E191: Kevin Bibelhausen's Journey in Acquiring a Textile Company and Empowering Entrepreneurs

[00:00:00] Ronald Skelton: Hello and welcome to the How2Exit Podcast. Today I'm here with Kevin Biebelhausen and he is an acquisition. Did I get it right? You're smiling. I get it close.

[00:00:08] Kevin Bibelhausen: No, you got it. You got it.

[00:00:09] Ronald Skelton: Okay, cool. You have already made your first acquisition and now you've even set up a fun stuff.

I think we've got a great conversation to have here today. We were just talking about your finishing up your MBA at Duke. And, we're talking about like, they're actually teaching this stuff in college now. I'm a little older than you, most likely. I'm 51 about to turn 52. I did my MBA late in life. So, uh, probably 2007, I think is when I graduated with it.

And I don't ever remember the word ETA. So it was only in the Ivies back then I really believe. Let's just get going with how did you get started in looking for a company? And, kind of who are you with your entrepreneur background? And let's just go from there.

[00:00:47] Kevin Bibelhausen: Yeah. So I came out of the corporate world. I spent 10 to 12 years, in healthcare um, and primarily in a technology function. So the last, the last job I had before I was successful in search was, um, deputy chief information officer for, a large public health system, uh, in Dallas, Texas. And, So that was my, that was sort of my corporate background.

And I ended up buying a textile company, which is something completely different. But I, I'd been obsessed with search and buying a business since 2018. So, the Harvard business, Harvard guide to buying small business, uh, businesses came out in 2017. And I'm pretty sure I read it like right near when it was published.

And I remember reading. And the authors were talking about a guy buying a port a potty business. And then I remember it just kind of clicking for me, like, that's what I want to do. Like I want to go buy a business just like that. I don't care about, you know, all the startup stuff. I don't care about all the, I'm going to create this new dating app or I'm going to create this new social media thing, like, or I'm going to raise a bunch of venture capital.

That's not, I care about cashflow and I care about, I care about longevity. And there's, there's certainty in these businesses that have already been around and stewarded for 10 plus years. And a lot of them, are, uh, being sold by baby boomers who are looking to start their retirement.

And so that's, that kind of led me to this whole, the silver tsunami thing that we all talk about. And unfortunately I wasn't successful in acquiring in 2018, but I did get, I did kind of get my reps in. You know, I went through the whole SBA process or I went through the whole deal search process. Uh, went through the whole financing process, the diligence process and everything.

And then at the, you know, we're at the altar ready to get married. And all of a sudden, my lender kind of turf me around a couple of times. He sort of was a, a lender at a bank and then became a broker and then it was weird. But but you know, then they came back to me and they're like, actually, we're going to need you to double your equity injection.

And I said, I don't have it. That's all the money that I have is the money that I promised you. And so I, I knocked on a couple doors in Dallas looking to see like, can I raise money for this? Is this something that, and I ended up having to just punt the deal because it just wasn't, I didn't know how to do it and, raising money that is, and, it just wasn't comfortable for me.

So I, I punted and I went back to my corporate job, for better, for worse, but I worked there for another four to five years. And, um,2022 came around, or I got and I got sick. Had a health issue and that kind of refocused me on what do I want to actually do here? Do I really want to keep working in this, in this corporate job? Or do I want to go out and do what I wanted to do in 2018, which is work for myself, own my own business.

And so that, that sort of cleared things up for me. And then I started my next search and in earnest, January 2022 and closed on the Textile Business Heritage Fabrics in January 2023. So now it's January 2024. I've got now a year in the chair, uh, so to speak. And, along that time too, um, we have started a fund to sort of help entrepreneurs just like me, who, didn't come from investment banking backgrounds. Didn't come from any finance background, don't know how to raise capital.

And we wanted to be that solution, to help, uh, entrepreneurs in this marketplace. You know, be connected with capital so they could worry about their deal and worrying about operating rather than trying to, stramble and get a bunch of checks from people.

[00:04:10] Ronald Skelton: So you went through the first search and the deal just didn't make it through. 

You got it to the finish line and like, I think you said, they said that the, they needed more capital, right? I've had that happen once before too. And that's not when you want to find out you need more capital is that last second. 

Because it's not enough time to raise it. What, what's the difference between that first search, you going back to work, you come back, you're doing this again. What did you do differently in the second search?

[00:04:34] Kevin Bibelhausen: You know, a lot of it, a lot of it was just, I apparently need to learn things by doing them.And kind of going through the whole first search process, I, the only information I had ever read was what was in the Harvard business review book. There was the only thing on the market.

There were no podcasts like this. There weren't, there wasn't a community that was built up around it. So it was a lot of just trial and error from a guy who, didn't come from that world. Like didn't come from private equity, didn't come from investment banking or anything in finance. And so I just had a dream that like, I wanted to go buy a business.

I wanted to be a business owner, but I didn't want to be in the startup world. So I mean, I, I did, I did a ton of things wrong in, in the 2018 search. I zeroed in pretty much on, one broker and I wanted to buy a business from this broker because they offered, it was one of the, um, online business type marketplaces.

Because I thought I wanted, you know, laptop money, right? I wanted to run this business from my laptop. And I just, I was myopically focused on that. And didn't really, I mean, they, I, I can't tell you how many deals I reviewed in my second search. I probably only reviewed 10 maybe in my first one.

And that's probably being generous. Like, I found something that, that kind of clicked for me, and I was like, great, I'm all in on it. I think that's just how bad I wanted it, you know, to try and fit, fit something into that box. Besides that, it was, I didn't have a team around me. I had a couple of people I worked with, but certainly not to the level of sophistication I had in 2022.

