October 9, 2025 • 48 mins
On this episode Shiv interviews Lindsay Gray, Partner at Pacific Lake, to explore how the firm backs entrepreneurs through the Entrepreneurship Through Acquisition (ETA) or search fund model—an approach that turns traditional private equity on its head by starting with the entrepreneur before the company.
Lindsay walks through Pacific Lake’s industry thesis–driven search process, explaining how they identify and support first-time CEOs, often straight out of business school, to acquire and scale small to mid-sized businesses. She details what Pacific Lake looks for in potential searchers—from “followership” and “figure-it-out-ness” to true commitment to the ETA path—and how their team of experts guides these entrepreneurs through diligence, acquisition, and operational scaling.
The conversation also covers how Pacific Lake structures incentives and equity for searchers, maintains a 70%+ acquisition rate, and leverages a dedicated value creation team to help new CEOs build leadership capacity, professionalize go-to-market and operations, and pursue add-on acquisitions. Lindsay also discusses their long-term hold strategy, designed to give successful CEOs liquidity while continuing to compound value in the firm’s strongest companies.
This episode offers a deep look at how Pacific Lake has helped shape the ETA ecosystem, supporting over 300 search funds and more than 150 acquisitions, and the lessons they’ve learned about people, prioritization, and partnership as the foundation of value creation.
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Transcript
Episode Transcript
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(00:00):
Hey everybody. Before we jump into today's
episode, I just want to point out a few ways in which you can
work with us here at How dessas #1.
If you're an investor and you'rein the middle of a transaction
and you want to figure out what is the marketing potential of
the target investment that I'm looking at, you can engage with
us in the due diligence engagement or within two weeks,
we can give you a very clear picture of all the levers within
(00:21):
the marketing function of that organization for them to drive
more revenue and pipeline for the business while being
incredibly efficient #2. If you're the founder, CEO,
operator, or investor of a company where marketing is just
under leveraged and it's seen asa growth lever where that
requires more investment. We can come in and do a deep
dive across three to four monthsand analyze all the
(00:42):
opportunities within that business on the marketing side
by looking at demand Gen. paid media, account based marketing,
content marketing, product marketing, SEO, website, and
much more. And come back with a set of
recommendations and a road map for what marketing needs to
execute against to drive more enterprise value for that
business. And #3 if you're the CEO of a
(01:03):
company that doesn't have a CMO right now or there's a gap in
the organization because of VP marketing, CMO was recently
transitioned out. We can come in in a fractional
CMO capacity and partner with you on that business and lead
the internal team and the operational plan so that the
marketing function continues to make progress and drive more
pipeline and revenue. And will also help you hire your
(01:26):
next CMO by being part of that hiring process and on board that
new person once they're ready tojoin the organization so that
they get a running start. These three types of engagements
are some of the most common waysin which investors, CEOs and
companies work with us. And we have a proven track
record of driving a ton of enterprise value and revenue
growth across those companies. To learn more, go to
(01:47):
www.hassas.com where you'll get a lot more information in terms
of the types of engagements I'vedescribed.
And you can see case studies andother examples of the work that
we've done. So you have a lot more
confidence in partnering with us.
And with that said, let's get tothe episode.
Enjoy the show Come to the Private Equity Value Creation
podcast where we interview leading investors, operators,
(02:09):
bankers and advisors to help youanswer 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. Capital allocator.
So with that said, let's jump right in and let's get started
(02:29):
with today's episode. My guest today is Lindsey Gray
and she is a partner at Pacific Lake and they specialize in
entrepreneurship through acquisition or another way of
saying this is the search fund model.
And what I really loved about talking to Lindsey about is that
the their process for backing entrepreneurs and how they've
(02:50):
bet those entrepreneurs and how they support them as they look
for companies to acquire and howthey follow that on with
additional investment value creation, planning to help those
companies scale and eventually even exiting those businesses.
So it was a really great episode.
And it's a topic, yeah. I think a lot of entrepreneurs
think about search funds are kind of this term that gets
thrown around. And about five years ago it was
(03:11):
a really big term and then it kind of died down and now it's
become big again. And a lot of people are looking
at this business model as a way to deploy capital because the
entrepreneurs are attached to the investment before the
capital is even deployed. And that helps potentially
increase the likelihood of success.
So it's something that I think alot of firms should be thinking
about. And I, I think the wisdom that
(03:33):
Lindsey brought on the podcast, I think will help a lot of you
as you think about your investments as well.
