0:00 people making money I'm your host Kevin bemel and we're here every Wednesday at 10:00 a.m. Pacific Time 100 p.m. eastern time and uh and my my guest today is is jock Payton and jock where where are you located I've forgotten now I'm in Boston I'm in Boston you're in Boston okay so you're you're East Coast so it's it's about it's one about one o'clock there yes and um we each week we get together to talk about um building a business building your professional career wealth building all of those things that give us the resources we need to live
0:36 the kind of life that we want and uh um without without further Ado I do want to uh formally introduce my guests today jock Payton so jock was introduced to me by another friend of mine uh Von Marie Thomas who you may remember um she's an accountant based in New York and um she she said sent me a um a note of I think about a month ago or so saying hey will you do a show on on financing businesses and I'm like yeah I'd love to because I think it's a a topic that a lot of
1:13 people are interested in when I talk to um you know folks looking to do a startup or you know a new business venture one of the issues that's top of mind for them is you know where do I get the money to do that so um Avon Marie introduced me to John and we had a a wonderful conversation I think it was what about two three two three weeks ago maybe yeah um and um this this is a man who uh knows a tremendous amount about this subject um and so jock thanks thanks for coming on the show no absolutely absolutely glad to be here
1:49 and uh yeah glad I'm re introduced us it's uh it's a joy of speaking with you and yeah glad to dive more into the conversation today yeah so so Jo let's start out if you would tell us a little bit about um your your personal career um before we get into you know the the subject of business financing um you know kind of when when you were a kid you know if if you're willing to go back that far you know what were you thinking like you know this is what I want to be you know in business financing right I don't think any kid ever thinks that um
2:26 but I'm I'm just curious you know how did your what were your career plans and how have those played out you know over the last time period yeah absolutely and interesting you you kind of brought me back to those childhood memories because believe it or not um it was when I I believe I was in fifth grade um when in one of my school programs we had a um a stock simulation challenge right a virtual stock challenge oh wow and in that stock challenge I was introduced to the concept of investing um had never really known about it before but I
3:02 bought a Target you know that's not an endorsement or anything but I bought uh it was just it was the mall I mean it was the store that was down the street from our house so you know I'm like hey well we go there I shop there do they have a ticker whatever this thing is called and they're like yeah go ahead and search for the company and there's the ticker and you can buy the stock so I bought that stock only by one um but the simulation kind of continued throughout the course of the semester and you know saw the stock kind of moving up sometimes moving down but know by the end of the semester it it had made virtual money um and I just thought
3:37 that that was so amazing I was like wait a second you know one day we just hit buy and then you know several months later we can hit sell and I have more money and I I didn't do anything that that that was the seed that was the seed that was planted in my mind uh sorry I didn't say I grew up in Dallas Texas but I knew at that point that I wanted to do uh you know Finance I wanted to be an investor and uh and ultimately wanted to go to to where it was all happening so um you know that's what kind of took me from uh Dallas Texas to to New York to uh to study my
4:14 undergraduate Finance degree at forom gotcha gotcha so so um you you um you're at forom you you get your degree what what happened from there yeah so I mean it was It was kind of as if right when you start to manifest things they they do happen right so I told myself hey I want to be on Wall Street I want to be on Wall Street I started at a few different internships one um at your like kind of traditional wealth management shop right so your ubs's your meril lynches private banking of the world private banking group um and
4:49 working with high net worth and ultra high net worth uh families but looking at how they're managing their Investments their portfolios how the financial advisors are thinking about that so know being in New York it was a great I mean opportunity to just catch the uh train downtown and um you know kind of walk across town uh where we had a shuttle from our Bronx campus to our Manhattan campus and I used to walk across town to uh to my internships and uh and that those were kind of the first you know professional experiences I had on Wall Street um and then I actually moved into a fintech role um that was
5:26 interesting it wasn't necessarily in the wealth management area area but it was uh you know quite frankly a college teammate I played football at Forida he worked at this fintech company I had never heard of it but it seemed like what they were doing was really cool they were helping corporations Target institutional investors through the use of data and and technology and it was this privately owned company that was growing really fast so I got a chance to work with that company right out of college and I had about uh anywhere between 70 to 80 corporate accounts that
6:01 I was working with so these are you know the Toyotas and Delta Airlines and Dr Pepper uh it was Snapple group at the time Dr Pepper Snapple group I know it's been since acquired by kurick but um you know just giving real getting real insight into these big businesses and then who was buying their stock so helping them find these institutional investors um but yet that's where I spent uh the four years after undergrad I finally made the decision that hey I want to go back to grad school and actually be the investor so then I made the decision to get my NBA from the
6:37 Wharton School oh you went to Wharton School wow what was that like I have to I have to preface this for a minute so when I started my first real estate company back in the mid 80s um I didn't have a business background I I had gone to school for architecture and um so I'm you know I'm running this business pretty much by the seat of my pants and periodically I'd make mistakes that would cost me a lot of money or you know I I could have made a lot of money but didn't make the money and My Philosophy was okay well let's see it was you know I missed out on
