Private Equity 101- Everything You Need to Know About Private Equity

Welcome to the Self-Funded with Spencer podcast. Healthcare is broken, and we aim to fix it, one conversation at a time.

Hey kiddos, Spencer Smith here, back with another episode. Episode 44 of Self-Funded with Spencer. This episode, we cover the private equity world. I'm dubbing the name of this episode, "Private Equity Explained." My guest is Kyle Coots, who is the Managing Director of Miramar Equity Partners. And he and I have probably known each other for almost 30 years, which is crazy. But we hadn't talked in the last five or six.

So, you're thinking, "Well, Spencer, what does private equity have to do with self-funding?" One, it's the reason Kyle and I caught back up. He reached out to me and said he was vetting a company in the self-funded world. He knew I knew it pretty well. He'd followed the podcast and said, "Let's do lunch. I'd like to pick your brain." We had a couple more lunches, and next thing you know, we've caught back up as friends, and self-funding is the reason we did, which is super cool.

The other reason is private equity is inescapable in the insurance world. Whether you're a broker that's rolling up and maybe thinking of selling to a large aggregator, maybe you're a BIN admin platform that's being approached by carriers for integration, maybe you're a carrier that's looking to buy small carriers or buy one of their blocks of business, you name it. It is ubiquitous. Private equity is ubiquitous in the insurance world. And so, even if you don't directly touch it, you need to know how it works. And so that is the purpose of this episode: demystifying what private equity is, what is some of the terminology, how do you derive multiples to figure out the value of a business, should you go public, should you take on debt? All those things and more were explained by Kyle, and I'm super, super excited to share this episode with you. Episode 44 of Self-Funded with Spencer, "Private Equity Explained." Here you go.

Well, Kyle Coots, how are you doing, man?

I'm doing well. Thanks for having me, Spence.

It is my pleasure. Very excited to have this conversation. You know, I don't know if we're going to label this like, "Private Equity Explained," "Private Equity 101." You know, we could be like YouTube kids, like "10 Secrets of Private Equity." But whatever we're going to do, Kyle, I really appreciate you coming on the show. One story I want to start with before we get into who's Kyle Coots, I've rear-ended you twice in my life. Which, uh, you probably obviously remember those events, right?

You know, when you brought that up, the first thing I thought of was Gary's kind of Auto Body. Yeah, Gary D's Automotive. Like, I bet he is sitting on a beach from me alone. Like, I took my cars there when you were into me, but then I wrecked my parents' cars, I wrecked my car. Like, I bet he is living a spectacular life just from.

Well, I don't know if you know that too. That is my uncle's brother, Gary Ducey. Yeah. It's all gonna stay in the family. All the air at all. Great work.

Yeah. Well, it's funny too, and just to kind of explain what I mean. I, so I rearranged you once in my dad's car when we were like going to a party and caravaning in a neighborhood, like as stupid 16-year-olds do. And I remember the other time I rear-ended you, like on the way out of, uh, high school, and we were all driving to lunch in another car. So two different cars, I rear-ended you twice. And you are, you account for 66% of all my rear-enders in life.

Okay. Well, congratulations. Trailed down since then.

So yeah, yeah, I'm getting better at driving, so thank God. But obviously, that's not what we're going to talk about too much today. Before we get into the private equity world, and I really want to dig into, you know, what is it, how does it work, what is the jargon that comes with this game? Explain it to us like we're two-year-olds. First, you know, who's Kyle Coots? Tell me a little bit of your backstory.

So, grew up with you in Mansfield. Normal, idiot 16-year-old, kind of doing normal things. I ended up going to the University of Texas. I, I never have a day where I don't have some kind of paraphernalia. Was that I didn't even notice a pen, man, or socks, whatever else. Loved it down there. Uh, actually ended up rooming with a lot of guys from Mansfield. I got my degree in accounting, started in public accounting, and kind of figured out pretty quickly that that wasn't the right career path for me. Thankful for the background that I got. Transitioned. Didn't honestly really know what I wanted to do, but I knew investing was kind of interesting. I wanted to learn more about that. And so, you know, made a couple stops. Uh, ended up at a consulting firm, Bain & Company, where I learned a ton. And it was, it was just kind of a, you know, almost like a boot camp.

What, what drew you to studying accounting and then figuring out you didn't want to do it? Was it just, you're always a financial mind, I guess, or you thought this sounds like a good career?

Honestly, yeah. I mean, a little bit of all that, right? I didn't put a lot of thought into where I was going to go to school for, being completely honest. But, you know, UT had a reputation for being a good school. I was in Austin, which kind of sounded fun. Business school was a good business school. My dad was an accountant, and so like, I kind of, you know, just jumped in the lazy river, and that's where the current took me.

Fair enough. Well, that's a lot of guys that get into my industry. There's a familial connection, right? The guy I just had on the couch last week, his uncle told him about the business. A lot of people's fathers will say, "Hey, you know, this is what I do," and it's a good, you know, kind of best-kept secret, I think, in, in, uh, you know, the economy. Insurance is a great, uh, business to get into. But so accounting was where you thought, "I'll just do that. This makes sense." Then you pivot, right? So you go, "This isn't for me." Once you get into it, you got your degree, though, right?

I did. Yeah. Yeah. Did you get a CPA?

Yeah, like until recently, I was a CPA. I actually didn't, I didn't renew it this year.

Just, you don't need that stuff?

Yeah, I don't really, I don't really use it.

So then where do the interest of what we would consider, and we'll explain private equity, come from? Where did that interest?

Yeah, so my next step, I went to a really large private equity firm, and I wasn't doing direct investing, but I was supporting a lot of the direct investing that they did. And, you know, at the time, I thought, you know, creating value through business was interesting, but I didn't really understand how it was done, frankly. So I was, I knew the nuts and bolts of a business, I knew how to evaluate a business, I was looking at the financial models, I kind of understood what was happening when this firm was buying these businesses, but I didn't understand how they were creating value. Until there's one guy at the firm, you know, he's a legendary guy, there's lots of articles written about him out there. His name is Dick Boyce, if you want to Google it. But he wouldn't know me from Adam. But, um, I, I was hearing him on these calls for some of these businesses, and he would break down, "Hey, these are the initiatives that we're focused on. Here's how we're tracking these initiatives. This is what I think we should do next quarter." And it, it's kind of like an epiphany of like, "That's how you do it." And I kind of realized that there is a massive amount of things that I don't have any idea how to do. Like, I know how to measure it, I know how to evaluate, I know how to look at things, but if you gave me a business to go run and told me to go improve this business, I had no idea what to go do.

