, the bell wire that goes on. now they use rope and stuff. But you know, when I grew up, it was a thick wire that went around the bells of hay. Anyway, uh, prior military, right, grew up on a farm, little Macon Grove in the middle of Oklahoma. We grew most of our own food. Hard work, you know. I still wake up at the, at daybreak because if the sun's up, I'm supposed to be working. Anyway, you check off all that stuff. And you think, I think about all the entrepreneurs I know. In my mind, I think some of the ones I would say the same, you know, not just competitive sports. And I wouldn't say any black belt like jujitsu, right? Something that's highly technical, hard to get a black belt in. Somebody tells me they're black belt in jujitsu I think I know they've got grit. I know they're good at technical, like logical thinking and thinking under pressure, right? Because a lot of times you're thinking and you're getting choked out. So, [00:35:20] Pete Seligman: And they've got and they've got a learning mindset, right? Yeah, they're constantly thinking about themselves as a student. And they're always ready to hear from someone else to say, actually, have you tried this or have you thought about this or how you might improve here or whatever? Like, they're, they're actually hungry for that. And I think that that's super powerful. It's one thing that, that even, it's a transition also that you see when a searcher goes from the search phase to the post acquisition phase, like they sit into the CEO seat for the first time. It's something that, that requires, it takes some time for them to then get comfortable with the fact that yes, I am sitting in the CEO seat, but I still need to stay vulnerable. I still need to keep a learning mindset. I don't know all the answers and I need to be ready to ask for help. [00:36:03] Ronald Skelton: There's one I'm starting to develop a liking towards as far as operators. And, uh, at first I would, four or five years ago, I just said, eh. But now I'm really looking into it because it's, high level, gamers. People who game, even the video, like video gamers, but they, they do competitive. And the reason is because, they learn the rules and bounds with inside of those games. Especially the ones that play on teams where so much of my son get better and better at this. They form teams and they go and do missions and stuff and they win them. And the way they have to work together and they learn the rules of that individual game and how to gamify and the cheat codes and everything. That's the same thing as business. If you take a lot of those same skills, like, okay, here's the rules and laws we have to fall within. And how do we, how do we win in this situation with all these dynamics happening? The same wires in your brain that have to fire, I think there's a lot of parallelism. [00:36:57] Pete Seligman: And like you said, the teamwork, the teamwork is huge there. And that's another really good lead indicator is that ability to building and grow teams is so important. Because usually if you look at most of the businesses that a search fund would buy, it's hit one of the team thresholds. So you've got a business and the founder grew it and started it 15 years ago. They've owned it for 15 years and grown it to a certain size. The size they've probably grown it to is a team limit that they can't crack through, right? It'll be like 15 people. Because to get to 25, they need to start delegating, right? Or it'll be like 30 people because they've got one really good lieutenant, but they can't trust anyone else. Or like, so usually the breakthrough moment that they need to achieve in the next kind of five years of ownership is, it has got a lot to do with team. And so the ability to work out how do I build a team and how do I build a good, strong, functioning, productive team, is a big part of the process. [00:37:57] Ronald Skelton: It's funny as I used to joke around and say the reason, because I made it all the way up to senior director level and I was like, in the tech industry before I got burned out in there. And, at one point I think I had a division of like 100 and something employees. The funny thing was, I, the memory that you just clicked is when I moved from having a team of seven and the next one I had three teams and I had like 29, 30. It was a different thing. And I joked, everybody said, you did, you did really well. I was like, I, yeah, I had two things. I had a mentor and I'm inherently, I work my butt off and I'm inherently lazy. And the fact that I don't want to do the same thing over and over again. So I love to delegate. I want to solve the problem. Once I want to teach you how to do the problem, I'm going to go look for the next problem. While it's unique, it makes me a horrible day to day operator, but it makes me a great visionary and in a dynamic where everything's changing, like an I. T. department and stuff like that. It makes, especially when it's having outages and issues. I excelled in that world, right? There's no, I don't know how I want to put this. There's a saying or a belief out there that entrepreneurs aren't made their, they're born. And I don't think