7:12 $10,000 okay that would have bought me one class of the Wharton School or that would have bought me a you know a semester at the Wharton School that was my that was my thing that I you know it's not cheap and it's still what sounds like it wasn't cheap then it's still not very cheap now but uh but obviously a lot a lot of value a lot of value uh so funny that you mentioned that um you know because yeah I ended up there and that was kind of like a uh you know when you think of Finance when you think of investing when you you know read books about you know Warren Buffett or Peter Lynch you know some of those classic investors and and find out that they went to Warden at some point in
7:47 time whether it was as an undergrad with Warren Buffett or as a graduate student with Peter Lynch um with so many other investors um that have gone into the investment management industry um you know that was that was the the goal so um it was extremely uh it was an extremely uh uh good experience it was a great experience um I uh you know obviously had some of the best professors and some of the smartest classmates uh you know just in the world so learning from them kind of day in and day out and not just from a analytical and and quantitative perspective and don't get me wrong like every single
8:23 class at Warden found a way to like have some type of derivative included and I was like oh I didn't realize marketing and calculus went hand inand but um but but just knowing more about you know people from a Global Perspective uh but then also just the opportunities that you got through the on campus recruiting process and um you know that's how I ultimately got my my summer internship and how I ultimately got my uh full-time job um as an equity analy at uh eeden Vance which is it has also since been acquired but I was a large asset
8:59 management firm here in Boston uh well I guess midsized um large is relative these days large is you know the multi-trillion dollar asset managers that do exist right it wasn't that large but um they they were sizable in in an extremely reputable company and and yeah I was fortunate enough to uh uh to get the experience or get the opportunity to inter turn there by going to Warden but uh but man I just remember a lot of those days is trying to break into the investment management industry know even going to Warden is it's it's not a shoe
9:35 in right because you have so many others that are also trying to get into the industry so as a career switcher you know you have to be really on top of your game I started uh you know studying for the CFA I keep the uh the the charter behind me proudly because that's a a grind of an exam to get through on all three levels but I start at level one while I was there just to start to signal to to company is like hey I'm serious about this transition I'm learning the nuts and bolts of investment analysis and security analysis um then I'm also joining you know the organizations like the warden
10:12 Investment Management fund um you know not necessarily as a fellow which were the actual people making the Investments That was very much considered for the top of the top um but you you could be considered an analyst where you were actually pitching ideas um to the fund um and yeah so I just remember you know building model after model coming up with stock idea after stock idea and ultimately landing on a to a top one or two so that I can use those for the interview process um so yes it was it all worked out the late nights in the libraries the the group of three or four uh classmates that I had that you know
10:48 we were all kind of going through that together um but yeah it uh it paid off it paid off so that's late nights in the library I you know I I think people somehow assume that you know the the kind of business success they have other people you know you're out there you know you know meeting people and all this kind of stuff like the idea of being in a library you know doing research and you know studying and all that kind of stuff doesn't seem to fit into that that picture of what it
11:25 takes to be successful in finance right because you you see these movies Wall Street and all this kind of stuff right so there there's there's a whole academic portion of this I guess that that you need to uh that that someone who aspires to do this needs needs to know about yeah you know and and actually the first kind of moment of my uh you know official internship uh at Eden Vans you know they told me and I learned that throughout the the the uh interview process and preparing for the interviews but that's exactly what they said they
12:00 refer to the Wall Street movie um and they're like you know it's not the yelling and screaming don't get me wrong maybe that used to happen on the trading floors but when you think about those that are making um you know buy side investment decisions especially those long-term investors uh there are the technical people that are just looking at charts and trying to find Trends and patterns and things like that and um you know that works you know well for some um but those that are really trying to understand the business and the competitive advantage of a business and
12:35 the industry that the business is in and the likelihood that it you know meets its goals and the guidance that that management has put forth and really even looking in the past at what the management has done before you know that was some of the first few steps of researching a company was looking into its annual filings from the past few years looking into his quarterly transcripts for the past few years reading any other research reports um that were provided about the company so um yeah I just remember printing out so much material I got tired of looking at the computer screen but yeah printing
13:10 out the material keeping the notes and obviously the modeling does come along with it but you know the model is really going to be driven by the amount of research that you've done um because yeah that's that's what's really going to drive your assumptions yeah yeah I I was talking to uh some one on um I was going to say yesterday it was actually Monday and relatively new to to the media business and he's asking me a number of questions and this is a business that I've been around for you know decades and and I said you know I I
13:45 think you need to pump up your background and I said I'll give you a piece of advice that was given to me you know at that point it was probably what you know 30 some odd years ago um a fellow who was successful in the med media business said get the trades and read them every day cover to cover right and either you know the daily variety or The Hollywood Reporter I chose the daily variety and I literally read it day in and day out cover to cover everything and and it was you know absorbing all of that information I think it starts to give
14:22 you kind of a a a a sixth sense about these things and it's it's not really um you know all sort of woo woo it's just that you've absorbed so much information your brain is working on this stuff in the background you know unconsciously but that's that's seems to me a lot of where inspiration comes from I'm I'm I'm what what do you think about that as as as an idea and by the way feel free to tell me I'm crazy no no you're right you're right no you you have to put yourself kind of in the flow
