Capital Allocators – Inside the Institutional Investment Industry
Episode: Josh Kopowitz – Flexible Capital and Creative Structures at Thayer Street (EP.451)
Release Date: June 12, 2025
Host: Ted Seides
Introduction
In Episode 451 of Capital Allocators, host Ted Seides engages in a comprehensive discussion with Josh Kopowitz, Managing Partner of Thayer Street Partners. This episode delves deep into Josh's professional journey, his experiences at Goldman Sachs, the inception and evolution of Thayer Street Partners, and his insights into the current landscape of non-bank growth capital. The conversation offers valuable perspectives for investors and industry professionals interested in flexible capital solutions and creative financial structures.
Josh Kopowitz’s Early Journey and Background
Josh Kopowitz's interest in business and finance ignited during his formative years in New York City. Growing up amidst the bustling finance and real estate sectors, he developed a keen interest in the stock market and neighborhood developments. Despite pursuing a liberal arts education as a history major at Brown University, Josh's passion for business persisted, leading him to engage in entrepreneurial activities such as working as a DJ for a commercial radio station.
Notable Quote:
"[My] interest in business evolved through independent studies and classes with adjunct professors who were entrepreneurs or real estate developers."
[03:43]
Formative Experiences at Goldman Sachs
Josh's foray into the financial world began with a summer internship at Goldman Sachs in the Special Situations Group, which later transitioned into a full-time role. This period was characterized by a "trial by fire" approach, where Josh was immediately immersed in diverse deal types, ranging from debt and equity investments to joint ventures.
Key Learnings During the GFC:
- Emphasis on the mantra, "don't lose money" (07:08)
- Importance of risk-adjusted returns, even if it meant forgoing high-yield opportunities
- Development of multiple risk mitigation strategies, including exit plans and de-risking mechanisms
Notable Quote:
"Our mantra was 'don’t lose money.' Every deal was first underwritten like a debt deal, ensuring careful consideration of risk exposure and potential returns."
[07:08]
Transition to Thayer Street Partners
In 2012, driven by an entrepreneurial spirit and a desire to focus on smaller, intellectually stimulating deals, Josh founded Thayer Street Partners. Unlike larger funds, Thayer Street targets the "fat middle" of the capital structure, providing flexible growth capital to lower middle-market companies in financial and business services.
Challenges Faced During Launch:
- Limited initial backing, relying on personal savings and relationships with family offices
- Operating from scrappy early offices, including a print center at Staples and subleased spaces in nine west
- Building proprietary deal sourcing strategies with limited resources
Notable Quote:
"I wanted to put my money into small deals that were more intellectually interesting and less inefficient, allowing for better pricing."
[12:15]
Deal Sourcing and Structuring at Thayer Street
Thayer Street Partners employs a thematic sourcing approach, focusing on industries undergoing consolidation, increased regulation, or technological adoption. The firm emphasizes building deep sector expertise and fostering strong relationships within chosen subsectors to identify proprietary investment opportunities.
Deal Structuring Philosophy:
- Positioned between conventional debt and leveraged private equity
- Investments often take the form of preferred equity, structured equity, or senior preferred securities
- Focus on minimal dilution for entrepreneurs while ensuring upside potential
Notable Quote:
"We are investing in the fat middle—the part of the capital structure that is somewhere between conventional debt and leveraged private equity."
[14:55]
Portfolio Construction and Risk Management
Thayer Street aims to construct a diversified portfolio that balances downside protection with significant upside potential. The firm targets businesses with high recurring revenues, low correlation with capital markets, and robust growth prospects.
Portfolio Strategy:
- Maintain a minimum blended return target (approximately 1.5x) across the portfolio
- Leverage structured deals to mitigate risks associated with smaller, non-institutionally backed businesses
- Incorporate multiple layers of risk mitigation, including liquidation strategies and strategic exits
Notable Quote:
"We want to create a portfolio where the majority of our capital at risk is within the credit envelope, ensuring a balanced risk-reward framework."
[30:01]
Case Studies: Creative Deal Structures
Josh shared two illustrative examples demonstrating Thayer Street's innovative approach to deal structuring:
-
Entrenched Payments and Invoice Company:
- Provided structured capital to a company hesitant to take on debt
- Imposed conditions such as a minimum return and rights to influence major decisions
- Resulted in significant growth and eventual acquisition of the company
Notable Quote:
"We structured a deal where if the company didn't grow materially, we had the right to force a sale, ensuring protection for our investment."
[34:24] -
Recurring Revenue Business with M&A Focus:
- Invested in a business averse to debt, facilitating growth through strategic acquisitions
- Employed convertible securities to align upside potential with the firm's returns
- Enabled the business to execute multiple M&A transactions effectively
Notable Quote:
"Our securities allowed entrepreneurs to preserve more ownership while enabling us to participate in the company's growth."
[38:09]
Challenges in Scaling a Boutique Firm
As Thayer Street Partners transitioned from a scrappy deal-by-deal operation to an institutional platform, Josh identified several challenges:
- Maintaining Flexibility: Ensuring that the firm remains agile while scaling operations
- Team Dynamics: Balancing the growth of the team with the firm's focused investment strategy
- Capital Raising: Navigating the complexities of institutional fundraising while retaining the firm's unique investment approach
Notable Quote:
"One of the challenges is that LPs sometimes expect our team to grow at a faster rate than our business model can accommodate."
[50:15]
Future Vision and Strategic Outlook
Looking ahead, Josh envisions Thayer Street Partners continuing to refine its investment model, expanding its impact, and possibly growing its funds modestly. The firm remains committed to its core strategy of providing flexible capital and maintaining a high degree of co-investment opportunities.
Strategic Goals:
- Enhance long-term relationships with portfolio companies
- Deepen sector expertise and expand into adjacent industries
- Sustain a disciplined approach to portfolio construction and risk management
Notable Quote:
"We want to keep doing what we're doing, increasing our impact, and refining our model to drive more meaningful outcomes for our portfolio companies."
[54:33]
Conclusion
Josh Kopowitz's journey from a young enthusiast in New York City to the Managing Partner of an innovative private equity firm underscores the importance of flexibility, creativity, and disciplined risk management in institutional investing. Thayer Street Partners exemplifies how boutique firms can effectively navigate the lower middle market by leveraging deep sector expertise and structuring deals that align the interests of both investors and entrepreneurs. This episode offers valuable insights into the evolving landscape of non-bank growth capital and the strategies that can drive sustainable growth and value creation.
Podcast Resources:
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