So with that said, I'll leave you to it.
Enjoy the episode. Alright, Lindsey, welcome the
show. How's it going?
Great. Thanks for having me.
Excited to be here with you today, Ships.
(03:53):
Yeah, excited to have you on. So why don't we start with your
background and Pacific Lake and let's go from the.
Great. And so first on me, I'm a
partner here at Pacific Lake. We are a search fund investment
firm where we back entrepreneursand the search fund model also
known as ETA or entrepreneurshipthrough acquisition and and I
(04:14):
have spent the entirety of my career working within supporting
entrepreneurs. So earlier on I was in early
stage venture capital in New York and I got into that space
because I wanted to be in a position to support
entrepreneurs building and growing great businesses.
And in the mid 20 teens, I got exposed to the search fund model
(04:37):
and started investing personallyin the space.
Initially thinking that by getting exposure to this other
path to entrepreneurship, I might be a better venture
capital investor. But after seeing the returns of
the space and really understanding the model and the
ability to work closely with entrepreneurs building great
businesses through this model, Iultimately made the decision to
(04:59):
join Pacific Lake about four years ago, and it's been a great
journey. Yeah, that that's great.
And talk about this search funder entrepreneurship through
acquisition model because it's one of those topics that was a
bit of a hot button topic a few years back with some seemed like
everybody was running a search fun model and then it kind of
went out of style and then but it still exists.
(05:21):
I've heard entrepreneurs and investors kind of talk about it,
but it's a little, it's a littledifferent because in a lot of
cases, first the companies acquired and then if a CEO
changes required, then you kind of go and look for a CEO.
In this case, you're kind of doing it the other way where
you're backing an entrepreneur and then you're trying to find a
company for them to kind of invest in.
(05:41):
So talk about the benefits of that or or why take this
approach instead? Yeah, yeah, absolutely.
Yeah, we're kind of in a corner of the private equity market.
But as you say, the model is different and in some ways, you
know, turns the traditional private equity model on its
head. So I'd be happy to walk through
how it works. You know, I'll also say there
(06:01):
has been an explosion in popularity of this model even
since I've that involved over the last five to six years.
Um, and we are seeing not only more folks get interested in
entrepreneurship through acquisition, but also a
proliferation of the model and what it means to acquire a
business, you know, through the search fund model or through
(06:22):
ETA. So I'm happy to talk about, you
know how it works and then also where we're seeing some of the
the divergent in model. Yeah, yeah.
Let's start this. Walk us through how the model
actually works and the benefits of that.
Yeah. So you said it before, we start
with the entrepreneur, not the company.
And so the the way we describe search funds are it is a path
(06:46):
for to facilitate and someone becoming a CEO and in particular
CEO of a scale scalable business.
So what we do is we first back individuals who have opted in to
the search fund model and who are looking to run for the long
(07:07):
term a company that they find and acquire with the help of us
and their other investors. And So what we do is we
initially put in a little bit ofcapital, typically about 500 K
alongside other investors. So we may be 2025% of that
initial 500K, which is meant to provide the capital for an
(07:30):
entrepreneur to go out and find a business.
So over the course of typically somewhere between 18 months and
two years, this entrepreneur whohas raised this 500K will pay
themselves a salary. And we'll use that capital to to
hit the road, right? To go out and meet prospective
sellers of businesses that they might acquire, to conduct
diligence on those businesses and then hopefully to ultimately
(07:53):
acquire one that will enable them to be the CEO.
And when they do, their investorgroup, like Pacific Lake, puts
in the equity capital for them to acquire that business.
And so, you know, when I said we're facilitating a path to the
seat, the CEO seat, it's really starting at the very beginning
(08:14):
of thinking about what company they might want to buy all the
way through acquiring that business and then ultimately
growing that business and havinga successful outcome on the
other end. And so walk us through that
search process, right? Because with the entrepreneur,
they probably have strengths andweaknesses or areas where they
are better and their counterparts and then areas
(08:36):
where they're not as strong. And that should likely influence
or impact the types of companiesthat they are fit to lead.
So how do you factor that into the search process?
Are they leading the search or are you helping them with the
search? Like who's doing what role in
that process? Yeah.
So the truth about that, the whole model and we can talk
about the search parts specifically is it someone opts
(08:59):
in to this because they want to be captain of their own ship,
right? They want to drive.