14:57 of information right you if you want to be you know knowledgeable if you don't want to get left behind if you you don't you don't ever want to be the person that they ask hey did you hear about XY andz and it's obviously a topic of discussion and you hadn't heard about it right you just kind of lose a ton of credibility and and um obviously there's a lot of news points out there and it's hard to keep track of everything but um you know it's something to to stay on top of and and and yeah just being in that flow of information starting with the background if you can you know maybe it's not the same in media as much but
15:33 trying to figure out you know especially when you know just thinking about the investment where has the business come from and where is it going because you always want to try to yeah forecast that that growth and and and and the future right uh of the business but by understanding its past so I completely agree with you that yeah just being in the news sources you know for me it might be a CNBC or Bloomberg or market watch or a baren or seeking yeah for a Wall Street Journal obviously is the uh is is a major source as well but there's so many different sources where know yeah I don't know why I
16:09 skipped that one that's uh I just took it as a given like right right yeah exactly Wall Street Journal but you know I I have the uh you're good to have the the physical copy I've switched over to the uh to the digital uh these days but um but yeah you know that information just out there it informs uh people decisions um and and you always want to know what's kind of going on in the market you know if the Stock's trading up if it's trading down you know what's the news that was driving it because you'll ultimately start to find some patterns even in that right um to where hey you might have thought that
16:44 something was really important uh but then you know some news comes out around that topic and the stock really doesn't have much of a reaction um so you're like oh wait a second maybe people actually don't care about that as much versus is oh wait a second why is this stock you know accelerating or down you know 8% 10% this day um and in that sense you're like okay these are the things that might really really matter um you know I know I'm talking a lot about stocks and you know public companies but um obviously without the trading aspect you know many of these
17:19 things still apply to private businesses as well just digging into them understanding their um you know their critical kind of History and and where those businesses will be going well well yeah absolutely and and every business is is part of a larger market which is part of the larger economy so yeah I think you know we have to have that that that broad perspective even as we then Focus down on our area of specialty so so you you you're at um I'm sorry is it
17:54 JD Vance uh it was called Eaton Vance okay so you're at eaten Vance now um and what was what was the next step after that so after eaten Vance I actually went into u a community investment fund or a private investment fund um that uh invested in private businesses um so it invested mostly mostly debt Capital but we did work through some Equity Investments as well um but once again for uh businesses specifically in the B Boston area um so
18:30 the name of the company was the Boston uima project it was the uima fund and it was all about once again place-based investing so who are the businesses in the Boston or what are uh what or what are the businesses um in the Boston community that are doing good things in the community and providing services in the community how can we Finance them so they can continue to grow um you know build wealth for not just the owners but you know the employees if they o have ownership as well and and so um when you talk about private businesses and and
19:06 obviously those are ones that are not you know they don't have stock being traded on an exchange um what kind of private businesses were you um you know working with and and especially I I I suspect there were a number of small businesses that you were dealing with but um that term small business I think is is somewhat um I mean some people think small business oh like my cleaners down the street but you can have a business with I think what a 100 employees and you still by federal standards are a small business so if you would talk talk a little bit about that
19:42 so people can start to understand what what that's all about on the on the private business side yeah absolutely so um now you're you're right up to 100 employees is still considered a small business and and you know yeah so you can have businesses that are generating you know millions of dollars uh and already have been in business for you know many years right before um they feel like they're looking for that next stage of growth um and that next stage of growth can be a number of different things it could be hey we want to you know move into a second location and get
20:18 financing for the build out of that or hey we're looking to acquire more trucks and and hire more employees so that we can take on bigger contracts um you know we might be looking to um uh uh uh provide uh basically uh uh some growth Equity um so as they think about you know different once again just expansion opportunities um and I guess I kind of covered those between expanding sites expanding Services um expanding the staff um but then also trying to feel like uh they aren't going to be put onto
20:53 that debt schedule immediately um that they're going to have more patient capital in involved um that's that's the type of business that we were typically working with um they're um I guess um yeah not not very Global though they were still pretty Regional businesses uh with with I guess aspirations to just broaden their footprint somewhat and what kind of industries were they in so they were in a number of different Industries we had some that were industrial businesses and we've looked at some that were
21:28 uh and and this is kind of between euga and then just some of what I was coming across within the broader investment landscape as well um but um uh industrial businesses so they could have been um a a waste management company um that was uh focused on sustainability um and um it could have been a a seal coating company um that had the opportunity to redo parking lots and driveways and Roads um and that was really interesting because obviously there is a number uh or there are a
22:03 number of initiatives around you know rebuilding infrastructure across the country um I can speak for Boston especially there's a ton of potholes and uh you know you know so I'm glad to see that there are some companies focused and Boston does a job Kudos BOS if for actually you know getting getting that fixed all right getting that fixed but um you know but that's that's the case right not just in Boston but in so many other places you know infrastructure is starting to get older but you're seeing a lot of federal spending now go you know to the state
