Host: My big takeaway from today's interview is how quickly someone can transform their life when they buy a business. Kevin Bieberhausen suffered a Covid related health scare in 2021 that caused him to reevaluate things. He'd flirted with buying a business before, but after this scare, carpe diem, he got serious about it. Today, just two years later, Kevin raised $800,000 from investors that he did not already know to buy a business valued at almost $8 million, moved from Dallas to North Carolina to take over the business, is now owner and president of this 20 year old wholesale fabrics business that does almost $10 million a year in sales, and is the general partner in a fund to invest in other search deals himself. Not bad for two years of work and Kevin was pretty much starting from a standstill. He's not former private equity, former finance. He didn't have money himself when he started. Those of you who heard the recent episode of the SM Bash panel will recognize Kevin. He was one of the two panelists on stage and I think you'll agree

Guest: he was a good choice.

Host: Kevin is forthcoming and accessible and an example of how just diving in and figuring it out as you go can yield tons of progress in a short amount of time. Here is Kevin Biebelhausen, owner of Heritage Fabrics. Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs and on this podcast I talk to the people who do it. August Felker is a two time successful searcher, first with a traditional search fund. The second time around he did a self funded search. Today August runs Oberle Risk Strategies, an insurance firm with a dedicated practice group for searchers and acquisition entrepreneurs like you. If you've got a business under loi, Oberle will provide complimentary due diligence on that business's insurance and benefits program. A great no risk way to get to know August and team. They love helping searchers. They've worked with hundreds. Oberle is a specialty insurance brokerage for searchers. By a former Searcher check out oberle-risk.com O B E R L E- risk.com, link in the show Notes Kevin Biebelhausen hello again. Hey we Kevin. We were on stage together a few weeks ago at SM Bash for a panel discussing raising money from investors as a business buyer. As a self funded business buyer. Lots of good reviews of your performance up there on stage Kevin. So I'm really looking forward to this conversation. We are going to revisit the topic of raising money from investors as a self funded searcher, but place that in the larger context of your entire story. It is a great one and you bought a great and interesting business. So let's of course start at the beginning. Kevin, give us some background. Taking us right up to, you know, this decision to want to buy a business.

[3:24] Guest: Yeah, so I, I graduated college with a degree in music and thought I was going to go and be. And I was for a little bit a professional singer, professional opera singer. So I ended up going, getting my master's degree in music and studying down in Texas and thought I was going to go get my doctorate and do the whole academic route, but it wasn't. It's as you, as you may know and my, my younger self was too obstinate just to see it. But it's hard to make a living doing that, especially making a living, you know, the. Create the lifestyle that I wanted to lead. So it didn't take long before I changed plans and then moved into a corporate role where I spent about 10 years leading teams. And I did all kinds of work through sales and project management and then I moved into technology and software. All that leads up to when I joined Parkland Health, now it's called in Dallas, Texas where I was, I was in the senior leadership team for technology and strategy ops. And that, I mean I, I really enjoyed the work. I enjoy the healthcare industry. I'd been in the industry my, my whole career except for the music piece. My dad came from the healthcare industry so it was just kind of part of my blood. And it's funny that like immediately when I joined the hospital, I also started like looking over the fence and looking at, it's like, oh, maybe the grass is greener over there. I was looking at buying a business because I just read the HBR guide that came out in 2017. I was reading it in 2018 and I remember looking at the, you know, reading the, reading the guide and thinking as soon as you come across the story about the guy buying a porta potty business, like this is the business I want to buy. This is the coolest thing because I always knew I had this like entrepreneurial streak and frankly that, that's, that's kind of what excited me about the music career, is that you are the CEO of your own brand, your own career. It is you, you're put there. And I really liked that aspect. I didn't quite understand it at the time but, but looking back on it, that was, that was a pretty big thing for me. And so I tried to buy this business in 2018 through a brokerage that everybody's heard of and it didn't end up working. It was, it was a small deal because I didn't have any money. And it fell apart in financing because they, they told me I needed X and equity. And then, you know, through underwriting they're like, actually we need 2x. Like, well, I don't have any more money. I get. That's literally all the money I had. And I didn't know how to raise capital. I didn't know you could raise capital at that point. I didn't, I didn't understand that there was fundraising and self, self funded. It's kind of an oxymoron. I didn't realize that you could raise capital for this kind of a search. So, you know, I knocked out a couple doors, didn't go anywhere, and then I broke the deal and kind of licked my wounds and went back to my corporate job. And unfortunately, or fortunately, I guess depends on your perspective. I was in healthcare and in a health system during COVID and you know, in addition to being, you know, on the, in the disaster management side of that and opening up the command center and running, you know, helping run the command center for the whole hospital, I ended up getting Covid and it ended up giving me. I was one of the unfortunate few who got myocarditis because of it, which means my heart went from about this size to about this size. And you know, so it caused heart failure. And I didn't know that until I went to the ed, same hospital I worked at. And within the first five minutes of me being in the ed, the doctor looked at me and is like, you're going to need a heart transplant. Which is pretty jarring. I was 30 at the time, pretty jarring. Especially since I thought I was some sort of like stomach issue. It just, it's, it's difficult to describe how everything, you know, you felt, but I mean, that was sort of like one of those things you're never thinking about. Heart issue at 30. No history of heart issues in my family at all. So, you know, then, then began the long journey of, well, I was going to, I was going to be in and out of the hospital for the majority of this was 20, 21. So I spent a not insignificant period of that year in and out of the hospital. I had what's called a PICC line, which is basically a central line that goes, you know, through, through an artery to, down to your heart, delivering a Continuous infusion of what the cardiologists affectionately called rocket fuel, which was keeping me alive and helping my, you know, helping my heart be supported throughout this whole process while they started to titrate me up on oral medications. And fortunately, and I think it's a combination of. Of luck, you know, just my body responded well to the medication and age. I mean, I was. It was unfortunate that I contracted this at 30, but also I was 30. And so you're able to recover a hell of a lot quicker doing, know, when you're younger than when you're older. So I haven't had a heart transplant. I was able to be taken off the list, but, you know, it was a scary period going through. I'm not sure if anybody, you know, listening is familiar with what palliative care is, but it's basically where they come in and you talk into life and you talk about, you know, what you sign wills, you sign all this kind of stuff. And, you know, the. That's never something that I had done before. Obviously, most of us haven't gone through that. And it was. It was a very sobering, as you might imagine, experience. But anyway, so getting through the palliative care portion, it was. It was one of those sobering, clarifying experiences where I was like, okay, if I get out of here and if I'm able to recover or even if I get the transplant, and what. What do I want to do after all of this is over? You know, what have I sort of. What have I learned about myself? And am I. Am I happy doing what I'm doing? Is this the life I want to be leading? And the answer I kept coming to was no. Like, I wasn't. I wasn't happy with what I was doing. I. I didn't. I didn't feel fulfilled in what I was doing. I wanted to own more of my career. I wanted to kind of call my own shots. I wanted to create value for myself and for my family and for employees. And I wanted to be a small business owner still. You know, I never really lost that from 2018, I'm reading HBR guide. And so this was sort of the moment, like, I. As soon as I came off the pick line around Thanksgiving of that year. So it was. It was in the beginning of the year when I went in the hospital and I ended up getting off the PICC line. Right. Like, right before Thanksgiving of that year, I started looking for businesses and was one of the things that, you know, I don't really want to go back to my My corporate gig. I wanted to. I wanted to make this happen for real. And that's when I found, you know, that this whole community had sprung up around buying small businesses that just. That didn't exist in 2018. I was sort of left to my own devices in 2018, for better or for worse. I mean, I learned a lot doing that, but, you know, SMB, Twitter was not a thing. And now there's. I mean, there's podcasts like this that didn't exist back then. So there's a whole ecosystem that had developed around this concept. And I felt right at home because, you know, it's like, oh, this is what I wanted to do five years ago. And now I'm. Now it's a little bit more mature and I can actually get the help that, you know, somebody coming from, you know, no finance background, no pe, no investment banking. Like, I was just a corporate guy. I needed. I needed the support and the help and the network to be able to do what I wanted to do.

[11:15] Host: So to repeat the dates here, so this is late 2021. Now, when you emerge from your health crisis and you decide you're going to buy business.

Guest: Pretty much, yeah. And I started. I really kicked off that search in earnest. January or February of 22, it was like late January, I think. And so it was about. That was about a year after my initial diagnosis. Right. So January, February 2021 is when I went to the hospital and then went through that whole thing. And then the following year was when I kicked off my search around the same. Around the same months.