Yeah, yeah. In his bio, he had worked at a consulting firm, Bain & Company, at one point in his life. And so I kind of said, "Hey, that might be a good place for me to start." And so, you know, a lot, a lot of kind of trials and tribulation, ended up meeting a couple people there, um, and ended up starting up. I spent about three years in Bain & Company. That's kind of where, where my familiarity with true private equity and kind of value creation kind of took off.

And then you, at what point did you go, because you went to Kellogg, right? A school of business?

Yeah, in Chicago. Or it's in, yeah, Northwestern is up in Evanston. Northwestern, excuse me. Yeah.

So, um, I want to ask you about that because were you, like, were you commuting during this time?

No, not work. No. So that, I mean, that was like, you know, I spent three years at Bain, went into private equity at Awesome Ventures for two years, loved what I was doing there. I was so lucky to get a job at that firm with that team. Still keep in touch with those guys. Um, kind of thought like, "Oh, I figured it out. Like, this is what I'm going to do for the rest of my life." Business school made sense, really for more of the trajectory of the firm at the time. Like, there was kind of a reason for me to, to go do something else. One of the guys I had worked for had gone to Kellogg, had great things to say. But no, I had, you know, Lane was two or three years old at this point, four years old at this point. Ellis, Kyla was pregnant with Ellis. I don't know who those people are, but also your kids, right?

Yeah, yeah. And so like, it was a little bit of a, kind of a daunting, "Hey, you're going to get out of the workforce, you're going to move to Chicago, you're going to move." Oh, you moved the family?

I was a full-time student. Um, and, you know, like, I think Kyla was pretty, Kyle is my wife. She was pretty anxious about that move when we did it. I was a little anxious about it. It's probably the best year of my life, I'd imagine, right?

And I think there's something to be said for that. This is a conversation we had on the last podcast. It's not released yet, so nobody's heard it. But the gentleman was talking about how life tends to reward effort, right? Like there's this, there's this push and pull relationship with the amount of effort you put in that tends to be the scale at which you often receive back. So going all in and kind of betting yourself for a year, of course, you're going to come out less, right, for that year while you're while you're working. But you knew that on the other side of this effort would obviously, this is going to be a beneficial move for for my career, right? Was there doubt though, at some point? Like, were you, I'm sure you're scared, right? And you know, was this the right move? Did you ever have those feelings during that time, or did, were you always kind of like, you knew?

Yeah, I mean, there's a little bit of a mix. Like, I tried not to look at it like, kind of like an objective investment. I tried not to say, "Tuition is going to be this much, opportunity cost, but my pay coming out is going to be this." It was more like, "Hey, look, I've accumulated a lot of experiences. I think I know what I want to do with my career. Everybody that has gone to business school has had great things to say. Like, I need to go take some time, kind of do some self-searching, like, what do I really like to do? Go hone some skills that I was a little bit weak on." And I kind of just said, "I don't know what it's going to look like on the other side, but I think I'll be a better person once I come through it."

Okay. And so there was a little bit of a blind bet. But I never once regretted it.

Well, those are the best, right? The blind bet. You know, entrepreneurs do the same thing, right? And you kind of treated yourself like a business at that point, and you reinvested in that business. And of course, you know, where you are today is probably a result of that decision. But in the moment, sometimes you get scared of taking that leap of faith to know that the other side of it, you're going to come out okay. Which, kudos to you, man. That's why I wanted to bring that up because I applaud you for doing that. And, um, clearly, it's worked. So after that, you, you come back to Texas? Or you know, what's the name?

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So that was probably the scariest point, is, uh, for a lot of different reasons. Uh, I thought I would be going back to Austin with Austin Ventures. There's a lot of reasons, uh, that there wasn't, there wasn't an opportunity there. Um, so I was a free agent at that point. And that's where, like, you got a gut punch, like, "Oh man, I'm going to be unemployed in six months. I'm going to be out. I've got business school to pay for." I got really lucky, frankly. I met the partners at Redbird Capital. So Hunter, Robert, and Jerry. Fascinating guys, great guys. We hit it off immediately. And I went and spent three years at Redbird as a VP in Dallas. Learned a ton. All three of those guys have different skill sets. I learned a lot from all of them. And like, it was, looking back on it, the style of investing that they were doing and what I learned from them, I think is pretty unique still in the market. But I learned some skill sets that I probably wouldn't have learned otherwise. So another way I kind of got lucky, fell into the right place. And I think, uh, that kind of accelerated my career a little bit more.

Very cool. All right. So the Redbird, and then ultimately, where does Miramar enter the picture?

That's next.

Okay. So Miramar, how long have you been with, with those guys?

So my partner, Kurt, and I, we founded or launched it, uh, probably about four years ago.

Okay. Almost exactly. I guess four years. May 1st. Is it really? Okay. So four years into it, man. What's the full name? Is it, uh, Mirror, Miramar Equity?

Equity Partners. Okay. And you're Managing Director there now? So now you're kind of, you're running the show, to effect?

Or I mean, a little. Like, look, we have, we have a family that's, that's for all intents and purposes, all of our capital. They're a wonderful family. Um, you know, the father, son, and mother are our investment committee. They still have the kind of the say on investments. But my partner, Kurt, and I lead day-to-day investing, all private investing that they, all private corporate investing that they do.

Very cool. Well, that's fun, man. And I mean, now you're, you and I were talking about this, we don't want to obsess about it too much. We're both turning 40 this year, right? So we're reaching these points in our career, like inflection points, right? Where, um, you know, all the fruits of the labor, the last 15, 20 years of education and experience are kind of culminating, which it's exciting to talk about. And that's why we're, we're here today. I think we got brought back together from the by the subject of self-funding, right? Because you were looking at a company not too long ago that is operating in that space, and you said, "Hey, I know a guy that that understands self-funding." That guy being myself. And you said, "Hey, why don't we have lunch?" And it actually reconnected us after probably like six, seven years or something like that.

Yeah, absolutely. I mean, I think, I think a really interesting business came across our desk. Um, I still think it's a very interesting business. We're still kind of working on it. I can't share a lot of details. But, you know, as part of the job, part of what I like is that, you know, every business is different. There's no one industry that we focus on. We focus more on business models than anything else. And so I spend a lot of my time like having to become at least a pseudo expert in an in an industry very quickly.

Yeah, yeah. This is a very complex industry. I hope you don't ask me any questions around.

No, no, we'll keep it in your lane, man. You were my guru. I appreciate, man. I'll continue, hopefully, to be your guru. But let's, let's get into your wheelhouse now. This is the reason I wanted you on, and this is the reason why, kind of the motivation, of course, is our reconnection and you exploring some businesses in, kind of my industry. However, too, I hear about private equity all the time, right? I mean, we've got agencies that are being approached by big firms. There's a lot of aggregators out there that are gobbling up your really successful mom and pops and kind of rolling them up under their brand. You know, and then I'm being in the insurtech space, you know, that this element obviously plays into our funding and things like that. So I thought, why don't we just get into, kind of a private equity explain for the people in our industry and outside my industry that want to know what the heck that is. Um, so can we start at the most basic foundational level? What, what's private equity?