22:39 level and then those are contracted out right so uh we had some industrial companies that we work with some were restaurants um you know and I know that that's a stickier business model sometimes to think about but one that you know certain communities do need um so we looked into a restaurant business we also looked at a grocery store that was providing uh Foods healthy foods it a or uh um I'm not going to call like a Whole Foods but that type you know organic type products um that were in the community um and then even I guess a little bit more recently a health care business so looking at healthc care
23:15 business that was providing uh uh inhome Health Care Services um and um and providing you know those services at a much lower cost than somebody having to go into a hospital get that huge hospital bill um you know they can stay in the comfort of their home and just have assistance with some of their daily living activities so uh it wasn't industry focused necessarily you know the way that I've gone into the private space and um you know but but certainly still on that level of hey these are businesses that are doing good things and that's really I think the underlying
23:51 theme across a lot of the uh opportunities was hey they're doing good work um you know how can we help them continue to do good work um you know and uh provide the financing that they're looking for yeah so um some you mentioned some of the restaurant grocery store um you know are are you dealing good works are we talking things like um you know solving I I think what it be come to be called you know food deserts those those kind know there's address addressing
24:26 those real kind of BAS basic issues that communities have in in order to um you know provide the services that that the people living there really really need yeah yeah you know and that's that's what some would call uh you know a double bottom line right um because it's providing these these helpful Services these helpful Goods um but these goods and services are also in demand um you know know they they they're needed so you know there's a a
25:01 real U you know likelihood that again these companies expanding or are going to provide positive um you know um uh data points for Community Health Community well-being or Community infrastructure Community jobs uh because so many small businesses hire you know obviously from the local community so um you know we we we really wanted to drive home that point and um but yeah obviously it's still an investment so uh you do want to make sure that these companies are going to be profitable that you're going to see growth and that you're going to be able to see you know some type of Return of capital to uh to
25:38 your investors as well so um so yeah so these businesses are are doing good things but um they're also just in high demand as well and um I I mean I imagine you're not um looking at businesses you know in Beacon Hill um are are you you know looking at at specific locations within the Greater Boston area how do you how do you how do you decide that or is it just if it's in the Greater Boston area that's you know that's kind of the the deal or do you even go beyond you know
26:13 that area yeah absolutely and I'm sorry let me make make sure I transition from um you know my time at the uima fund um you know where I served as the interim fund manager um to to where I'm at now oh so there was there's another step there got it okay yes there there's one more step once again euga very very Boston focused place-based um but the goal after I left uh e Vance was to start an RA um and an raia is a registered investment advisory company and the reason I wanted to start that was because you can work with not only
26:49 individuals and families but you can invest across asset classes and across strategies so now the thought is that well hey we can have we can have public equities and public Bond exposure in those portfolios but we can also have private Equity um in private credit exposure as well and now the Mandate is not constrained to just Boston even though some of the opportuni still come across but I see opportunities come from all over the country um to uh yeah to to to potentially invest in um so that investment will be made on behalf of
27:25 myself uh The Firm and then also um you know any clients that may be interested so so you started your own r r Ria correct yes yes okay so so just just as a side note what was it like to go through the the registration process let's let's say I I probably could have done a little bit more research uh so I called a buddy uh who owned an raia actually worked together um he moved to to New York um and uh he
28:00 was like yeah you know the registration process like took took like a week you know I worked with this firm filed the paperwork and and I'm being generous with a week I really want to say it took him less than a week uh to uh to get approval so I was like okay cool cool hey thanks for the heads up um but obviously there there's uh on the raia you you have to register on a state-by-state level if you aren't of a certain size I'm certainly not of the size to register at the level so I on the state I probably should have asked somebody in Massachusetts exactly how long it should take because I started
28:35 the process started answering all the questions about the strategies compliance XY and Z hit submit and I was like all right you know what's what's the update they're like yeah you know Massachusetts can take several months um so I had a I had left the job I had a a a son on the way I'm kind of just sitting here you know twiddling my thumb like all right any day hopefully this registration comes through and I can start working and and helping folks out um and yeah it took it took it took several months I think uh I I filled out that application in in July
29:11 and heard back um I want to say late October early November when uh when it actually went through and apparently that's kind of status quo in Massachusetts um so yeah so it took took while to get up and going and then even just thinking about all the other aspects that I hadn't had to think about before um you know the technology that I was going to be using obviously um you know how I was going to build up my research sources how I was going to know think about marketing and getting uh you know new clients and and then also
29:47 thinking about you know investment opportunities when when you have an established entity kind of behind you um you know people want to talk to you you know and then when you're when you're working to build it up you you have to rebuild that trust you have to rebuild that uh you know some of those relationships and then establish new relationships with those um that you hadn't worked with before so um so yeah so that process was certainly a learning experience um but um but I did work with you know a firm to to to help me jump through all the hoops and make sure I answered all the questions right when I was filing the paperwork so uh they took