Host: Yeah. Well, that's a pretty dramatic start to a search, Kevin. Very inspirational. And. And look at you now. Here you sit a little bit over a year later, the owner of a really neat business, which we're going to hear about.

[12:07] Guest: Yeah.

Host: Okay. So you start looking. Give us the kind of the nature of your search. And also, you know, you had from your previous, quote, unquote, failed attempt to buy a business. You didn't have enough capital. You also didn't realize that raising capital from investors was a thing. This is something that you learn about the second time around. So start taking us through that.

Guest: Yeah, I. So when we started the search, I was looking. I made a decision early on that I was, or I guess the decision was made for me just by my personality, that I had a timeframe. I wanted to buy before the end of the year. And I. So I drew that line in the sand and I ended up missing it by a couple weeks. So we closed 13-1-23, so missed it by two weeks.

Host: But close enough, Kevin.

Guest: Close enough, close enough. But that was the goal. So knowing that that was the goal and hearing a lot about proprietary search, I quickly decided that wasn't for me just because the sales cycle is so much longer and it's very relationship based and over a long period of time in order to actually develop those contacts. And I frankly just didn't have the time for it. So I stuck to brokerage search and I did, you know, I did everything that, you know, everybody tells you to do. Just get on broker lists, start setting up calls. What I didn't do great was I was, I was very broad in my search as far as geography goes. And you know, that was, that was because I was with a certain capital provider who was, who was, you know, encouraging national search. And I would have moved anywhere if for the right business. But given my, you know, given my preference, I was living in Texas at the time, so Texas would have been nice to buy a business in. But I was also attending the Fuqua School of Business at Duke. And so North Carolina made sense or you know, somewhere in that Carolinas, Virginia region made sense. And that's how, you know, I, I ended up falling in love with, with Heritage Fabrics, which is the business that, that I bought and moved to just north of Charlotte in Concord beginning of this year.

Host: And when you say working with a capital provider, let's hear a little bit more about the.

Guest: Yeah.

Host: What does that mean? Was that your answer to having money to, you know, the investor capital that you needed to buy the business? Like let's, let's get into that, son.

Guest: Yeah, I was scared to raise capital because I didn't know what I was doing.

Host: So you had decided you did need to raise capital. You're not so flush now a few years later.

Guest: No, definitely not. You're going to need raise money.

Host: Okay.

Guest: No, you know, coming out of what amounts to public health, it, not a lot, not a lot of money there. And so I certainly was, was not, I didn't have a bankroll, let's say that, you know, that a lot of the guys do coming out of, you know, sort of more, I guess those you know, sexier jobs, they come out of IB or they come out of consulting or something and they've got a little bit saved away. That wasn't really the case for me. So I needed to self fund the, the whole thing and basically pay for, make sure I could pay my mortgage. And so I, I ended up leaving my corporate job and picking up a Couple consulting assignments, just to be able to pay my bills. And you know, I, I was afraid to raise capital. I didn't know at that point I knew you could. And it seemed to make sense for me to say, okay, well I'm going to try and buy a bigger business and if I'm going to try a bigger business then I need to raise money. But I don't know how to raise money. I don't have, I mean I don't have a network of high net worth individuals in my Rolodex. It's just not my background. So I didn't really know where to start. And so there's, there's starting to be some capital providers that, the equity providers that have come on the market. I partnered up with one of them thinking that, okay, now that can solve my raise issue, you know, they're going to help me with that so I can focus on finding the deal and doing all the underwriting, all that kind of stuff, you know, that, that ended up not working out. I got a call, you know, three days before my LOI for Heritage was signed and basically got the, you know, hey, this is after signed contracts and everything and I got a call, hey, good luck to you. We're just super busy so you know, see ya. So I was, I was left with the decision at that point, like one, do I tell the broker and I, he, he may watch this and I've, we've had this conversation where I was like, you know, hey, just so you know, we kind of pulled a rabbit out of the hat with this one because my capital provider dropped, you know, three days before and I had to scramble and figure it out.

[16:54] Host: So you did not tell the broker after that, after the capital provider dropped? Yeah, I mean that would have scared,

Guest: that would have sunk the deal for sure. But you know, I had enough faith in myself and at that point. Well, the reason I had faith in myself is because I made some phone calls afterwards and I talked to the guys, you know, from SM Bash. I talked to, I talked to Sam Rosati, I talked to Kevin Henderson, I talked to Eric Pasafici. You know, those are the first three phone calls I made after, after the other phone call, like, guess what just happened? What do you think I should do? And to a person they're like, you know, you can do it on your own, you can raise it, you'll be fine here. You know, we'll, we'll help you with a list of people to reach out to. And so that's, that's what they Did. And Sam published that list on Twitter. I've referenced, you know, I've referred multiple people. I was just talking to a guy yesterday, I referred to that list like, look, they're what, they're what we call public domain investors. Like people who are people who are active in this space who want to be, who want to be LPs in these deals and want to see deal flow. I mean they exist out there and there shouldn't be any guarding the door and getting. If you're willing to grind and do the work, you know, you should be able to get in front of these people and raise, you know, a pretty substantial amount of money.

[18:01] Host: I want to share an update on the Acquisition Lab. As you know, the Lab is a highly vetted cohort based accelerator and community for people serious about buying a business. After going through the Lab's month long intensive, you have ongoing access to almost daily Q and A sessions with advisors, regular live deal reviews with Walker Deibel, author of Buy, then build potential Deal team introductions and a very active Slack group with other searchers on the path. Well, the update is that the Lab recently passed 60 businesses acquired and for well over $100 million in aggregate transaction value. Also, all members now enjoy lifetime access to the Lab because when you buy a business, it's often just the first of many and the Lab wants to support you in every deal, not just your first. Lastly, check out my recent interview with Shane Ursum, episode 105. Shane acquired a business with over $1 million in EBITDA in just six months. And he attributes a lot of his deal success to what he learned in the lab. Check out acquisitionlab.com or email the lab's director, Chelsea Wood. Chelsea Buy. Then build.com a couple follow up questions. Did you already know personally Sam or Kevin or Eric, the three people you reached out to?

Guest: Yeah, so I actually, the way I met them was through Twitter. So Kevin was based in Dallas and so was I. So he was the first one I reached out to and I kind of, I don't even remember what the initial contact was like, was basically like, hey, like your content. You know what, I'm looking to kind of get back into this space. And Kevin said, hey, we're doing this SMB meetup in Dallas, you should come. So I did. And then from there, you know, we had a conversation. He's like, you know, you really ought to meet my friend Sam. He's got this boot camp in Tampa that he takes people through and kind of just, you know, takes them through the whole Search process and you meet different, you know, deal team members and you'll get a network and all this kind of stuff. So I said, okay, and I took a look at it and I, I put in my application and, you know, went to, went to hang out with those guys in Tampa for about a week. And so you did the boot camp? I did the boot camp, yeah. And, and it was great. I mean, he was, he was right. I mean, there's two. There's a great people that run that, and, and the network is great. You know, I, I still, I still talk to some of the people, you know, from my boot camp class. In fact, I think Sam just posted a couple weeks ago that 5 of it was like 5 of 20 or 25. 5 of 25. Something like a pretty good chunk of us had purchased businesses within that year since the boot camp, which is pretty cool, you know, so now my, my cohort, my peers have taken the next step. And so now we're all, we're all circling around and saying, okay, so what about these CEO groups that we can put together and share, you know, kind of what we're going through? So that's sort of the next phase of the, of the, of the whole search process is now, okay, well, we did it. How do we get better at it? And how do we make sure we don't, you know, step on a bunch of rakes throughout the whole process? So, yeah, it's a lot of fun.

[21:13] Host: By the way, the investor list. So that was something I linked to in when I republished our panel from SM Bash. And we'll be right to again here. That, that really is a valuable resource and it's, it's great. I mean, it's. I just, I love the Internet. It's simply a Google sheet. I mean, it's nothing fancy. It's just like a live Google sheet that anybody can click on and get. Basically have a Rolodex of investors at fingertips.

Guest: Yep.

Host: Sam, Rosati and Kevin and Eric of SMB Law Group. When they said, no, Kevin, you can do this, were they saying that because they liked your deal or they liked you, or are they just encouraging people? I'm just, I'm just curious. Like, they were so, they were so sure that, no, it's okay if you lost your capital, you can still make this happen. I wonder what they were evaluating to be so confident.