Kyle Coots. Yeah. Sure. So let's take the literal sense. It's private, right? So it's not a public company. So the company is backed by private, for all intents and purposes, uh, the companies backed by private equity firms are private. There's, you know, not that many investors. You, as just someone on the street, can't usually invest in these. So you don't have access to those deals. In equity, it's not debt, right? It's like, we're going to own a piece of your business, typically. Um, how much we own, what control, what governance, is all to be determined. But that's the literal sense. But the way to think about that is more of a spectrum, right? And on this side of the spectrum, you have kind of called seed equity. So it's like, "Hey, I've got an idea. You know, I don't have, I don't have any capital. I need to build a prototype. I need to go prove that this actually could be a business." So you, you raise from seed investors. Okay. Well, now you kind of have a proof, or you're starting to, you've got a product that you can go prove out, maybe you get a little bit of revenue, you're starting to grow. There is a need for this in the market. There's a demand for this. Okay. Now you're getting into kind of more traditional venture capital, Series A, Series B, Series C, moving forward, as as you kind of prove out the concept of your business, but you still need to make investments for growth. So you're not generating a profit at this point. Uh, and then like, and I'm oversimplifying this, but like those of you that are listening, Kyle is his arm is kind of slowly moving up the trajectory as well. Just, yeah, some people watch, some people listen. So I want to make sure like people are understanding you're going through the kind of a growth cycle of the company with your arms. So we're going from seed, the idea, to maybe this will work, maybe this won't, but I don't have money myself, to venture capital, where a company is, of course, becoming more viable, or it looks like they're, like you said, as their demand. How do you know what, what keeps them in that venture capital space and to go through multiple rounds, um, to stay still in that kind of life cycle?

Yeah, I think in general, it's where, what do they need the capital in order to do, right? If they're still developing a product so that they can approach profitability, that's probably still more in venture land. It's still, still a form of private equity, but that's still more venture. I think once you get to the point, and again, I'm oversimplifying, of course, but once you get to the point to where you could be profitable, is the easiest way to think about it. You're not, a lot of times, if it's a great business, you probably shouldn't be. You should be reinvesting in growth, okay? But kind of reaching that point is where you start to get into growth equity, which is kind of the first phase of what I would say is traditional private equity. That's where I spend a lot of money.

Okay. So growth equity is, you don't necessarily need the money, but you're reinvesting in the company to grow it and scale it and things like that.

Yeah. The business is probably not, the easiest way to think about it is the business is probably not generating enough, enough cash flow for you to reinvest in what the growth you can go obtain. So you need a capital infusion.

I see. I see. So growth equity is kind of that third phase, if you will, the oversimplification. Um, and then what, you know, what comes next? Right? You use that money, you grow it, you scale it to whatever you envision as the appropriate level. Then do you age out or progress out of growth capital phase?

Yeah, and I think, I think like a lot of firms, and I would say Miramar probably plays in this kind of growth equity to lower middle market private equity. Okay. I think you can lump those together. But, you know, the the strategy or the need for equity providers kind of changes. Like, you probably now are generating profit, you're, you know, one to ten million dollars of cash flow. You have enough capital to sustain. You're probably now, as an owner, you're probably paying yourself something a little bit now, yeah.

Um, but, you know, like the the skill set that it takes to kind of hit that next phase of growth, I don't know what it may be. Sometimes it's hiring a sales force, or opening up locations on the other side of the United States, or building a new facility, or whatever it may be. Like that, or doing an acquisition to vertically integrate. Like that takes a skill set that a lot of times founders have never done before, for sure. Um, and they maybe they're a little squeamish on their ability to go and execute that. And so I think like the private equity providers that would come in there likely have done that before. They have a playbook. They've got a bunch of people who have done it. They're obviously very comfortable kind of doing M&A. So a lot of times the strategy is to go do tuck-in acquisitions. Um, but they'll help you get from that phase of kind of one to ten million to that next phase. And then like, at that point, you're, there's different private equity firms that play a different size. So they have different funds, they have different, um, size checks that they're trying to write, different skill sets they're bringing. And you're kind of moving up the life of private.

So you're kind of, so obviously you're getting access to capital. That's the primary motivator. But you're also finding a partner that can execute on the deficiencies that you may have as a business owner, right? Has done it before, like you said, a playbook and a bench. Coming from a baseball guy, the analogy makes sense. But so they've done it before, they kind of know what to do. Some of it's processed, some of its procedures, some of its network, things like that. So you're finding that right partner that again, can fund it, but also help you actually go and do it at the same time, right?

Yeah, you know, every, every seller is different. Everybody's got different motivations. And something we can talk about more. But, you know, that in that scenario, that was a, that's a very typical scenario. Like the guy, the founder, the owner of the business has gotten it to a point to where they've kind of done what they think they can do. And now it needs to be an aggressive growth plan that they may or may not have the team or the skills. A different situation would be like, "Hey, look, you've been working, you've been building this business your entire life. You probably haven't taken a lot of chips off the table. Your net worth is high. The business is worth a ton. But it's difficult to take money out of that business. And maybe you shouldn't. You maybe you should continue to reinvest it for growth." Well, you can diversify a little bit, take some chips off the table, bring in a private equity sponsor. You know, like, you now own less of the business, you still own some of the business. And so if they are, if they can execute their growth plan and take it to the next phase, you know, you get a second bite of the apple. You're going to make more money off that. And you also got to take a little bit home. And, you know, go buy a house or whatever.

Yeah, yeah. Well, that's interesting. And so you, you made sure to position that equity, not debt. So tell me, when the use of debt might be a better vehicle than equity?

You know, like, I don't think, I mean, once you reach kind of a, a, a sustainable size, and there's a little bit more predictability to where you, you're even eligible for debt. And again, I'm over, there's different, of course. Yeah, we're trying to condense, obviously, a very sophisticated topic into 45 minutes, right? So I get it. We have to simplify these things. I think, you know, like actually, like the kind of the technical fundamentals of finance is like, most capital structures that are healthy enough for debt should have debt. It would be inefficient to not have debt. It's a lower cost of capital, right? So a lot of private equity firms, the reason they put debt on the business is to generate better returns. Like, make no mistake. But it's also just a more efficient way to capitalize the business. Okay. But I think like, it's a little bit daunting for, you know, a guy who's been an entrepreneur his entire life, you know, didn't spend years and years and years in finance and in banking. Like, they probably don't know how to negotiate the best terms with the bank. Sure. The bank may or may not have confidence that they can sustain it. Maybe they have a finance department that's giving them the the level of financial reporting that a bank would need. But oftentimes, they don't, right? So, you know, you kind of got to hit that level of sophistication and maturity to where a bank will even entertain it. But then also, you know, there's a, there's a skill set and there's a, there's a team need, right? At that point, you know, usually when we buy companies at that stage of, of, of life cycle, they don't have a fully built-out accounting or finance partner because like, that's a cost, that's typically a cost center.