30:23 a lot of the the the the tough questions off my plate I was hey what's what am I supposed to write here because you give me a little guidance and uh they they did they did so and are you do you have a like a larger firm running your you know kind of the back office stuff and and you you attract the you know the people whose money you're managing and and and you make you know kind of the investment decisions but all the execution and stuff happens through another firm or how how are you working that end of
30:59 things so um so I guess there's a few different back offices um the the primary thing that every investment firm typically has to have is a custodian um a custodian is going to be one that holds on to client's assets that's where you're executing trades that's where the portfolios and the Investments are being selected so yeah so that's certainly done by different firms I use two different custodians one being Charles Schwab uh and the other being a newer custodian that I really like that's Tech driven called altruist um now they are handling yet all the trade settlements all the
31:35 reporting all the the summaries um they they help out with a lot of that execution because yeah to do that on a client by client basis would be would be a ton of work to do um if I had to do so on my own um but then when it comes down to you know just like the everyday things um I do have two other colleagues that I work with um and we all kind of split some of the um you know just administrative tasks if you will and then compliance I do have a compliance firm that I work with um but
32:10 you know a lot of those decisions are still kind of up to me on a day-by-day basis as to hey am I gonna join a uh a live stream today you know and and do I need to have a script you know kind of approved by compliance you know obviously they they they they uh let us know kind of what the the guidelines are but then it's up to us to really operate within them to hold ourselves accountable so um we we have partners that we work with across you know legal compliance and obviously on the on the custodian side um but then yeah when it comes down to like the work
32:46 you know that's uh the the client agreements and setting up all those things we get it approved one time but you know we're sending all that information out when uh when we actually get set up gotcha and and this the services you're providing you're doing uh wealth management you're doing um private Equity placement what are the different things that you're doing absolutely great question so um so yeah so when people think about wealth management I guess the the two kind of ways I I think about breaking it down at least on the financial side and obviously you have a a great deal of
33:21 expertise on the estate planning part which certainly falls under the wealth management category and umbrella um but you know I really want to focus on the financial planning um and then the investment management um so financial planning obviously you have the estate planning you have the cash flow planning you have um you know your tax strategy and although I'm not a CPA I can help them think of ideas and plans but always do you know want to work with their CPA or refer them to a CPA if they don't have one um you know thinking through their investment strategies at their 401k and externally and I was just
33:56 speak a little bit more on that in a second and then also their retirement planning so your kind of traditional comprehensive financial planning um where you can help someone out from A to Z think through different scenarios think through different timelines think through how to optimize their portfolio in a way that's going to benefit them their families or whatever their objectives are um be charitable giving it could be you know U you know making some type of legacy plan um but obviously will then Loop in you know some of the more season experts when it comes to the estate planning aspect um but we just want to help them get that
34:32 map and that road map underway but then the investment aspect is where I specialize that's where I feel like I can add value to clients on the public side um you know there certainly going to be an asset allocation model but then thinking about private Investments and private placements as well um I think that's still an area of the market that has a tremendous amount of opportunity um because there are so many great entrepreneurial business owners that have big Ideas um and they likely already have had some traction as well
35:07 um and they're looking for that next step of financing and you know it's it's it's sad to say that you know there's still so many barriers when it comes to financing to businesses and it can be so complex and and once again just because someone has a great business idea that may not mean that they have their books in order or they have a clean financial statement or that they understand all the questions that a bank or some type of investor may ask um so we tried to you know provide that that bridge um of you know moving capital from the private markets into or or private individuals
35:43 and asset owners um into um you know private businesses but obviously there are some uh some regulations around who can participate with that right are are you um are are you placing um like individual clients in specific businesses or have you built a a you know a private Equity Fund among your clients how are you working that aspect of it yeah so so there is a separate entity um it's uh it's under the name artist Capital um and I have a partner on that front as well and and yeah
36:18 because of the you know once again the regulations around private placements you do want to keep things fairly separate um so yeah so we do have a separate entity called artist Capital that could have clients come over or can then also have just non-clients of the r come into the um come into the individual Investments it's not set up as a fund it's set up as what we call Independent sponsor so in that sense what we do is we invest on a company by company basis um and this is a model
36:53 that um I guess isn't as traditional but for those that haven't launched two or three private Equity Funds in the past you typically start to just fund um deals on a deal by deal basis present those deals to potential investors and then at that point you know they're able to make their Investments and then um you know accumulate earnings over time um and then see that exit over time as well so uh so we've started off as independent sponsor to make individual private Investments um and that's where working out pretty well so far um but