Guest: Yeah, I mean, I think there's definitely an aspect of personality there too. Like, hey, you're committed enough, you're grinding enough. Like, you're putting in the Work. Right. Like, you're not just passively looking, you're putting in the work and you're going to get a hit, essentially. But of course, it comes from the deal. You know, you have to have a good deal with good terms in order for the deal to pencil out and be attractive to investors. And so when they, when we talked about the deal, it's like, you know, they said it was one of the things that was reemphasized at boot camp too, where, you know, if you have a good deal, the capital will come. Yeah. And that sounds, that sounds sort of flip, but it is true. If you have a good deal, the capital will be there. It may take a little bit longer than you think. I mean, I was fortunate to be able to raise pretty quickly. I offered pretty aggressive terms purposefully in order to raise quickly.

Host: But aggressive against yourself, like generous to the investor, Is that what you mean? Yes. Right.

Guest: Yes.

Host: Great. And, and so the, the business that you found was from a broker in North Carolina. Was it like on Biz by Sell? I know you didn't find it there, but was it. Do you know, I don't think it

Guest: was on Biz myself. Knowing, knowing the broker, I just, he doesn't, he wouldn't want to deal with all the low quality leads coming from Biz Buy Sell. It was a, it was a high enough EBITDA business that, I mean, it was on their website, of course, but not, I don't think he would have blasted it out. Just not. It's not the right vibe. Well, especially knowing the company like I know it now and knowing the owners, they wouldn't have liked that. And so it needed to be a little bit more selective. So I actually found another SMB Twitter connection. I found the business through Clint Fiori. And so this broker was part of, I think he leads a mastermind and Clint is part of it, or vice versa, one of the two. It's sort of like a best practices group. Right. So he knew this broker and I found this deal through him. And then so I connected with the broker in North Carolina and we had some conversations about the business and, you know, then we went through the typical IOI Loi process and then did an on site meeting and everything.

[24:16] Host: Great, Kevin.

Guest: Well, we're going to hear all about

Host: that, but since we're at this stage in the story, let's dive a little bit more into this process of raising capital. So your equity that you thought you had pulls out three days after LOI signed, you talk to Sam and Kevin and Eric Pasifci, they say you can do this anyway, the investor list. So how much money do you need to give us some numbers? Yeah. And then tell us how you like. Literally what it looked like when you opened up this spreadsheet and did what

Guest: I needed about 800 grand. $800,000? Yeah. And it was a sort of, it sort of fluctuated based on, you know, how I was modeling it and it's a little squishy until you kind of get to the end, you're like, okay, this is the deal we're going forward with. But that's about what I needed. And it's by no means the largest raise ever and self funded. I mean there's people who have raised more than I know about for sure. But it's a substantial chunk of change, especially considering that I'd never done it before. I didn't have a network of high net worth individuals. So I was very reliant on, I was very reliant on that list and very reliant on network referrals to people who, you know, sort of second connections of people that were on that list. You know it's funny the, the, the giving nature of so many of these people. I remember specifically, you know, emailing. So I went through the whole list. I, I emailed or called all of them. Even if they said they only invest in H Vac, I didn't care. I called them.

Host: How long is the list, Kevin? How many people?

Guest: It's 200ish. I think when I, I think that's about, I'm sure it's grown. I mean I'm on the list now so I know it's growing by one at least. Yeah, yeah, at least by one. As I'm sure there's more but, but, but yeah, I, I kind of went through the list and did email blasts and did, you know, I had a teaser and I had a sim and I had, I had it all automated. So when they sign the NDA, they would, where they give a teaser, then they sign the NDA and then they'd automatically be sent to sim and then I would follow up with them in after a couple of days and reviewing it and try and schedule a call and have the conversation. But so it took me about five weeks to, to raise the 800 grand. And but, and keep in mind like this was during, this was literally before Thanksgiving to right before Christmas. So I was raising money over the holidays. You know, I remember sitting in my parents basement and at the end of the year and during Christmas my parents thought I was crazy. They, they really didn't know what I was doing. And to, to them it almost looked like I was doing a drug deal or something in the basement. But I'm just like dialing for dollars, right? Trying to, trying to, you know, get investors on the phone. And I had investors drop out at the end. And so I had to make, you know, it was, it's a wild process and it's, it's, it's incredibly stressful, as if you don't have enough stress on your plate doing this whole deal. The capital raise process is yet another thing for you to handle and just is if you have to raise as much money as me and you didn't have, you know, a network going in, I mean, you're, you're collecting a lot of small checks.

[27:25] Host: Yeah. And by small you mean 50,000.

Guest: Yeah. Which is wild to say because that's a ton of money to me. And it's just so to say that those are small checks is like, is, is still kind of blows my mind, but in the grand scheme of things, they are. And, but every time, you know, I would get like, okay, I'll take a flyer on you. And, but that flyer is $50,000. That's not an insignificant, basically gamble on, on a new, on a new, new searcher, a new GP of an industry that's, that's a little wonky, you know, not the traditional tried and true. It's not a, it's not a H Vac company or a plumbing company or something that's been beat to death in the search world. So, I mean, I, I, I, I kind of love the fact that my entire cap table is filled out with these small investors because to me, it's like I, I, I'm going to get, I want to be able to reward them with, hey, thanks for trusting me. Here's what we're going to, here's where we're going and here's, here's what, here's what the, the end goal is and we're going to grow and there's opportunity in this industry. And I love the fact that there's, you know, they're just regular people. You know, there, there's, there's, of course there's attorneys and insurance guys and all this, but I got, I have a JAG lawyer, you know, in the service. I've got, you know, just, just regular people. And I love that. You know, it's, it's just people who are, who are interested in, who are interested in building equity through assets and, and Helping consumers.

Host: These. These. These, quote, regular people, Kevin. They're basically. Presumably they've heard about this list, or maybe they're from Sam Rosati's network. And so they're just professionals who have some liquid cash and want, quote, unquote, exposure to this asset class. They just want to be in some SMB deals. Okay, so they're not professional. They're not professional money allocators or capital allocators or even private equity funds. Although I'm sure there are some of those. There's got to be some of those on that list. But.

Guest: Well. Oh, on the. On Sam's list, yeah, there's some family offices and things like that on there.

Host: Yeah, but.

Guest: But no, primarily. Primarily that list is. Is regular people, and there's. There's people like me on there with. With funds and things like that. But. But yeah, mostly it's just, hey, I'm a. I'm a successful big law attorney, and my. My time is. Is spent best doing what I do and not, you know, underwriting a bunch of deals necessarily, or. Or trying to do this. This search thing on my own. So here's the check. Put the money to work. I'll go. I'll go. You know, do what I do best, and you do that, you know.

Host: Mm. Mm. Kevin, you said it's just crazy and wild to raise money. Is there anything, any way you can elaborate that on that? Is. Is it just a lot of calls going back and forth because you're basically scrambling to. To. To. To scare up every penny sort of thing? Or is there something other. Other than that that's weird and wild about this process?

[30:20] Guest: I think it's. I think it has to do with the time frame or the. The deadline I gave myself, and I. I don't regret it. I think it was very important to kind of put that line in the sand if I want to buy before the end of the year. But in doing that, I didn't. You know, when we talked to Costa during the panel, he mentioned, you know, there's a lot of socialization that goes on with the investors and really kind of building that credibility before. Before you go and ask for money. That's not what I did, because I didn't. I didn't have those investors. Like, I didn't have that network. And I. And frankly, I didn't have the time. So I didn't start reaching out to investors until Q of E was just about finished. So I had maybe six weeks or so to get the capital. Was that the right thing to do? I don't know, but that's what happened going forward. I've got connections with more people, and I can start laying the groundwork a lot earlier on and I'll have a track record. But initially, why would anybody talk to me unless I had the deal to the point where I had spent money on it and diligence and making sure the numbers will flush out? So I felt the responsibility to go in there and, and make sure that the deal was buttoned up and ready for. Ready for prime time before I started asking for money, because I, frankly, I would only get one crack at it. You know, if they're, if, if they turn me down, it's, you know, that's, that's one, that's another person to cross off the list. And suddenly, you know, your percentages get

Host: lower and lower and lower.

Guest: You know, so if you screw up early on and you end up. Which I did for sure. My, My pitch got way better as time went on. But some of those early investors, they, they may have been interested if I had a more fully formed deal and knew what I was doing in the beginning. But, yeah, it's a learning. It's a learning experience through the whole thing and, and the, the pressure of raising capital in a short period of time. I mean, that's why. I mean, we can talk about this later, too. But that's why, that's why I joined Fruition Capital as a gp because it's, it's an incredibly stressful thing to do to raise money, especially your first time. And, you know, having a fund that, that invests in these kind of deals, you know, that's, that's more professional. And we're professional fund managers and investors. We've got a network of people to be able to come in and write a much larger check. So if it's a $500,000 check for my deal, well, suddenly I only need, you know, 2 to 300,000 friends and family, call it. Right. Even though they, they're friends now, but they weren't friends then. Yeah, yeah.