I didn't, I worked with an attorney early on. I, um, uh, obviously had great lenders. I worked with.The first go around, I, I sort of was just referred to this lender, but since then I had developed relationships with lenders. There's just, I mean, it couldn't have been, it couldn't have been more different just night and day.

And I think that was just, I needed to go through that in order to, in order to figure out, where I stood and how to, and how I can interact with this market. And remember, like I said, I mean, there just wasn't any information. it was the HBR guide and, you know, good luck to you because, I never had a class on ETA.

I never had, there was, there was no content out there. So it's, it's been really exciting kind of, as I, as I jumped into this market in 2018, there was nothing and I kind of just fumbled around in the dark trying to figure it out. But then when I jumped back in 2022, suddenly I found, all these other people that had kind of popped up around and there's people talking on Twitter and LinkedIn and all these different, there's different books out there, right?

There's Buy Then Build, and then there's, you know, all kinds of different podcasts, um, that are out there talking about this space. And it just, it, it kind of gave me the confidence that I needed to be like, okay, I'm not crazy for doing this. Like there's a whole ecosystem now kind of built up around this.

It's still early, but,I needed the space to mature a little bit just for me, because I needed, I needed to stand on the shoulders of other people in order to be successful. Because clearly I wasn't, capable of doing it on my own. I needed, I needed kind of the village, right?

[00:07:24] Ronald Skelton: I, yeah, this is just like any other business though. I don't, at the scale of what you're looking at, I don't know necessarily that it's either best or like feasible to go on your own, right. Building a team is always, always a great idea. You know, could you figure out the, the loan process and fill out the loan docs yourself?

You probably could. You could find, you know, a bank and fill out a loan. But we do it all the time when we buy a car, right? What's the difference? It's a huge difference, right? Each one of these lending organizations, if you use an SBA, it has its own rules and regulation.

If you're going to go to,uh, an investment bank, cause you want more than $5 million, they're going to have their own requirements. And every bank you go to has got a little bit of different twist on that. Right. They all have probably some of the same basics, but, uh, they're all looking for different things and they're all going to back different horses.

They all look at the individuals that from a different set of lens. So I, uh, I don't think it, it may be, when I first started this too, I like, I'll just do it on my own. I've hired some mentors and now I'm looking at what can I do with teams? One of the highlights of going through all this is somebody pointed me to a book by Dan Sullivan called Who Not How. And, uh, now every time I try to figure out how do I need to do that?

[00:08:34] Kevin Bibelhausen: It's like, oh, wait a second. I'm doing it again. I don't need to figure it out. I need to go find somebody that's really good at that. And if I can afford it, or if it makes sense, or, money wise, just pay somebody else to do the things they're really good at and they love and focus back on, the things that I'm good at. So, There's a proverb I really like that I think it's a, it's an African proverb. I'm not sure there's any, uh, there's any known attribution to it, but if you want to go fast, go alone. And if you want to go far, go together. And that's, I found that to be very true.

[00:09:02] Ronald Skelton: And,Dan Sullivan is that book Who Not How is a, is a good resource. He's got some other ones that I need to read because if that one's that good, probably the other ones are too. But, uh,one of the things that any of us should look at is there certain things we shouldn't be doing, right?

I don't care, unless you're an attorney, you've done 100 due diligence on the legal due diligence of a company. You probably shouldn't be doing your own legal due diligence. If you're not a CPA or a financial, you know, forensic financial CPA guy, probably shouldn't be on you doing your own due diligence on the finances.

I would even say on the finance side, even if you were, you probably shouldn't be doing your own. Cause you don't want to overlook something that you're already kind of cognitive bias to wanting. Like if you like the company and you really want it and there's certain, you start wanting to, you're wanting to overlook certain things.

So, uh, I love that the fact that the second time you come around, you're like, okay, I need X, Y, and Z people to make this happen.

[00:10:00] Kevin Bibelhausen: Yeah. And I can even see a difference in how I would approach, I talked to a ton of searchers, right. Especially just being with a fund, uh, and they're looking for capital. And I tell them, I told them there's things, that I, I would do differently from, from my successful search. There's one thing specifically is, I did all my own financial modeling.

Okay, I've already said that I'm not an investment banking specialist or PE specialist. Should I have done my own modeling? Probably not. Now I would go and I'd go find somebody to be like, Hey, can I give you a little bit of money to, for you to work this up and so I can feel a little bit better about it rather than me just sort of, you know, hacking it together and my model looks like a Frankenstein monster and,it's that's not my, that's not my strong suit.

That's not something I've spent a decade doing. I've spent a decade operating business, but I haven't spent a decade doing financial models. So there's things like that, that are, that you just learn over time. What the with the best practice probably is. And you know,you, you compromise at the time because frankly I didn't have the cash to go out in and hire somebody like that. So, you know,it's all about making progress.

[00:11:02] Ronald Skelton: Right. There's there's two different ways for those of you guys listening. Many of you probably don't have the cash to go pay somebody either, but if you have a vision big enough, and you can articulate it well enough, there are people that will come out and help you based on what you're wanting to accomplish and take equity. I think equity is more expensive than cash. So, uh, I would be real cautious, but if you, if it's your first deal and you're just trying to get one done, go JV with people, go partner up, find people that have those skills you need and see if they'll, tell them what you're trying to accomplish and see if they'll do it on equity.

Just because you do the first deal in equity doesn't mean every deal you have or ever do after that has to be on equity.