I don't want to pigeonhole my fellow. I used to be. I know. So my epiphany and why I got into sales is I realized I was in a cost center. I was in the finance department, and I was like, "I get paid a salary because I cost this company money." And I'm going, "Oh, okay. The reason why the people that get paid a lot more than me is because they're producing something for the organization." So now look, it's necessary, right? Yeah. I'm not demeaning that role. It was just that was my. You had an aha moment that you described earlier. That was my aha. When I was cutting checks that were larger than my annual salary to some of these paid sales people for bonuses, I'm going, "Oh, okay. I understand the economics of what I do versus what they do."

I mean, it's the most common thing. Entrepreneurs don't want to invest in that side of the business. They don't see their need for it. And frankly, like an entrepreneur that's had their hands on the pulse of everything in the organization, probably doesn't really need it. They know how the business is doing. They see the bank account. They know cash is growing. That's all they really need in order to hit that next level sophistication to where, you know, you're building a more predictable, stable business that you can accurately project. Um, you can aggressively go pursue growth that you know necessitates the ability to, to, uh, to maintain debt. You know, you need that. And so a lot of times equity providers will come in, they have their relationship with the banks, they know what it's going to take to kind of to service that note. The banks know that they have credibility because they've worked with them before, and they can help you kind of build in that level.

Is that under investment banking now? Is that kind of that world that you're describing?

I think the easiest way to think of investment is more like a, like a real estate agent. Okay. A lot of times they're selling side. Investment banks are like, like taking businesses for sale in, like, uh, brokering transactions. Okay.

Okay. That makes sense. All right. You know, I'm asking questions as if, like, I don't understand. I really don't understand most of this as well. And that's really, if that was some of the the intrigue here. So talk to me, you know, I know my industry, insurance, as well. Self-funding is riddled with acronyms and jargon, right? Which is half of just knowing what the terms mean to do your job. So a term that I hear often in your space is the multiple, or a multiplier. So I want to spend a few minutes explaining what that is and the different ways that you can derive these multipliers to value a business. So could you dig into that?

So, so take a step back. Like, look, the value of business, the value of a business, again, I'm generalizing here, is the present value of its future cash flows, right? Present value of future cash flows. Okay. So, um, if you and I knew a ton about a business, had perfect access to information, we could go model it out. We'd go and discount, you know, we'd do this discounted cash flow model, and like, we're likely going to arrive at a very similar valuation for the business, right? There's a lot of variables that go in there, some you know. But like, if we had perfect access to information, we're going to likely come back to. Okay, that takes a lot of access to information, takes a lot of precision. Um, it takes time, right? And so in order to kind of have a shorthand look at a value of a business, we use a multiple. And really, every industry is a little bit different. There's some industries that are going to be a multiple of cash flow, some will be. And then there's actually definitions of capital intensive ones. Maybe it's EBITDA minus CapEx. Businesses that are kind of in this phase of growth where they're still growing really rapidly and so they're reinvesting and they may not be generating a profit. Well, it doesn't make sense to apply a multiple to that business. So maybe you would look at recurring revenue. Okay. Insurance product or insurance businesses, financial services, banks, they might look at a multiple of book value. But like, to keep it simple, let's assume it's cash flow because that's probably the most common. Okay. Cash flow. So EBITDA. Like the easiest way to come up with that value that you would then come discount is to just apply a multiple to your cash flow. Okay. Right. And so there are like, again, oversimplifying, but there are really two things that play into your multiple. Like a higher or lower multiple. One is the growth profile of your business. Like large addressable market, history of performance, you know, like accelerating performance and sales. Yeah. Um, you know, understanding customer dynamics, pricing power, all that kind of stuff plays into like, how confidently can I project growth for your business? How much growth can I project? Uh, and then the other one is risk, right? And like, maybe the easiest way to think about that is how much debt could you put on it? How much would a bank give you? Um, that does kind of play into like your, your weighted cost of capital. But you're going to end up discounting those future cash flows back at a rate. Okay. The riskier you are, um, the higher the rate, the lower the value of the business, the lower the multiple. The less risk you are, the more sustainable the business is, you know, there's a bunch of other things you can look at. The lower the rate, uh, that you would discount back in the higher the value. So ultimately, you're just trying to come up with a value of the company, right? The the whole, this whole iterative, iterative process is, let's figure out what this business is worth to us. They might have a number in mind as well. And then you figure out, where is that, like, that compromised number of value that somebody would sell it for? Correct? Is that what's worth it?

It's not a perfect comp, but like, um, when you look at houses, price per square foot, okay? Okay. Well, that is a proxy. But a house in Frisco is going to sell for a whole lot different price than a house in Mansfield. So like, but like a proxy is a good place to start. And then understanding why there's differences between that price per square foot, you get into the more granular details. Yeah. Multiple is a shorthand way to kind of figure out where you are when ultimately, you know, this is a value at which you think is appropriate to acquire a business, right? And then as somebody who's going through that and go, "Yep, we've landed on a number. The business owner wants to sell. We're ready to buy." We execute on this deal and whatever those moving parts look like. Now you're the owner of a business with that multiplier. Then you're trying to come up with a certain runway in which it's worth more, right? Ultimately, you're investing, you're trying to make money. So talk me through a little bit of that equation now. I own the business, and expectations on the other side are there. Are there too many variables to really answer?

I mean, like, I'm going to oversimplify, but there's really three ways to make money in private equity. There's grow the business, right? Like if you're applying that same multiple to a higher level of EBITDA, your business is worth more. Okay. There is make it a more valuable business. And so trade at a higher multiple. And that could be customer diversification, go into different end markets, scale, improve your margins, whatever. There's a bunch of different ways to just make it a more valuable business to where somebody's willing to pay you a higher multiple, even at the same level. Yeah. Yeah. And then the third one is financial engineering. Um, and so think of that as like, very simply, if your business is worth $100 million, and, um, again, make the math simple, I'll give you $50 million of, I'm going to give you $100 million, but $50 of it's going to come from equity investors, $50 of it's going to be from debt that I put on the business. Okay. Well, I can pay down that debt over time. And over time, even if that business is only worth $100 million five years from now, but I've paid off all the debt, my equity has gone from $50 million to $100 million. Yeah. And so I did nothing to improve the business. I just paid down that debt.

