Shiv interviews Devon Kirk, General Partner, and Jonathan Metrick, Chief Growth Officer at Portage.
Devon and Jonathan share their perspectives from different sides of the investment table – Devon is on the investing team while Jonathan is on the internal ops team. Learn about their experiences investing in global FinTech and financial services, when in the deal cycle to bring in the ops team, and how they interface with each other during diligence and beyond. Plus, hear about how specializing in one vertical impacts the investment approach.
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Episode Transcript
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(00:00):
Welcome to the Private Equity Value Creation Podcast where we
interview leading investors, operators, bankers, and advisors
to help you answer one question.How do we increase the
enterprise value of our companies?
My name is Shiva Narayanan, and each episode I will dive deep
with a guest to help you become a better value creator and
(00:22):
capital allocator. So with that said, let's jump
right in and let's get started with today's episode.
Today our Devin Kirk and Jonathan Metric who are both
from Portage Capital Solutions. And what's really interesting
about this episode is Portage isactually a global investor and
that specializes in financial technology and financial
(00:42):
services. And they have a ton of great
investments like well, Simple and Coho and Nesto and a bunch
of other companies. And what was interesting about
the episode is you had Devin whowas on the investment team and
he had Jonathan, who is more on the operating side of the
business. And we got to have both of them
on. And I specifically wanted to
talk about how both of them interface with each other as
Portage makes investments. Because this is a thing, this is
(01:05):
a trend that I've been hearing from a lot of PE firms in terms
of when they're bringing in their operating folks into the
deal cycle. And from my experience, the
earlier you do this, the better it is because then you can
uncover the value creation levers sooner so that even when
you close the deal, you can kindof hit the ground running.
And even the work that we do with our PE investors, that's
why we're we're brought in at the LOI stage or sometimes even
(01:28):
even pre LOI. So it was a great conversation,
and I think especially if you'rethinking about how to have these
two sides of the house work closely together, as you're
making more investments, I thinkyou're gonna take away a lot
more. So with that said, I'll leave
you to it. Enjoy the episode.
(01:48):
Alright, Devin, Jonathan, welcome to the show.
How's it going? Great.
Thanks for having us on. Doing well.
See you. Excited to have you and and why
don't we start with introduction.
So Devin will start with you andwe'll go to Jonathan.
Perfect. So Devin Kirk, I Co head the
later stage strategy at Portage,which we call Portage Capital
Solutions. I've been investor in fintech
(02:09):
and financials for coming on 20 years now and I'm really happy
to be on. Excellent, Jonathan.
Yeah, my name is Jonathan Metric.
I also work at Portage. Of course I head up our go to
market practice on our value creation team that's basically
helping our our Fintech and financial services portfolio
companies with marketing sales growth, everything related to
(02:33):
revenue acceleration. I've been at Portage for last
five years, but I'm an operator by craft and I spent my entire
career kind of leading marketingteams across various different
industries, most often in in fintech and scale ups.
That's awesome. And and what's interesting here
is normally we have one side or one type of role on the podcast
at a time. So here we get to have the
(02:53):
investment side and the operating side of a firm
together. So Devin, why don't we start
with you? Like what are the types of
investments that you're looking for at Portage as you're looking
to deploy your capital? So Portage does all fintech and
financial services investing andwe've got 2 strategies. 1 is on
the venture side where we focus on kind of seed through be
(03:14):
investing. And then we have the later stage
strategy that picks up where they leave off doing see and
later all minority investing combination of kind of plain
vanilla traditional growth equity and more bespoke, less
dilutive solutions for companiesas well.
And you know in the later stage strategy, we look for businesses
(03:35):
that have proven product market fit and so typically revenues in
the 20 million plus range, clearpath to profitability if they're
not there already. And really an important lens for
us, which I'm sure we'll talk more about today, is that we
really believe that we're the right partner and that we can
add value as they look to scale their business.
(03:57):
How do you figure that out? Is it primarily an in the
fintech space and it has to be growing at a certain rate?
What are some of the characteristics that you filter
companies through, whether it's on the seat side or the OR the
leader stage side? Yeah, absolutely.
So we look for businesses that have healthy growth.
The venture side is, is you knowvery focused on really top
(04:20):
quartile growers. The later stage side, we were
looking at A, at a wider varietyof metrics, but always looking
to invest in, in healthy businesses, you know, ideally
with relatively kind of sticky revenues, you know, high
customer satisfaction, diversification in customers,
Our products that are um, differentiated that gives us
(04:44):
conviction on not just their ability to scale, but really
kind of the strong foundation that they're building on.
Yeah. And one of the things that, you
know, because we have so many investors on the podcast, we
hear similar things, right, likegrowing strong, strong growth
year over year, good net revenueretention or Seaside ratings or
NPS scores. And those kinds of assets tend
to go at premiums and there's a ton of competition and a bunch
(05:06):
of investors would want to deploy capital into those
assets. So how do you differentiate
yourself or stand out from otherinvestors that are pursuing
similar similar targets? So I do think that our sector
specialization is massively helpful from that perspective.
It clearly allows us to have, you know, deep expertise in the
spaces that we're investing in. And I think, you know, frankly,
(05:29):
we've gone through a more challenging market environment
over the last few years. And I think that reminds, you
know, management teams and folksaround the boardroom table that
they really want people there who understand the business, but
the opportunities and the threats.
So I think that is really important and also allows us to
have more tailored resources forour portfolio companies.
(05:52):
And so, you know, Jonathan is anexample, you know, as you think
about kind of our go to market support that we can provide.
If we have, you know, a portfolio of more than 100
fintech businesses, you know, a mix of D to C and B2B business
models. There's a lot of insights that
we can bring to bear around kindof what we've seen be successful
over time in different geographies in response to
(06:15):
whatever is happening in the market at that particular moment
time. And so having, you know, a value
creation team that our operatorsin the space understand the
space are spending time with other companies in the space day
in, day out makes a big difference as well.
And lastly, I would really say network.
So that's something we really pride ourselves in as an
organization. We have a whole team of people
(06:37):
whose full-time job is to cultivate commercial
opportunities for our portfolio companies.
And again, when you're focused on a specific sector, it really
allows them to be systematic in how they cultivate those
relationships that are gonna be relevant for our Porcos and make
more targeted, mutually beneficial introductions as
opposed to being kind of more asopportunistic or scattershot
(07:00):
around it. And this is a good transition to
the work you do, Jonathan. So talk about like eyes these
companies are being invested into how are you looking at
value creation, especially when there are some overlaps and
strategies or markets that they're they're kind of focusing
on on or targeting? Yeah, absolutely.
I mean as Devin kind of called out, we focus on Fintech and
(07:21):
financial services. I mean, I used to be the CMO of
a, you know, venture stage insurance marketplace.
So many of the folks who are working at Portage have come
from that industry and we've been, you know, working in that
industry for many years and actually have been often
operating in those sorts of companies.
So the context is, is immediately linear.
And I think the other component that's very useful as we look at
(07:45):
our value creation efforts is, you know, we invest globally,
right? And there are different trends
that happen that you can port over.
If something's emerging in the United States, well, you know,
in 6 to 12 months that might hitCanada and Western Europe.
From a kind of macro trend perspective, how do we get in
front of those sort of trends and port those across that
(08:05):
knowledge across our portfolio globally?
Because, you know, we tend to see fintech financial services
firms with more geographic champions in one region as
opposed to kind of a global dominant player.
Can you give us an example of that, like something that might
be 1 geography or market might be ahead of and then you can
kind of port that over at least forecast how another company
(08:28):
could benefit from that? Yeah, I mean, a really great
example that we saw in real timewas during the peak of the
pandemic, the, the, the rollout and, and kind of adoption of
TikTok, right? So March 2020, you know,
everyone's locked at home, they're bored, they're on their
phone. And, you know, everyone cut
their marketing budgets back, especially in the BBC version,
(08:48):
because they're like, my goodness, what's gonna happen as
the economy got a crater? And, you know, you saw basically
starting in April, you know, there was an emergence of the
very savvy BC company starting to test this new channel called
TikTok. And there was a ton of volume on
it. Not a lot of advertisers because
budgets were restricted. And you saw this adoption wave
(09:09):
of first US based BC businesses seeing efficiencies on TikTok,
but then cascaded over into Canada a couple months later,
Western Europe within six months, actually around what you
know, kind of Mexico, but a yearlater.
And we enabled our portfolio companies to ride that wave
because obviously, and you know,our conversations with our US
(09:29):
based businesses were like, wow,this is a really great channel
that's brand new, that's super cost efficient from a cat
perspective. And we're kind of tapping our
Canadian and, and, and European and Mexican businesses to say,
hey, by the way, you may want totake a look at this because this
trend is emerging. What about the and that's that's
a great example. What what about like overlaps in
markets and customer bases? Like I'm looking at a couple of
(09:51):
your portfolio companies like Coho and while simple, I would
imagine have a ton of overlap inthe types of customers they can
kind of focus on given that yourinvestors and both, do you try
to encourage partnerships or cross sell opportunities or
integrations between platforms like that?