[00:11:42] Kevin Bibelhausen: I did, I did exactly that for legal. I gave away equity for legal services. Because it was a huge, it was a huge expense and I didn't have necessarily all the dry powder to take care of it up front. And so I, I had worked with a few of these attorneys before and, you know, became close with them. And that was one of the ways that I was able to get my deal done. Is that they were willing to be flexible and take equity in lieu of, cash compensation.

[00:12:04] Ronald Skelton: Now, how did you find the textile company? The one you didn't end up acquiring, right? That was their textile company? Somewhere I'm going to know is like a 10 million dollar kind of a textile company. How did you find them? Was it through a broker? Did you do some type of search? What was your search, search parameter? How,

[00:12:21] Kevin Bibelhausen: Yeah. I, so my background is in healthcare and technology. So I started looking in, I started looking for healthcare businesses and I started looking for, managed service providers. Those are the kind of businesses that I was interested in, just based on my experience. I found that healthcare businesses were overvalued because, guess what?

We had just come out of COVID. Everybody had a record year and they were trying to trade on those multiples. Understandable, but, um, not sustainable. MSPs have been bid up a little bit just because of private equity, and so it was really hard to find a decent MSP in a good niche, that was trading for three to five times.

They just trade for higher. And so that wasn't an ideal candidate for an SBA loan. So, once I kind of struck out on, on a lot of those, different industries, I kind of just had to have a conversation with myself and say, okay, what if I bought in an industry that I, that I'm not familiar with, but I'm able to bring my skill set to that industry, specifically technology, right?

Like, I again, manage strategy and operations for a, for a health system, technology strategy and operations for a health system. And,I had found this business, this, uh, textile business through a broker. Actually was referred to me, by somebody you, you may have had on here, Clint Fiore. I met Clint on Twitter, we were both in Texas at the time, so we started working together a little bit. And Clint, ended up referring me to, a broker in Charlotte, North Carolina, who was representing this deal. The broker who was representing this deal in Charlotte, his name's Adam Petrichoff, he's with VR Charlotte. And, he had worked with the CFO of this company at a previous employment.

So it's very just kind of in the family. Funny how those things work, right? That network connections you make early in your career end up like that's how Adam got this deal is because, he worked with a guy 20 years ago. And so I,I started talking to him. We hit it off really well and it just, it ended up being a great fit because there, this, this business was very manual, very paper based, very, as somebody who likes to do digital transformation, there's, let me tell you, there's no lack of projects and things to, uh, things to improve upon.

But that was what I wanted. That's the value that I can bring to this business is kind of modernizing it and getting it up to, getting it up to sort of modern standards and being able to scale through the internet. They didn't have a website. They had something very simple, but now we've got a fully shoppable e commerce platform.

We've got, you know, I spent the last year building that. So, I mean, there's a lot of value that I feel like I'm able to bring to this business in particular because of my technology background and just operations background. But yeah,I kind of looked all over and settled on this business because of, primarily because of the people.I really clicked with the owner, uh, owners.They wanted to do things the right way.

Your podcast is called how to exit. And, um, this was sort of a, I think a case study. And what a lot of business owners want when they exit.Sure we can talk about top dollar and all that kind of stuff. And that's great. But, he specifically the seller wanted the business to remain independent, not become part of a division of some larger company or, especially he didn't want the whole company to be relocated somewhere.

He wanted everybody to, you know, maintain their jobs and maintain the business here and I was willing to do that. I was willing to move from Dallas, to Charlotte. Signed the longest lease that the business has ever had,for our space. And, and we said that on the first day here. It's like, look, we're, we're committed to be here.

We're not relocating anybody. So it was, it was a lot of, it was, there was a lot of synergies in a lot of the same way we looked at business and why I would get into doing something like this. Which is, it's not just to squeeze, blood from a rock to make a bunch of money. It's about getting into a community, getting, getting the, uh, ability to sort of , improve the lives of my employees.

Improve the lives of our customers and just the community at large. Which I found to be true in the, in the design home textiles industry is that it is a, it's a, it's a small community, but global. Which is kind of cool, it's kind of exciting. I actually just got back from Frankfurt, Germany, a couple of weeks ago, um, where I was at, at this large international trade show.

Right. So it's very small, but it's global. And I find that to be a pretty fun, yeah, a pretty fun aspect of this business that I wouldn't have found if I had bought, a plumbing company or, or something like that.

[00:16:27] Ronald Skelton: Yeah. Probably wouldn't be going to an international trade show in Frankfurt if you, if you have doing plumbing. 

So I, I really like that you did something in their own. If you did it intentionally or unintentionally, but there's a key to this. A lot of people do miss. A lot of people, especially if you come from the PE world or you come from that mid level or above.

So, and the, in the deals where the cap tables have multiple investors, 10, 15 investors, it usually is about the money. But when you start talking about a single owner, a lot of times multi generational owner, money isn't their primary concern, right? It's a safe pair of hands. And you look, it sounded me like, and what I highly recommend everybody here do, you took the time to get on that owner's level, figure out what they wanted to accomplish, and then put some mechanisms and some guarantees for them to where they knew you were the safe pair of hands for this business.

[00:17:21] Kevin Bibelhausen: Yeah, that's 100 percent how I how I pitched it, was, was that I was, I was sort of a continuation. So this business had traded before I bought from the second owner. So the business had been through a transition before. I liked that. And each owner like the founder was a little bit more,he was a little bit more dictatorial. A little bit harsher of a guy.