Host: Kevin, let's just highlight the, the point you just touched on a second. You mentioned how Costa Dio on the panel that the three of us were on said, you know, kind of cultivating a relationship with investors before you go to them and say, hey, investor, can I have 50,000, $200,000 for my deal? And there. And, and it's kind of like that. And Costa wasn't the only person to say that. It's, It's. That's kind of like the best Practice, you heard floating around S.M. bash a lot. And it's intuitive. It makes sense. Like, much easier to ask somebody for money if they know you, of course, but, but on the other hand, you. I think it was you on the panel who made the point that, like, that, that's all well and good, that sounds good, but it's also like a lot of investors are like, you know, they, it's when you have a live deal that they, that they realize that their own time is going to be, is going to be well spent by talking to you because they also are protective of their time and they don't necessarily want to talk to some searcher who's just starting and, you know, in a year might, you know, bring them a deal because, you know, they just. So, so there's kind of, there's kind of, there's kind of a contradiction there. It's like, yeah, you want to cultivate, you know, they want to know you as well as they can before you ask them for money, but at the same time, they don't, they probably just don't want to talk to some, Every random searcher who gets a notion to buy a business and they can't.

[34:18] Guest: Yeah. So.

Host: So it's kind of like I don't have an answer, but it's just, it's this tension is something to be aware of.

Guest: Totally. I mean, just going back to the point earlier about where these people kind of come from. I mean, they're regular people, but they're busy people. They're busy professionals. They have to, they have to operate at a pretty high level in order to have the capital to invest in these deals. Right. So. Because again, $50,000 is not a poultry sum. Yeah. So they, they have to be fairly successful professionally and they don't have time to talk to, you know, each individual searcher. Now I, I talk to a ton now, you know, as, as, as part of the, as part of the fund and, and generally just because I like it. And I know, I remember, I remember what it was like where, you know, those, those early conversations were so key and I appreciate the people so much who, who really just out of the goodness of their hearts, you know, did things to help. Did. Pointed me in the right direction. I'll never forget. And I've never, I've never really even talked to Nick. To Nick Haschka. Have you had him on this podcast?

Host: Oh, yeah, yeah, a couple.

Guest: So I'm going to shout him out here because I will never forget. And we should tag him because I will never forget Emailing Nick and seeing if he was interested in investing. But his email came back and it's something to the effect of, hey, we're working on another deal right now, or we don't. We're not. We're not interested for whatever reason, but I will send this deal to my investor list. Who does that? I mean, like, that's, that's incredibly kind. He didn't have to do that. But, but that's, that's indicative of this community. I mean, there, there, you know, there's more people like that than, than people that, you know, you, you, you don't like or people that are out to get you. I mean, there's.

Host: Yeah.

Guest: I mean, so again, yeah, yeah, yeah.

[36:01] Host: Well, and also, Kevin, I feel, I just want to clarify what I, what I just said. I also don't want to suggest that people who are just starting out. Yeah. That. That investors just don't want to hear from them, aren't going to take them seriously. I mean, and I certainly don't want to disparage people who are just starting out. I mean, everybody started out at some point. So you want to build relationships with investors, but also investors can't talk to everybody that might want to talk to them. And so you just got to thread that needle. So that's all that.

Guest: Yeah. And the best way to prove that you're, you're bringing value to the table is to bring a deal. I mean, that's just, that's. That's the reality.

Host: Yeah. Yeah. Great. Well, Kevin, more to talk about on raising money, believe it or not. Actually, quick aside, you mentioned tech that you use to automate the. Sending out the NDA, and when they sign, then they automatically get the SIM. What is there, is there a SaaS tool for that or did you jerry rig something with Zapier?

Guest: I jerry rigged something, was happier. So, again, my background's in technology, so I, I hate doing repetitive processes. And I, So anytime someone. I just actually, this, this was born out of my, my relationship with brokers and my experience with brokers where, I mean, I'm sure you've had people, you know, you've talked to people who, it's like, they just, you know, here, send this, fill out this form, and it's like six pages. Trans is famous for doing that, where they got, you know, a whole stack of stuff you have to fill out or just the broken processes. Super manual, very dinosaur, very paper. And it just, it, it made me frustrated. And so I was determined to have the opposite. Call it user experience or investor Experience. And so they were able to, you know, I would. I had this email that I would send out and say, hey, can. Here's the teaser attached. If you want to know more, click on this link to fill out the NDA. It was all DocuSign. And as soon as they would fill out the NDA and sign, I had a zap in the background that would send them my data room filled with a model, historical financials, tax returns, the sim, just all the investor materials that you would expect. And then from there, you know, I would. I would then follow up in a few days and, and see if I could close.

Host: And what data room? What were you using for data room? Just like Dropbox or. Or some data specific.

Guest: I used OneDrive.

Host: Okay. Okay, great. So there's some trigger in DocuSign that when somebody signs, then use that trigger in Zapier to then send them another email with a link to your one box, which is your data room, effectively. Very cool. Very cool. Kevin, you. I saw a LinkedIn post of yours where you say. Where you talk about this fundraising process. You say, I raised a good $800,000 from only 300 Twitter followers. And so what I want to highlight there, which was the. I'm just highlighting what you were. The point you were making is, you know, it's. It's becoming trite to say, get on Twitter. SMB, Twitter is the best. I say it all the time. Like, you know, so everyone knows that already, but I. But you. You were making a really good, subtler point, which is that I. Even people who actually do, you know, take action on that, on that call and get on Twitter, they probably feel like, well, no one's going to take me seriously until I get above a thousand, ten thousand, you know, I have some respectable number of followers because, you know, we're all programmed by social media now and we all want big followers, right? Follower numbers. But. But you only had 300 and so, which is not a lot of Twitter followers. You can scare that up pretty quickly. And so your point was like, you know, not only get on Twitter, but, like, you don't need to be, you know, one of these Twitter superstars or even have, you know, a few thousand three hundred Twitter followers was enough for you? Expound on that, please.

[39:50] Guest: Yeah, because it was a place for me to. To talk about what I was doing and, and establish credibility or establish myself as somebody who was. Look, I'm very honest. I try and come out on Twitter and say exactly what I'm thinking and feeling. Sometimes it's good Sometimes it's bad. I've had posts in the last couple of weeks where you have the, well, this is operations post. But you have the extreme highs and the extreme lows in business, and there's obviously the same thing in search. And search is incredibly lonely. Running a business is lonely. But I think search is lonelier. At least it was for me. And I think a lot of that was just the desperation to be able to finally do something. And so you're, you're constantly driving and, you know, that being, that being difficult. But Yeah, I mean, 300 followers. I only have like 2,000 followers now. I mean, it's still on a ton, but it's, it's about, it's about having an asset that you, you put your thoughts into that somebody can go and review. They can kind of see your, your thought process, like, oh, this guy is, he's talking with the right people. He's writing things that I, that, that, that resonate with me. He's, he's thoughtful and he's present. You know, just, just the fact that, you know, being. It's a little bit of a squeaky wheel type thing where, you know, if you're, if you, if you try and if you're a wallflower. I've talked to hundreds of searchers. Well, that's probably an exaggeration. I've talked to a lot of searchers. Sometimes it feels like hundreds who, who, who say, you know, I, I'm a, I'm a lurker on Twitter. You know, I use. And that's what I used to do for sure.

Host: Yeah. Yeah.

Guest: But it was only after I really kicked off my search that I was like, in order to do this, because it's, you know, I'm grinding away at my consulting jobs. I'm, you know, I'm frankly being a bad employee doing that because most of my effort and my thought was going towards search. Fortunately, I was remote the whole time. So I'm sorry to my former employers, but that's, that's the reality. And yes, like you said. Yeah, look, I mean, it is what it is. They, they know that I got, I certainly got, got the can on one of the consulting assignments because I was, I was otherwise occupied and I deserve it. I definitely deserved it. But yeah, it. Look, I mean, you just need to be able to put yourself out there and be public. And I think that whole building in public thing is, is maybe overused, but it's true. Just to be able to put yourself out there and have that, have that memorialized in Social media so people can go back and kind of see the evolution. It's great. I highly recommend it.