Interesting. Okay. So those are kind of the three main ways in which to. What's kind of the most common way when you're looking at a, a business that you pursue?

So, um, I think the answer to that question kind of depends where you are on the spectrum that we talked about earlier, right? And so like, I'll talk about where we are, and kind of growth equity to middle market private equity. We always underwrite to kind of say, multiple in and out, right? Okay. Now, chances are, if we take a business from one to two million dollars of EBITDA, or wherever we're buying it, and we get it to that next phase, we are going to get some multiple appreciation. But you don't want to underwrite to that because there's so many different factors that can complement that.

Interesting. So the way we look at it, like financial engineering plays a role, but we're pretty conservative in that. So it's always going to have an impact on returns, but it's not the main driver. Um, so most of ours is around in, in scaling the business and growing EBITDA, right? And like, um, and you do that through, you know, putting the appropriate, talked about a bench earlier, so putting the appropriate people in place, right? To help it become a more efficient business.

What else is it? Yeah. So, um, you know, I can think of it through a couple different portfolio companies of ours, but, you know, we have a lot of multi-site healthcare. We're like, "Look, we're just going to grow the business. We're going to invest in, kind of that, that infrastructure behind it. So revenue cycle, revenue cycle management, like just improving those processes, improving the margin that we're capturing, um, scaling the reach that helps with insurance contracts. Um, you like to think that like you're also improving the services, making it a better product to the to the consumer on the market. But like, all of that plays a role in growing the business. Software businesses, right? Like we'll continue to invest in the product to make it a more sticky, uh, solution. Um, you know, we're gonna raise prices over time if it is sticky and it is providing its value. You're gonna scale out a sales force that's gonna help you get into other end markets or other geographies. Every business is a little bit different, but there's, there's, you know, there's always a handful of things you can do to improve the business.

So well, that's, I was nodding my head quite a bit as the last kind of spiel you went on because that's our business, right? As a software business. And all these things we think about, you know, scaling the sales force, the price, all those things are factoring into one, does the product work, which is the main thing? Two, right, is how do we make the business more efficient as we grow? Um, so, um, one thing I want to address, and I really like your perspective as somebody that's inside the business, right? I'm inside insurance. I used to have a perspective as an outsider. You know, sometimes private equity gets a little bit of a stain on the reputation, or people have a perception about it. And sometimes it's slanted negatively because they'll highlight a bad story or an experience. But why do one, why do you think that is? And then with the reality of private equity, I think you've done a good job of explaining, but let's be objective about what it is and the people that operate in it. And, you know, kind of unpack some of those misconceptions that there might be about the world.

Yeah, you know, I think, uh, there's a lot of people that probably their only view of private equity, the only time they ever heard of private equity is kind of the Mitt Romney and Elizabeth Warren stuff that comes out in politics. And like, you know, is there some truth to that? Sure, there is. I mean, but like, let's be very clear, there's going to be situations where you buy a business and like, you, some of the growth initiatives that you take on, some of the investments you make, fail. And you have to reduce cost, right? Like that's just the way it happens. So oftentimes, some of the noise is just around like people being let go, right? Or furloughs or layoffs and things like that. Or what are some, where else some of the noise come from? I think like people don't quite appreciate or understand like the use of debt. Now, don't get me wrong, like there are some, there's some overaggressive deals out there that have been highlighted before where they over-levered the business. And, you know, I think like the, the, the strategy behind private equity is not always appreciated. Like, yes, we use debt to trans, to, to finance the transaction. But a lot of times, and I think it depends on the firm and the scale of the business and a bunch of other things, there's a million different variables out there. But a lot of times our ambition when we buy the business is to help professionalize and grow it. And if we do that correctly, it is better for everybody. Exactly. Going to create jobs. We're providing a better product back to the consumer. Like it's, I don't, I don't know the stats. I would, I would be very interested to know. But like, businesses that, I don't know how to define success, but successful businesses that reach a certain point, I would be surprised if the vast majority of them don't have some kind of interaction with some flavor of private equity. Of course, because like, what we bring is capital, which is a little bit fungible. But like, we do give the ability to grow. We can help you improve certain things. We can help you improve your product. Um, again, all the stuff we talked about before. You, as an entrepreneur, you know, your business really well. You probably know your customers really well. What you may not appreciate is how to do other things really, really well that scale your organization, that provide better careers for some of your, your, you know, your employees that are really loyal and that you really want to keep around, but they're kind of stuck at this level where there's an opportunity. So I think like sometimes that gets a little bit, uh, misconstrued, a little bit, or maybe looked past. I do think though, like a, a mistake, I think, I mean, there are plenty of people that have bad things to say about private equity investors. I think a mistake is private equity is not a one-size-fits-all. There's a lot of different groups out there. There's a lot of different types of capital that are doing private equity investing, a lot of different strategies to create value. I think if you are a seller, kind of focusing on, uh, fit, culture fit, ambition, the reason you're selling, what they want to do with your business, if you get that right, I think you're likely going to have a significantly better outcome and more better experience.

Well, it sounds like relationships is a big part of this as well. I mean, everybody hammers in my business and just insurance in general, you know, if you're looking at 12 different insurance carriers that sell a disability product at 95% similar, let's let's be honest, the relationship between you and that rep or you and that organization often trump the rest of those things. And I think that sounds like it's true for you as well.

Yeah, absolutely. I mean, it's something we talk about all the time. My partner, Kurt, and I have this discussion on every deal. It's like, the the searcher, which that's the whole difference, the CEO, let's put it that way. Now that we're buying a business, it's kind of the beer test or the airplane test. Like, if we were having to fly from, you know, Seattle to Miami with this guy on a plane, do we dread that experience or we look forward to it? Could I sit down and have a beer with them? Do we get along with each other? Do we value the same thing? I think, you know, frankly, I think one of the reasons that I've really enjoyed building this business with Kurt and working with him is I think that at the end of the day, our values, our focus on our family, and what we want to do with our lives, and those are like perfectly aligned.

You said that, man. The value system. I've been talking about that a lot recently, is like infusing my value system into what I do on a daily basis, right? I don't have to hide the things I stand for, right? I don't stand for anything egregious or.

Controversial, really. But it's like the family structure, things like that, kind of traditional values, you know, country, you know, love for country, and things like that. I don't think those have to be silent. And so, I think it's good, right? If you, I think Kyle, I was going to say a gentleman, about three or four episodes ago, almost said that exact same thing about, "Would I want to have a beer with this person?" or "Would I want to go on a five-hour car ride with this person?" And kind of the same thing you described, that's a litmus test for whether or not you want to do business with somebody.