It's an entrepreneurial path that they are they are taking.
They wanna drive, you know what business they buy and ultimately
how they run it. Someone raises a search fund and
the model I just described because they most likely are an
inexperienced operator. In our case, many of the
(09:20):
searchers we back are immediately post MBA or they may
be a couple years post MBA or have forgotten an MBA but have a
similar level of work experience.
Regardless, in most cases, they've never run a business
before. And so while they want to be
captain of their own ship, they want to have kind of the
authority to make the final decisions on the search and,
(09:41):
and, and the operating phase. They know that they need to
surround themselves with folks who've done this before.
And in the case of Pacific Lake,you know, we have backed over
300 search funds in the 16 yearsthat we've been around.
We've acquired over 150 companies.
We've had six more than 60 exits.
So it's fair to say we have pretty good pattern recognition.
And so our job in the search phase is to teach these
(10:05):
entrepreneurs what good looks like and to support them as they
go out and look for it. So happy to get more into that.
But but but that's, that's kind of how the model works.
It's a, you know, player coach model, if you will.
And you know, we're, we're here to coach and advise.
And so as the business development process of actually
(10:26):
sourcing the deal is being led by the entrepreneur.
That's right, that's right. So we, we teach them to fish,
but ultimately they're doing thefishing.
So we spend a lot of time up front and before we even back
CEO, frankly, in the the time we're or back searchers and the
time where we're getting to knowthem and, and deciding to work
together. I'm talking about what a good
(10:46):
search looks like and what will increase the probability that
they find a high quality business to acquire and run.
And so in in our case, you know,we believe an industry thesis
driven search is the best way toacquire a company.
You know, you build a thesis about industries that are
growing that have mission criticality and, and ultimately
(11:11):
kind of underwrite those industries and then go out and
look for a business within that industry where there may be a
willing seller who wants to sellto someone who will take over
their business, like a successorand run the business.
And so, you know, we, we teach them how to underwrite an
industry. We work alongside them as they
do that. We talk about how to engage
(11:32):
sellers and how to, you know, position yourself to, you know,
be a likely acquirer and then ultimately how to get a deal
gotten. So how do you negotiate with the
seller and, and ultimately do the nuts and bolts of the
acquisition process? So yes, they are deciding what
industries and they are leading the search process, but we're
there along the way to guide andsupport them and redirect in the
(11:55):
case where we think they may be going down a path that won't be
fruitful for them. On the thesis side, that almost
precedes the search, right? So who is drafting that thesis?
And like what is the process? Look inside your firm.
Is the entrepreneur coming and saying, hey, look, I have
expertise in manufacturing or chemicals or in software or in
(12:15):
marketing, whatever it is, and I've built this thesis in this
market and I want to try to finda company here.
And then are you vetting their thesis or are you Co creating
that thesis together? Almost neither.
So what I'll say is when we lookfor what searchers to back and
we are not really super focused on what industry they plan to
(12:35):
search in. We're interested in
understanding, can they think about what makes a good
industry, right? Do they have the sort of ability
to think through with thesis andand you know, have they paid
attention to kind of what good looks like for other searchers?
So you know, in particular, are they looking at industries that
are sizeable? Are they looking at industries
(12:56):
that have good growth still wins?
Do they understand mission criticality?
You know, we're we're underwriting their ability to
analyze an industry. We're less concerned.
Do they pick an industry we like?
And the reason for that is searchers ultimately search in
multiple industries before they acquire a company.
And so it's OK if we back an entrepreneur and you know, they,
(13:17):
we, we haven't already upfront aligned on what industry they're
gonna buy and like that, that isOK.
And that's pretty typical. We're also looking for other
qualities that we have seen makea successful search for and
ultimately a successful CEO's that are not related to
industry. So, you know, some of those
characteristics that we look forare things like we internally
call it followership. Can they build strong
(13:40):
relationships with the people around them.
And the reason that's particularly important in this
model is remember they they haveto convince the seller to sell
them their business. So can they build relationships
and do that well? And most of our deals, over 90%
are proprietary, have been proprietarily sourced, meaning
they've got to build relationships with the seller
who isn't already out selling their business.
(14:02):
They need to convince really high quality talent to join
them, even when the business is still really small.