And uh, then the second owner, kind of moved in a more modern management and, but minded the store, right? Kind of kept everything the same, but just changed the culture a little bit. And then, so it's my job to take that baton and, evolve it even further. Um, and you're right, it's certainly about the money, you know, it's especially for an owner who's exiting.

And that's one of the great things about the SBA program is that oftentimes somebody like, like me or like any ETA, self funded, whatever you want to call us, sponsor comes in, there's, almost every structure I've seen, the owner, the seller is getting more cash at close through a deal like this than, through like private equity or even a strategic, because there's going to be a contingency compensation, right?

An earn out or something. Well, you can't do that with the SBA. So there's, there's more, if there actually is a little bit more certainty. There's a way you can pitch that, that, that emphasizes, the strengths of this program too.

[00:18:39] Ronald Skelton: Yeah. So you're, you go in, what was it, what was the closing process look like? You've made an offer, they've accepted the offer. Is the owner hanging around to help that transition? Cause this is a new industry to you. A lot of people would be like listening and they're thinking, I don't know if I want to get into a brand new industry I know nothing about because, I don't know nothing about the industry. So how did you adapt and overcome that? Did the owner hang around or?

[00:19:04] Kevin Bibelhausen: Yeah. I think it was partially dumb luck and partially strategic. Which I think you could probably say for a lot of things. I got very lucky in that this business, um, one of the things that attracted me to it, in addition to the consistent financial performance, was the fact that the owner had basically not been in the business for the last two years. And he had sort of processed himself out.

Now it was, it was kind of put on a general manager of VP of operations. So like there's a, there was some work I needed to do in order to distribute that, that, that work. But the owner was not interval to the, to the business, to the day to day operations. And so that was pretty attractive, coming in.

He basically did a lot of, relationship handoffs. So he traveled with me to, to key accounts. So the owner traveled with me to certain key accounts and we went through reports. We went through, just different things that he would kind of go through, but it was very high level.

The most important thing I think he could do for me, which is what he did was solidify those relationships in the handoff. And kind of tell our customers that, Hey, you know, here's Kevin. He's a good guy. He's one of our guys. In fact, that was one of the lines he used. He's one of our people. Which just means like, I'm a good guy, you know, like, I'm not, I'm not gonna try and screw anybody here.

Like, we operate the same way. We're above board, very transparent. I'm not smart enough or interested in trying to be sneaky about anything. So what you see is what you get. And that's, that was the way Wayne was too. And so, we went out on all the road and, and kind of messaged that to, to all of our key accounts.That was the main way that he was involved.

[00:20:40] Ronald Skelton: You do that with both the major vendors and the major customers or just the customer side?

[00:20:45] Kevin Bibelhausen: We did the vendors too, but it was mostly the customers. The vendors are trickier because they're all international. So, a lot of, now, they travel to the states. In fact, they travel to the states a ton. So, like, I met most of them as they would kind of come through. And he was here for some of them, not here for all of them.

So, it was really more the customers. In fact, I just mentioned I was at the International Trade Show in Frankfurt. That's where I met a lot of the owners of these, these factories, these mills for the first time. Because obviously the owners aren't traveling overseas. It's their sales crew or whatever that are coming to the States two, three times a year.

But now I've, I've done that. I've met everybody. And so, you know, we, we had tried to plan this trip right after close,in January 23, but we didn't quite make it, which is probably a good thing because I think I would have been overwhelmed at the trade show. So it was nice to be able to go, a couple of weeks ago to, to finally meet, you know, some of the people that, that we've been working with.

[00:21:41] Ronald Skelton: So what's the end product? What do you guys like sell to make money? I know it's called, uh,was it Heritage Fabrics? What's the actual, what's the, what's like a textile company or fabrics that, that can be like a really broad topic. What is it you guys sell the fabric itself? Do you sell finished products?

[00:22:01] Kevin Bibelhausen: So we're, we don't sell finished product right now. We're looking into it, but our main, our main, business is selling by the roll. So by the piece. And we, we are what's known in the industry as a converter. Which means we bring in volume goods. So we, and we're at a higher price point than, like we don't sell necessarily to like, well, RIP, Bed Bath and Beyond, but like those, that's very commodity based.

We're at a higher level, a higher price point. We're selling into like a lot of those furniture manufacturers, um, higher end,interior designers, things like that. But we would sell, you know, we sell drapery and we sell upholstery items. So we sell into furniture manufacturers, drapery manufacturers, work rooms, um, some interior designers. And then we have a category of customers. That's our biggest category called jobbers. Who are basically aggregators and marketing arms for a lot of different textile brands. And so they go out and they market mainly to interior designers. To pull from, they're vast catalog of offerings and we're part of that catalog.

So when I bought Heritage Fabrics, we've got, I actually acquired two brands. So there's Heritage Fabrics and then there's Roth & Tompkins, which is a brand that, that Wayne and his,his group bought back in 2017, I think. And, um, Roth and Tompkins is more of the furniture side, a little bit more decorative, well, a lot more decorative. More Americana.

Kind of classic, kind of like Ralph Lauren esque. And then heritage is a little bit more, it's a little bit more plain. It's a little bit more nondescript. It's meant to be used uh, to sort of fill out somebody's collection, right? It's a lot of the basics. Like, we do really good basics at Heritage. And then Roth kind of goes to a more design focused client.

[00:23:42] Ronald Skelton: So what's your long term vision? Are you going to, like, uh, there's always this bacon period. You've had it for about a year. You put in systems or processes and stuff. Really kind of understanding how it's always ran and how it needs to, what needs to happen to make ityou know, sustainable day to day.