And look, it's going to end up playing out, right? If, if your private equity investor, chances are they're going to see you more often than just at your quarterly board meetings. Like, I talk to a lot of our CEOs on a weekly basis. I'm spending a lot of time with them. And I think there needs to be trust. Sure, you're not always going to agree on different things. So, you kind of need to understand how they're going to react when you do disagree. Or, but at the end of the day, like understanding, like where your values are kind of anchored, and how you're going to approach certain problems, and and how we're going to react to different challenges that we're inevitably going to face. I think it's probably the most important thing.

That's cool, man. And so, they like, well, I think one part we have not touched on is sometimes firms go public, right? So, talk to me about that consideration, where that differs from private equity, or is that a certain growth phase you get into? When does a firm, company, organization decide public? Going public and being traded on a stock exchange, exchange is a better option. So, I, this is definitely, I haven't played that often, kind of on in that end of the pool. Yeah, like you got to be a pretty big company, you know. I think the challenge is to think about is like, and this isn't, this isn't anything, I'm not, I'm not giving you anything you couldn't get otherwise, but look, there is a financial reporting, a transparency requirement necessary. So, you're likely going to have to invest much more significantly in the, in the, in the infrastructure behind you, supporting the business, just because you now have a greater onus to present more information on your business on a regular basis. That's one. Two, you are going to get input, um, from a much wider array of different interviews. Can be very good for the business, but, you know, you need to be prepared for that. And then, I think three is like, I think this may be a, a struggle that some companies face is like, look, at at that point, you're, you're, you're reporting quarterly earnings on a regular basis. And I think one of the traps that certain companies fall into is like, my capital comes from a family. I don't have a fun life. So, I, I can literally look at owning a business for forever. Okay? And so, we can make decisions that are the prudent decisions for the business, for ever, the right long-term decisions. Some deals will only be in for three years because certain things happen that are usually good. Some deals we will hold for 10. And like making the investment for growth, being able to sacrifice some short-term earnings because we think it's the right move for the business in the long term. I think a lot of companies, public companies specifically, um, are too focused on that kind of short-term performance. And so, they're not willing to kind of sacrifice some of the short-term performance in order to make the right decision for the long-term view of the business.

Well, I mean, it sounds like a lot of the, what you're describing, right? And that's, it's one person's point of view, but there's a lot of kind of negatives and or challenges. The extra regulation, transparency, like you said, more voices in the, the mix for making decisions. To go public, right? It seems like they're, yeah, there's some positives, right? Is it easy to raise a lot of cash in a very quick period of time? Or, you know, what are the motivations for somebody thinks it's a positive thing to do?

Yeah, I mean, like, to be clear, I only highlighted the negatives there. Yeah, there's a lot of positives. I mean, I think like typically because it's more liquid, um, the security is more liquid, you can, you can trade at a higher multiple. And like, a lot of times, especially if you're a founder-owned business, and you've reached that point, pretty rare, but like, if you've reached that point, you haven't cashed out, like you can now cash out. Okay? Like, it's like everybody in your business that has equity, it's a more liquid market, so they can, they can take some chips off the table. I think in general, that's a good thing. Um, I think sometimes, like having a more diverse investor base is a good thing, right? And like, you can open yourself up to some of that. I think, well, Coinbase was a recent IPO, I think maybe last year or so. And obviously the popularity of crypto and things like that. I think it makes sense a lot. But I saw them IPO and then it just went kind of pure like, like. So, you wonder what, you know, over the long term, of course, I think that's going to be a viable and stable business. But watching that play out, you go, did that play out as inve, they anticipated? Or was it like you said, maybe just the, the founders wanted to take those chips off the table, as you keep saying, and they cashed out and they're not really concerned as much now? I don't know. I don't know any of the motivations. I don't know that particular. But I mean, like, look, I don't spend a lot of time on that on that sector. But I think like, in general, what we talked about, those are the pros. This is a con. Yeah, I think every situation's gonna be a little bit different.

Well, so talk to me about, I want to be clear, I want to be, um, consistent about trying to be objective about this whole thing. So, of course, there's deals that don't go so well. So, you don't have to specify a company or that particular deal. Oh, you've never had a deal that didn't go great, but they, I presume it happens, right? You, you kick the tires, looks like great business, find a good price, you uncover something happens, or a pandemic happens, God forbid. So, like, what happens when deals can go south? Maybe some examples of common reasons why?

Yeah, you know, um, well, the pandemic. I'm thinking through our portfolio, the ones that I'd say have kind of a yellow light or a red light next year. The pandemic did hurt a lot of businesses, right? Um, we were very fortunate. We focused on recurring revenues. A lot of our business, kind of, were able to kind of sustain the pandemic. You know, I'm not saying they didn't sacrifice some in the short term, because even some of them that probably had the ability to continue to keep revenue where they were, you know, they served the hospitality industry or whatever it may be. So, they gave breaks. So, they definitely generated less cash during the pandemic. But there are certain businesses that just could not survive. Schools, stuff like that, private schools, or whatever it may be. The other ones are, you know, a lot of times it's the management team, frankly. Like, and it may not be that they're not good CEOs, or not good executives. They just weren't the right fit, or we didn't have the right culture, or we, you know, we made a bet that was too aggressive of a bet early before, you know, the business was really ready to go do that, and got it overextended. Um, some of it is just like, you know, the business wasn't as strong of a business as we thought it was, right? And so, like, um, we, I, as I mentioned, we tend to focus on recurring revenues, or at least reoccurring revenues.

Yeah, can you explain the why component to that? Because I think that would be interesting.

The easiest way to think about it is like, um, you know, if you're a software business and you have subscriptions, let's say you're generating 50 million dollars of revenue this year, and all 50 of those contracts were new. Next year, okay, maybe you have some businesses to go out of business, blah, blah, blah. But like, chances are, with pricing increase, better products, like that 50 million with your current customer base is going to be more than 50 million dollars next year. And so, you, as the executive of the business, like, I'm stealing this term from somebody else, but you can spend more time working on the business and not working for the business. You don't need to be out there trying to say, like, if you're a construction firm, right? Like, you might do 30 million dollars of revenue this year and 10 different projects. Well, like, as soon as December 31st hits, like, you need to be out there selling that next project. And like, you are spending all your time making sure you're the preferred vendor on different projects. And and God forbid, there's a pandemic, and there are no projects being built, like, you just have no ability to sustain that. You don't have a predictable, projectable business. Yeah, software business with contractual recurring revenue, you do, right? And you can spend more time focusing on improving the product and figuring out pricing structures and like, do you have the right, um, are you targeting the right market? Like, all kinds of stuff that you can spend time on. Okay. But that's, that's generally, like, I think those businesses are better businesses, and they are more sustainable, and I'd pay more for those. Um, and so, I forgot what we were talking about.

