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- [00:03]
A
Welcome to the Investor, a podcast where I, Joel Palo Thinkle, your host, dives deep into the minds of the world's most influential institutional investors. In each episode, we sit down with an investor to hear about their journeys and how global markets are driving capital allocation. So join us on this journey as we explore these insights. All right, so we are live. You know, I like to keep it authentic. You know, we, you know, we're in New York City and there's a mass outage from 8am to 10:10am right before we have a podcast. But we still made it work, so that's kind of how you have to do it sometimes. But you know, I got a really awesome guest here today. I've got Callum Lang. He's just a really experienced M and a private equity investor. He helps a lot of different founders and investors just kind of get to scale and really excited. He's also been published broadly with a lot of the work that he's doing. Just a successful executive in the space. So, Callum, why don't you take a couple moments to go through your background and then we'd love to go a little deeper and talk more about private equity, M and A roll ups, all that fun stuff.
- [01:18]
B
Yeah, sure. So good to be here, Joel. I appreciate you working through the technical challeng. So look, I've been an entrepreneur for nearly 30 years now and really it was only the last 10 years that I've been in the capital markets space. And I guess our approach is pretty unusual. We sort of come from a very. Lots of people say they're founder friendly. We actually are founder friendly. We saw that there was a lot of. And this is just because we're founders and we saw a lot of M and A was actually destroying more value than it was creating. And so we've always tried to help small businesses to grow. And one of the ways that we did that was putting groups of them together into public companies, but leaving the founders in control, leaving them with their brand, their culture, their way of doing things. So we're not private equity in the traditional sense of going in and trying to run the business ourselves. So it's a slightly different approach. Sure, yeah, it's kind of over the 10 years, we've taken over 100 companies public in markets all over the world, but mostly Europe. But the companies come from all over the world and yeah, it's a fun space to play in.
- [02:49]
A
What are some of the biggest challenges that you see with founders trying to get to scale? And I'd love to kind of break that down into the revenue, you know, buckets. Right. So, you know, getting to the first million, what are some of the biggest challenges? And then I would say from 2 to 5 million and then beyond maybe walk us through kind of the different revenue milestones and kind of the different challenges and things that they need to deal with, especially when it comes to operations and fulfillment.
- [03:19]
B
Yeah, so look, I think we don't really touch early stage businesses, but I've set up enough of my own to know that space. Well, one of the companies that I own does training for small, does training for individuals that want to get board seats. And we, the way we train them as we put them onto the boards of small companies around the world. And so we're sort of very familiar with that space. Almost all of it comes down to lead generation, when at that point it's just figuring out how to get more leads so that you can. And that's really understanding how you solve a problem for a client in the space that we're getting to. And typically we are looking at companies, most of the companies we look at are actually too small for traditional private equity. Too small for, yeah, the public markets on their own, but grouped together that they can have scale. And a lot of entrepreneurs get very stuck in the sort of incremental thinking because what gets you to a certain level, they just keep trying to repeat that. So if it's lead generation, it's just, oh, I need to add more leads or add more staff. And actually what we're big advocates for is you get most of your or you can get some very significant growth through acquisition in a way that you can never do incrementally. And so just looking at the different ways you can do that, and I think a lot of people, a lot of entrepreneurs put acquisition off because they assume they'll need huge resources of cash and the army of lawyers and accountants. But there's so many creative structures that you can do just joint ventures and share swaps. And so we put groups of companies together, very rarely put any cash down. It's almost always we use equity to do these deals. And it's a, you know, you can grow incredibly fast when you're willing to do deals like that.
- [05:28]
A
That's really helpful. What are, when you say early stage, what would you consider early stage in terms of revenue? Would you be, you know, sub 5 million? Like, I guess, what's the entry point that you like to work with founders and we'd love to hear about your criteria in terms of like, what, what's a Good candidate to partner with.
- [05:45]
B
Yeah. So look, traditionally for us, we always, first of all we were only interested in old economy businesses. So we, and look, the reason we were interested in them is that nobody else was. So you've kind of got Silicon Valley and everyone else is super excited about startups and, and look, there's a huge amount of PR and discussion about it, but it's a tiny part of the economy. It's like 1.4% of the economy. And then most of the business Finance World is 200 million market cap and above. So that's kind of where the public markets get in. It's where private equity starts to make sense. And yet you're still there. Are you having.
- [06:30]
A
Yeah, I'm here, I'm here. Can you hear me?