But at some point you switch the gear into high growth mode. And since you have a mergers and acquisitions mind, my logical thing is, do you intend on growing this through, mergers and acquisitions, buying other brands, buying other vendors or anything? Or what's your, what's your long term vision?

[00:24:13] Kevin Bibelhausen: Yeah, I've actually got two deals in the pipeline right now. So it's basically expanding services that we offer, right? So if we could offer workroom services or we could offer, fabric finishing services, which is basically like your backings. Your stain coatings, water repellent, all that kind of stuff we could offer.

So I've got a couple of those kind of in the works right now. Whether or not those, those come to fruition. My, my plan for growth is to look at, is to look at these brands as sort of distinct brands. Before they were sort of lumped together and we didn't really know the company didn't really know what to do with them.

They bought Roth and Tompkins to get into the furniture market, which worked. Um, but it needs to be a little bit more, I think the brands need to be a little bit more differentiated. So we started a whole, uh, rebranding process. Not changing the names or anything, but just kind of focusing on what, what does this brand actually do?

And for Heritage, we've sort of settled on, you know, this is, it's a lot of, uh, flame retardant goods. It's really great for contracts, which is hospitality, RV, marine, hospital, all that kind of stuff. But mainly hotels, mainly hospitality. And then we have Roth and Tompkins, which is really great for home textiles.

You can use the Heritage in home textiles, but Roth is natural fi our tagline is, uh, nature's colors and nature's fibers. Right. So it's very, it's very earthy, um, and natural fiber. So cotton, linen, et cetera. Which in Heritage, it's mostly polyester. So it has to pass all the different flame retardancy tests and, you know, cigarette burns and all this kind of stuff that, um, that they test for in hospitality in contract. 

So I can see growing those, especially the contract market, hospitality market and Heritage, that's been a real boon for us this year. As a lot of these hotels are going through refreshes, uh, that they've delayed from COVID. So there's a lot of opportunity, uh, to capitalize on the growth, uh,of that industry.

And then Roth and Tompkins, you brought up finished product before. I think finished product is a greatoption for Roth and Tompkins. Doing, you know, bedding, pillows, maybe a little bit of furniture,finished panels, finished drapery. I think that's, I think that's a huge area of growth.

And then we can kind of spin up, different Shopify sites or whatever and start selling into, the end consumer market. I've thought about a number of different, uh, ideas there. But ultimately what I feel like I've purchased is infrastructure. And I think this is kind of what people talk about when they buy a platform company.

What I bought is 20 year supplier relationships and a name in the industry. So that when I want to, if I want to go build a new brand, if I want to start doing something in the high end or I want to start doing something, you know, just off the wall. If I want to do apparel, if I want to do anything like all these mills do that.

And so instead of going and forming new supplier relationships and then, maybe not getting as good payment terms or just not having that established relationship. All I, I'm already flowing containers, across the ocean for, for all of these mills. I can just say, Hey, put a couple of these items in the back of that container, basically doesn't cost me anything to get this, these new products in. And I can sort of test and that's what I'm looking forward to the most is leveraging the infrastructure that Heritage has built over 20 years, 25 years,and seeing what other kind of avenues we can explore, what other kind of markets are out there for us and for my team.

[00:27:27] Ronald Skelton: That's interesting. It's iInteresting. So in the interest of time, I do want to make sure we cover your other business, your capital company, Fruition Capital. So you went out and created a fund to help people like you and I, who are out there trying to buy a business. And, they get that call that says, Hey, we need an injection of capital.

Or they, they've got the skills, but without the money. Tell it, tell us what you built there, what is the vision of fruit-, is it fruition? I'm saying it right, Fruition Capital.

[00:27:55] Kevin Bibelhausen: Yeah, no, exactly. So, we, the three or four of us, had a conversation about, um, about the, the equity raise process and the fact that this space is still relatively, you can call it the Wild West or just unprofessionalized. It's not like commercial real estate where there's, pretty tried and true methods and, and terms and things are a little bit more well defined.

What I found my capital raise experience in, in 2022, I was raising $800, 000, for equity for my deal. And I was raising, I had a $50, 000 check size minimum. And so, and I was raising in the fourth quarter. So I did a lot of phone calls between Thanksgiving and Christmas, just trying to get equity and $50, 000 at a time. Which is a ton of money.

But when you have a big nut like that, 800, 000, that's a stressful period and you're doing it over the holidays. So when, when we all had a conversation with Fruition, I, or the guys that would eventually be Fruition, I was like, we have to solve this. We are looking at, at, I mean, it's, it's insane that a sponsor going through this for the first time, maybe navigating an SBA loan for the first time. Maybe working with an attorney for the first time. Doing the deal process alone for the first time, now has to go and dial for dollars.

And that's great. If you're motivated, you want to do that. I really enjoyed doing that. It was stressful, but I learned a ton. And I do think there's value there for entrepreneurs to learn how to do that. On the flip side it does add to your stress level, and it's really nice to be able to scratch out.

So, so my deal was 800, 000 in equity, right? So if Fruition would have come in and, if Fruition existed and written a $600, 000 check into my deal and said, okay, Kevin, now you have $200, 000 to raise. That's a heck of a lot more manageable, for somebody just to kind of, you know, you go out and you build your own investor base.

And I think that's valuable for a lot of, and I encourage all of our entrepreneurs to do that. It's just good for them because nobody wants to do just one deal, right? They want to do multiple deals. So you need to build your network. But having that smaller target, only having to raising, you know, a hundred, $200, 000 versus 800 would be a heck of a lot better.

