Podcast Summary: "How I Invest with David Weisburd"

Episode E299: Why Institutional LPs Are Moving Into Lower Middle Market PE (Feb 6, 2026)

Episode Overview

In this episode, David Weisburd interviews Peter (last name not given in the transcript), co-founder of RF Investment Partners. The conversation delves into the unique challenges and opportunities of investing in the lower middle market private equity (PE) space, with a focus on why institutional limited partners (LPs) are increasingly turning their attention to this segment. Peter shares RF's “relationship-first” ethos, describes being the first institutional capital into founder-led companies, and unpacks the nuanced approach his firm takes—balancing customized capital solutions, minority versus majority investments, and the critical role of “value add” beyond mere capital. The discussion offers a candid look at PE's evolving landscape, RF’s differentiation in the market, and practical insights about partnering with operators.

Key Discussion Points & Insights

1. The Problem RF Investment Partners Set Out to Solve

• Listening First:
  • Most PE funds arrive with a predefined playbook. RF sought to differentiate by listening to management teams of lower middle market companies and creating customized solutions.
  • Quote (Peter, 00:14):

    “We come with a mindset of looking to listen to management teams, looking to listen to what the company's needs are, and then trying to customize a solution around those needs.”

2. The Value of Entering as First Institutional Capital

• Transforming Family-run Businesses:
  • RF prefers to invest before a company has been professionalized by others, providing fresh perspectives and professional management practices.
  • Quote (Peter, 00:42):

    “We're coming on board, typically with family run businesses that have been successful in what they've done. But...it's really been one way of doing business as opposed to bringing different perspectives to the table...We always tell our management teams, you may have done things a certain way for the last 10, 20 years. That doesn't mean that that's the only way of doing business.”

3. Bespoke Capital Structures

• Flexible Approach:
  • Unlike typical funds with one-size-fits-all solutions, RF customizes the mix of debt and equity to fit each company. This flexibility is a core differentiator.
  • Quote (Peter, 01:40):

    “We then take what we hear from the company and from management teams, and then we create a capital solution that best fits those situations. Often...it can be more debt heavy and it can be more equity heavy, and we're looking for the optimal risk adjusted returns for us, while also...the best capital structure for the company.”

4. Fundraising Challenges: Hard to Bucket

• Institutional Allocation Constraints:
  • Larger LPs like University of Michigan created “opportunistic” buckets for funds like RF, but most institutions stick to rigid allocations (buyout, credit, etc.), making fundraising an uphill battle.
  • Quote (Peter, 02:40):

    “For many of the larger institutions, they don't have a bucket that they're looking to fill that's allocated for what we do. And then it's upon us to convince them how the risk adjusted returns still makes sense, but it certainly is an uphill battle.”

5. Scale and Philosophical Divides Among LPs

• Alignment with Future-oriented LPs:
  • Some LPs want scale—allocating billions per strategy—which doesn’t fit lower middle market funds. Others focus on risk-adjusted returns and are more open to flexible, innovative approaches.
  • Quote (Peter, 03:33):

    “We're much more opportunistic for those groups.”

6. The Nuances of Minority Investing

• Control Without Majority Ownership:

  • Not all minority investors are the same. RF uses both equity and debt positions to gain influence, unlike purely growth equity players.
  • Quote (Peter, 05:48):

    “We have fairly significant controls and guardrails in place not just on our equity, but we get those guardrails through our debt investment...as opposed to a traditional growth equity investor that may be to some degree more along for the ride.”

• Therapist to Owners:

  • Investing in founder/family-owned businesses means helping owners and employees through difficult transitions, especially professionalizing the company.
  • Quote (Peter, 06:22):

    “Often family members are involved...helping them understand bringing different people to the table at different points in the lifecycle of a company can be incredibly helpful.”

• Structuring for Downside Protection:

  • Need bigger equity cushions and stricter covenants to compensate for lack of control.
  • Quote (Peter, 07:27):

    “When we do a minority investment, we need controls on the debt, the different covenants...and then we need a bigger equity cushion to underwrite the risk...by not being able to effectuate the same controls.”

7. Varying Influence by Ownership Stake

• Relationship-building is Key:
  • With small stakes, RF’s influence is indirect—built on trust, alignment, and relationships.
  • Quote (Peter, 08:57):

    “If we own 5, 10% of a company, the company doesn't have to listen to our advice. We hope that they do...Developing the relationship, spending more time with the management team...is absolutely critical.”

8. The 180-Day Majority Playbook

• Executive Chairman Model:
  • RF often installs an executive chairman (an ex-CEO, not looking for a full-time gig) to work closely with the team, a step beyond just adding board members.
  • Quote (Peter, 09:45):

    “We want to bring individuals who are former CEOs, not looking for their next CEO gig, but...sit on two to four of our boards and spend 10 hours a week working with the management teams...”

9. What “Value Add” Means in Real Life

• Beyond Financial Engineering:

  • Emphasis on recruiting, management alignment, operational KPIs, and making mid-level goals tangible.
  • Quote (Peter, 11:07):

    “When you're working with a lower middle market company, it's not financial engineering that's taking place. You're dealing with personalities. Personalities are critical for us.”

• Translating Goals for Employees:

  • Employees respond better to targets like gross profit or customer retention than to high-level metrics like EBITDA.
  • Quote (Peter, 12:44):

    “Mid level managers don't understand what EBITDA is...But drilling down into some of those KPIs...that if a company does well in those KPIs, it's clearly going to then lead to higher EBITDA margins...”