that's necessarily true. I think that you can engineer an entrepreneur, basically their life, life conditions that they've been through can do it. Or you can develop that. You just kind of need to know, what trades to look for. You can take somebody that's prior military or somebody that's in a performance game, gaming, or performance sports, and maybe they have never been an entrepreneur, but you know they've got all the other elements, right? The gamification, the solving problems on the fly, the teamwork, all the little elements. Handling stressful situations, right? [00:39:28] Pete Seligman: And I think a lot of that is also humility. I think the ability to acknowledge the fact that you don't have all the answers and you will trip over and that's okay. And other people will say you trip over and when that happens, it's okay to reach out and ask for help. And like that process, I think a lot of people underestimate. I think they come into it thinking if people are going to back me to be the entrepreneur and be the CEO of this business, I better be bulletproof because that's the only way they're going to trust me. Whereas I don't think that's the case at all. I think that what you're looking for is someone that can keep getting back up again and keep kind of striving forward and solve the next problem and keep improving along the way, absolutely. Like, you don't want them tripping over the same hurdle a hundred times, but it's not the tripping that's the problem. It's the ability to then learn from that and get back up and do it again. [00:40:15] Ronald Skelton: You just triggered a realism or a realization is what I should look for. I was reading for an article I'm working on. I was reading a, the U S bureau of labor statistics show that two different, looking at two different statistics sets.Not only 9 percent or, uh, or 9 in a hundred businesses ever started in the United States ever hit the million dollar mark. 75 percent fail within the first 15 years. So you've got a 75 percent chance of failure and a 9 percent chance of ever crossing the million dollar mark ever. If you start a business in the United States. Then I look at SBA loans and their failure rates. And it's almost the exact opposite. Only in the worst year during 2000, that I looked at the last 15 years, on this report, and the worst year we had a 24. 7 percent failure rate, default rate on a 10 year default rate on, SBA seven, a seven, a loan. Basically buying a business. In its worst year, and I think the realization I just had is because you're starting something, you're picking the team, and you're doing it on your own, and you're solving the problem. When you buy something, you've got a performance team, you step it in. So it's like getting, for the team aspect, I'm not in the sports at all, but it'd be the difference between, okay, Yeah, I'm a coach. I got to pick, our schools never had a football team ever and I'm going to pick, you know, 15, 20 people in here. We're going to create a football team. Let's just say it's not Dallas Cowboys because my dad was always a fan. I don't ever remember them winning. So we'll use the Dallas Cowboys. And then getting to, say they're the best in the world and getting drafted onto that team and getting to play. You're surrounded by greatness and you're going to step up to the level around you. I think when you acquire businesses, you're acquiring something that's working, has a track record and everything else. You're surrounded by good people. And as long as you don't do the egotistical thing and try to change everything right away, you got a pretty good shot at learning from the people around you. And especially if you've got advisors and board members that are investors and you got people above you that have done it before. Yes. Man, I would like to see, and I don't know where to get the statistics, but I'd like to see the statistics, of successful, uh, funded searches. I bet it's, I bet it's better than the 70, 70 something percent in our worst year SBA loans. I probably, I'd probably say it's in the eighties and nineties percent. [00:42:25] Pete Seligman: I think it is. Um, so Stanford again, thanks to Stanford, they do a report every two years. And they've they've got the tree on that. So I can't, to be honest, I can't remember as we sit here exactly what those numbers are. But definitely by the time you get to acquisition, if the statistic that you're talking about is the difference between Failure and not failure, then the number is really, really low in terms of failure. If you then, say, well, what about just getting your money back as opposed to hitting your target returns? Then there's a proportion where you just get your money back. Like, it didn't go great, but it didn't, you didn't lose money. But then there's like a large majority, which is actually hitting the kind of returns that you want to be hitting. So, yeah, once you've made that acquisition, the likelihood that actually things are going to go terribly wrong is very, very low. And I think that's all of those things. I think it is that you've already got some momentum in the business that you're buying. Even though there might