- [06:33]
B
Yeah. So really we decided to kind of sit in that middle sector between startup and the 200 million market cap space, which is actually, it's 50% of global GDP, it's 90% of private sector employment in most businesses. But it's, and ironically it's the largest asset class on the planet. But if you're a sophisticated investor, there's no instrument to get access to that class. It's too fragmented, it's too risky, it's too illiquid. And so what we originally started doing was putting groups of these companies together under a public holdco wrapper, which just meant that sophisticated investors could get in and out today. So the models evolved and we have enough investors around us now. We have quite a unique approach to using the capital markets which is very, very counterintuitive, but that's allowed us to take a different approach. And so now we work with companies. We still don't like startups, but we have worked with some pre revenue businesses as long as they have booked revenue into the future. But the approach that we took to the public markets, and this took us a long time to, to understand and cost us a lot of money along the way. But I think you'll appreciate it is we would do what everybody else did. So we would take these companies public. We would follow best practice that the investment banks tell you and investor relations tell you, which is you try and get as much liquidity into the stock as possible because otherwise big investors can't come in because they won't. The problem is when you're a small cap stock, it's a really horrible place to be. You're so easy to manipulate, you're so easy to get beaten up. Have one investor takes a big chunk and sells it and the share price can drop 30% and then everyone panics, and it's a really horrible place to be. And so what we basically designed is this model that we call the constrained stock option. So we don't work with companies where people want to exit. We work with companies where they want to grow and scale. And everybody involved in the deal is locked up for five years. Now, from an investor standpoint, that's super attractive because as investors, we don't want to be dumped on. We don't want to be exit liquidity for somebody else. And yet, if you look at over the last 50 years, 50% of all public listings have gone backwards and never recovered. If you look at the last 10 years, it's 68% of of all public listings have gone backwards and never recovered. And it's because founders try and take money off the table, staff trying to take money off the table. Early investors all run for the hill. So basically there's just this vomiting of stock into the market. And unless you're Elon Musk and can get the rules changed to absorb that, which most of us aren't, it's a really tough place to be. And your attention stop switches from running the business to just relentlessly trying to find new investors to prop up the stock price. So, yeah, we just got rid of that whole model and said, okay, we only want to work with people that are willing to grow over five years and are willing to be locked up for that period. And that that changes the game completely.
- [10:04]
A
That's really helpful. I think it's super interesting that you help roll these companies up in a public vehicle. I've. We've had the London Stock Exchange on our podcast in the past, and I have a handful of buddies that are in the process of looking to do an ipo. And they've been shopping around in different countries. Right. They've been looking at in Europe and, you know, some of them have just preferred to do it in the US for, you know, whatever reasons they have. But when you're rolling these companies up, which exchange is this going public on?
- [10:36]
B
Yeah, great question. So what's really interesting is entrepreneurs. We're very used to our clients being all over the world. We're very used to our suppliers being all over the world. And yet our mindset when we go public is I'm going to list on my local market. But actually markets, there's all sorts of pros and cons to different markets. And I'll give you a great example. We've got a listing in the US right now, and A few months ago we had to do a filing and the filing is a couple of pieces of paper. It cost I think 96,000 US to get that, do that filing in the US that same filing in the, in London cost about €5,000. In Frankfurt it cost about €2,000. So like the US is one of the most expensive places to list and also it's of course it's super, super litigious and, and you, you're such a small player there. Whereas you can list in Europe, you can grow in Europe and you can be a kind of a bigger fish in a smaller pond and then cross list over to the U.S. once you reach kind of a billion, 2 billion, you're still a minnow over there, but, but at least you kind of got a bit of a war chest and can find your battle.
- [11:54]
A
That's interesting. So you can, you can have two different, you can have two different offerings in two, two markets, I guess, or more of a transfer from like.
- [12:05]
B
No. So, so basically it's, it's, it's a cross listing. It's very, very common. If you, if you look at Adidas, for example, they're, they're listed on Frankfurt, cross listed into New York, Facebook are listed in New York, cross list into the uk so it's very, very common.
- [12:22]
A
Interesting.
- [12:23]
B
It's a much, and there's some quite attractive rules in the US So for example, you could, one of the things that we've done in the past is list on Frankfurt which is quite relaxed in terms of reporting. So you have to file annual numbers once a year and management numbers once a year. Whereas in the US it's typically, it's quarterly. And if you're a group of small businesses, quarterly numbers is, it's horrible. It's basically you finish one quarter and you start working the next quarter. And, but yet we can list them in Frankfurt when they get big enough, cross list it into the US and there's a passport that you can get which basically on certain markets allows you to remain with your home country rulings. So yeah, quite unique opportunities when you start looking internationally.
- [13:19]
A
Yeah, no, that's great. I know we got about three minutes left, so I got two things for you. So one thing I want advice on is just best practices for preparing for an IPO or just some type of listing. So I know usually what you have to do is get audited. You have to kind of go through the proper, you know, legal processes to kind of get the actual entity listed, whether it's across listing or just in one Geography. And then the second question I have for you. Well, the second thing that I want from you is just one piece of advice. It could be from a mentor or a business partner or a family member. So two softballs for you.
- [13:58]
B
Okay, so look, in terms of listing, we've got to a point now where we have such a network of investors that like the deals that we do, that if we find a good deal, we actually cover all of the costs involved with taking the company public and just take equity in the deal. And so that's obviously super attractive for companies. Everyone needs to be audited, but that's par for the course, I guess. The bit of advice I would normally say is, don't go public. So, weirdly, after this conversation, most of the advice I give to entrepreneurs is don't go public. And the reason is that most entrepreneurs want to go public for the wrong reasons. It's either for ego or it's because they want to raise capital and get liquidity. And there's much cheaper ways to raise money than going public. And it's a horrible way to get liquidity because you're just dumping on investors and investors don't care. I think it's a fantastic tool if you want to grow by acquisition. So the two things that really stand out is the credibility you get. So small businesses can win much bigger contracts as a public company, and using the currency of the stock to do acquisitions is super, super enabling for companies that want to grow. So, yeah, that's. That's the advice. It's very taught. My own book, but, yeah.
- [15:26]
A
Well, thank you so much, Calum. That was really helpful. And appreciate all that you do for the founder, community, and other investors. So have a great day. To you and everybody else.
- [15:40]
B
Appreciate you making it work. Just Joe.
- [15:43]
A
All right. Yep. Take care. Bye.