10. CEO Summit & Knowledge Sharing

• Building Community:
  • RF hosts annual CEO summits, connecting portfolio company CEOs to facilitate peer learning—borrowing a practice of much larger funds.
  • Quote (Peter, 13:46):

    “We've tried to take this down to the lower middle market...It's better when a CEO has that network in place and has the ability to talk to other CEOs dealing with the same issues.”

11. The Influence of Personal Relationships in RF’s DNA

• Relationship-first Platform:
  • Early backers—their own CEOs, CFOs, and board members—became invested, creating a reinforcing cycle of reputation, referrals, and references.
  • Quote (Peter, 15:46):

    “We had 18 of our former CEOs, CFOs and board members invest in the platform...the world becomes smaller and smaller. So those 18 CEOs, CFOs and board members are the best references for us.”

12. People Over Models: 70% of Deals is About People

• Investing is Like Marriage:
  • The unpredictable nature of business means that partnership quality is the most important risk factor—more than any spreadsheet.
  • Quote (Peter, 17:11):

    “No matter how you underwrite a deal, something unpredictable is going to take place...Making sure you're sitting around the table with the right group of partners has been absolutely critical for us.”

13. Judging CEO Psychology and Behavior

• Deep Diligence:
  • RF invests heavily in deep background checks to understand how a CEO has treated past partners—critical when minority investors can’t fire the CEO easily.
  • Quote (Peter, 19:15):

    “You can get background checks done for $800. We typically spend about $3,500 per background check...Because understanding how someone has treated a former partner...it's going to be indicative of how they treat their future partners.”

14. Evolution in PE: Toward True Value Creation

• LPs Want Proof, Not Just Capital:
  • Specialization and demonstrating operating improvement is now table stakes for raising from sophisticated LPs.
  • Quote (Peter, 21:57):

    “If I were in an LP's position, I'd want to see do you have a track record of actually effectuating change, increasing ebitda? Not that you invested and you bought at a seven times multiple. The market went up and you were able to exit at a 12 times multiple. You have to be able to point to here's the value that we created within these companies.”

15. Critique of Traditional Buyout Funds

• Listening Over Pitching:
  • Too many successful PE managers assume they know more than operators. RF leads with listening and curiosity, not a ready-made pitch.
  • Quote (Peter, 22:58):

    “Traditional private equity firms, not all, but many of them go into a company and they've got their five minute marketing plan ... I think we all need to be better listeners to go and actually listen to the management teams, listen to see are we the best fit for what they do...”

16. The Practical Benefits of CEO and Board Member Backing

• References and Referrals:
  • Having dozens of former executives invested enables RF to offer authentic references, which pays off in due diligence and sourcing.
  • Quote (Peter, 24:22):

    “It sends a very strong message when every reference call gets asked the question would you invest in rf? And they say well actually we have. And by the way, we're paying the same management fee and we're paying the same carried interest that every other investor is.”

17. The Importance of a Personal Stake at RF

• Personal Touch Over Institutional Coldness:
  • Early close relationships make RF highly attentive to every investment and reputation.
  • Quote (Peter, 26:30):

    “When you take money from your mother, your brother, CEOs that you've worked with for five, 10 years, former co investors...everything is very personal. And so every investment ... it's all personal. So we take it very seriously.”

Notable Quotes & Moments

• “Deals are 70% people.” (Peter, 17:06)
• “Being a minority investor requires you to play therapist.” (Peter, 06:22)
• "Improve 1% every week.” (Peter referencing a former CEO mentor, 12:53)
• “If I were in an LP's position, I'd want to see do you have a track record of actually effectuating change, increasing EBITDA? Not that you invested and you bought at a seven times multiple. The market went up and you were able to exit at a 12 times multiple.” (Peter, 21:57)
• “When you take money from your mother, your brother, CEOs that you've worked with for five, 10 years, former co investors...everything is very personal.” (Peter, 26:30)

Key Timestamps

• 00:14 — Origins of RF: Listening vs. playbooks
• 01:40 — Why providing bespoke capital matters
• 02:40 — Fundraising challenges: fitting into institutional LP buckets
• 05:48 — Minority investing: why “minority” doesn’t mean powerless
• 06:22 — Playing “therapist” in founder transitions
• 07:27 — Downside protection in minority deals
• 09:45 — The 180-day plan and the executive chairman model
• 13:46 — The RF CEO Summit: Knowledge sharing for portfolio leaders
• 15:46 — Relationship compounding and platform building
• 17:06 — “Deals are 70% people”—why partnership matters most
• 19:15 — Going deep on CEO background checks
• 21:57 — LPs demand demonstrable value creation
• 22:58 — Critique of traditional buyout fund approaches
• 24:22 — Day-to-day benefit of CEO and board member backing
• 26:30 — Why investing personal money created RF’s culture

Conclusion

Peter provides an unvarnished look at the realities of operating in lower middle market private equity, advocating a patient, relationship-driven, and highly customized approach. The conversation covers how to systematically build trust with management teams, align structures for both risk and influence regardless of ownership percentage, and design genuine “value add” initiatives that go well beyond financial engineering. RF’s practice of taking investment from former CEOs and board members creates powerful flywheel effects in deal flow, referencing, and culture. The evolution of the industry—under pressure from LPs—is away from “capital as commodity” and toward true operational partnership, with general partners judged less by their spreadsheets and more by the change they drive for their companies.