So that's, that's sort of the, the methodology that I thought of, as we talk to our entrepreneurs who are interested. I tell them that they should go out and expect to raise, from three or four different people. Because it's just good for them. It's like eating your vegetables. You know, it's something you need to do.

[00:30:24] Ronald Skelton: It takes a special skill set to do that, cold calling. In our real estate business, we used to do some cold calling for real estate. And I would train, we had an entrepreneur center where we would train real estate investors.

One of the things, one of my pet peeves with a real estate investors, they go to your course, they would, we had little seminars and stuff. We would teach the different strategies and mathematics and everything. And everybody would, you know, these people go through it, but they'd never get a deal done. So we, we used to have these calling sessions where like, look, if you want to learn how to do cold calling, just come join me.

So we had a big boardroom of, probably 10 or 15 people could sit around this big oak table we had. And I used to call it my European training model. So the year three and training model was I would call the first cold call. We were called it expired listings for real estate, but it could be a business owner.

I'd have the conversation. Everybody would get the list and then, and people would take notes. And then I'd call the second one and do the second one. And then when I dialed the third one, I slide it to the phone, to the guy to the next to me and said, you're up. Right. So, and they're like, I don't know

[00:31:24] Kevin Bibelhausen: Thrown right into the fire. That's great. Yeah.

[00:31:27] Ronald Skelton: It is like my European training model is like I just slide the phone to and go "You're up!". And, uh, it's, that was the inside joke. And they're like, Oh, I don't care if you order a pizza. I don't care if you tell them a joke, but you're talking to this, this homeowner or in this case, a business owner, or an investor, if you're trying to raise capital. There is something said to getting over call reluctance and actually being willing to cold call.

I know cause in my, in my real estate business, we had to raise capital for real estate on a regular basis. You know, and I would go to events and all kinds of stuff to raise capital. I used to go to events where they taught people how to be private investors and I would raise money right there in the room.

I would sit through the seminar for two or three days, and I would meet everybody and go, by the way, I do have a real estate firm also. I could, well, I could walk into one of those weekend things and walk out with two or $300, 000 worth of, capital wired to me within a week to buy houses with, cause, cause we had a running operation that they've been trained and now they want to put it to work.

So I used to follow one of the guys around. If he was within a few States of me teaching a course, I would pay for his course and go sit in the room.

[00:32:28] Kevin Bibelhausen: That's smart. That's my, that's just a, yeah, you're buying a ticket just to, yeah, just to get in the room and take advantage of the people who are there. Not take, not in a bad way. Right. But like take advantage of the opportunity.

[00:32:38] Ronald Skelton: And uh, and we were looking to be honest, we were looking to do some investing or, be one of the lenders in the long term. So it wasn't a bad skill set to learn. And it helped us understand what these guys were teaching investors so that when we go and presented a package to him, like where we needed investors, it was in the same terminology and the same, uh, it made sense, right?

To the investor. There were some things he was teaching him. I was like, oh don't teach him that. Like, I used to be able to get loans all the time, you know five six percent. This is when the interest was low for a real estate investment. You know, five, six, seven percent, eight percent. He's telling him, oh, yeah, you guys can always get nine just you know negotiate to nine. They'll give you nine. Yeah, we gave nine but we didn't want to, right? So I'm sitting there looking at the people in the room going, he's got 200 people in this room teaching them to ask for nine percent. I wish you'd quit doing that. But uh the same thing so I, going back to this, you're raising capital.

You got to call, you got to call investors and stuff. Honestly, with your fund, it's probably a little easier than it is like to raise 800 K, on a single entity, you got to get them to like the entity. You got to like, like you. And 800 K or, say 50,000 to 800 K, they had, that has to mean something to them.

It has to be okay, that's, that's enough you know, there's two different types of investors out there. There's the guys that they don't want to worry about anything unless it's big enough to move the needle. Like they want to deploy larger chunks of cash. Or the guys, like they want to invest in people and they want to give, a bunch of little, you know, little shots that people. They want, they would rather have 10, $50, 000 investments than one 500 K.

It's a numbers game. You got to get in front of the right people. And if you, can't say that it's kind of like in the real estate game or anything else. You can't say the wrong thing or the wrong thing to the right person. If they're looking for what you've got and it makes sense to them, then, it's a little hard to mess up, but it is a numbers game.

[00:34:26] Kevin Bibelhausen: Totally. And you're, that's an interesting point about, the difference in raising for a single deal like I did and then raising for a fund. Because I'm not sure that one is easier than the other. They're just very different because you're right. When you're raising for an individual deal, you're focused in on, the entrepreneur, you know, it's like horse jockey fit.

And then you're looking at,you're evaluating each independently, but then also together. And, you know, you're going to be directly invested in this company versus through a fund. It's a little bit more personal. And investing through a fund, most people, it's interesting, it's interesting because a lot of the, a lot of the people we have early on in the fund want to be super involved.

Right. And that's great. We want to be able to pull a lot of expertise from our LPs because they're, frankly, most of them are entrepreneurs themselves. And they,they want to kind of get into the nitty gritty. But they just don't have time for all the deal flow and all the underwriting and all that kind of stuff.

So, um, but then as we get larger, it's going to be more of an institutional capital. It's going to be more of the, the quiet capital. A little bit more of, I want to put this money in and not really, I just want to get my reports every quarter. So it's, it's interesting kind of how you have to shift and how you have to, you have to change your message. You really do.

[00:35:33] Ronald Skelton: Yeah, it's a, I like the fund idea just because you just went from, Hey, do you want to be involved in a textile company and backed me as the horse driving it? Or, Hey,we're taking, we're building a fund. We're going to help entrepreneurs get to, you know, get from where they are to, and it's going to be a diverse group of investments.