[42:31] Host: Well, and actually. So, Kevin, it may be that I missed your point of that original LinkedIn post because it wasn't about the fact that you had few followers and your follower count is less important than just being there. What you're exhorting people to do is you. You do need to not lurk. You need to put yourself out there. You need to write stuff so people can see and get to know you. And as you. As you put so well, kind of memorialize your thought process. So this isn't just getting on Twitter and then lurking around. This is getting on Twitter and putting stuff and actually putting your thoughts out there. Even if that doesn't. That doesn't accumulate tons and tons of followers. That is beside the point. But having a document of your thoughts is valuable and does require you to put yourself out there. And really to. Only to truly get the value of Twitter, you're going to need to do that.

Guest: Yeah, I mean, followers are, I guess you could say, like a symptom or not a symptom, but like an outcome, you know, of the work you put in and why you're there. If you're there just to gain followers, you know, you can go buy followers. Like some of the, Some people who are on Twitter, they go by and go buy followers. You know, ask them how it does for engagement and all that kind of stuff. Who cares? It doesn't do anything for you except for, you know, give. Give you a bit of posturing and like, oh, I've got 10,000 followers. Okay. But they're all fake. Who cares? You know, if you have, if you have a small amount and your. Your intentions are, I want to put myself out there. I want to meet cool people. I want to. And just. And DM people and, and just treat it like, treat it like a networking tool. Like it's supposed to be used.

Host: Yeah.

Guest: And, you know, don't. Don't be a jerk. Don't. Don't send out a bunch of, like, there's. I mean, you, You, I'm sure, receive all of these dms on Twitter where they're all the hustle bros out there. Like, oh, do you want to get ripped in six weeks or do you want to do what. Whatever it is. Who is that guy, by the way? I don't know, man. Like, but. But there's.

Host: There's a.

Guest: No shortage of people doing that stuff. Don't do that. Be a real human being when you Reach out, you know, don't just try and blast stuff out there to try and set meetings with people. Like, that's, people can see right through that. You're not fooling anybody. But be, be a real approachable human being and you're, you'll, you'll see the difference. You'll, you'll convert a lot of, a lot of calls and just frankly make new friends. And that's, that's what this is all about. It's all about relationships.

Host: Great points, Kevin. I want to ask just a couple more questions on, on raising money from investors because I think this is just going to be so valuable for people. And then I want to just hear kind of the math of this to the extent that we can get, we can do this off the cuff and comfortably. The questions are, or one is just to let people know. So ultimately raising this $800,000, you actually didn't need to bring any of your own money into the deal. Now, as you and I have joked like that we're not out here advocating buy businesses with no money down, but it happened to be, you know, it happened to happen in your case. So anything, anything to say there?

[45:30] Guest: Yeah, look, I mean I, I certainly didn't go into this process thinking that I was going to be able to, you know, not put a nickel into the business. And that's not, it's not entirely true because like I did pay for Q of E, I did pay for, you know, so I did pay for certain things.

Host: Important clarification.

Guest: Yeah, yeah, yeah. But as far as equity that I, that I put into the deal, like I, I only own common stock. I don't, I don'. Any of the preferred shares that investors, that investors own and I, I could have bought preferred shares, you know, at the same terms. And I, I just didn't, I didn't have to. I had, I had the fortunate position at the end of my race to be over subscribed, even with people dropping out, which they did at the 11th hour. You should prepare for that if you're raising your own money. And even, even with that, you know, I had enough people at the end where it's like I, I ended up. Actually what's funny is one of the guys that, that I had to turn down is now my partner at Fruition Capital. So that's, we stayed in contact and, and that's how I ended up with those guys is, you know, he, he emailed me about a fund that he was starting and to send him any deals, you know, that I was like well, I'm, I'm thinking about doing the same thing. And so now we're partners, so you just never know where some of this stuff is going to go. But yeah, it's, you know, I, I was in the fortunate position to be oversubscribed and I didn't. I had the money ready to go, but I did. Was able to leave it on the sidelines. Yeah, I was okay giving up the extra equity in order to stay liquid. I'm more liquid on my personal side.

Host: On your personal side, yeah. Great. And other question, Kevin. What So your, this initial group that you were working with, who had you thought was going to provide the capital and then. And then bowed out, leaving you, you know, to scramble. What is the learning there? One of my guests has talked about basically kind of at this, kind of talking to two different sets of investors at the same time with the idea that, you know, he might ultimately decline one side. I don't know what the, the ethics, the, the morals are here, what the best practices are, what investors expect. What can people, how can people prevent, you know, the struggle that you had when you lost your capital and had to scramble to put together a group.

Guest: It's interesting. There's actually a couple of lessons. I think. You know, the first one is, first of all, it was a blessing in disguise because gave me the opportunity to, to really get outside my comfort zone. I mean, the whole search process was outside my comfort zone. I had done it before in 18, but. But nothing at this scale and certainly not at the size of company I was looking at. So that was uncomfortable, but I figured it out. And same thing with raising money. It's a lot of stress and it's a lot of effort to do them simultaneously, both first time. But man, did I learn a lot. And it really changed my perspective on a lot of things. And I guess I would say that if, if you're up for the challenge, if you, if you really feel like you can grind through it, I, I think it's a worthy exercise to go through and raising your own money because you're gonna, you're gonna meet a lot of friends, you're gonna, you know, who. And that again can turn to partnerships down the road that you, that you otherwise wouldn't have thought. So. So definitely that was a blessing in disguise. I would also say trust your gut because if you.

[48:55] Host: Who.

Guest: It's easy early on when you don't have a nickel in your, in your, in your soft commitments to sort of pitch investors like, or to think about investors as like oh, do you have a pulse? Are you breathing? Can you write a check? That's great. You're welcome on the cap table. That's probably not the right way to think about it. I certainly had that attitude early on because I didn't know what I didn't know. But I, I would tell anybody that's looking to raise capital from an individual, from a firm, whatever, that if your conversation with that person is anything less than, I want to go have a beer with this guy or I want to, you know, this person would be fun to go to dinner with, it ain't worth your time because that per your. I think Kos have said this on our, on our panels, like you're getting married to that person. You may have said it. Well, it's like you're getting married to that individual. Individual. I mean, there's, there's certainly, you know, you can exit later. But. But for all intents and purposes, you guys are. You guys are joined at the hip.

Host: Yeah.

Guest: And you, you better make sure you like that person because they're going to be all up in your space if things go wrong. And, you know, if. If they're not supportive people, you should. You should be able to figure that out right away. So a lot of it is just intuition and, And I didn't trust mine. I. I was in that sort of desperation mode.

Host: Yeah.

Guest: So those are the two things I would say. You know, trust your gut and, you know, you never know what might turn into a good experience or a blessing from. From something bad that happens.

Host: Yeah, sure. Well. And what about Kevin having a single capital provider? So, you know, there. Some searchers, you know, might work with a group, as you were starting to do, or might work with a family office. And so they have one source of capital versus raising from, you know, smaller checks from a lot of different folks that, that, you know, the lot of checks from a bunch of different folks kind of diversifies the risk away of, you know, your, Your big capital provider. Pulling out. Any thoughts on that kind of.

Guest: I don't know many people who've had just the one provider. Okay, I know they exist, but. But I would say this like, you are also. How. How are you going to be in this business long term? Are you going to be. Are you gonna. Is there a plan to acquire more companies or is this a one and done? If it's one and done, fine. Go use the one capital provider and. And move on with your life. And that's. That's an excellent life. You know, I certainly could do that. If I wanted to and, and never step back into, into the world of SMB Twitter, I would be miserable. I love this community, but you could do it right and have a very nice life. I would also say this too. Like, I like the fact that my cap table is large. It made a huge pain in, in closing the loan, definitely. But guess what? All those people are invested with me now, and it's easy to have conversations with them about future deals. And so if you have, if you have more than one capital provider, so if you had somebody that brings a big check, again, like, that's Fruition's model, right? So bring a $500,000 check, but you need 800. That's, I think, actually a positive for you because you can go find two or three investors to make up that two to $300,000 that are going to be in your corner that, you know, maybe you put on the board, maybe you use as advisors. I recommend that because you're those. If it's all about long term and you're thinking, you know, you're thinking about the future, building your network that way is a good idea and not just being reliant on one provider, great.

[52:25] Host: Kevin, let's do a little bit of numbers to help people understand. So let's say I had been one of your investors. Let's say I gave you a $50,000 check. What, what are, what are the expectations around, you know, my piece of the business, my return, when I'm going to be paid back? What does all of that look like?