Yeah, we absolutely do try to encourage partnerships across
(10:12):
our portfolio companies. We do that in kind of more
formal ways, but also more informal ways.
You know, just a couple weeks ago we got a bunch of our CEO's
from our port coast together in Whistler.
You know, isn't a fantastic opportunity for them to really
get to understand each other's businesses.
There's a lot of kind of peer mentorship that happens there,
(10:34):
but also commercial opportunities that get
discussed. So there, there's certainly
opportunities there and, and there's also situations where
they're going after, you know, on the B2B side where they may
be approaching similar enterprise customers and, and
opportunities to partner from that perspective.
(10:54):
And John, I want to give you a chance to jump in there too.
I think you may have had something to add there.
Yeah, I mean, I think so building on what Devin said, you
know, we invest in BTC, NBB, so we have some portfolio companies
that are the, you know, the consumer facing entity fintech,
but then we have the BDB companythat's doing the piping in the
back end, right. And so there's a lot of linkages
(11:14):
we can actually have saying, hey, you're looking for this
sort of solution. We've actually invested in this
this this actual company on the back and creating those linkages
for, you know, kind of creating end to end fintech solutions.
And you know, on even in the Canadian marketplace, which you
mentioned, you know, two companies I've personally worked
very closely with, you know, well, simple and Coho, you know,
how do we really they're going up against these incumbent
(11:37):
banks, right? And so the competition truly is
they kind of legacy sleepy, you know, kind of, you know,
carriers that a lot of folks areusing for their financial
services. How should we be innovating that
category? And by and large, it's better to
kind of partner and share ideas and collab because they're going
up against well funded incumbents.
Are there situations and maybe there's a question for Devin,
(11:58):
like are there situations where you look to certain companies in
the, in the portfolio where there's not just like a
partnership opportunity, but also like an M and a opportunity
where these companies can actually eventually become part
of 1 core platform and have multiple products instead of
being separate companies? So we we haven't had a lot of
(12:19):
examples of that. There's certainly potential for
M&A within the portfolio. You know, obviously would be
really mindful of kind of our our role in those transactions
if we're on both sides. So need to be a little bit
cautious there. But you know, I think frankly
there hasn't been as much consolidation in the fintech
(12:40):
sector as people might have expected over the last few
years. I think there is a good chance
that that accelerates over the next few years.
So it may be something we start to see more of, but you can
imagine, you know, we're conscious of not investing in
businesses that are directly competitive.
So sometimes the synergies associated with combining
(13:02):
businesses within our portfolio would not be as high as the
potential synergies of combiningthem with businesses outside of
our portfolio. And I guess because you're a
seed stage slash to Series B type of investor and then also
and later you kind of see companies at different stages of
maturity and growth. So Jonathan, like on the
(13:24):
operational side, how are you you navigating that?
I know you've written this article on CMO success stage by
stage and some other content around those things.
So I'm just curious, like when you think about growing these
companies at different stages ofmaturity, what type of
frameworks are you bringing? Or is it a very similar process
as you're looking at these companies?
Yeah, I mean, it's an interesting, you know, vantage
point for us to be able to take a look at fintech companies as
(13:47):
they scale. And I think, you know, the I'll
take a look at the commercial function as an example, because
that's where I work in go to market.
You know, the jobs to be done ofa, you know, BC or AB to B
company are, are actually the same, right.
You have a product, you have a target audience, you need to get
that product in front of them cost efficiently and you know,
(14:09):
that's what you're looking to do.
How you do it though changes by stage and the maturity curve of
your business and kind of what you're looking to do in the
macro environment at that stage.So often we we find the core
principles are unifying, but howyou're operationalizing them
changes by the size of company you are.
We can help them chart that nextstep forward is part of our
(14:33):
work. Yeah.
And and what does that look like, Jonathan, in terms of
figuring out the next step? So in just hypothetical example,
let's say you have a Series C business that's 20 million in AR
and there's a growth opportunityin front of it.
It's more B2B versus a Series A business that's maybe 3 to 5
million and but it's more BTC like.
(14:54):
Give us an example of how you would adjust your approach based
on that. Yeah.
I mean, this is one of the greatthings why, you know, Devin and
I are on this podcast is becausewe have the vantage point to see
if your Series B, where will yoube going in two to three years.
And if you're going to be migrating and, you know, you
know, elevating to a different asset class, well, you know, the
(15:15):
venture team might be talking toDevin saying, hey, what does
good look like? And so, Devin, I think, you
know, this is where having an early stage venture business and
a later stage growth business isso useful because we're taking
best practices. We're like, you know, in two to
three years, you know, you need to be doing and solving for
these things. Yeah.
And maybe just to, you know, really simplify it, you know, I
(15:37):
think of that at that venture stage, the thesis is so much
around potential and as you start to become more mature, you
know, investors are looking alsofor elements of resilience and
that's going to look different depending on your business model
and the go to market area. It might be, you know, an
expectation that you've got multiple channels and, and that
(16:02):
you're, you know, not just adding new logos, but you're
also growing with existing customers.
And so those, those kind of different drivers of growth
become important and, and that can end up influencing org
structure similarly from a bunchof other dimensions, right?
You're thinking about resiliencefrom a technology perspective,
scalability, security, all of those types of things as well.
(16:27):
And that can create, you know, incremental organizational
needs. Yeah.
I mean, what's been really cool as well I think is if you take a
look at our earlier stage businesses, seed Series A,
Series B, you know, they're kindof more the speed boats.
And so they have the smallest resources, but they're often the
most innovative. And so we're able to actually
take emergent technology trends,best practices and kind of port
(16:49):
that over to later stage businesses, which, you know,
maybe looking for the next kind of trend.
But the benefit they're bringingback to the earlier stage
business, this is this is where you need to go.
This is the structure that I need to have.
This is the kind of reporting and kind of financial metrics
that you're going to need. So there is actually a virtuous
cycle that we kind of connect and you know, for example, we
(17:09):
host a a growth summit every year in New York where all the
commercial and tech leaders across our global, our fintech
portfolio come and share best practices and ideas.
And so early stage businesses can share, hey, this is the
hottest new technology we're trying as a kind of growth hack
and vice versa, the later stage businesses and share, while this
is best practices at scale and that's a really useful
(17:32):
information transfer that we kind of facilitate across our
portfolio. Yeah, yeah, that's great.
I think a lot of the P firms that we talked to that are doing
some of this cross pollination work have a summit like that,
maybe have an online community, maybe do ongoing webinars and
learning sessions with all theirtheir leaders.
So I think I think that's great.How do you both given that
you're on kind of different sides of the House of of these
(17:55):
investments, how closely do you partner throughout the
investment cycle And you know, pre LOI then LOI, then the deal
closes first 100 days, you know,you're doing the value patient
planning and some PE firms we find that the operating partners
are not brought in even until close, sometimes is brought in
at the LOI stage and but not before.
(18:16):
And some of the best ones we've seen it pre LOI.
So I'm just curious like how youguys end up partnering together
and maybe we'll start with you, Devin.
Yeah. So I would say it's pretty
comprehensive. Um, you know, I can't think of
any deal that we've done where, you know, Jonathan's team and
other teams within our value creation group are not involved
(18:37):
at kind of the relatively early stages of diligence.
They're, you know, certainly involved in like helping us
scope kind of key questions and reviewing data around those
areas etcetera. And then, of course, you know,
the, the mode of engagement, um,pulse closing differs a lot
depending on the needs of the company.
(18:58):
So, you know, sometimes we have companies where we say, you
know, there's not a lot of need for Jonathan's team, but there's
a lot of need for, you know, maybe our M and A-Team or maybe
our cybersecurity team or our technology team or AI team or,
you know, other things that we're going to focus on.
But as you say, it's very linkedto that kind of risks and
opportunities that we've identified.
(19:19):
And then, you know, also kind ofwhat other resources are, are
available. So you know is step or I'm
trying to upskill the managementteam, you know, augment the
management team in this area. Is it something more tactical
that we're gonna, you know, connect them to some resources
on? So it's very bespoke.
Jonathan, on your side, like in the investment cycle, like how
(19:42):
are you making sure you're adding as much value as possible
and then how does that translatepost close?
Yeah, I mean, we work incrediblyclosely, right?
And I think, you know, what's really interesting for for even
us on the operating side, you know, I work very closely with
Devon's team. And you know, what's helpful
even on that vector is when we're doing due diligence in
advance of taking a look at IT business.
(20:04):
You know, we're working closely with the investment team on, you
know, what does good look like, right.