be things, well, there definitely will be things that you'll need to change to take it to the next level. But yeah, then you also have like a support network around you, which should be, trying to make sure that they put enough guardrails around you that you, you don't kind of step too far from, from a good path. [00:43:31] Ronald Skelton: In that same report, I was looking on the SBA loans. If you've just read it,all we would be looking for breweries because during that timeframe, the last 10 to 15 years, only like two point something percent of breweries ever defaulted on their loans. So everybody else is 18, 20. There's a bunch of, but if you look at the top 20 that succeeded, breweries are number one. Unfortunately I don't drink that much beer. if I actually, I'd have to if I had to own a brewery. 'cause you gotta like test the product, right? I don't know. That maybe that's a, an avenue to do a roll up of microbrew and have like kind of a microbrew brand. [00:44:01] Pete Seligman:Well, and I, and I think this is something, this is something I spend a lot of time thinking about around the market as a whole. So, you know, I, I feel like if, if at the core of what I do is I, I try and find entrepreneurs I can invest in to then go and buy businesses. I can, one pathways I can just see what comes up and then look to invest in them. But actually what I enjoy doing and also what I think, is an attribute of the community is that I'm also pretty active in trying to work out how to build all the various elements. So like, I spent a lot of time speaking to banks about how to improve the way in which they lend and speaking to investors to try and help them understand exactly what this opportunity is like. So if it suits them, then we can encourage more investors to the market. Speak to entrepreneurs who are not backing so that I can help them be successful. Cause that then, like the flywheel effect of that is that we end up in a situation where we're building a vibrant marketplace as a whole, into which then I can play, obviously. But there's like you exactly as you say, there's various layers of this process. Who's going to be the eventual buyer? Who are the sellers that are going to come around in the next five or 10 years? Who are the entrepreneurs that are going to run it? What's the debt and equity situation? And how do we make sure we're nurturing that in the right way? I think all of those pieces of the puzzle are important for us to try and make sure we're developing. [00:45:18] Ronald Skelton: What is the timeline for your search funded? when you do the acquisition and you take a position in the acquisition, you're one of the investors in the acquired business. Usually anything that's private equity actually has a timeline. Meaning, and most investors want to know, the, the three questions like, is my money safe? When do I get my money back? And what am I going to earn on my money? Right. And usually in that order, they want to know it's safe. Do I believe in you? And you're not going to destroy this business. How do I get it back? When do I get it back? And then, okay, how much am I going to earn? Usually it's in that order. Uh, at least the people I've talked to. What is that timeline for you? Is there a, [00:45:56] Pete Seligman: Yeah. So, so the first response to that typically would be five to 10 years. Is the normal kind of hold period range and most, kind of shareholder documents that,the shareholder agreement or whatever that goes behind the vehicles will have something in there that says a general intention to exit within 5 to 10 years after acquisition of the business. The statistics say that the average hold period over the last 10 to 20 years of search funds that have cycled in and out is between five and six years. So it's at the shorter end of that spectrum. I'm already seeing, a little bit in this region, the fact that you could hit the kind of target hurdles quite, quite easily within that timeframe. So there is like an opportunity to exit then and still, you know, tick all the boxes. So it's really then a question of whether or not, I think there's kind of, it probably ends up in two windows. Like you either go at it pretty hard and you get out in about the five year frame. Or you go at it hard to fix things and then you've realized that actually, you know what, this could be a great cashflow business. Let's hold it for 10 instead of five. Ultimately, post acquisition, it's a privately held business like any other with a group of shareholders that have voting rights, right? So You can kind of make those decisions on the fly. The only slightly limiting or, um, kind of consideration that you need to take into account, is that the searcher themselves has a proportion of their carry tied up in the exit. And so there, there is an incentive appropriately so, that based on performance of that exit, they will be incentivized to get an exit. If you were gonna be making a decision as a group of shareholders to hold for much longer than a normal targeted exit time frame, you'd want to make sure you navigate a reasonable conversation with the searcher around how you make good on that. But yeah, in very normal terms, I would expect most search funds exit between 5 and 8 years really. [00:47:54] Ronald Skelton: Okay, so that's, it's interesting because, uh, I've seen on the regular private equity, I've seen everything from 3 to 5 to 10, right? 