And they need to convince their investor base to kind of stay
with them along the way and support the vision they have for
the company. So we're looking for things like
that and also figure it out. Ness is another kind of silly
term we use internally, but thatultimately represents sort of
(14:23):
what it takes to be successful entrepreneur with these
businesses. Which means you know, you're not
always going to know what problems are in front of you,
but you have the ability to rollup your sleeves and dig in and
and solve hard problems. And so that's what we're
aligning with them on up front. It's almost like vetting the
software skills of figuring out is this person capable of
(14:44):
leading. It's almost like a pre interview
to figure out if you're actuallygoing to back this person and
deploy capital behind whatever whatever company they find.
That's right. And typically that interview
process, if you will last many months, sometimes as much as a
year or 18 months of getting to know them.
And so it, you know, over time you can see patterns in their
behavior that would indicate, you know, do they have the
(15:07):
qualities that will make them successful in searching and then
ultimately, you know, in operating.
And so, you know, we've aligned on that and then we, we back
them and we've kind of have somealignment around what kind of
industries are interesting and what sort of business models are
interesting to pacifically. But then ultimately it's up to
the searcher to kind of decide, you know, where they want to
(15:27):
fish. And so we often will be their
thought partner in that. We'll spend time, we do, you
know, industry underwriting whiteboarding sessions where
they'll come in and talk about, about it.
But, you know, what we're askingthem to bring to the table is a
thesis about, you know, look, look around the world and think
about what's happening in the world and come up with a thesis
or a set of theses that we can run down together that will lead
(15:48):
us to an industry or typically, you know, a small niche within
an industry and that we think may be fertile ground.
And during this time, are they kind of quasi Pacific Lake
employees or they're kind of self funding their way through
this? Like how, how does that work?
Are there almost like entrepreneurial and looking for
these opportunities? Like how how is how does the
(16:09):
relationship get structured withPacific Lake at that point?
Yeah, they, they are not employees of Pacific Lakes.
So they launched their own search fund.
They, you know, create a legal entity that they they create
before they take capital and that is that that entity is what
receives that 500 pay of capitalthat I mentioned that funds the
(16:31):
rest of their search. So they are an employee of that
organization. Sometimes, by the way, partners
bit 22 searchers will come together and and partner search.
That's pretty common here. Sometimes it's an individual,
but regardless, they raise capital into that entity that
funds their search, which again,typically takes somewhere
between 18, around 18 to 24 months to find a business.
(16:54):
And so they're an employee of that that organization while
they're searching specifically take put some of the money into
that search. When we say we back a searcher,
what we mean is we are providingthe search capital.
We like to do that as part of a syndicate.
So we're typically somewhere between, you know, 15 to 25% of
that pool of search capital. The remainder is made-up of
(17:16):
other search fund investors thatare are, you know, doing the
same, the same sorts of things as us.
And the search fund ecosystem isstill pretty small.
So it's a repeat game with with those investors.
We often invest with the same types of folks and we love doing
that. You know, we have found that
it's an ecosystem that, you know, really supports
entrepreneurs as well. And so we are one piece of that
(17:38):
team that the entrepreneur is assembling, but that there are
others around. And then maybe worth just taking
it one step further, which is tosay what we get as investors for
putting up that search fund capital and funding that phase
of the journey is a right of first refusal to invest in the
deal, you know, pro rata. So you know, for 20% of the
(17:59):
search, we have a right to 20% of the equity when a searcher
finds a deal. And that is the case with all
the investors that put up the search fund capital.
So you know that is kind of a core tenet of the model and you
know in our case are following rate is very high north of 80%.
And so, you know, getting alignment upfront, spending
time, you know, evaluating what searches we're going to work
(18:22):
with is really important. That ultimately leads to good
alignment when they find a company and, you know, we
invest. Pretty.
That was going to be my next question is just what percentage
of these initial search funds are actually translating into
deals for you and how long does that take?
Yeah. And so we could talk about the
ecosystem sort of the search fund or ETA community and then
(18:45):
we can zero in on what it looks like for Pacific Lake.
Acquisition rates in the search Fund ecosystem hover around
these days, you know, 60% give or take.
And Stanford produces a study, Stanford Search Fund study every
two years that always has reallygreat data on this specifically
acquisition rate. The acquisition rate of our
(19:07):
searchers has always been above what we see as an industry
average and we attribute that toseveral things.
But you know, we believe a key driver of that is this industry
thesis driven search model wherewe are our searchers are
primarily, you know, doing proprietary deal sourcing with
this industry thesis guiding guiding them.