And there's been a lot of kind of macro shifting lately in
terms of growth at all costs. And as long as you're growing,
you're good to actually know itsprofitability and efficiency.
And you know, my team's job is to kind of work with our
portfolio companies to action kind of delivering the results,
(20:26):
but where should we be going? What's the goal post?
And and the investment teams arethe ones that really know this
best. So they're often working very
closely with us to say, hey, like these sort of metrics are
look really good for a business like this.
And This is why because, you know, cotton, the cost of
capital is changed and the benchmarks in the industry are
different. So really like we're getting a
(20:48):
ton of insight and Devons team on the financial models that
they're building and then we're kind of feeding back, OK, well,
how realistic do we think this model is to actually be
executed? So it's a pretty seamless back
and forth, but we really do kindof bring different lenses to the
table on how do we think we can make this business grow.
And Jonathan on your side, like how, how do you approach the
(21:11):
operating function and how big is your team?
Are you relying on the internal folks, you have external
partners? Are you kind of because I've
also noticed that you mentioned well simple and Coho then you've
been an interim leader inside those businesses.
So like how do you approach value creation with the with the
portfolio companies or the investments that are being made?
Yeah. I mean, it's definitely, you
(21:32):
know, we take a look at areas that are thematically relevant
for multiple of our portfolio. So things like marketing,
attribution and measurement, Evergreen topic, you could be a
seed company, you could be pre IPO or later.
You need to be able to think about measurement and
attribution and do that properly.
And so I have a small team belowme that assists, but we partner
(21:54):
with external agencies that we've vetted to say, OK, if a
portfolio company needs a littlebit of help with attribution,
this might be a great solution for them.
And or I've worked very closely with Devin's team on recruiting.
So if we want to be bringing in a new CMO that's B2B in North
America, this would probably be the best recruiting agency
(22:15):
versus if we're doing that placement in Germany, we might
partner with someone else. So we definitely look to kind of
third party agencies, partners, consultants, advisors to kind of
expand our reach because geographically it's.
Different, yeah, I'm sure we have, you know, a large number
of our Porcos that would love tohave, you know, Jonathan or
(22:35):
others from our value creation team embedded full time with
them. But they also know that, you
know, they, they're not looking for a short term solution,
right? They need some, some something
that's gonna last and scale. And so we try to approach it in
a scalable way from that perspective so that we're
putting in place the infrastructure that will
(22:56):
survive, you know, our investment in the business.
Yeah. I was talking to one of our
larger private Equity Partners and they had spent the last few
years building a really large operations team.
And then recently they actually shortened like reduced that to
significantly and built like this hub and spoke model where
they can rely more on external partners.
(23:16):
And I was asking the person thatleads that team like, why did
you do this? And they said just at a global
level, it requires too much internal hiring for them to
staff out and support all the portfolio companies.
It's better to have a Rolodex ofexperts to kind of call on based
on, based on the needs of the ofthe businesses.
So that definitely, definitely resonates.
Jonathan, when you're coming into investments that aren't
(23:39):
made or it's in the diligence process, what kinds of things
are you looking for on the go tomarket side, the the support,
the value creation planning or the investment thesis?
Yeah. I mean, so it really starts
again partnering very closely with the investment team, like
Devil's team, right. So we often have an meeting in
advance to say given this sort of business, what are some of
the assumptions we're taking a look at that are really critical
(24:01):
for our valuation model. And maybe some questions that,
you know, obviously investment team has spoken to them first,
but they may have some questionsand they go to market area that
they would like us to double click into.
And so typically, you know, those areas might be things
around, you know, LTV to CAC, you know, has how are we
thinking about the cost structures marketing moving
forward versus, you know, the ability to cross sell and upsell
(24:24):
and expand LTV. So LTV to CAC is often an area
we take a look at and then also functional capabilities within
the firm itself. So what is the the data
infrastructure martech stack look like?
Is it up to snuff or is it kind of gaps in an area that we want
to lean into if we invest and then the the talent of the team,
right? Do we feel confident in the
(24:45):
investment team is creating an underwriting thesis and what we
think we're going to do from a value creation perspective?
Do we think that team is the right team be able to action it?
But really a lot of that comes from guidance from like Devin
and you know us bringing our go to market expertise into their
kind of investment thesis. And then and then on your side,
Devin, as you're kind of evaluating these investments,
(25:06):
are there certain things that Jonathan and his team can kind
of bring back that would change your mind?
Because a lot of diligence that we see is almost like
confirmatory, right? Once the LOI send companies are
quite or firms are kind of pot committed, if you will, to or
resign to kind of making the deal happen.
So what percentage of the time is like an insight from Jonathan
and his team coming back and changing your decision on the
(25:29):
investment and whether or not the deal will close?
So it's one of the reasons why we try to get them involved
early before we put a term sheetforward, right, because that's
when you know, you're, you're looking for signals on how
excited you are about this, thisbusiness.
And you know, if, if Jonathan's coming back saying, you know, I
(25:50):
don't think they're going to market function is strong, I
don't think they're going to be able to sustain those caps as
they grow. And, and you know, maybe we're
getting some other data points on other areas of the business,
You know that that definitely isgoing to impact a, whether we
move forward with the opportunity at B, how if we do
move forward, how we think aboutterms on that, on that deal,
(26:10):
right, it's going to impact our forecast and, and ultimately
valuation. And so that is that's, you know,
where we really see it having the biggest impact.
And, and frankly, you know, we see that being hugely valuable,
not just for the companies that we engage in that we can kind of
have a more informed view earlier, but also like
(26:32):
allocation of resources from ourfrom our teams cause
perspective. Because the the worst outcome
for anyone is you, you know, getinto exclusivity under a term
sheet. And then you realize, you know,
something's going to make you not want to do the deal, as you
say. So fortunately we haven't had
that happen, but you know, we certainly, you know, as we're
doing confirmatory diligence, we're refining our assumptions
(26:54):
and really building that like 100 day planning and, and view
on where we can add the most value.
And so that, that piece of the work is really, really helpful,
um, both from our perspective and, and so we're aligning with
the management team, right? Because maybe the one thing
that's worse than walking away after you've signed a term sheet
(27:18):
is closing a deal and then concluding that you've got, you
know, a completely different view on what needs to, you know,
change or be augmented in the business and the management
team. So again, bringing forward those
discussions and figuring out if there's, you know, alignment
there and an openness to feedback on the part of the
management team is really helpful.
(27:40):
Yeah, I'm really glad you said that because there's some P
firms that I've seen that pre LOI, it's almost like a
financial exercise. So they will look at your
historical numbers, your revenuegrowth, your EBITDA and then
they will make the decision to submit a term sheet.
Everything gets signed. And then during diligence, all
this stuff comes out that they haven't had a chance to look at
(28:01):
yet. That changes the terms of the
agreement and then deals kind offall apart, right.
So I, I think that's a great practice and even for the
investors that I'll be listeningto this, I think moving some of
this work, even pre LOI increases your odds of success
or at least deploying resources in the right areas.
Yeah, exactly. And it's always a balance.
Like companies don't want, you know, asking for tons of data
(28:24):
when, you know, you don't have ahigh degree of conviction.
So I do think investors need to balance that piece.
But that is where having really experienced folks like Jonathan
who can pretty efficiently assess a team, focus on some key
metrics, spot red flags, you know, works well for all
(28:45):
parties. Right.
Yeah. And I think, Jonathan, I guess a
question for you, like how are you doing that in such an
earlier stage without full access?
Like I can tell you like we do aton of marketing due diligence
work for private equity firms. Sometimes it's pre LOI as well
outside in, we don't have accessto the team or even a data room.
So I'm just curious on your side, like how do you go about
doing some of that analysis? Yeah, I mean again, this this
(29:09):
gets back to why it's so useful.For for us to have such a.
Such an industry and sector focus, right?
So we have a sense of already, OK, what does good retention
look like in insurance or what sort of LTV to CAC ratio is
realistic in payments or in, youknow, wealth management?
(29:32):
And so we don't really have to be doing the the the first turns
at that because we've often seenother businesses or have other
businesses like that in our portfolio.
So there's an element of that piece even from a channel
perspective, right? Like typically if you're BTC
business and Fintech, you're kind of on some of the same
channels, right? Like, I don't know a lot of
people who are using interest tosell, you know, their banking
(29:53):
solutions. And so that helps us speed up a
little bit of the due diligence because we've seen a lot more of
those pieces in other businessesthat we've surveyed with Devon's
team or within our within our current portfolio.
And then again, there's an element to, of there is only so
much of course, you can get intountil you get the data room or,
you know, I got to talk to, you know, we're gonna cut a big
check like, yeah, I got to really talk to the team, right?