Guest: Yeah, so I, I put, I. As. As my conversations progressed with investors, I realized that the most important thing, I mean, maybe this is obvious to everybody, but it certainly wasn't obvious to me at the time because I'm thinking more investors want growth. Investors want growth. That's not really true. Investors want their money back. They want their money back as quickly as possible in order to de. Risk the investment. Right. So if you give me $50,000, the first question that you would probably ask is, when do you. When are you going to give me my money back? And so when I modeled, I ended up switching my modeling to be more of like a payout, you know, at the end, you know, with a recap or a sale or whatever to, okay, I'm going to try and do heavy distributions upfront, if possible. It's a model, right. Anything can happen. But I'm going to try and do heavier distributions upfront, make sure that, you know, they get their, they get their prep rate and everything, but they're Also getting their capital back. That's only, it's, that's going to build credibility. You know, that I have their interests at heart. I want to de. Risk for them and then have everything be, I call it blue sky upside. Right. Once they get their money back and they've, they've been paid their, their preferred rate, everything that happens from there on out is, is all upside for them. And that's, that's a much more fun place to be because then it's, then it really is about growth. So for the first couple years, I'm, I'm focusing on, I mean, I'm focusing on growth, of course, but I'm also thinking about how to do distributions, healthy distributions in the first couple years in order to try and make my investors whole, perhaps quicker than, quicker than normal.

[54:26] Host: And so let me, let me trace this through and you correct me if I get it wrong. I've given you a $50,000 check and you've negotiated with me, let's call it a 10% prep rate. So that means you owe me $50,000. And every year you're paying me 10% on that $50,000. And that's compounding. So what? So, so I'm getting a return on my money and you're going to pay me back, but I'm also getting equity. Let's put a pin in the equity. Let's put a pin in the equity for a second. So let's say, and so when you talk about distributions, people probably know this, but that's basically just the profit you're taking out of the company to give to the investors rather than reinvesting that profit back into the company to, to grow the company. So let's say, so let's say you pay me, let's say just to make it super simple, you pay me, pay it all back in one year. You would pay me my $50,000 back at the end of year one, plus, plus $5,000.

Guest: Exactly. It took me a second.

Host: Plus $5,000. And if it, but if it had been three years, you'd pay me, you know, the $50,000 over the course of three years. But whatever my balance was with you.

Guest: Exactly.

Host: Was compounding. Yes.

Guest: Percentage on the balance remaining. Yeah, exactly.

Host: So, and so that's the, that's the kind of debt piece, I mean, the way this is structured is a bit of a debt equity hybrid. So that's the debt piece. But for my Money, for my $50,000, I've also got a piece of the business. So preferred equity. And so what does that look like. Do I have purport? Like, my $50,000 is proportional to whatever the valuation was. So let's say the valuation was $5 million. Does that mean I have 1%? My $50,000 gets 1% of the $5 million business? I think not. There's a step up. Can you, can you explain how?

Guest: Yeah, so it's proportional to the equity that's injected. So I raised 10% of the deal. So on, you know, for, for round numbers, we can say, you know, it's an $8 million deal. It wasn't quite $8 million, but whatever I needed to raise 800,000 and that $800,000, there's, there's a step up applied to that. Now, Step up market. Step up. Somewhere between, I would say two and three is pretty high, but, you know, it's a one and a half to two and a half is kind of marketing for a step up, meaning. So you put in a dollar and you get that multiplier for the equity. So one dollar equals two. So you would, you would get, you would get a percentage based off of. Off of that. So it's a sweetener. Basically, you know, your money goes further as it. So $50,000 would really act like a hundred thousand dollars. No step up.

[57:01] Host: Right, exactly.

Guest: You could put in less money and get more equity.

Host: Yeah, yeah. So you're putting in $50,000, and in return, you're actually getting $100,000 of equity. So the step up is to. Is meant to communicate that you're basically you as the investor are in the money from the very moment of your investment. I mean, it's a pretty, it's a pretty sweet deal. And, and, and right. You made another great point. That one confusion amongst beginners is that they think about the amount of investor capital as a percentage of the enterprise value. It's not. It's a percentage of the equity. So there was $800,000 of equity into your deal. So whatever, $50,000 would be percentage of that. 800,000 of that equity.

Guest: Exactly.

Host: Well, I'm revisiting this more and more in the podcast just because I think the more people, you know, beginners to this whole model hear it, the more it'll kind of settle in because it takes a minute to learn how these things are structured. All right, we are actually going to move into the acquisition now, Kevin. So tell us, tell us all about, tell us all about the business you bought, please.

Guest: So I purchased a company called Heritage Fabrics, and from the beginning of this podcast, and, you know, knowing My story, I did not have any experience in the textile industry. And the joke that I would always tell investors as I was raising is like, well, you know, Warren Buffett bought a textile company. It worked out great for him. And then, you know, I'm sure they love that if you're savvy. Well, if you're savvy and you. You know anything about the history, right? It's like, wasn't. Didn't he say that was his worst investment? Like, yeah, that's the joke, right? So. No, no. Warren Buffett bought a mill, and that was when mills were declining and all that kind of stuff. So we're not a mill. What we do is we. We do the design here in North Carolina. We have designers that. That work for us, and they work with the mills and collaborating on. On design, color, construction of the product. And then we do weaving overseas in a number of. A number of. A number of different countries, and then we import the product back and then sell it to companies that basically serve the interior designer. So somebody's coming to redo your house. They would use one of our customers to provide the fabric, to provide the drapes, provide the upholstery, all that kind of stuff for. For your renovation or your home refresh. Right. And similar things for. For hospitality. Right. We do a decent hospitality business, too, where if you go any. I mean, we had. We've had product everywhere from the Four Seasons to. To, you know, Courtyard Marriott to, you know, any. Any of that kind of. I mean, it's. It's the gamut, right? So we have customers that will go out and bid these contracts to do hotel refresh, which is a. As a increasing business right now as people come back from COVID And a lot of those refreshes, you know, they got to do every five to seven years. A lot of those were. Were put on hold. Well, now. Now the dam is breaking, and they're. They're starting to do those refreshes now that people are traveling again. And frankly, if you've traveled anywhere in the last couple of years, like, you know, it's needed. Some of those hotels are a little worse for wear, which is good for us. Yeah. But, yeah, so that's. That's the business. Right? We're, We're. We're a. We're very much a middleman since we don't, you know, we don't manufacture any product here. It's. It's. It's not cost. The cost to manufacture here in the States is tough. For textiles, everything can be done Much cheaper overseas. So we keep, we were. I think, I think of us as more of a design house, you know, with it's more product based and more design house, I think is the best way to, the best way to really describe us.

[1:00:35] Host: And so your, your vendors would be the overseas mills and who provide the actual raw material of the fabric and do the weaving. Yeah, and you'll work and you'll work with them to come kind of come up with designs which are then proprietary heritage fabric designs. Yep, fabrics. Designs.

Guest: Got it.

Host: And then on the other side for your customers, is your product the way you sell your product? Is it kind of like do you have like a book of fabrics that an interior designer flips through? How do they buy and find your product, your fabric?

Guest: Right. So our customers put the books together. So customers. So we sell into a specific type of customer and their, their whole model is, it's changing. But the historical model is to do those books. They're incredibly expensive to produce. But, but for us, the way we show product is, is, is we have, you know, big old swatches that we go to me visit customers. We just did a show in High Point, North Carolina where we had everything hanging on the wall. It was beautiful. We, I mean the team did an amazing job and that was the first time they'd shown in seven years. And we had a, we had a really great reaction. But, but those customers, so that, that would sell directly to interior designers will come shop our line and basically fill out their books. You know, they would have exclusive product that they put in their books, but they're not going to have exclusive product for everything because that's very expensive. So they would come to us with what's called open line, where we would sell to these, these, these companies are called jobbers. So we would sell to a jobber in New York, but we'd also sell the one in California. The same product all over the country because it's, it's what we call open line.

Host: Okay, great. Really interesting business, Kevin. And the, I think you said revenue was around 7 million.

Guest: Revenue is closer to 10.

Host: Closer to 10. Okay. I don't know where I got the 7 number. Revenue is close. Is, is approaching $10 million. And what a margins and SDE look

Guest: like if you can share that margins. We stay around a 50 gross margin. 45 to 50 gross margin. And you know that's, that's sort of a blend from, you know, furniture gets a, gets a lower margin for us just based on that industry. Cut yardage is obviously the highest margin. Since we're setting, you know, anything we would send out with smaller cuts, it's, we're going to charge a little bit more for it. And so all of that blends together and, and you end up with that 45 to 50%. But we, that's where. About where we try to stay. SD when I acquired the business was 1.7 for the last, last couple years.