(19:29):
And we believe that leads to higher acquisition rates and
that the data would support that.
So in our case, it's over 70% ofour searchers are requiring of
course with some variance from year to year.
And then our follow on read as Isaid is, is has typically been
above 80% meaning of the searchers that ultimately
acquire you know our, our followon with them is is quite high.
(19:54):
Got it. Yeah, got it.
That makes, that makes a lot of sense.
So for you, it's almost like theacquisition channel to deploy
your capital, but you need to back these folks to to get
there. What what about on the
entrepreneur side? Like as you're running these
searches and you're meeting a bunch of entrepreneurs to to
potentially back and getting to know them, Like what percentage
of those folks actually translate into a search fund
(20:16):
vehicle that you're willing to invest capital into?
Yeah, that's a that's a great question.
If you think about the very top of the funnel, people who are
exploring ETA as a path to entrepreneurship, I'd say in a
given year we may hundreds of people, maybe north of 1000
(20:36):
people. I'm going to be on Harvard
Business School campus tomorrow.And if that kind of giving a
presentation, think of it as a entrepreneurship through
acquisition 101, educating folkswho are at HBS about what this
model means. But how many of those actually
decide to search will be, you know, far fewer.
(20:57):
And we like to say this is an opt in model.
We do not, we're not trying to convince anyone to search.
It's a hard path. It's an entrepreneurial journey
that requires a lot of self, self motivation.
And so we're not trying to convince anyone to search.
What we are trying to do is educate people about what this
is and that it is a viable path to entrepreneurship.
So the right people opt in. So ultimately we'll back 20 to
(21:19):
30 searchers per year. In the past, you know, that's
been I think last year we saw about 150 searches just host if
you, if you filter out people searching internationally, we
only back searchers who are going to acquire in the US or
Canada. And so it'll be somewhere around
150 search funds that get raisedof which we will invest in
(21:41):
somewhere between 20 and 30. Yeah.
I guess the thought on that is like is are there certain
characteristics that you're looking for?
For example, does the entrepreneur need to bring
capital to the table? Do they need to have a previous
successful exit or a success story that they're coming from?
Or can it even be someone just that's straight out of Business
(22:01):
School that maybe has some expertise or or unique insight?
Or is it, it can be either or. I'm just curious, like, are
there, is there a certain profile of folks that you're
looking for? And then a second question
associated that would would be, are there any things that you
notice in during that process that would make you walk away
from an entrepreneur? Obviously there's the red flags
(22:21):
that are obvious, but the outside of that, any specific
things that make you feel like this is not the type of
entrepreneur that we would back?Yeah, Yeah, we can talk about
this for for for a while. So I talked about the criteria
that we typically look for. You know, there's the ability to
underwrite an industry, there's the followership, there's the
ability to figure things out. Those are called attributes,
(22:43):
qualities that a person has. And we look for those things
pretty consistently across searchers.
However, when we look at what people have done before coming
to the search fund path is very diverse and we have not found
much correlation between what you did before searching and
(23:05):
your your success. So just to give you a sense of
the range, we have had successful searchers that whose
prior experience was in the military, they were investment
bankers or in private equity, they were in consulting, they
worked in nonprofits, they worked in sales at a large
company or at a small company. I mean, the range of
experiences, the backgrounds that people have is quite
(23:27):
diverse. I think it, you know, is it's
the attributes, it's the the qualities that I described where
we see, you know, can more correlation between, you know,
those who succeed in this path and and those who don't.
The other thing I'll say we lookfor and, and this is very
relevant this current time is we, we look for someone who has
(23:49):
burned the boats. You know, they're, they're,
they're pursuing just this path.ETA or searching is not a backup
plan. It's like, not like, oh, I
didn't get that job at McKenzie.So maybe I'll find a business to
buy. They are convicted that this is
the path for them and that they want to be CEO and, and this is
how they're going to do it. And so I would say the thing
that probably would lead us to not back the a searcher that we
(24:12):
need the most frequently is, is that it's like this feels like a
backup plan or something they'reconsidering along with an array
of options that look typical to what, you know, people do post
MBA or you know what that equivalent chapter of life.
The other thing I'd say is a lack of coachability.
So given that we are primarily backing people who are not, you
(24:32):
know, extremely experienced, we are looking for people who will
take coaching. And so that is something that
you can suss out over built, youknow, over time, building a
relationship with someone is, you know, do they ask good
questions? Did they take good feedback?