37:29 yeah hopefully and we're still thinking about if the fund structure is going to be the right structure um you know for us down the line or if we want to remain an independent sponsor um but it does give us a lot more flexibility in terms of you know really keing in on the type of businesses that we want without that timeline that sometimes comes in with a fund um to to return Capital within X number of years gotcha so um Talk us through um um there probably isn't a literally a typical you know situation but but let's say you know I come to you
38:05 I have an idea for a business um I maybe it's it's technology related um and you know I've got my entity and and you know my partners and I are you know we we've got maybe even some you know intellectual property we have a patent or or or a couple of patents you know already issued and now we're looking to um you know monetize those patents so how would the process work in in coming to you yeah yeah no great question so um you know the first thing that you know
38:41 we want to do is obviously just get to know more about the business understand more about you know the founding or the management team um you know what was the original idea you know how has that changed to today so that business background that business business summary um and just seeing if this is going to be you know as we even wrap up that summary a business that's going to have some growth potential going forward um those in that industry overview those industry uh key uh metrics um and and um you know that's going to be I believe the the first part um but then we do
39:17 want to start to get into the financials and that's where uh you know non-disclosures and things of that sort come into play because I understand that that information is sensitive so we do want to understand the financial background of the company as well so if there's you know maybe three years of data or even going back even further maybe five years of data then that's a great starting point for us to see okay well where did this business start you know and where's it at today and don't get me wrong we understand that a lot of businesses especially when they're first starting off you know may have some negative cash flows in those early years but we do want to see you know what they
39:52 call that J curve how long did that J curve last you know how deep was it and then how how how long did it take so uh to to become profitable um and and within that J curve you know what investments are being made to make the business profitable and even after it becomes profitable what investments are being made in the business from there so understanding financials putting together that that profit and loss statement your your typical income statement putting together uh the balance sheet and then putting together some type of cash flow statement is
40:27 going to help us get to an early understanding of okay well what's the potential value of this business as we start to forecast out some of the numbers that we're looking at so obviously if you're working with really early stage companies and we typically work in the what they call uh growth Equity space u so those are businesses that have already been established they've already had some traction and now they're just looking to grow once they're looking to hire more employees open more places uh hire more uh or buy more equipment um not we're not as much
41:03 on the very early stage you know where some companies may have just gotten started a year ago or two years ago usually the companies have been in operation five six seven you know maybe even 10 years um I have done some Venture Capital investing as well just not through the strategy that we're operating at artist capital and that's more so from you know when you start to think about the risk um of of each one of those asset classes but just to finish your your question around what does that process look like so we get the summary of the business and the industry we understand the financials um
41:39 and then we start to build out the the forecasts once we have that forecast in place we're able to put some type of valuation on the business what is this business worth if we're looking out you know into the future into the the potential of this business what type of earnings multiple do we want to put on this business and for those that may not have been familiar or may not be familiar with the earnings multiple that's basically saying hey this business is generating $1 million per year in net income not in Revenue necessarily it could be generating $5 million and or you know it could be $20
42:16 million in in in net income or I'm sorry in revenue and another $5 million in earnings this business is generating $5 million in earnings we're going to put a multiple on that earnings and that multiple is going to be based off of its growth rate the size of the business overall usually larger businesses have higher multiples and then faster gross or higher growth rates are going to have higher multiples as well um so it could be a $5 million business with a five times multiple so that's value the
42:51 business at $25 million all right so then at that point we're like hey we think this business is worth after just very initial review $25 million uh we would like to move for with a letter of intent an Loi to to get really deep into the business all the nitty-gritty of your files your records but we're going to place this valuation in this Loi and give ourselves a 60 to 90day window to complete the rest of the research process um but that's going to come with exclusivity um that's going to come
43:27 obviously with full access to to any records or you know asking at least for any records that we may need for process um and uh and then starting to go through uh legal and financing options as well um and so you're you've you've done your due diligence now let's say you've you know you decided you do want to make an investment in that particular business so then how how typically will you structure that investment yeah there there's a lot of
44:02 different ways to think about structuring in the investment and you know I guess you know where we're coming at it we're we're looking at a lot of uh Equity but also trying to leverage our own Equity with some type of debt uh so we would like if the business can take on a certain level of debt um in order to um you know really magnify the equity investment that we may make so let's say we may be putting in you know 40% Equity Capital but then another 60% of the the total investment
44:38 value is going to be financed through debt um that debt would go onto the banks onto the business's balance sheet the equity would also go onto the balance sheet but now we have you know a greater opportunity to uh Finance you know a larger amount due to um um you know once again cash flow coming from the business obviously not as likely uh or you know somewhat unlikely to put debt onto an earlier stage business right um obviously earlier stage businesses really tough to see uh you