I don't know. I was, I was actually just thinking that as well. And I think, oh, I'm sorry. Failure. So, sometimes we go in thinking that like, uh, maybe we come a little bit further this way. So, it's not contractually recurring, but they've been doing business with these businesses for years and years and years. Like, we, we feel like it's sustainable. Well, then something changes. Yeah, like maybe it was like, I don't know, I'm making stuff up at this point, but perhaps like, we've been serving big company United Rentals for a really long time. But like, really, that relationship was with one person. And that person retired. And guess what? This person got hired. And all of a sudden, all that United Rentals revenue business, I don't, that was just an example, nothing specific. But all that goes, is goes away. And so, all of a sudden, we went from like, we're gonna build on this 50 million dollar base of revenue, and now, now it's like 30. Yeah, now you're just catching up. So, maybe the business wasn't as good of a business as we thought it was.

I got you. That makes sense, right? I mean, these are things that businesses go through all the time anyways. I mean, you lose a contract or two, and you go, "Well, that, we projected X, and now that just went away overnight." And you go, "Whoops." Um, yeah, yeah. Let's go, go out and sell some more. Um, but I want to do bring it home a little bit of why we're sitting here today. You sound like you have some interest in the healthcare space. So, that's a broad sector, healthcare, health insurance, this whole business. But, you know, what has kind of interested you in some of the businesses that are in this space? And maybe why you focused a little bit on healthcare?

So, yeah, I mean, I don't think, I don't think Kurt and I intended to become healthcare investors when we started. But it's difficult to kind of be a generalist firm and not have some exposure to healthcare because it's like 15 to 20% of the economy. Yeah, right? I also think like, in general, there's a lot of waste in the system. And so, um, where we focus, there's a lot of different ways to make money in healthcare investments. But I think where we try to focus are on areas to where, um, I guess the easiest way to say, like, we're going to be on the right side of history, right? There's a lot of ways to take advantage of kind of loopholes and billing and surprise billing. We don't want to be those guys. What we want to be doing is we want to be able to say, we're improving care to the patients. Maybe it's, we're providing better access. We have a, we have a business out in the East that does ambulatory infusions. And what we believe there is like, those are predominantly being done in hospitals. Well, there's a lot of waste. Like, a lot of hospitals, maybe I want to provide these performance, perform these procedures, so bring them out of a hospital, making an ambulatory setting saves cost for the payers, it's more convenient for you as a patient, doctors can, a lot of times, track data better, and hospitals don't have to waste, you know, capacity on people who don't really need to be in a hospital. So, we're providing the best, what we believe are the best solutions to care. We're providing it, more access to individuals who need it. There's other businesses, um, you know, we own a couple other, uh, pharmaceutical businesses. But there's tech-enabled services that we believe are making healthcare more efficient. We're more efficient sharing of medical records, okay? Whatever it may be, like, we believe we are making the healthcare system, which is a very inefficient market, yeah, more efficient and providing better access to care. And we believe if we do that, you know, you can create a lot.

So, you're talking about infusing ethics into the equation, which I'm not suggesting you weren't, but I'm glad there's an emphasis on that, right? It's like, can we make money while simultaneously doing good? Which I think is really interesting. And you're absolutely correct, there's gross inefficiencies in this industry as well. So much so much waste. It's a really, it's, it's a very frustrating industry to invest in because like, it's just, you're a price taker at the end of the day. We can't set our prices. Um, you know, and I mean that because the payers, it's very difficult to renegotiate payer contracts. And so, um, getting some of that stuff through, especially kind of new services or new ways to provide certain services, you would think it would be very easy to kind of go to some of the payers and go to some of the contractors and get this done. But it's not. And a lot of times, it's very frustrating when you're trying to provide something new. However, I think that also creates a barrier to entry. It's a very difficult business to create value. But if you do, I think it's appreciated. Okay. All right. Well, I love that, man. And I'm glad you're exploring the space. I hope I can be a resource at all. Uh, the one thing I want to kind of finish with today is, or not one, but kind of let's, let's kind of do third act of this podcast and talk about getting into private equity in the first place. Young guy, young gal, that's interested in the space, kind of some advice, or things you wish you knew early on, what you've discovered in the last 15 some odd years of being in it. You know, talk to the person that's just wanting to go, "All right, that sounds like a cool place to get into." What would you share with them?

Yeah, I think there's kind of two parts. There's like the very objective, like, this has improved your odds tremendously. And I think it's like, if you, if you, it really doesn't matter. I, I, I would recommend majoring in business, but there are plenty of these firms that will hire you at a liberal arts or anything else. But I think the easiest way to do is start your career in either investment banking or management consulting. I loved my time in management consulting. I absolutely loved the job. It challenged me, it made me a better businessman, and it improved my, my skillset. So, I, I would go that route. But I think starting with those two, like, almost everybody in private equity has some kind of experience in this too. Okay. But then, I think from like, like a personality traits or recommendations. Yeah, I would say the, the first one is, uh, be intellectually curious. Like, there should never be a point in your life where you feel like you know everything and you don't want to go learn. And I think it ends up kind of feeding itself. Okay. Reading books, learning new things, like, even if you're a finance guy, learn about marketing, learn about product management, learn about industries that you haven't had a chance to. But like, you should never kind of stop that learning. I think it ends up feeding itself. Like, once you start reading and learning more, you have this kind of appetite to try to continue to learn more. And I think there's never a point in my, and my career, and what I do today, where I feel comfortable. I always feel uncomfortable, and I always feel like there's more things I need to go learn.

That's cool, man. I appreciate that part. I think the other two things I'd say is, um, seek mentorship. Okay. I think, yeah, I think some of that is is networking. I think in general, you should go network because, but it's not just so that you like, you can find better jobs or have better parties or whatever it may be. But I think like, you need to go and seek those people that have done things that you want to go do. They've seen it, they've learned a lot of things. Like, be willing to kind of go out, you know, break the ice, go approach those people. I've been so lucky that I've worked for great companies where I can think of at least one or two mentors at each of those steps that I'm still really close with. You've got to be willing to listen and take their advice and kind of realize that you don't know everything. But I think that's been a really big piece. And then, you know, I think the third one is, in private equity, there was a, there was a point, this guy named Whitney Bowman, who recently passed away, unfortunately. I didn't know him well, but I remember having coffee with him when I was like 25, 26 years old. And like, he's asking me what I'm doing at Bain & Company on one of my clients. And like, I just feel like I'm just crushing this conversation. I'm telling him all the value we're creating and all these things that we're doing. And he stops and, you know, uh-huh, uh-huh, "Would you buy that company? And if I made you, how much would you pay for it?" And it like stopped me in my tracks. And like, it's such a simple answer. Like, I know exactly how I'd answer it today. But what it made me realize is like, I had never really thought about that. And I had never really thought taken the perspective of an investor when I'm thinking about a business. And I think like, that's something that everybody can do. My 12-year-old can think about, "What would he pay for this business? What would he pay for that coffee shop over there?" And it's not like you need to be maniacal about inking out that last dollar, but thinking about like, "Well, is that a good business? How do they, how do they get their beans? How do they keep people coming back to the same location on a regular basis? How predictable is that?" Just going through those, that mental exercise of like, "Is this a good business and would you want to own it?" It can only make you a better investor and more prepared, like when, not only when you get in the interview, but once you're in the seat.