10 is a long term. And 1 of the reasons I haven't done a private placement memorandum and raise money to do an acquisition in that, in that way, I've come up with creative ways to do it differently. But the reason i'm not going down that path is what if you really got, you know, when i'm looking for something i'm looking for something that's really interesting to keep. What at the end of that, you know It's time to produce liquidity for those investors, but the things it's a cash cow. It's fun to run. It's self sufficient. It's running. I've met and i've actually had people pitch to me selling companies like why are you selling this? Well, I raised money to buy it and I have to you know, commit to that. I've committed to the sale. Right? [00:48:40] Pete Seligman: So, yeah. So I reckon that there's a range of options there. But to kind of hone in on, kind of one of those, there's definitely an opportunity if you're, you were the searcher at that point, there's definitely an opportunity to negotiate a situation where you go and raise capital from a new group of investors. That might even include some of the existing investors that want to follow on. And you raise that capital at the exit valuation and you roll your stock, right? Because you want to stay involved. You still want to be the CEO, all that sort of stuff. And you roll your stock with your incentive as well. New investor group comes in, they're there for the next phase of the journey. Which goes right back to that conversation we had at the beginning about owner's mission, right? You've got a new set of investors that are there for a different mission. They're there for yield. They're there for cashflow, dividends, that kind of thing. Whereas the initial investors were there probably more for capital growth and that kind of thing. So it's just a matter of navigating that situation where you say, well, I need a new investor group because we're going on a new part of this journey. [00:49:38] Ronald Skelton: That's really cool too, though. If you look at the journey of all this, the, I want to see where, the word I'm looking for, what does this look like in 40 years from now? 50 years from now, right? I think it's going to change the landscape and it needs to. We have so many businesses right now that, the market and the, you know, right now, even in the future, there's more businesses out there. That, um, for sale, then it can be sold. Not all of them are good. Yeah, there's a lot of people say, well, there's, that's just cause there are not a lot of good businesses out there. There are a lot of good business out there. A lot of them never even hit the market. And the way they hit the market is, the word gets out that there's buyers for it and there's value in it. And that it's not a nightmare to do. A lot of these guys, if you think of somebody under 40, when they want to sell their business, somebody under 40 selling their business is usually selling it because they have either another bright idea or they've got to the point where like, I've taken this as far as I can take it. I don't know how to take it anymore. They've hit one of those milestones where they need to go from caterpillar to butterfly and they don't know how to, they don't know how to build a cocoon. So they're going to sell it and do something else. The other side of it is if you hit, you got, you guys that are in their seventies and they're not wanting to sell it because like, this is all I know. I don't know to do anything else when selling, it's going to be a real pain in my butt. [00:50:45] Pete Seligman: Yeah. And, and that's why,one of the things that's on my radar, probably next calendar year to do more of in this market. Cause it's one that I can be more active in, is do as much as I can on the seller side of the equation. Like how do we, how do we get this concept into the minds of business owners at various stages. So that they know that it's another one of the potential levers that they can pull. I mean, they all know that they could sell to a competitor. They all know that they could potentially pass it on to their kids. They all know that they could, sell to private equity. They know what that looks like and all that kind of thing but, I feel like this is another option in their kit bag, that if they knew about it, it would give them just another perspective on what that exit might look like. And I think that would also kind of grease the wheels for the transactions and the engagements that searchers have. Like, definitely the moment if a searcher is operating in Australia and they reach out to a business owner and say, Hey, have you thought about selling your business? And they say, I'm a searcher. The business owner would say, that's nice, but I don't know what you're looking for. But I imagine a time when you get to a place where they say I'm a searcher and the business owner more often than not might say, Oh, okay, I get