[1:03:16] Host: Well, that's a pretty sizable business. Especially pretty sizable SDE number Any thoughts on why you were able to, to buy this business as opposed to a strategic or a private equity group?

Guest: Yeah, because the owner. This industry is filled with more than. I'm sure there are other industries like this but this industry has so many multi generational owners and families there. I mean from the mills, I was just, I had dinner with, I had dinner with a customer yesterday and we were talking about this like from the mills on down, they're all family businesses. There aren't very, there's, there's been a few that have been acquired by private equity and frankly run into the ground. But by and large they're, it's all family enterprise. So the owner or the previous owner was adamant about making, taking care of the staff, making sure that they just didn't get absorbed as a division somewhere and you know, the staff would be laid off or anything. He wanted to make sure that the people were taken care of. He wanted, he desperately wanted the business to stay independent. And as I go around and travel and talk to customers, I realize how big of a deal that was and how, how well he set me up that way because, you know, we, we are a very important supplier to a lot of the largest jobbers. These, these interior design focused companies in the country. We, we are primarily known for drapery and sheer products. So mostly window, we're doing a little bit more upholstery, but that's certainly not, you know, what we're known for. But you know, as suppliers go in and out of business, the ones that like us have been consistent maintain stock. We don't, we don't play games with, you know, keeping, keeping low shelf quantities. I mean our business is inventory. You know, we, we have to have inventory in order to ship otherwise they, why wouldn't they just go overseas? Right. So that's, that's our business.

Host: And why did you like the business, Kevin? Aside from the fact that it had a nice big ste.

Guest: Well, certainly that was a screening criteria, but yeah, I mean I, I'll tell you, I mean I certainly wasn't looking at the textile space I started, as you might imagine, looking at healthcare companies and looking at, you know, more technology companies, IT service companies. But I found the multiples from that were. That were related from COVID so they were all having banner years and then wanted to trade on those years that weren't sustainable. So that was. That was a bit tough. In the health care industry, IT services is a. Is a pretty big target for pe, so you're competing, you know, with a lot of. A lot of larger acquirers. Textiles is a little sleepy, and so I was able to buy it for a reasonable multiple, and that was attractive to me. So they were willing to trade reasonably. They weren't asking 10x or something crazy like some of the IT services companies were. And honest to God, and this is something I've told so many searchers, and I see a lot of the opposite. I see some, but I see a lot of the opposite on Twitter where I bought this business because I trusted the owner. The owner, honest as the day is long. You know, look across the table, you look him in the eye, you know, he's. You know, he's for real. And, you know, that's backed up by the fact that when we did qov, everything flushed out pretty darn close. And so I knew what I was buying. You know, they. They do reviewed financials and audited or audited financials every single year. How often does that happen for a small company? Small, privately held. It doesn't.

[1:07:10] Host: Yeah.

Guest: So I knew what I was buying, and for my first acquisition, that was really important. You know, I started. I started thinking I could be excited about anything, right? Even if I ran a plumbing company, I could be excited about that product. I. It doesn't matter. Like, I just wanted to get in the game. I kept telling people, I don't care what jersey I wear. I just want to play the game.

Host: Porta Potties, man.

Guest: Yeah, so. So I, at that point, I was industry agnostic and, like, it's a cool product. It's fun, it's pretty. It's, you know, it's fashion. So there's some excitement there. But look, I mean, the financials were good. The people were honest. The team is long, long, long tenure. There's. There's a lot. Just the bones of the business are good. And they, frankly, I mean, they, they were, they were stagnant because, you know, there's. The previous ownership group had different goals. They had, you know, they were. They were getting older and needed to. To. To take care of family, frankly. And it was just time. And so, you Know, me coming in with. With more energy and youth, I think is good for this business, but also good for the industry. And I can't tell you how many times I've heard that just being around and visiting customers, being at different shows where they're excited to see somebody, you know, in their 30s come in from outside of a textile space, they're a little leery. You know, it's like, why would you choose this business? And where does your money come from? Like, do you have family money? Decidedly not. But you know how I raised $800,000 on Twitter?

Host: Yeah, yeah.

Guest: I told some of them, and they're just like, they.

Host: That must blow their minds. Yeah, yeah.

Guest: Completely foreign. Yeah.

Host: Really cool. Kevin, you mentioned maintaining stock and you know that you're an inventory business, and one of the cons of this business, or one of the weaknesses, if you will, which we've talked about pre call is how working capital intensive it is. So elaborate on that and then. And then tell us. Managing working capital is something that, you know, a lot of people come into buying a small business come into small business operations and ownership, and they're just kind of smacked upside the head with the realities of that. I, I suspect I, I would experience that too, because it's kind of like from the outside, it's like, what's, what's, you know, what's so tricky about it? And then to a person, they all say it's tricky and it's. It's a skill set. And so as I understand it, it's particularly acute in your business. So educate us.

[1:09:38] Guest: Yeah, so it's. That's absolutely true. And something that I, I mean, I certainly didn't understand the full picture, and the bank didn't definitely, definitely didn't understand the full picture either, because I. We were under capitalized. We got lucky, you know, we. We had some good cash management and, you know, we were careful, but we were a business paycheck to paycheck, technically, you know, if you want to use a. More of a personal finance term for the first few months. And, and we kind of still are. I'm waiting for my line of credit to come in, because I didn't. I was promised a line of credit before, during. In my term sheet, but that didn't end up materializing. So I've been fighting with the bank and the SBA for the last five months trying to get that. Hopefully we're gonna tie that off next week, but I'll let you know. But that's a huge piece. That's a Huge deal for us. Like I keep telling my, my VP of Ops, like, where are we going to go celebrate after this closes? Because once we have that line of credit, which is based on our assets, we have, we have a really. The inventory is very valuable and the AR is very valuable for us. So we can borrow quite a bit of money against that stuff and which will only fuel growth. So we'll have access to a lot more capital, which will be awesome for the business to actually breathe some new life into it. And I'm very much looking forward to that. But yeah, the working capital side when I came into the business. So we typically will release. Twice a year, they'll release a spring collection and a fall collection. In order to meet the deadline for the spring collection, we have to order product in January, which is right when I was coming into the business. And if we spend, you know, that, that, that collection costs $300,000. That's not. We didn't have that in the bank account. So money flows quickly out of the business when you're paying your vendors overseas and then you're floating it for a very long time because you don't see a return on this new product that we just showed. You really don't see a return for a year. Because now what will happen is all of our. So we just got back from the show right in High Point. We got an unbelievable response. So we're going to be starting to send out samples. So what they do is they get the samples and they'll get samples from all these different suppliers and they'll go through and say, like, okay, here's what we want to book, here's what we want to order. And then they'll request sample allowance from us, which is typically given at a discount because making the books is very expensive for these customers. So then we'll have to decrement our inventory and take the hit up front or take a discount in order to give them some material in order to make their books. Then you hope you get a placement or you get the placement, but then you hope, then you hope it actually sells because now it's going to be in a book that they give to interior designers. And interior design is going to go through the book and figure out what they want to order. So it's, it's a long sales cycle, so you really don't see. And those books will come out now in the fall. Right. So. So it'll take another season for everything to sort of work its way out. And then we'll find out who you know, which products did well, which products didn't do well. Yeah, so it's, it's a, it's a, it's a, it's a gamble. You have to have a lot of trust in your team and in your designers in order to make sure that we need to make, we need to make beautiful product that's going to stand out, be differentiated against our competitors because it's, we're taking bets here. You know, we're making bets on this product and not all of them are going to be winners. I mean, that's just the nature of the, that's the nature of this business. We're going to have debt, inventory or inventory we need to liquidate through other channels. So yeah, that's, it's, it's a, it's a challenge. It's a fun business, but that part's a challenge.

[1:13:17] Host: In it being a challenge is that because there's a learning curve and you, Kevin, are figuring it out and once you do, it'll kind of this question of working capital will stabilize or is it a constant challenge?

Guest: I mean, sir, sure it'll stabilize, but, but just cash management in general and the fact that you're making very long term bets on this company, I mean you're, again, you're not, it's not like you're, it's not a service business where I'm collecting credit card immediately after service. Right. You go in, you repair the pipes, you know, swipe the card, revenue hits my bank account, we're all good. That's not the way this happens. Right. Where our payment terms are long payment terms are, you know, 60 to 90 days, both supply and buy side. And you know, we're not going to see a lot of sales and repeat orders on this stuff until 2024.

Host: Yeah.

Guest: So it's, that part won't go away. That's just the nature of this business.