Well, and so, you know, setting aside, like, obviously there's a financial component of quality of life that people have interested in, like, private equity, you presume it's going to be a high quality of life as well. But talk to me about daily life, right? I mean, like, what are we doing during the day? Um, you know, is it all spreadsheets? Is it a lots of phone calls? You know, meetings with clients? Like, what does your daily life look like in a normal day?

Yeah, I mean, look, so that changes kind of as you move up the, the hierarchy. Um, you know, when you're, when you're an associate, or kind of the, the entry-level private equity guy, which probably means you have two or three years of work experience. Yeah, there's a, there's a lot of spreadsheets. A lot of people. Was a young guy, I don't know if you're still with you guys, Tommy? Tommy? Yeah, man, Tommy and Chase. I want to give them, uh, we're Kurt and I are so fortunate to have a great team below us. But Tommy's just an animal. I mean, he only spent like a year in investment banking, and like, we, we are so thankful he's with us. But like, yeah, most of his day is in spreadsheets now. Like, he, he is starting to become much more, he's better at that, he's more comfortable. That's where you learn it, right? I mean, like, that's why I learned. So funny, I literally learned self-funding and building client monthly reports of spreadsheets of how they were running as a health plan. And that's right, all the moving parts, when the numbers make sense, and you understand the levers, and you go, "Oh, that's how it works." I started in spreadsheets.

Well, and you can get him more comfortable, kind of taking that next step. Like, "Okay, you built a model for the business, he generally understands like what kind of value we're trying to to make a case for buying it, or how we might try to structure an investment." So, now he's coming back, like, "Hey, look, you know, I was digging into this, and like, there might be a way that like, if we could structure this part as part of an earn-out, or if we could, if we could put a seller note on some of this." Like, he's starting to take that next level and figure out like, "Hey, we're at the end of the day, we're problem solvers." Yeah, like, there is a deal to be done there. If we have the right relationships, we have the right mindset with the business. Now, let's go figure out how to go do it. And and Tommy's kind of taking that next step. And so, to answer your original question, most of my day, I don't spend as much time in the Excel models. I need to be able to digest the information. I need to be able to have a quick conversation with Tommy and like, understand what I need to understand, and make sure we're doing the right analytics. Um, but I spend, I mean, every day is a little bit different. That's why I love the job. Yeah, yeah, yeah. You know, I'm, I'm meeting with a bunch of business owners that may be thinking about selling. Or, you know, this week, I have two board meetings where I will be deeply engaged for four or five hour sessions with management teams that we're supporting, and we're going through kind of the early stages of building a business around, um, lenders, you know, like deals that you're trying to get done. You're on the phone with lawyers and lenders on a regular basis, trying to again, problem solve. Like, the idea is not to negotiate the absolute best deal, it's to get a deal we both feel good about and trying to kind of figure out like, what are the different levers we can pull there. But every day is a little bit different. And that's what I've noticed about my life is I've become more of a generalist over time. The responsibilities of things I have to know are really varied now, where what they used to be like, 90% of my day early on as an analyst was in a spreadsheet. Sure. Now, occasionally I jump in a spreadsheet, or I jump in our software system to look at an RFP. But most of the time, it's selling, talking about the business, talking about our growth, talking about who I'm hiring, talking to carriers. I mean, it's, it's, I have four hours of meetings after this. You know, and it's just like, you just become more of a generalist in nature because your responsibility for solving more problems, more varied problems, which, you know, I, I enjoy it, man. It makes every day unique and interesting, and it makes it a lot of fun.

So, last but not least, let's talk about, um, if somebody wants to get in this space, to start, you talked about education, that would be good. You know, types of firms that seek out. But what about resources? If a young guy or gal, 16 years old, thinks they're interested in private equity, bios, books, YouTube, like, where should they go to just going to learn the basics?

Yeah, that's a good question. Um, I wish I was better prepared for this. I should have put that exact question on, but it came up. But, you know, I'm sorry, Kyle. Look, I think, I think coming back to, I'd go back to what I said, it's like, start networking right now. Like, you can learn a lot more by meeting people, shadowing, internships, just understanding what does private equity mean? Like, I explained it very simply here, but what do I literally do on a day-to-day basis? How do you think about buying that coffee shop, or whatever it may be? Like, just network now. Try to get coffee meetings. Use every angle you can to get in front of high schools that you went together, schools, yeah, affinity for sports, whatever it may be. Get in front of people and just soak in everything you can. And then, I think from a book standpoint, like, I would never give you like, you know, prescribed reading. I'd say like, find topics that you think are interesting. Find "Shoe Dog," right? Like, everybody likes Nike, everybody likes sports. Like, well, if you read that book, you know, read it now. You know, let's say you're a high school kid, read it again after you've got a little bit of education, you understand kind of like what retail stores are, what inventory is, what all that stuff is, and you'll differ, you'll start to appreciate the challenges of running kind of a retail business. Yeah, like finding things that, uh, are tangential to the space, that are tangential to building businesses, or understanding how to solve business problems, that are on topics that you really enjoy. I think is the easiest way for you to kind of soak that in and really digest it. But that's, I think it goes back to that just, right? I mean, the thirst for knowledge, of curiosity for knowledge, I think is what you, uh, stated it as. Podcast? Yeah. What's that? Listen to podcasts about self-funding that some reason are talking about private equity. Whatever, whatever you want to do, man. But I'm really, I'm really grateful that you and I reconnected over that discussion and had a chance to catch back up. I mean, what we've, we've probably known each other for, I didn't want to say close to 30 years. Getting old. So, yeah, we're getting old. But, um, it's always great to sit down with an old friend as well, man. So, I appreciate you lending your expertise on the show, and I'm very excited to share it with the world.

Hey, thank you very much for having me, Spencer. My pleasure, man. Thank you. Thank you to our podcast sponsor, True Captive Insurance, a premier medical stop-loss captive for groups of 25 to a thousand. True Captive believes in healthcare that is personal and insurance that isn't complicated. Check them out at truecaptive.com.