(30:15):
Because you can kind of get a really good sense and five
10/15/20 minutes of live IRL back and forth versus, you know,
just taking a look at the data room.
So different stages obviously asyou go through the different
funnel of due diligence. But again, I think being
industry focused really allows us to get there faster than I
think others who are ramping up to both the company and the
(30:36):
industry during due diligence. Yeah, Yeah.
I think, I think that's a reallyinteresting point is that
because you have industry expertise, the benchmarks are
more reliable than let's say a company that just invests in
middle market companies and thenI'll do teachers.
I think you wanted to add something there.
Yeah, I was just going to say, you know, as I think about
Jonathan's term, like the diligence funnel, part of it is,
(30:58):
you know, at the initial stages you're you're giving management
more of the benefit of the doubt, right.
It's, it's a little bit kind of asking them the questions and
then, you know, trusting what they are telling you on, you
know, why CAC went from X to Y or you know, those sorts of
things. And then at the later stages,
(31:19):
it's more about verifying that, right.
And so that's, that's a helpful way to limit the burden on
companies is you sort of get thenarrative, identify the risks,
the opportunities, the things that you're gonna have to kind
of prove at a later stage, but you're not doing kind of all of
that, you know, much more granular work up front.
And you know, hopefully they they know their business well,
(31:43):
have high integrity, etcetera. And there's not going to be
surprises down the line. Right.
That's great. And then the last area I wanted
to touch on is because you are in Fintech and you are seeing so
many common threads throughout these businesses.
I'm just curious from an investment standpoint, Devin,
like what are you seeing on the AI front and innovations
happening in that space? And how are you also encouraging
(32:06):
companies to look at AI as a growth lever or product lever
for their businesses? Yeah.
So we may have invested in some,you know, AI businesses.
So, so companies whose, you know, core product is, is very
much leveraging AI and then we invest in a whole bunch of other
businesses that are using AI to be, you know, more effective at
(32:29):
various elements of their business.
I think, you know, obviously there's different opportunities
around both of those. I think there, there's
incredible opportunity, um, to be leveraging AI across pretty
much every business model, but we're still seeing those use
(32:50):
cases very much getting proven out.
And I think in the fintech space, which you know, tends to
have more regulation, you know, often you're selling into
counterparties that are, are maybe a little bit more
conservative and how they think about these things.
You know, we're seeing that thatthat journey is going to take
(33:13):
going to take time, right. So things like using Genai to
improve your customer service oryour cycle time on product dev
work is more common. Using AI for credit decisioning,
(33:33):
for example, in the US we're probably a little ways away from
though some of the changes that the CFPB of late may expedite
that. Right.
And there's, I'm, I'm sure there's also components that can
be implemented versus like sweeping changes that are more
global, I guess. Yeah, that's right.
(33:54):
I think there's a lot of experimentation, sandboxing
stuff that's going on right now and, and yeah, sort of sense of
how you start to build some skills and comfort amongst your
team around AI in sort of low risk areas.
And I guess for you, Jonathan, on the operating side, because
we talk about AI even we're talking about the before this
(34:17):
podcast started the the platformthat we're working on.
But just curious on as an operating leader, like how are
you incorporating AI into your practice on the value creation
side to make these businesses more efficient?
Yeah, and a few friends. So we've actually, we have a, we
have had an AI that we brought in.
And so she, she's an expert in her team as an expert on
(34:37):
basically what are the fundamental principles that one
should be applying when you're thinking about AI testing,
validation, experimentation. And then you know, we'll partner
and say, OK, how does that applyto go to market, right.
And so I'm working very closely with our portfolio companies on
as Devin tied up, OK, can we automate or create an agent that
(34:59):
could be a replacement SDR? What would that look like
functionally within go to market?
And the nice thing around that is, you know a few of our
companies are actually in the inthe pilot stage of that and
we've connected them to share their early learnings and best
practices. And so we're porting that
knowledge over across for the folks who are testing those
(35:19):
pieces. Other areas I see as it relates
to go to market are things like lead scoring.
How do we think about kind of validating lead information in a
way that's a little bit more automated so that if we got a
final leads to a salesperson, we're getting the best lead,
highest quality lead to that person first.
So similar to Devon's tie up, I think it's in the early innings
(35:42):
of seeing what will work, but weare working functionally on
point solutions within our go tomarket teams that we're porting
over knowledge globally too. That's great.
And, and what about on like the go to market side when you, when
you think about things like content or specific channels
that like, let's say Google search volume is down, This idea
(36:03):
of generative engine optimization is emerging now
versus SEO, right? So we have some clients that
have experienced a significant drop in traffic because that
the, the vertical that they're in is searching more on, on
tools like ChatGPT. So I'm just curious, are you
seeing some of that and what adjustments are you making with
the companies not from? Yeah, I mean, that topic of that
(36:26):
go to market collapse, which I hadn't heard about in, you know,
recently, but it's all over LinkedIn now of, you know, you
used to be generating volume according to, you know, Google.
And suddenly, you know, your consumer journey path has
shifted to ChatGPT or the jobs to be done is now easier solved
on ChatGPT than Google. What does that mean if you're a
(36:46):
business that was generating a ton of traffic on Google?
And so that is an area that we are watching very closely.
And, you know, this is the benefit of having a global
platform. I mean, I'm based in New York.
You know, I work very closely with the firm that didn't exist
nine months ago and they alreadyhave, you know, 2 to 3 million
AR because they're basically creating the SEM rush of
(37:07):
generative search. And so, you know, what will that
look like? How will that take out?
We're not sure. But you know, our portfolio
companies in Europe are dialing into that startup because we're
able to kind of connect those dots.
So there's definitely urging spaces like generative AI, but
candidly, I'm always a glass half full person.
That's why I think the gross space is so interesting.
(37:29):
The market continues to move andit will reward the companies
that are watching the trends, looking at the data,
experimenting and, you know, finding the new path forward.
What's the name of that startup?The Jenny.
Profound. Really cool.
Yeah. I can connect you after if you
want to. They're great.
James, founder, ex Uber. Great guy.
Awesome. That's a competitor, Frank
(37:50):
Quinzio. So we'll look into that.
And then I guess my secondary question would be Devin for you
on that, especially in fintech, um, or financial services, so
many companies look at this, it's like they're like, I'm
thinking about a company like Nesto in your portfolio.
Their, their home page is basically lead Gen. right?
You get a, you fill out a form mortgage application, whatever
(38:12):
it is, and then you get enter into a sales process.
So how is this type of a shift with search moving over or the
risks associated with go to market there affecting your
investment decisions as you're evaluating companies?
Yeah, it's a great, it's a greatquestion.
It almost goes back to the pointI was making earlier around
(38:33):
resilience, right? Um, that for, you know, at the
later stage, we really want businesses that have multiple
paths to acquiring customers because things, things do
happen. And so, you know, a lot of that
kind of later stage underwritingis around stress testing, you
know, the potential impact of different realistic scenarios on
(38:53):
both the upside and downside perspective.
You know, what I will saying is really helpful on a lot of this
stuff is, you know, understanding where the company
you're looking at is different than their peers.
So if everyone has been using Google, then, you know, yes, a
pullback from Google might impact them, but it's it as long
(39:16):
as they can be faster to adapt than their peers, it's not going
to hurt their market share and it's probably not going to hurt
their position long term. And so it's, it is a bit about,
you know, understanding relativepositioning and strength of the
team and, and data-driven orientation of the team in terms
of spotting things and and responding.
Yeah, I think that's great, especially this point of
(39:38):
relative because if the entire market is impacted by then the
entire market has to respond andfind that customer base some
some other way. So I think that's a great point.
I know we're coming up on time here.
So before we close off, just anyclosing thoughts or what's the
best way if people want to learnmore about Portage, how should
they find either of you? Uh, so both of us are on
LinkedIn, so that's always a great way to find us.
(40:00):
We've got a website that talks abit more about the strategies
and importantly has our Porcos up there.
So if you want to get a better sense of, you know, where we've
been investing, that's always a great way to do it as well.
Excellent. And with that said, Jonathan,
Devin, thanks for coming on and sharing your wisdom.
I think it was especially helpful to hear the deal team
(40:20):
and the operating team kind of talk about how they work
together. We actually haven't done that
type of an episode and I think alot of people that listen and
have those respective teams willlearn a lot from it.
So appreciate you doing this. Thanks for having U.S. chat.
For listening to today's episode, before you take off,
just a few requests from our side #1 if you haven't done so
(40:40):
already, please subscribe to thepodcast on iTunes or Spotify or
YouTube or wherever you go to listen to your podcast #2 If you
are in the market for due diligence services, strategy
consulting, or fractional CMO services, please get in touch
with us at www.hassas.com. And 3rd, please buy a copy of my
(41:03):
new book, Exit Ready Marketing. It covers a ton of concepts that
we take our customers through private equity investors, B
company CEOs, operating partnersand marketers.