that. You're backed by some investors. You're going to drop in and run it. Like that gives me a legacy, like they get all that. So, [00:52:05] Ronald Skelton: It should mean I've got the education, I've got the mentors and I got the backing, but it doesn't quite yet. And, that's an expensive thing. And one of the things I tell people at times, especially as a small business owner, the most expensive thing you can do is change the perception and the mind of the consumer. So it's an expensive adventure. It's either, and it costs one of two things, time or money. So right now you're in develop, you're investing the time and some money cause you're traveling and speaking in front of groups, but you're putting the time in. You can either run a $50 million marketing campaign and put it on the radio every night and every, on every channel, the TV, radio, internet. Or you can get out and create a lot of people like you that can go speak at all the events and teach these business owners and the general population, what it is, right. But that's a tough gig to have. And a lot of entrepreneurs try to take that on. Like I'm going to be the egg for people who like oranges. It's like, my, my eggs taste like oranges. And like the toughest thing you can do in a market, and I'm a marketing nerd, is to change the perception in the average person's mind. It's a tough gig to do. You can create a category of one easier. Yeah. So that's a very profitable thing to do. Sometimes like we're like this, but at your, we're like X but Y and you create an individual that you're so individual that you just don't fit in any category, so you're not trying to shift a perception. I, is kind of like the, the guys that said bacon is for breakfast before they did the marketing campaign for bakers, bacon for breakfast, it was a lunch and dinner thing. They introduced something to a category. They didn't change the process, it wasn't, there was nobody out there saying bacon's bad. Don't eat bacon for breakfast. And that's what people try to do all the time is, they try to change, you know, you're doing that wrong. You should do this. And that's a tough gig to play. [00:53:38] Pete Seligman: Yeah, I agree. And that's, that's why I like, and it's the same, we were talking earlier about different approaches to search funds and different structures and icon and stuff. I generally take the approach of, if you don't have to be prescriptive about the pathway, then don't. And if you can be open to what the options are for any particular person in that network, then be open. And so when it comes to the business owners, absolutely, there's a variety of ways they could exit. If we can just say to them, well, there's a 5th option or a 6th option or whatever, and it looks like this. it just helps them to understand that that might suit some of them in. Like as I mean, in America, it's a completely different dynamic, like in terms of volume. But even in Australia, there are like over 100, 000 businesses that sit within the very small band of price that would suit a search fund. Like we would have to be, it would take us 20 years to transact on those, if we were doing 5, 000 a year. Like the,the number of business owners that own businesses that are the kinds of things that searchers would buy is off the charts. So it's just really a matter of trying to find that small group that it might fit. [00:54:45] Ronald Skelton: Awesome. Well, we're running out of time here. Let's do a couple things. How do people reach out to you? What's the best way to reach you? [00:54:51] Pete Seligman: Oh, probably, probably LinkedIn at the moment. They can find me on LinkedIn, and just, yeah, drop me a message or send me a note or whatever. That's probably the easiest I'd say. [00:54:59] Ronald Skelton: Cool. And I'll put that link in the show notes for you guys. And then, the other one is, is if somebody can remember one thing from the show, maybe one or two different things, what would you want them to remember from listening to this hour? [00:55:10] Pete Seligman: I really think that if people are out there listening and they're on the entrepreneur side of the equation, I think that the self awareness piece is super important for me. I think spending the time to work out whether or not this is actually a path that you want to take because there are multiple other parts. Having a career in a corporate is a great pathway for some people, right? So self awareness, I think, is really important and speaking to lots of different people to try and then reflect on what that means for you, I think is important. And probably the other thing would be, I'm just a massive fan of small business acquisitions. And I think that there are large groups of entrepreneurial people in the marketplace that seem to think that the only way to be an entrepreneur is to start a business. Whereas actually you can buy one instead. [00:55:54] Ronald Skelton: Awesome. Well, I appreciate you. Thank you for having your time, spending time here with me. Enjoy your sunny day in, Australia and we'll call that a show. [00:56:02] Pete Seligman: Yeah. Thank you. Thanks for having me. [00:56:04] Ronald Skelton: Awesome.