45:13 know the cash flow be able to support you know a high level of debt you know when you think about debt service coverage ratios you know anywhere between 1.25 or that way usually be around the minimum what's going to be the debt payment on uh a monthly or annual basis and then what's the projected cash flows for that same time you certainly want to see that cash flow cover uh the debt payments by at least one and a quarter one and a half obviously the higher that number is the better um but you know
45:49 this can also vary um you know there's a situation recently um uh through which we can get to 90% debt on top of our Equity investment um and that's through the SBA program sba7a program um so you know that magnifies our investment value tremendously um but once again it's it's it's really gonna be based on the business's ability to finance the cash flow so that's really going to be on a on a caseby casee basis trying to think about that right mix of equity versus debt Capital um but the goal is to uh to
46:27 get financing as as as as much as possible to uh to achieve the goals that they need but um understanding their goals is going to be a big reason why we choose that number of investment or that size of investment because uh you do want to uh ensure that you're not providing too much Capital that uh could just be considered dead money um if it's not being put to work immediately right and um how would it how is your state in the business usually formed um are you taking control of the company are you
47:02 you know coming in as uh you know straight as an investor how how do you how do you structure that yeah no that's that's a great question so um a majority stake is typically what you would see in private Equity transactions but obviously uh with businesses that are still growing and have a lot of growth you know they may not be willing to give up that much Equity so soon uh so have looked into minority positions as well um you know Banks do get a little bit less uh excited to hear about minority Investments because you obviously uh are really beholden to the asset owner and
47:39 to the uh entrepreneur at that point so they can kind of just take your money and say hey I think this is going to work um you know but we have gone about it in both ways you know it really is still going to be a partnership with the business owner and you know whether we are looking at a majority state or minority stake you know what we're trying to explain is that you know however much the business is generating right now um and whatever your you know 100% or whatever your ownership stake is at that point in time um you know the goal is to make the piie bigger so that even though your slice may be smaller
48:14 than 100% you're hopefully going to own a smaller piece of a bigger pie um and and in that sense you know uh you know being able to generate wealth and create value U by having these additional additional investment dollars uh provided so um we have looked at both majority and minority Stakes um but yeah majority stake is typically what a bank will prefer right right and and um aside from whether you have a minority or or majority stake when it when it comes to issues of um control over the business
48:51 decisions about you know exit strategies Etc um you some sometimes these can work independently of ownership Stakes right so how do you typically craft those kinds of aspects of of the companies that you're involved with yeah so um you can have different classes of shares um so you can have voting shares and non- voting shares um and and once again if we're coming in obviously would like to have some type of vote into you know how the business is being oper especially how it's being
49:26 financed or if there are potential Acquisitions and exit opportunities um so um you know it's still going to be a conversation with the management team as to what those uh kind of uh uh major decisions are going to look like um you know you want to touch base with them on at least a monthly basis um or quarterly at the very least um to to understand where the business is going but um if it does require any type of vote um typically there are going to be those shares where um the uh the investor like
50:02 ourselves would have some type of voting right included into the everyday operations or the overall strategy of the business um and then if there are any other investors whether they were family and friends or whether they're employee owners um they can also have uh a share of class or a class of shares that may not have voting rights um and typically that just allows things to operate at a more smooth level um without there being uh you know too much uh I guess uh too many voices um in the in the management
50:38 room and um do you have kind of a a a or what I should say what is the the size range of the Investments that you're making you know you you know five well six figures seven eight figures how you know what are you doing in in terms of of that yeah so we'd like to to usually invest between two to5 million do um in in a business um so um you know that's what we feel like there's still like I
51:13 said a healthy number of companies um that are just looking for that next level of growth it still Falls below the traditional uh kind of lower Middle Market of the private Equity World um where they are working with you know companies writing eight you know figure type checks and um so so we think that that's the sweet spot for us of hey you know there's a business they might have 50 employees they're looking to grow to 80 employees and that's going to take the revenue to the next level and then it's going to become a viable option for uh some of those uh I guess more mature
51:50 more established traditional firms to look at them as acquisition targets or for the company to consider itself um uh the option to to recapitalize and basically say hey we're going to just buy out your position you know thank you for the investment uh we'll take it from here by by essentially almost refinancing the business taking out a loan putting that loan onto the business and then buying out our stake uh in the company at that point in time but you we feel like there's a lot of Creative Solutions and really a untapped Market in that growth Equity space um that that
52:25 ranges in Enterprise Value so the value of the business may be as high as as 10 maybe 15 or 20 million dollars but size of the check typically be between two and five million okay see you just answered my next question which is what what kind of Enterprise Value are you're generally working with so so kind of in the low seven figures to maybe the like you said 15 to20 million Enterprise Value yeah yeah yeah and you know yeah those are going to be um obviously G to be minority stakes in those businesses because we haven't gotten to uh to any eight figure checks just yet so maybe