Host: Right.

Guest: But certainly some of the kinks will be worked out and we'll get better at managing the cash together. And a line of credit will certainly help, as you know. I look forward to closing that in the next week, let's say.

Host: Great. Well, yeah, let me know. Just a couple more questions, Kevin. I just want to call out something that you told me on the pre call going back to the trust with the seller. You actually stayed at his condo when you were visiting the business. I assume this was post close. There probably wasn't so much trust that you were staying in his place pre close. But, but that's, that's nice. Tell that little Story.

Guest: Yeah, it's actually, it actually goes a step beyond that. So the, the apartment. So the owner lived in, in Winston Salem, which is about an hour from here. So he would drive in, but his wife, his wife put, put her foot down and said, you're not driving back at night because he, he's a night owl and he will stay at the office until late. He'll, he would, he would be here very late in the evening and then try and drive back. And she said, you're not doing that anymore. So the, the, the solution was he rhymested an apartment five minutes from the office and would essentially do like the consultant schedule. He'd come in, you know, on a Monday and then he'd leave on a Thursday or whatever and stay in this apartment. When I was talking to him now, obviously I moved my family here from Dallas, Texas and we're trying to figure out the living situation and he's like, well, you can just, I mean, you'll have the corporate apartment, you know, just. You can have that. You can have all the stuff in it. You can have because I'm not going to need it anymore. And so the business was paying for the apartment. And so when he, we, I gave him about a month, you know, I stayed in an Airbnb for the first four weeks or so. But you know, once he had all. It's a one bedroom apartment, so there's no way I was going to end up staying with, with him. But you know, we, we exchanged the keys at that point and was like, you know, he took me around and he showed me all the modifications he made to this apartment. He'd been there for 10 years, nine years, something like that. So it was like a sec. It truly was a second home.

[1:16:12] Host: Him.

Guest: Yeah. And it had been, you know, furnished with. I mean, he's from the furniture industry, so lots of nice furniture quality stuff. And look, I mean I, it worked out for me that we had a pretty immediate place to stay while we, you know, sell our house in Texas and figure things out here for long term plans. But yeah, it's, it. The living situation was kind of funny, you know, in talking about like, well, maybe I'll, maybe I'll buy a house immediately. Maybe I'll. I had an idea at one point that I was gonna buy an RV and live out of the RV in the back of the warehouse.

Host: I love the scrappiness of that.

Guest: I mean, just trying to figure it out, right? And he's like, well, you can just have this apartment. Okay, that'll work. So it worked out great.

Host: Well, I assumed that had been an add back that apartment, so. Which. No, it wasn't really.

Guest: No, no. That mean there's, there's a lot of things. I mean, they, they were very, they were very fair. They were very fair.

Host: Kevin, I haven't even asked you about what I think is one of your favorite topics, because I see you talking about it on social media. People, the people aspect of, of, of buying and owning a small business just as a, as a hook into this. One of the things that you, you've said recently is like, you know, private equity type, financially minded people need to recognize that the realities of being an SMB owner are much more about people. That is a theme that comes up time and again on this podcast. What do you have to say on the topic?

Guest: Yeah, without people, you don't have a business. I mean, you. I. It's incredibly important to me that the team is bought in that we have good people around us and to, to a person, I mean, we have, we have great people. And I want to do everything I can in order to support them and help them flourish, you know, professionally, economically. And, you know, doing so is a privilege. And that's a differentiator we have in small business versus being in a large corporate. You know, it's funny that when I was talking to, talking to my VP about, you know, how to, how to do reward, how to do bonuses, how to do all this kind of stuff for employees that have gone above and beyond for the show, and he, he gives me a suggestion like, I didn't realize I could do that. And he kind of looks at me and he's like, you can do anything you want. You know, which is, which is very, it's freeing in a way, but it's also like, oh, I kind of can do what I want here, and I don't have to go and ask permission from my boss's boss to give somebody a raise or to, you know, help them out with, you know, some, some random thing or to, you know, give them a day off or to let them work from home or to let them, you know, whatever it is, you know, there's no, there's no red tape they have to go through. And I think if you're not, if you're not using that to your advantage in small business, you're leaving a ton on the table. If you're ruling, I mean, if you're ruling, it's not, that's, that's not quite a Freudian slip. But like, if you are ruling with an iron fist. And you're, you're a tyrant and you're, you know, that's, that's the model that you're going, I think you're going to be in for a rough time. And that's, that's what a lot of people, I mean, with a lot of these people, I mean, they've not the previous owner, but the, but the founder came through and rolled with an iron fist. He built a successful company. But, you know, they, they sort of lived in fear of, of, of him. And you know, I could not be more opposite from that. So there, you know, there's a lot of adjusting that they have to do and a lot less of, you know, like guarding things for job security. And I have to basically tell them. It's like, look, guys, if I'm bringing in improvements or I'm bringing in new technology, it's not to, it's not to replace you. I'm not trying to replace you with technology. I'm trying to remove some of the menial tasks and let you work at a higher level and do things that are, you know, a little bit more challenging and things that are, you know, that you're capable of doing. But for right now, you're, you're basically stuck pushing paper because that's the setup that we have. And I, you know, you've been doing it for 20 years, I get it. But, but you have enough industry experience. I mean, 20 years industry experience, like they know what they're doing and they could be so much more valuable if we eliminate some of that, you know, paper pushing, menial stuff and give them the ability to actually kind of grow into, grow into higher level responsibilities and take more ownership over certain areas. So I think if you're not providing those growth opportunities and you're not providing the flexibility that you can offer as a small business owner, I think you're missing the boat. Great.

[1:20:51] Host: Well put, Kevin. Last question. You've mentioned Fruition Capital a couple times. Tell people about it and tell people who might have a deal how they should, how or if they should reach out.

[1:21:05] Guest: Yeah. So Fruition Capital is a, we're raising our inaugural fund right now for, for first 5 million. It's going incredibly well. We've got, you know, a lot of positive responses on both the searcher side and the investor side. It's a bit different of a model than some of the other ones that are out there. But we're all, I mean, I know a lot of the capital providers out there and they're, I mean, There's a lot of good people in this space, but we want to come in there and be a fund that is known for, you know, having great investor relations, finding awesome deals, unique deals, good sponsors, and then just being great operating partners along the way. You know, we want the long term, we, we're aligned in the long term success of our, of the sponsors that we, that we end up backing. And we want to eliminate the stress from, from, from your deal. Yeah. In the raise process. Because, look, I, I know how it is and it's stressful and if I can, if I can even give you, you know, if you can have half the stress that I did, doing this raise in a short period of time, I think that's a success. You know, having, having more options available to you is certainly a positive thing. As a searcher and as an investor, what we provide is we provide diversity. You know, we provide, you know, access to a number of deals in a fund versus one, one deal at a time. And frankly, for all those busy professionals that I mentioned, you know, like, that are on my cap table and that are on, you know, a number of cap tables, investing in a fund might be the way to go because you're able to basically outsource the diligence and the deal process and you can just, you could be the bank, right. You're able to again, work at your highest and best function. Big law, attorney, insurance, whatever it is. You can work at your highest and best level and let, you know, let your money go to work in these funds, finding awesome entrepreneurs who are willing to. And I mean, the thing I kept saying was, I'm willing to crawl over glass to make this deal happen. And I think I even posted that on Twitter and during one of the periods where I'm just like, I will get this deal done. That's, that's not necessarily a rare sentiment of these among these people. You know, they're, they are the people who are going to close deals. The people who are going to get into this, this, this niche are incredibly dedicated, incredibly passionate, willing to just put it all on the line. And I mean, there's, there's no, I don't, I can't imagine doing something else. Like these are, these are some of the most, you know, there's some of the smartest people, there's some of the nicest people, and everybody wants everybody else to succeed because there's plenty of room for everybody. So, you know, to kind of put a bow on it. You know, if you're an investor and you're looking for diversity in investment, please reach out. Or if you're a searcher, I've talked to tons of searchers and I'm happy to talk to you. You can just reach me@KevinBelhausen.com. that's the easiest way. Or Twitter, of course, as we've been talking about.

[1:24:08] Host: Twitter, of course, and LinkedIn.

Guest: You're active on LinkedIn and LinkedIn. I'm nothing if not reachable.

Host: Kevin, thank you very much for coming on to do this. Thank you for being on the panel a few weeks ago. You are very generous with your time and thoughts, and I appreciate it. I'm sure the audience listening to this will as well. So thanks a lot, sir.

Guest: Thanks, Will. It's a ton of fun.