And there's a ton of great valuein there that expands on my
previous book, Post Acquisition Marketing as well.
So with that said, I hope you enjoyed today's content and
we'll see you on the next episode.
Welcome to the Private Equity Value Creation Podcast where we
interview leading investors, operators, bankers, and advisors
to help you answer one question.How do we increase the
enterprise value of our companies?
My name is Shiva Narayanan, and each episode I will dive deep
with a guest to help you become a better value creator and
(00:22):
capital allocator. So with that said, let's jump
right in and let's get started with today's episode.
Today our Devin Kirk and Jonathan Metric who are both
from Portage Capital Solutions. And what's really interesting
about this episode is Portage isactually a global investor and
that specializes in financial technology and financial
(00:42):
services. And they have a ton of great
investments like well, Simple and Coho and Nesto and a bunch
of other companies. And what was interesting about
the episode is you had Devin whowas on the investment team and
he had Jonathan, who is more on the operating side of the
business. And we got to have both of them
on. And I specifically wanted to
talk about how both of them interface with each other as
Portage makes investments. Because this is a thing, this is
(01:05):
a trend that I've been hearing from a lot of PE firms in terms
of when they're bringing in their operating folks into the
deal cycle. And from my experience, the
earlier you do this, the better it is because then you can
uncover the value creation levers sooner so that even when
you close the deal, you can kindof hit the ground running.
And even the work that we do with our PE investors, that's
why we're we're brought in at the LOI stage or sometimes even
(01:28):
even pre LOI. So it was a great conversation,
and I think especially if you'rethinking about how to have these
two sides of the house work closely together, as you're
making more investments, I thinkyou're gonna take away a lot
more. So with that said, I'll leave
you to it. Enjoy the episode.
(01:48):
Alright, Devin, Jonathan, welcome to the show.
How's it going? Great.
Thanks for having us on. Doing well.
See you. Excited to have you and and why
don't we start with introduction.
So Devin will start with you andwe'll go to Jonathan.
Perfect. So Devin Kirk, I Co head the
later stage strategy at Portage,which we call Portage Capital
Solutions. I've been investor in fintech
(02:09):
and financials for coming on 20 years now and I'm really happy
to be on. Excellent, Jonathan.
Yeah, my name is Jonathan Metric.
I also work at Portage. Of course I head up our go to
market practice on our value creation team that's basically
helping our our Fintech and financial services portfolio
companies with marketing sales growth, everything related to
(02:33):
revenue acceleration. I've been at Portage for last
five years, but I'm an operator by craft and I spent my entire
career kind of leading marketingteams across various different
industries, most often in in fintech and scale ups.
That's awesome. And and what's interesting here
is normally we have one side or one type of role on the podcast
at a time. So here we get to have the
(02:53):
investment side and the operating side of a firm
together. So Devin, why don't we start
with you? Like what are the types of
investments that you're looking for at Portage as you're looking
to deploy your capital? So Portage does all fintech and
financial services investing andwe've got 2 strategies. 1 is on
the venture side where we focus on kind of seed through be
(03:14):
investing. And then we have the later stage
strategy that picks up where they leave off doing see and
later all minority investing combination of kind of plain
vanilla traditional growth equity and more bespoke, less
dilutive solutions for companiesas well.
And you know in the later stage strategy, we look for businesses
(03:35):
that have proven product market fit and so typically revenues in
the 20 million plus range, clearpath to profitability if they're
not there already. And really an important lens for
us, which I'm sure we'll talk more about today, is that we
really believe that we're the right partner and that we can
add value as they look to scale their business.
(03:57):
How do you figure that out? Is it primarily an in the
fintech space and it has to be growing at a certain rate?
What are some of the characteristics that you filter
companies through, whether it's on the seat side or the OR the
leader stage side? Yeah, absolutely.
So we look for businesses that have healthy growth.
The venture side is, is you knowvery focused on really top
(04:20):
quartile growers. The later stage side, we were
looking at A, at a wider varietyof metrics, but always looking
to invest in, in healthy businesses, you know, ideally
with relatively kind of sticky revenues, you know, high
customer satisfaction, diversification in customers,
Our products that are um, differentiated that gives us
(04:44):
conviction on not just their ability to scale, but really
kind of the strong foundation that they're building on.
Yeah. And one of the things that, you
know, because we have so many investors on the podcast, we
hear similar things, right, likegrowing strong, strong growth
year over year, good net revenueretention or Seaside ratings or
NPS scores. And those kinds of assets tend
to go at premiums and there's a ton of competition and a bunch
(05:06):
of investors would want to deploy capital into those
assets. So how do you differentiate
yourself or stand out from otherinvestors that are pursuing
similar similar targets? So I do think that our sector
specialization is massively helpful from that perspective.
It clearly allows us to have, you know, deep expertise in the
spaces that we're investing in. And I think, you know, frankly,
(05:29):
we've gone through a more challenging market environment
over the last few years. And I think that reminds, you
know, management teams and folksaround the boardroom table that
they really want people there who understand the business, but
the opportunities and the threats.
So I think that is really important and also allows us to
have more tailored resources forour portfolio companies.
(05:52):
And so, you know, Jonathan is anexample, you know, as you think
about kind of our go to market support that we can provide.
If we have, you know, a portfolio of more than 100
fintech businesses, you know, a mix of D to C and B2B business
models. There's a lot of insights that
we can bring to bear around kindof what we've seen be successful
over time in different geographies in response to
(06:15):
whatever is happening in the market at that particular moment
time. And so having, you know, a value
creation team that our operatorsin the space understand the
space are spending time with other companies in the space day
in, day out makes a big difference as well.
And lastly, I would really say network.
So that's something we really pride ourselves in as an
organization. We have a whole team of people
(06:37):
whose full-time job is to cultivate commercial
opportunities for our portfolio companies.
And again, when you're focused on a specific sector, it really
allows them to be systematic in how they cultivate those
relationships that are gonna be relevant for our Porcos and make
more targeted, mutually beneficial introductions as
opposed to being kind of more asopportunistic or scattershot
(07:00):
around it. And this is a good transition to
the work you do, Jonathan. So talk about like eyes these
companies are being invested into how are you looking at
value creation, especially when there are some overlaps and
strategies or markets that they're they're kind of focusing
on on or targeting? Yeah, absolutely.
I mean as Devin kind of called out, we focus on Fintech and
(07:21):
financial services. I mean, I used to be the CMO of
a, you know, venture stage insurance marketplace.
So many of the folks who are working at Portage have come
from that industry and we've been, you know, working in that
industry for many years and actually have been often
operating in those sorts of companies.
So the context is, is immediately linear.
And I think the other component that's very useful as we look at
(07:45):
our value creation efforts is, you know, we invest globally,
right? And there are different trends
that happen that you can port over.
If something's emerging in the United States, well, you know,
in 6 to 12 months that might hitCanada and Western Europe.
From a kind of macro trend perspective, how do we get in
front of those sort of trends and port those across that
(08:05):
knowledge across our portfolio globally?
Because, you know, we tend to see fintech financial services
firms with more geographic champions in one region as
opposed to kind of a global dominant player.
Can you give us an example of that, like something that might
be 1 geography or market might be ahead of and then you can
kind of port that over at least forecast how another company
(08:28):
could benefit from that? Yeah, I mean, a really great
example that we saw in real timewas during the peak of the
pandemic, the, the, the rollout and, and kind of adoption of
TikTok, right? So March 2020, you know,
everyone's locked at home, they're bored, they're on their
phone. And, you know, everyone cut
their marketing budgets back, especially in the BBC version,
(08:48):
because they're like, my goodness, what's gonna happen as
the economy got a crater? And, you know, you saw basically
starting in April, you know, there was an emergence of the
very savvy BC company starting to test this new channel called
TikTok. And there was a ton of volume on
it. Not a lot of advertisers because
budgets were restricted. And you saw this adoption wave
(09:09):
of first US based BC businesses seeing efficiencies on TikTok,
but then cascaded over into Canada a couple months later,
Western Europe within six months, actually around what you
know, kind of Mexico, but a yearlater.
And we enabled our portfolio companies to ride that wave
because obviously, and you know,our conversations with our US
(09:29):
based businesses were like, wow,this is a really great channel
that's brand new, that's super cost efficient from a cat
perspective. And we're kind of tapping our
Canadian and, and, and European and Mexican businesses to say,
hey, by the way, you may want totake a look at this because this
trend is emerging. What about the and that's that's
a great example. What what about like overlaps in
markets and customer bases? Like I'm looking at a couple of
(09:51):
your portfolio companies like Coho and while simple, I would
imagine have a ton of overlap inthe types of customers they can
kind of focus on given that yourinvestors and both, do you try
to encourage partnerships or cross sell opportunities or
integrations between platforms like that?