53:02 maybe one day maybe one day yeah well I mean sounds like you will by the way and and this this kind of hearkens back to um when you were talking about the you know your previous company the um what kind of what is the the sort of profile of the types of businesses that you get involved with are you are you with that that business that's looking to um create some kind of social value over and above its profitability and and also
53:37 what kind of geographically what are what are you looking to do these days yeah you know and and you know it's when we when we first started the private investment strategy we saw that um you know diverse lead businesses just on average receive about 80% less funding in their business um and when they do receive funding they typically receive funding at at much higher uh either interest rates or the investor will take a much larger ownership percentage um or um you know they they'll they'll
54:13 basically have to give up a lot more um than than others so um we thought about businesses that are diverse Le or have some diversity on the management team uh but then also those business that are providing you know goods and services um in diverse communities um now that is you know a big part of our mandate it's not the only type of business that we would look at um but we do want there to be some type of you know social good or some type of uh responsible act that the that the company is providing in order for us to uh to consider moving forward with it um at least when we're
54:49 considering once again those those private businesses um I'm sorry what was the second part of the question geographically what where are you where are you looking these days um you know it's all through networking to be honest um you know people will send us opportunities from um from from different areas of the country so you know we're here in Boston we looked at opportunities in Texas we looked at opportunities in Georgia uh across the east coast and and then obviously here uh in the Boston area and I guess yeah Chicago as well um you know more of the kind of earlier stage companies you know may naturally come from like Cali
55:26 um but um but yeah no we we really don't have a um a limit into what we're looking into geographically but it really has been somewhat organic as to where the opportunities are coming from and that's that's from our networks and so so that that's a great lead into my next question was aside from I I suppose you you get contacted from time to time by you know a business owner himself typically who are you talking to um you know to get leads to the kind of businesses that that you're interested
56:01 in in taking a look at yeah um I mean a lot of is either conferences um you know we may end up being introduced through a family member or a friend um you know we may sometimes just uh you know call a business talk to a business strike up a conversation um it is a very very I guess informal process how we're coming about some of the opportunities obviously you can look into certain directories and certain uh uh certain uh kind of registration list and in certain or I'm sorry membership lists um but then to actually strike up
56:39 that conversation you know with the business owner and and present to them the opportunity to actually invest um then you know that's that's very much direct obviously there are Brokers out there um there are business websites um that you know are are putting up businesses for sale you know we found that that typically drives up the valuation of the business um when you do go through those more structured kind of processes um you have an intermediary involved so um we we've stayed and been lucky enough to not have to go that route thus far um it has been through
57:16 direct Outreach or uh you know direct conversations and relationships okay well unfortunately we're out of time here because I have a lot I have a lot more questions I can ask you so going to have to have you uh come back I think and um hopefully we'll you know learn about uh you know how how your business has progressed over you know between now and then but uh you know it you're the first guest I've had who really you know has articulated the process he goes through um you know in
57:52 in finding the kind the kind of businesses that um that he you know he he wants to invest in what that process looks like so I I really appreciate you taking the time to do that because I think most people don't really understand what's involved and and it's that's a crucial piece of of the puzzle as people look at that so yeah yeah no I'm uh no thanks for thanks for having me um yeah I uh I know there there are others that are in this space and you know they can probably some more some more color but I do appreciate you know
58:28 just sharing what I've experienced so far and yeah glad to share any updates as they come about because yeah we have some uh some really exciting opportunities and hopefully we'll be able to share more about them later so thanks a lot Kevin yeah you're welcome you're welcome I'm gonna if you don't mind hanging tight I'm gonna kind of wrap up the show and then we can talk offline for a couple minutes so so folks um thank you very much for tuning in hope you found this uh both informative and and interesting as well um I mean you you can see that jock just has a tremendous amount of of knowledge and experience in this area and whether
59:03 you're you know looking to finance your business or whether you're looking to do something similar to what jock is doing I I he's he he's a younger guy than I am so I can brag on him a little bit but he's he's he's like the quintal example of of someone who um I mean it's it's it's it's it's so cool from you know such a young age is really living out what what he wants to do and and doing a lot of good by by doing that as well so um all Jock's inform contact information will be in the show notes if you have
59:38 questions for him or you have maybe you have an idea not an idea for a business but you have a business that's in that kind of little more mature stage beyond the startup that you think might interest him I'm I'm I'm sure you'll be happy to you'd be happy to have someone contact you about that and always absolutely right build the network so so that's our show for today folks again thank you for for tuning in and this is our last show for this week so we will be back next week on Monday at 10: a.m. Pacific for trust and Estates weekly Tuesday at 10: a.m. Pacific for business lessons from the military and then seven
60:14 days from today we'll be back for the next edition of uh of uh people making money so I invite you to join us next week and in the meantime wish you a wonderful rest of the day and a great rest of the week as well uh once again jock thank you so much for joining me really a pleasure talking you looking forward to continuing to build this relationship and signing off as I always do Marie you are my bell all the best folks