Did they implement that feedbackbefore the next meeting, what
have you? And so you know that that's
another, another key factor thatthat we're considering.
(24:56):
I guess, yeah, coming from different walks of life
definitely introduces different opportunities that can be
spawned by different entrepreneurs.
What what about in terms of skills themselves?
Like are you vetting for the ability to sell the, you
mentioned relationships earlier,but even just like going out
there and spotting opportunitiesor having the ability to build
(25:17):
great products or identify what users really care about and
particular markets. Are you looking for those kinds
of skills? Or are you thinking about it
more as like almost like a operational leader that has
financial expertise and can optimize and and kind of build
enterprise value over time? Yeah.
So there is a it's important that there's a history of past
(25:40):
success, right, regardless of what path you took and skills
that you required along the way that made you successful.
But different folks we back willhave spiked and continue to
spike in different areas. So as an example, you know,
folks who have a military background very often spike on
leadership. And when they talk about what
made them successful in their military journey, it's it's that
(26:03):
great. But we'll lean into that.
If you've never, you know, underwritten a deal before, we
can teach you that others are excellent salespeople, as you
said, but but similarly, you know, maybe haven't done lots of
financial modeling like that's OK.
And we made back someone who wasa great investment banker who's
never really sold a product or managed a big team.
(26:25):
And as long as we see the sparksof their ability to do that, we
understand that they will. There is learning on the job
that is going to happen for all of these folks.
So you want them to spike somewhere they have to have the
qualities that we described before there have to they have
to have horsepower, right. So we talk about like testing
their ability to underwrite an industry and and all of that.
But, but I think it's important to say there's not like a
(26:48):
checklist of skill sets that, you know, we're we're, you know,
running down as we meet someone like they've never done a deal
before. They they won't be successful.
Like that's absolutely not the way you know, the the way that
this model has worked. That's great.
And then as you know, the searchprocess is going on.
We talked about that earlier. But let's say you do find a
company from there. Is it just more like a standard
(27:10):
private equity process or are you approaching it differently
because it's a search fund and now you're backing this
entrepreneur? Yeah.
And this may be a good point actually, if you don't mind a
slight pivot, and I'll come backto this to talk about.
There are a few different types.I talked about the proliferation
of the model and how entrepreneurship through
acquisition is now an umbrella that encompasses different
(27:30):
models. So what you and I have been
talking about, and I think what lives in most people's mind is
sort of your typical search funddeal is a single acquisition,
right? It's an entrepreneur who meets
the seller who owns one company.The plan is to buy that one
company and run that company until you sell it.
That model is still alive and well and we do a lot of that.
There are also, you know, increasingly more entrepreneurs
(27:54):
who take this ETA path who have a specific desire to do a
consolidation in an industry or roll up or a holding company
where they're going to acquire multiple companies under, you
know, the holding company umbrella.
So you know, think of it as different types of multi
acquisition strategies. And we believe you can be
(28:17):
successful in ETA and all of those paths.
So sometimes it's thinking about, you know, searcher
strategy fit, if you will, and then, you know, supporting them
accordingly. But when I talked about the
proliferation of the model, it's, it's to say there are
different flavors of what you acquire and how you acquire it
that we're seeing in ETA today and that we support, you know,
(28:39):
we, we support that variety of, of searcher and model that being
said is, you know, talking abouthow a deal gets done.
So, you know, there are some differences with the typical,
you know, private equity, private equity structure and
some things that are similar or the same.
We are doing full buyouts of these companies.
So the investor group puts up the equity.
(29:00):
There's typically some debt put on these businesses to do a full
buyout. Occasionally a seller will roll
and, and things like that, whichis also not atypical and in
parts of private equity, but butit's a, it's a full buyout of a
company. And again, in a typical, you
know, search back search where we've put up the capital for the
search, you know that that similar investor group, maybe
(29:24):
even the exact same investor group puts up all the equity
capital for the deal. As I said, in our case, this
isn't the case with all search fund investors, but most of our
deals are proprietarily sourced.And so, you know, it is the
entrepreneur having a direct relationship with the seller and
convincing them to sell the business and that they will be
the entrepreneur will be good steward of that business in its
(29:45):
next chapter and negotiating theterms of that deal.