So if you structured it right, you've got 25 investors, they all get a piece of each deal that comes through. It's not what locking one investor into one thing. So, I don't know. I don't know that either one of them be easier or harder. I think it's a, it's a different, like you said, a different class of investors for each one.

But personally, in the back of my head, I think I could find more investors interested in a fund than I could a textile company because everybody's thinking textile.

[00:36:15] Kevin Bibelhausen: Believe me. Oh yeah, no, I had those, I had those conversations ad nauseum, right? And it was as the economy was getting a little bit worse and everybody was kind of, just, I'm not sure what I want to do here. And then you come in with something that's not tried and true, right? I could have gotten an HVAC deal funded or plumbing deal funded because those,

[00:36:31] Ronald Skelton: Or SaaS. Something that people see as sexy, right?

[00:36:34] Kevin Bibelhausen: Right, exactly. But then you come in with something that's completely off the wall. And it just doesn't fit the box. And like, I'm not sure. So you're right that the pitch is a little different for the fund. And, you know, frankly, when we're pitching the fund, we're pitching diversity. Or diversification across a volatile asset class, risky asset class.

It's, there's no secret that small businesses are risky. More risky than maybe putting it into public equities or something like that. But having, a basket of 10 of them is a heck of a lot better, then just being directly invested in one, right? You have the diversification taken care of for you.

[00:37:05] Ronald Skelton: I was listening to a podcast this morning where,Sean, uh, My First Million, was interviewing Tony Robbins, and, uh, and one of the things that we're doing about their finance books. And, he had an interesting statistic. He said hand over hand, year over year, every single year, and for the last, I think he said 20 or 30 years, private equity has outperformed the stock market. And there's a reason, there's a reason why these big funds, they buy equity into companies and fund companies. Not, you're not calling just a VC private equity. He's talking about the general concept of private equity. And, uh, all of us should look at their model. Even if you're an independent buyer and you're buying a small business, one or two, and you only plan on doing that, you should really look at the private equity model because hands down, they figured it out.

There is no other model, I'm a marketing nerd. You're a business background too. There's no other model where year over year, you know, time after time, you can guarantee a 25 to 35 percent growth year over year. And that's been proven inside of the private equity model. You can grow 25 to 30 percent every single year, year over year if you're acquiring companies and really being cautious about your mergers and acquisitions, but doing growth or acquisition. And, that story is a great story to tell when you're raising capitals. Like, look, historically, this has beat the market. Am I a Ray Dalio? Probably not, but you know, I, I can follow the models pretty well.

And here's what we're doing, here's the, here's how we're doing it, X, Y, and Z. Seems to be working for the big guys. Jump on board. Let's see if it works for us, right?

[00:38:38] Kevin Bibelhausen: Yeah, that's right. That's right. Yeah. And as we, since we're down market, right? The volatility is definitely more, but the returns can be higher because it is, you know, it is a less efficient market where we play versus, you know, some of the huge deals where private equity plays.

There's tons of upside. Um, and then we feel like we've mitigated, we're able to mitigate that, the risk that's, that's there by investing in a basket of companies. 10 investments in fund one or whatever we're going to end up with. And vetting sponsors carefully and, you know, making one of the, one of the built in safeguards that we have is that all of our sponsors take SBA loans.

Well, they better believe in it if they're going to personally guarantee, multiple millions of dollars. So you definitely have skin in the game with your entrepreneurs. So it's a nice, it's a nice model. And we've seen a lot of, a lot of success raising for fund one, that we're about to close out.

[00:39:27] Ronald Skelton: Awesome. Awesome. The other interesting thing about the private equity model and what you guys are doing inside of that, especially since you're funding people who are taking, SBA loans is, you're raising for 2nd position because SBA is never going to accept for the anything but the 1st position of that loan.

Right? So, I'm curious on how that conversation goes. Are they comfortable with that? The other thing that you're doing, and can continue to do is there's this, there's a way to actually, uh, diversify the risk a lot more because you're not just dumping it all on. Like, if you raise the money for the textile company, everybody's putting 1 thing in a textile.

So, if Kobe comes back and we can't ship anything, you've got shipping issues, you can't get materials here, you got a problem. With the fund, if you're careful and you just make sure it's a good diverse things you can actually pick things that are good during non economies you know, that, that are, we call it counterweights to the, or textile company. So,

[00:40:26] Kevin Bibelhausen: 100%. And then we and we were actually, because we write one of the larger checks in the space, right? We write 500 to $800, 000 checks into businesses. The deal flow that, we sort of have first dibs on a lot of these deals that come through of a certain size and quality. There are people, you know, coming to us lying up just to be able to, see if they can, uh, if they're a fit.

So we were quite proud of the fact that we've, in about a year of operations, Uh, have become a premier, capital partner. For a lot of these, a lot of these searchers because we're able to make their raise easier because we have a team that's nice and easy to work with and knows what they're doing.

You know, that matters a lot, the people that you have on your cap table. You want people that are actually going to be there in the foxhole with you and,people that you genuinely wouldn't mind having a meal with, uh, that's, that's more and more important. I think especially as you get older, you realize how important that is, that you shouldn't just take capital from anybody.

But that's really important to us, you know, being good partners,and being able to, you know, take out a huge portion of somebody's raise. And basically set them up for success and say, here's our network of entrepreneurs and service providers and mentors and anything you could possibly want, because your success is our success.