Yeah, we absolutely do try to encourage partnerships across
(10:12):
our portfolio companies. We do that in kind of more
formal ways, but also more informal ways.
You know, just a couple weeks ago we got a bunch of our CEO's
from our port coast together in Whistler.
You know, isn't a fantastic opportunity for them to really
get to understand each other's businesses.
There's a lot of kind of peer mentorship that happens there,
(10:34):
but also commercial opportunities that get
discussed. So there, there's certainly
opportunities there and, and there's also situations where
they're going after, you know, on the B2B side where they may
be approaching similar enterprise customers and, and
opportunities to partner from that perspective.
(10:54):
And John, I want to give you a chance to jump in there too.
I think you may have had something to add there.
Yeah, I mean, I think so building on what Devin said, you
know, we invest in BTC, NBB, so we have some portfolio companies
that are the, you know, the consumer facing entity fintech,
but then we have the BDB companythat's doing the piping in the
back end, right. And so there's a lot of linkages
(11:14):
we can actually have saying, hey, you're looking for this
sort of solution. We've actually invested in this
this this actual company on the back and creating those linkages
for, you know, kind of creating end to end fintech solutions.
And you know, on even in the Canadian marketplace, which you
mentioned, you know, two companies I've personally worked
very closely with, you know, well, simple and Coho, you know,
how do we really they're going up against these incumbent
(11:37):
banks, right? And so the competition truly is
they kind of legacy sleepy, you know, kind of, you know,
carriers that a lot of folks areusing for their financial
services. How should we be innovating that
category? And by and large, it's better to
kind of partner and share ideas and collab because they're going
up against well funded incumbents.
Are there situations and maybe there's a question for Devin,
(11:58):
like are there situations where you look to certain companies in
the, in the portfolio where there's not just like a
partnership opportunity, but also like an M and a opportunity
where these companies can actually eventually become part
of 1 core platform and have multiple products instead of
being separate companies? So we we haven't had a lot of
(12:19):
examples of that. There's certainly potential for
M&A within the portfolio. You know, obviously would be
really mindful of kind of our our role in those transactions
if we're on both sides. So need to be a little bit
cautious there. But you know, I think frankly
there hasn't been as much consolidation in the fintech
(12:40):
sector as people might have expected over the last few
years. I think there is a good chance
that that accelerates over the next few years.
So it may be something we start to see more of, but you can
imagine, you know, we're conscious of not investing in
businesses that are directly competitive.
So sometimes the synergies associated with combining
(13:02):
businesses within our portfolio would not be as high as the
potential synergies of combiningthem with businesses outside of
our portfolio. And I guess because you're a
seed stage slash to Series B type of investor and then also
and later you kind of see companies at different stages of
maturity and growth. So Jonathan, like on the
(13:24):
operational side, how are you you navigating that?
I know you've written this article on CMO success stage by
stage and some other content around those things.
So I'm just curious, like when you think about growing these
companies at different stages ofmaturity, what type of
frameworks are you bringing? Or is it a very similar process
as you're looking at these companies?
Yeah, I mean, it's an interesting, you know, vantage
point for us to be able to take a look at fintech companies as
(13:47):
they scale. And I think, you know, the I'll
take a look at the commercial function as an example, because
that's where I work in go to market.
You know, the jobs to be done ofa, you know, BC or AB to B
company are, are actually the same, right.
You have a product, you have a target audience, you need to get
that product in front of them cost efficiently and you know,
(14:09):
that's what you're looking to do.
How you do it though changes by stage and the maturity curve of
your business and kind of what you're looking to do in the
macro environment at that stage.So often we we find the core
principles are unifying, but howyou're operationalizing them
changes by the size of company you are.
We can help them chart that nextstep forward is part of our
(14:33):
work. Yeah.
And and what does that look like, Jonathan, in terms of
figuring out the next step? So in just hypothetical example,
let's say you have a Series C business that's 20 million in AR
and there's a growth opportunityin front of it.
It's more B2B versus a Series A business that's maybe 3 to 5
million and but it's more BTC like.
(14:54):
Give us an example of how you would adjust your approach based
on that. Yeah.
I mean, this is one of the greatthings why, you know, Devin and
I are on this podcast is becausewe have the vantage point to see
if your Series B, where will yoube going in two to three years.
And if you're going to be migrating and, you know, you
know, elevating to a different asset class, well, you know, the
(15:15):
venture team might be talking toDevin saying, hey, what does
good look like? And so, Devin, I think, you
know, this is where having an early stage venture business and
a later stage growth business isso useful because we're taking
best practices. We're like, you know, in two to
three years, you know, you need to be doing and solving for
these things. Yeah.
And maybe just to, you know, really simplify it, you know, I
(15:37):
think of that at that venture stage, the thesis is so much
around potential and as you start to become more mature, you
know, investors are looking alsofor elements of resilience and
that's going to look different depending on your business model
and the go to market area. It might be, you know, an
expectation that you've got multiple channels and, and that
(16:02):
you're, you know, not just adding new logos, but you're
also growing with existing customers.
And so those, those kind of different drivers of growth
become important and, and that can end up influencing org
structure similarly from a bunchof other dimensions, right?
You're thinking about resiliencefrom a technology perspective,
scalability, security, all of those types of things as well.
(16:27):
And that can create, you know, incremental organizational
needs. Yeah.
I mean, what's been really cool as well I think is if you take a
look at our earlier stage businesses, seed Series A,
Series B, you know, they're kindof more the speed boats.
And so they have the smallest resources, but they're often the
most innovative. And so we're able to actually
take emergent technology trends,best practices and kind of port
(16:49):
that over to later stage businesses, which, you know,
maybe looking for the next kind of trend.
But the benefit they're bringingback to the earlier stage
business, this is this is where you need to go.
This is the structure that I need to have.
This is the kind of reporting and kind of financial metrics
that you're going to need. So there is actually a virtuous
cycle that we kind of connect and you know, for example, we
(17:09):
host a a growth summit every year in New York where all the
commercial and tech leaders across our global, our fintech
portfolio come and share best practices and ideas.
And so early stage businesses can share, hey, this is the
hottest new technology we're trying as a kind of growth hack
and vice versa, the later stage businesses and share, while this
is best practices at scale and that's a really useful
(17:32):
information transfer that we kind of facilitate across our
portfolio. Yeah, yeah, that's great.
I think a lot of the P firms that we talked to that are doing
some of this cross pollination work have a summit like that,
maybe have an online community, maybe do ongoing webinars and
learning sessions with all theirtheir leaders.
So I think I think that's great.How do you both given that
you're on kind of different sides of the House of of these
(17:55):
investments, how closely do you partner throughout the
investment cycle And you know, pre LOI then LOI, then the deal
closes first 100 days, you know,you're doing the value patient
planning and some PE firms we find that the operating partners
are not brought in even until close, sometimes is brought in
at the LOI stage and but not before.
(18:16):
And some of the best ones we've seen it pre LOI.
So I'm just curious like how youguys end up partnering together
and maybe we'll start with you, Devin.
Yeah. So I would say it's pretty
comprehensive. Um, you know, I can't think of
any deal that we've done where, you know, Jonathan's team and
other teams within our value creation group are not involved
(18:37):
at kind of the relatively early stages of diligence.
They're, you know, certainly involved in like helping us
scope kind of key questions and reviewing data around those
areas etcetera. And then, of course, you know,
the, the mode of engagement, um,pulse closing differs a lot
depending on the needs of the company.
(18:58):
So, you know, sometimes we have companies where we say, you
know, there's not a lot of need for Jonathan's team, but there's
a lot of need for, you know, maybe our M and A-Team or maybe
our cybersecurity team or our technology team or AI team or,
you know, other things that we're going to focus on.
But as you say, it's very linkedto that kind of risks and
opportunities that we've identified.
(19:19):
And then, you know, also kind ofwhat other resources are, are
available. So you know is step or I'm
trying to upskill the managementteam, you know, augment the
management team in this area. Is it something more tactical
that we're gonna, you know, connect them to some resources
on? So it's very bespoke.
Jonathan, on your side, like in the investment cycle, like how
(19:42):
are you making sure you're adding as much value as possible
and then how does that translatepost close?
Yeah, I mean, we work incrediblyclosely, right?
And I think, you know, what's really interesting for for even
us on the operating side, you know, I work very closely with
Devon's team. And you know, what's helpful
even on that vector is when we're doing due diligence in
advance of taking a look at IT business.
(20:04):
You know, we're working closely with the investment team on, you
know, what does good look like, right.
And there's been a lot of kind of macro shifting lately in
terms of growth at all costs. And as long as you're growing,
you're good to actually know itsprofitability and efficiency.
