"It takes a special type of LP..."
02112020: Interview by Email: @brentbeshore
|BUGGER OAF||Feb 11, 2020||2|
February is a special month since we have TWO “Interviews by Email“ this month on this newsletter instead of the one we usually post every month.
Permanent Equity is a unique concept in lower mid-market Private Equity that leverages a Unique Demographic Shift called the “Silver Tsunami” in US private enterprise along with Owner-level stewardship on an *extremely* long term time horizon of M&A holding to create a rare brand of “Long Term Capital”.
I have known Brent for a couple years as a strong proponent and believer in the intellectual and entrepreneurial horse power in “Flyover Country” as he describes it in Middle America - He’s a very astute and humble Investor who has also built a stellar team to both discover and help operate the companies their fund acquires.
He believes in putting his money where his mouth is, has established a rigor and discipline to make Boring Businesses an exciting source of perpetual free cash while upending traditional structures of Fund Structures.
His pinned tweet is a great indicator of how humble he is:
I’ve learnt a lot following him on varied topics and learnt a tremendous amount from his writing, tweets and interactions.
The Permanent Equity annual letters foreshadow a momentous career and echo the growth of the humble but resilient American Small Business that is independent, equitable and has been the heart of the wealth generation engine in modern America.
I hope you enjoy this edition of “Interview by Email”
From: Brent Beshore
To: BUGGER OAF <email@example.com>
What describes you?
1/ What describes you best?
I’m a founder and operator who accidentally became a private equity investor. Life is weird.
2/ Where are you based?
3/ How long have you been associated with startups?
I started my first company at age 24 and I’m 36 now, so…math. Permanent Equity has evolved to partner with mature, cash flowing companies, so I'm on the opposite spectrum of the startup world now.
3 lessons learnt running s̶t̶a̶r̶t̶u̶p̶s̶ companies?
1) No one is paying attention, which makes it incredibly difficult to gain traction and also incredibly freeing that failure isn’t that big of a deal.
2) Founding a company in an unfamiliar industry merely widens the standard deviation of outcomes. You’ll make tons of rookie mistakes, but also won’t be captive to the standard thinking. If you win, it will likely be a big win, or a very dumb flameout. I’ve done both.
3) My biggest hiring surprise has been how few people genuinely want autonomy. Everyone says they do, but few can handle the ambiguity that comes with charting your own course. Virtually all our “bad hires” have been people who need constant realignment and have a difficult time understanding what to do next. Our team works collaboratively with tremendous autonomy. The only way this works is by hiring for talent, work ethic, and integrity, then letting people do their thing.
Pick a topic you'd like to discuss in detail:
Raising a truly long term Private Equity fund is not for the faint of heart
For the better part of ten years, we compounded and recycled internal capital.
While life was good, we saw a bigger opportunity sooner than our capital base would allow pursuit. Our options were to lever up, risk everything, and potentially cause serious harm to our employees in the event of a downturn. Or, we could take on outside capital, but had to find investors willing to structure it unusually in order to maintain our competitive advantages.
Our fund structure is unusual bordering on unique.
We brought on $50M of capital two years ago and recently announced raising an additional $248M. Both funds have a 27 year time horizon with no off ramps, extendable by an additional 25 years and we’re compensated on free cash flow of the companies, with no other fees or cost sharing.
As you can imagine, it takes a special type of LP to even consider this structure, but thankfully we found them. Our investors’ common characteristics are a lack of career risk, willingness to do the hard work to understand a different path, and a long time horizon. We’re outrageously blessed to have such a wonderful group of partners.
Finding, closing and managing companies requires constant effort.
While we’re not a big team, we’re the largest in our segment of the market by a country mile. The reason is it takes focus to build the specialized skill sets needed to be excellent at each component. If your attention goes elsewhere, the pipeline dries up. Due diligence and documentation are high-focus activities and require experience. Post-close, operating companies is difficult and grinding.
2 big trends you're seeing around you.
Baby Boomers have stayed in the workforce far longer than anyone expected and are now retiring at record rates. Most profitable businesses in the U.S. are owned by this group and the majority of those don’t have exit strategies. The next 15 years will be the largest inter-generational transfer of private businesses in the history of the world.
Despite populist rhetoric, the traditional middle class in the U.S. is shrinking almost exclusively because the middle class is becoming more affluent and “moving up.” There’s a pattern of purchases around this movement. For instance, one of the first things people do is try to buy time by outsourcing home maintenance functions.
3 investors you’d work with outside your captable?
3 twitter accounts you recommend we follow
Blas Moros (@Blas) — Whip smart operator, outrageously well read, kind human
Mark Valdez (@_markvaldez) — Investor who’s not afraid to take the road less traveled
Sarah Salviander (@sarahsalviander) — PhD astrophysicist with a gift for Christian apologetics