And we want to give you every resource possible in order to be successful. And so our LPs, of course. So it's, it's all a very, you know, synergistic model, that we've sort of, that we fashioned here.

[00:41:49] Ronald Skelton: I like it. So, what's the, can you give us the criteria? If somebody wants to work with you, what are they, what's the beginning step? How do they figure out if they even qualify?What is that first step for somebody? Somebody who's got a business in their 500 K short between their, uh, personal guarantee or, the SBA alone, not covering it all or whatever's going on. And they know it's a great business and they want to put it in front of you kind of, what is the starting criteria?

[00:42:16] Kevin Bibelhausen: Uh, for the, for the deals that will fund?

[00:42:18] Ronald Skelton: For the investment firm. Like to get, to get you guys to invest in, from the Fruition Capital into their deal.

[00:42:26] Kevin Bibelhausen: Yeah. So we look exclusively at businesses between one and $2 million in EBITDA. They have to be B2B. And they have to be 10 plus years in business. Um, we tend to stay away from, from more of the sexy things. Especially anything like technology focus. So we don't invest in SaaS, we don't invest, we, we only invest in U. S. companies. 

So there's a couple pieces of criteria, but like, frankly, those are the things that most searchers are looking for, you know? And so, so really it's the size requirementthat seems to be the biggest hurdle, I guess if you want to call it that. So we see a lot of deals that are like, Oh, here's $750, 000 in EBITDA.

It's a little small for like, it's not that we wouldn't be interested, it's just that we're trying to write larger checks into these businesses. So our sweet spot is right between that one and 2 million in EBITDA and B to be focused.

[00:43:13] Ronald Skelton: Okay. And it makes a lot of sense because without the good EBITDA, they don't know, because they got to do that, that service, coverage to, the SBA. They've got to, what is the liquidity for your fund? Is it a, a debt back equity or how, how is that structured? Is it just equity? And they're going to, your investors are going to get a quarterly dividend until the company sells again? Or is there some type of principal interest payments due to the buyer?

[00:43:41] Kevin Bibelhausen: Uh, no, it's so typically when we invest in a deal, there's an equity step up. So I'm sure somebody on your podcast has talked about that before, but basically it's you being in the money right away, right? I give you a dollar, in equity and I receive $2 of equity, uh, in return, right? So my equity is worth two X or the money that I put in gives me two X, the equity.

And then there's also, preferred rates. So you would get preferred equity as an investor and, um, somewhere between 8 and 12 percent is what they would, you know, be paid. And for the fund, we have a 7 percent hurdle rate for our investors. So investors are guaranteed to get back that, that, well, I said guaranteed, but you know what I mean, right?

That's the rate that they, uh, need to meet in order for us to take any of the, performance payment. Any of the, any of the upside.

[00:44:26] Ronald Skelton: And how do you guys deal with liquidity? The investment won't get to your entire, uh, portfolio. Like say somebody comes in and say, okay, love your fund. I'll put 500 K and life changes. Things happen. They need to pull the money out. And 12 months later, what's the liquidity for them? Is there, they know they're long locked in for the longterm? Or do you guys have a way to, do secondaries?

[00:44:46] Kevin Bibelhausen: We don't have a way to do secondaries at the moment. So they, they are locked in for because they are there, I mean, as we were constantly raising and then deploying that capital relatively quickly. So like we don't, we don't take a bunch of committed capital and then draw down. If we get an equity commitment, we're calling that capital within two to three weeks.

Because we've got a deal kind of ready to go. Now that the money that that's being invested In that specific deal, right, is actually going to be spread across the entire, the entire portfolio. But we don't, we don't sit on cash for long, and we don't wait to call capital for long, because we've got enough deal flow, quality deal flow that we're deploying that relatively quickly. Did that answer your question?

[00:45:26] Ronald Skelton: I think so. Yeah. What's the next step for, for the people that you're going to reach out to you? I mean, you guys have a website for that or, I can put it in the show notes?

[00:45:35] Kevin Bibelhausen: Yeah. Our website's fruition cap dot com. And you can, you can submit, you can submit on our form there. Either as a, as an investor,telling us that you heard us on this podcast or, or as a searcher looking for equity for your deal. Telling us the same, you know, where he found us from. 

We always want to know that. You could also email me directly. I'm pretty easy to find kevin at biebelhausen. com. And my name will be obviously,on the podcast here. So I'm, I'm pretty easy to find and fairly respond, responsive on email. But I, I love to hear from anybody who's, interested in,in search. If you're, you know, if you're just starting out, if you've, if you've got a deal,feel free to reach out because like I said, we were, we're all kind of, um, in debt to those who came before us, who helped us up the ladder. And I like to do the same. So I want to be, I want to be there, for people who are interested in doing this.

And then as an investor, if you're interested in, in, in what I've talked about, send me an email. Let's reach out. Let's talk about it. I can bring in, you know, other partners and we can, kind of talk through what it would look like to be part of the family here.

Be an investor in Fruition Capital. We're looking to start our next fund, probably in March, March or April. So first fund was five million. We've got a little bit of room left there, if anybody's interested. And then fund two, we're gonna look to do fifteen to twenty million. So it'll be a bit bigger and we're gonna go for more institutional capital.

[00:46:55] Ronald Skelton: Awesome. Well, let's give you a cold call on family offices and other private equity groups.

[00:47:01] Kevin Bibelhausen: That's right, yeah.

[00:47:02] Ronald Skelton: All right. Well, I appreciate you. I think, we've got a great show here today. So let's call that a show and hang out for a few minutes afterwards.

[00:47:10] Kevin Bibelhausen: Sounds good.