And you know, my team's job is to kind of work with our
portfolio companies to action kind of delivering the results,
(20:26):
but where should we be going? What's the goal post?
And and the investment teams arethe ones that really know this
best. So they're often working very
closely with us to say, hey, like these sort of metrics are
look really good for a business like this.
And This is why because, you know, cotton, the cost of
capital is changed and the benchmarks in the industry are
different. So really like we're getting a
(20:48):
ton of insight and Devons team on the financial models that
they're building and then we're kind of feeding back, OK, well,
how realistic do we think this model is to actually be
executed? So it's a pretty seamless back
and forth, but we really do kindof bring different lenses to the
table on how do we think we can make this business grow.
And Jonathan on your side, like how, how do you approach the
(21:11):
operating function and how big is your team?
Are you relying on the internal folks, you have external
partners? Are you kind of because I've
also noticed that you mentioned well simple and Coho then you've
been an interim leader inside those businesses.
So like how do you approach value creation with the with the
portfolio companies or the investments that are being made?
Yeah. I mean, it's definitely, you
(21:32):
know, we take a look at areas that are thematically relevant
for multiple of our portfolio. So things like marketing,
attribution and measurement, Evergreen topic, you could be a
seed company, you could be pre IPO or later.
You need to be able to think about measurement and
attribution and do that properly.
And so I have a small team belowme that assists, but we partner
(21:54):
with external agencies that we've vetted to say, OK, if a
portfolio company needs a littlebit of help with attribution,
this might be a great solution for them.
And or I've worked very closely with Devin's team on recruiting.
So if we want to be bringing in a new CMO that's B2B in North
America, this would probably be the best recruiting agency
(22:15):
versus if we're doing that placement in Germany, we might
partner with someone else. So we definitely look to kind of
third party agencies, partners, consultants, advisors to kind of
expand our reach because geographically it's.
Different, yeah, I'm sure we have, you know, a large number
of our Porcos that would love tohave, you know, Jonathan or
(22:35):
others from our value creation team embedded full time with
them. But they also know that, you
know, they, they're not looking for a short term solution,
right? They need some, some something
that's gonna last and scale. And so we try to approach it in
a scalable way from that perspective so that we're
putting in place the infrastructure that will
(22:56):
survive, you know, our investment in the business.
Yeah. I was talking to one of our
larger private Equity Partners and they had spent the last few
years building a really large operations team.
And then recently they actually shortened like reduced that to
significantly and built like this hub and spoke model where
they can rely more on external partners.
(23:16):
And I was asking the person thatleads that team like, why did
you do this? And they said just at a global
level, it requires too much internal hiring for them to
staff out and support all the portfolio companies.
It's better to have a Rolodex ofexperts to kind of call on based
on, based on the needs of the ofthe businesses.
So that definitely, definitely resonates.
Jonathan, when you're coming into investments that aren't
(23:39):
made or it's in the diligence process, what kinds of things
are you looking for on the go tomarket side, the the support,
the value creation planning or the investment thesis?
Yeah. I mean, so it really starts
again partnering very closely with the investment team, like
Devil's team, right. So we often have an meeting in
advance to say given this sort of business, what are some of
the assumptions we're taking a look at that are really critical
(24:01):
for our valuation model. And maybe some questions that,
you know, obviously investment team has spoken to them first,
but they may have some questionsand they go to market area that
they would like us to double click into.
And so typically, you know, those areas might be things
around, you know, LTV to CAC, you know, has how are we
thinking about the cost structures marketing moving
forward versus, you know, the ability to cross sell and upsell
(24:24):
and expand LTV. So LTV to CAC is often an area
we take a look at and then also functional capabilities within
the firm itself. So what is the the data
infrastructure martech stack look like?
Is it up to snuff or is it kind of gaps in an area that we want
to lean into if we invest and then the the talent of the team,
right? Do we feel confident in the
(24:45):
investment team is creating an underwriting thesis and what we
think we're going to do from a value creation perspective?
Do we think that team is the right team be able to action it?
But really a lot of that comes from guidance from like Devin
and you know us bringing our go to market expertise into their
kind of investment thesis. And then and then on your side,
Devin, as you're kind of evaluating these investments,
(25:06):
are there certain things that Jonathan and his team can kind
of bring back that would change your mind?
Because a lot of diligence that we see is almost like
confirmatory, right? Once the LOI send companies are
quite or firms are kind of pot committed, if you will, to or
resign to kind of making the deal happen.
So what percentage of the time is like an insight from Jonathan
and his team coming back and changing your decision on the
(25:29):
investment and whether or not the deal will close?
So it's one of the reasons why we try to get them involved
early before we put a term sheetforward, right, because that's
when you know, you're, you're looking for signals on how
excited you are about this, thisbusiness.
And you know, if, if Jonathan's coming back saying, you know, I
(25:50):
don't think they're going to market function is strong, I
don't think they're going to be able to sustain those caps as
they grow. And, and you know, maybe we're
getting some other data points on other areas of the business,
You know that that definitely isgoing to impact a, whether we
move forward with the opportunity at B, how if we do
move forward, how we think aboutterms on that, on that deal,
(26:10):
right, it's going to impact our forecast and, and ultimately
valuation. And so that is that's, you know,
where we really see it having the biggest impact.
And, and frankly, you know, we see that being hugely valuable,
not just for the companies that we engage in that we can kind of
have a more informed view earlier, but also like
(26:32):
allocation of resources from ourfrom our teams cause
perspective. Because the the worst outcome
for anyone is you, you know, getinto exclusivity under a term
sheet. And then you realize, you know,
something's going to make you not want to do the deal, as you
say. So fortunately we haven't had
that happen, but you know, we certainly, you know, as we're
doing confirmatory diligence, we're refining our assumptions
(26:54):
and really building that like 100 day planning and, and view
on where we can add the most value.
And so that, that piece of the work is really, really helpful,
um, both from our perspective and, and so we're aligning with
the management team, right? Because maybe the one thing
that's worse than walking away after you've signed a term sheet
(27:18):
is closing a deal and then concluding that you've got, you
know, a completely different view on what needs to, you know,
change or be augmented in the business and the management
team. So again, bringing forward those
discussions and figuring out if there's, you know, alignment
there and an openness to feedback on the part of the
management team is really helpful.
(27:40):
Yeah, I'm really glad you said that because there's some P
firms that I've seen that pre LOI, it's almost like a
financial exercise. So they will look at your
historical numbers, your revenuegrowth, your EBITDA and then
they will make the decision to submit a term sheet.
Everything gets signed. And then during diligence, all
this stuff comes out that they haven't had a chance to look at
(28:01):
yet. That changes the terms of the
agreement and then deals kind offall apart, right.
So I, I think that's a great practice and even for the
investors that I'll be listeningto this, I think moving some of
this work, even pre LOI increases your odds of success
or at least deploying resources in the right areas.
Yeah, exactly. And it's always a balance.
Like companies don't want, you know, asking for tons of data
(28:24):
when, you know, you don't have ahigh degree of conviction.
So I do think investors need to balance that piece.
But that is where having really experienced folks like Jonathan
who can pretty efficiently assess a team, focus on some key
metrics, spot red flags, you know, works well for all
(28:45):
parties. Right.
Yeah. And I think, Jonathan, I guess a
question for you, like how are you doing that in such an
earlier stage without full access?
Like I can tell you like we do aton of marketing due diligence
work for private equity firms. Sometimes it's pre LOI as well
outside in, we don't have accessto the team or even a data room.
So I'm just curious on your side, like how do you go about
doing some of that analysis? Yeah, I mean again, this this
(29:09):
gets back to why it's so useful.For for us to have such a.
Such an industry and sector focus, right?
So we have a sense of already, OK, what does good retention
look like in insurance or what sort of LTV to CAC ratio is
realistic in payments or in, youknow, wealth management?
(29:32):
And so we don't really have to be doing the the the first turns
at that because we've often seenother businesses or have other
businesses like that in our portfolio.
So there's an element of that piece even from a channel
perspective, right? Like typically if you're BTC
business and Fintech, you're kind of on some of the same
channels, right? Like, I don't know a lot of
people who are using interest tosell, you know, their banking
(29:53):
solutions. And so that helps us speed up a
little bit of the due diligence because we've seen a lot more of
those pieces in other businessesthat we've surveyed with Devon's
team or within our within our current portfolio.
And then again, there's an element to, of there is only so
much of course, you can get intountil you get the data room or,
you know, I got to talk to, you know, we're gonna cut a big
check like, yeah, I got to really talk to the team, right?
(30:15):
Because you can kind of get a really good sense and five
10/15/20 minutes of live IRL back and forth versus, you know,
just taking a look at the data room.
So different stages obviously asyou go through the different
funnel of due diligence. But again, I think being
industry focused really allows us to get there faster than I
think others who are ramping up to both the company and the
(30:36):
industry during due diligence. Yeah, Yeah.
I think, I think that's a reallyinteresting point is that
because you have industry expertise, the benchmarks are
more reliable than let's say a company that just invests in
middle market companies and thenI'll do teachers.
I think you wanted to add something there.
Yeah, I was just going to say, you know, as I think about
Jonathan's term, like the diligence funnel, part of it is,
(30:58):
you know, at the initial stages you're you're giving management
more of the benefit of the doubt, right.
It's, it's a little bit kind of asking them the questions and
then, you know, trusting what they are telling you on, you
know, why CAC went from X to Y or you know, those sorts of
things. And then at the later stages,
(31:19):
it's more about verifying that, right.
And so that's, that's a helpful way to limit the burden on
companies is you sort of get thenarrative, identify the risks,
the opportunities, the things that you're gonna have to kind
of prove at a later stage, but you're not doing kind of all of
that, you know, much more granular work up front.
And you know, hopefully they they know their business well,
(31:43):
have high integrity, etcetera. And there's not going to be
surprises down the line. Right.
That's great. And then the last area I wanted
to touch on is because you are in Fintech and you are seeing so
many common threads throughout these businesses.
I'm just curious from an investment standpoint, Devin,
like what are you seeing on the AI front and innovations
happening in that space? And how are you also encouraging
(32:06):
companies to look at AI as a growth lever or product lever
for their businesses? Yeah.
So we may have invested in some,you know, AI businesses.
So, so companies whose, you know, core product is, is very
much leveraging AI and then we invest in a whole bunch of other
businesses that are using AI to be, you know, more effective at
(32:29):
various elements of their business.
I think, you know, obviously there's different opportunities
around both of those. I think there, there's
incredible opportunity, um, to be leveraging AI across pretty
much every business model, but we're still seeing those use
(32:50):
cases very much getting proven out.
And I think in the fintech space, which you know, tends to
have more regulation, you know, often you're selling into
counterparties that are, are maybe a little bit more
conservative and how they think about these things.
You know, we're seeing that thatthat journey is going to take
(33:13):
going to take time, right. So things like using Genai to
improve your customer service oryour cycle time on product dev
work is more common. Using AI for credit decisioning,
(33:33):
for example, in the US we're probably a little ways away from
though some of the changes that the CFPB of late may expedite
that. Right.
And there's, I'm, I'm sure there's also components that can
be implemented versus like sweeping changes that are more
global, I guess. Yeah, that's right.
(33:54):
I think there's a lot of experimentation, sandboxing
stuff that's going on right now and, and yeah, sort of sense of
how you start to build some skills and comfort amongst your
team around AI in sort of low risk areas.
And I guess for you, Jonathan, on the operating side, because
we talk about AI even we're talking about the before this
(34:17):
podcast started the the platformthat we're working on.
But just curious on as an operating leader, like how are
you incorporating AI into your practice on the value creation
side to make these businesses more efficient?
Yeah, and a few friends. So we've actually, we have a, we
have had an AI that we brought in.
And so she, she's an expert in her team as an expert on
(34:37):
basically what are the fundamental principles that one
should be applying when you're thinking about AI testing,
validation, experimentation. And then you know, we'll partner
and say, OK, how does that applyto go to market, right.
And so I'm working very closely with our portfolio companies on
as Devin tied up, OK, can we automate or create an agent that
(34:59):
could be a replacement SDR? What would that look like
functionally within go to market?
And the nice thing around that is, you know a few of our
companies are actually in the inthe pilot stage of that and
we've connected them to share their early learnings and best
practices. And so we're porting that
knowledge over across for the folks who are testing those
(35:19):
pieces. Other areas I see as it relates
to go to market are things like lead scoring.
How do we think about kind of validating lead information in a
way that's a little bit more automated so that if we got a
final leads to a salesperson, we're getting the best lead,
highest quality lead to that person first.
So similar to Devon's tie up, I think it's in the early innings
(35:42):
of seeing what will work, but weare working functionally on
point solutions within our go tomarket teams that we're porting
over knowledge globally too. That's great.
And, and what about on like the go to market side when you, when
you think about things like content or specific channels
that like, let's say Google search volume is down, This idea
(36:03):
of generative engine optimization is emerging now
versus SEO, right? So we have some clients that
have experienced a significant drop in traffic because that
the, the vertical that they're in is searching more on, on
tools like ChatGPT. So I'm just curious, are you
seeing some of that and what adjustments are you making with
the companies not from? Yeah, I mean, that topic of that
(36:26):
go to market collapse, which I hadn't heard about in, you know,
recently, but it's all over LinkedIn now of, you know, you
used to be generating volume according to, you know, Google.
And suddenly, you know, your consumer journey path has
shifted to ChatGPT or the jobs to be done is now easier solved
on ChatGPT than Google. What does that mean if you're a
(36:46):
business that was generating a ton of traffic on Google?
And so that is an area that we are watching very closely.
And, you know, this is the benefit of having a global
platform. I mean, I'm based in New York.
You know, I work very closely with the firm that didn't exist
nine months ago and they alreadyhave, you know, 2 to 3 million
AR because they're basically creating the SEM rush of
(37:07):
generative search. And so, you know, what will that
look like? How will that take out?
We're not sure. But you know, our portfolio
companies in Europe are dialing into that startup because we're
able to kind of connect those dots.
So there's definitely urging spaces like generative AI, but
candidly, I'm always a glass half full person.
That's why I think the gross space is so interesting.
(37:29):
The market continues to move andit will reward the companies
that are watching the trends, looking at the data,
experimenting and, you know, finding the new path forward.
What's the name of that startup?The Jenny.
Profound. Really cool.
Yeah. I can connect you after if you
want to. They're great.
James, founder, ex Uber. Great guy.
Awesome. That's a competitor, Frank
(37:50):
Quinzio. So we'll look into that.
And then I guess my secondary question would be Devin for you
on that, especially in fintech, um, or financial services, so
many companies look at this, it's like they're like, I'm
thinking about a company like Nesto in your portfolio.
Their, their home page is basically lead Gen. right?
You get a, you fill out a form mortgage application, whatever
(38:12):
it is, and then you get enter into a sales process.
So how is this type of a shift with search moving over or the
risks associated with go to market there affecting your
investment decisions as you're evaluating companies?
Yeah, it's a great, it's a greatquestion.
It almost goes back to the pointI was making earlier around
(38:33):
resilience, right? Um, that for, you know, at the
later stage, we really want businesses that have multiple
paths to acquiring customers because things, things do
happen. And so, you know, a lot of that
kind of later stage underwritingis around stress testing, you
know, the potential impact of different realistic scenarios on
(38:53):
both the upside and downside perspective.
You know, what I will saying is really helpful on a lot of this
stuff is, you know, understanding where the company
you're looking at is different than their peers.
So if everyone has been using Google, then, you know, yes, a
pullback from Google might impact them, but it's it as long
(39:16):
as they can be faster to adapt than their peers, it's not going
to hurt their market share and it's probably not going to hurt
their position long term. And so it's, it is a bit about,
you know, understanding relativepositioning and strength of the
team and, and data-driven orientation of the team in terms
of spotting things and and responding.
Yeah, I think that's great, especially this point of
(39:38):
relative because if the entire market is impacted by then the
entire market has to respond andfind that customer base some
some other way. So I think that's a great point.
I know we're coming up on time here.
So before we close off, just anyclosing thoughts or what's the
best way if people want to learnmore about Portage, how should
they find either of you? Uh, so both of us are on
LinkedIn, so that's always a great way to find us.
(40:00):
We've got a website that talks abit more about the strategies
and importantly has our Porcos up there.
So if you want to get a better sense of, you know, where we've
been investing, that's always a great way to do it as well.
Excellent. And with that said, Jonathan,
Devin, thanks for coming on and sharing your wisdom.
I think it was especially helpful to hear the deal team
(40:20):
and the operating team kind of talk about how they work
together. We actually haven't done that
type of an episode and I think alot of people that listen and
have those respective teams willlearn a lot from it.
So appreciate you doing this. Thanks for having U.S. chat.
For listening to today's episode, before you take off,
just a few requests from our side #1 if you haven't done so
(40:40):
already, please subscribe to thepodcast on iTunes or Spotify or
YouTube or wherever you go to listen to your podcast #2 If you
are in the market for due diligence services, strategy
consulting, or fractional CMO services, please get in touch
with us at www.hassas.com. And 3rd, please buy a copy of my
(41:03):
new book, Exit Ready Marketing. It covers a ton of concepts that
we take our customers through private equity investors, B
company CEOs, operating partnersand marketers.
And there's a ton of great valuein there that expands on my
previous book, Post Acquisition Marketing as well.
So with that said, I hope you enjoyed today's content and
we'll see you on the next episode.
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