So entrepreneur will put a business under LOI, you know,
conduct diligence. It's a similar diligence process
at a private equity firm would take and then ultimately close
the deal. But you know that that's kind of
a typical process. What percentage you mentioned,
(30:06):
obviously the just backing an entrepreneur for a singular
investment is the main thing that you guys focus on, but what
percentages are what percentage of deals are more of these
roll-ups or the other types of deals that you mentioned?
So this is becoming a lot more popular and you know, we, we did
deals in the past that became, you know, where the companies
became highly acquisitive and that ultimately built value
(30:27):
through an inorganic strategy over time.
So it's not that we've never done that before, but I'd say
what is becoming more popular and this has been the case for a
couple of years. I mean, it's not like it's brand
new yesterday, but it's folks coming to us with specific
thesis or specific desire to do what consolidation or a holding
company. And, and sometimes the holding
company, they already have a first acquisition, sometimes
(30:47):
they don't, you know, they, theyhave an idea about what they
want to build. And the idea is after the
capital is put in, they will find the company to buy.
So again, like many flavors of this and, and we do all of those
flavors and believe that sort ofthe innovation around what ETA
can be is a really important part of sort of maturing this
(31:07):
model and, you know, finding newpockets of success.
So in terms of a percentage, I mean, it's, it's hard to say
shit honestly, like the ecosystem is evolving so
quickly. But I think, you know, there's a
decent chance that somewhere between, you know, somewhere
around 20% of our current fund will get deployed into something
(31:28):
that is not just a single asset acquisition.
How much of the company is the entrepreneur retaining as you
are deploying the capital? Because obviously you're the
capital partner and they're doing the search like I'm
assuming it also depends on whether they're bringing capital
to the table. But just help me understand and
how is that different from let'ssay that entrepreneur landing
(31:48):
CEO, they're gonna be backed business where they're bringing
capital or they're just being employed?
Yeah. So typically when you raise a
search fund, the entrepreneur isnot putting up any capital
upfront. Their syndicate of investors is
supplying all the Capital plus perhaps as I said some debt and
maybe some seller role. But the entrepreneur themselves
(32:10):
is not putting up putting up capital and that that's almost
always the case and that is partof the model.
So it's not, it's not expected that they would.
And then they vest into their equity, equity ownership.
And so the best vesting is typically 1/3, a third, a third.
And you know, a third vest at acquisition, 1/3 is time based
(32:33):
and a third is based on performance metrics negotiated
with their investor group. And so without putting in any
capital upfront, the entrepreneur can vest into
meaningful ownership in that business over time.
And you know, some stats that might be worth sharing.
We were, we were just looking atthese like can't I, I think it's
(32:56):
helpful to give a sense of the magnitude.
You know, typically if we look out, you know, over the history
of Pacific Lake and in our exits, you know, average TV at
acquisition is somewhere between, you know, somewhere
around $20 million of enterprisevalue when they acquire the
company. And if we look at our exits over
(33:18):
just the last four years, enterprise value has been
115,000,000 at exit, so growing from 20 to 120, uh, you know, at
exit, so meaningful growth. And So what that means is, you
know, the average carry when of the entrepreneur who becomes a
CEO, who, you know, vests as I described into their equity
(33:39):
ownership over time, that average carries $25 million that
exit, just looking at the, the exits we've had.
So without putting up any, you know, capital up front, you
know, if if you're successful inthis model, it can be very
lucrative. Does it get to a point where
like sometimes the entrepreneur that you're backing now you've
invested capital and the business is growing, but you get
(34:02):
to a point where that entrepreneur can no longer take
that business to the next level and you kind of have to find
another CEO? Or is that is in most cases like
continuing to back that entrepreneur?
Yeah, in most cases, we're continuing to back the
entrepreneurship. You know, we, we back them with
the expectation they will run the business.
But you get to a, a, an interesting point typically and
(34:25):
we, we saw this over the 1st 10.So pacifically it's been around
for 16 years as I said. And we, we, we evolved our model
and the last six years in response to, I think some of
what you're getting at with, youknow, how, what does the CEO
journey, you know, look like overtime?
So what we found in the 1st 10 years of Pacific Lake is, you
(34:47):
know, we were back a searcher. We'd support them in acquiring a
business, they'd acquire the business, they'd run the
business as a CEO successfully and they'd reach a point in time
where, you know, on paper they're worth quite a lot of
money. I mean, I just gave what I
thought was a pretty eye poppingfigure when I first saw it,
Like, wait, 25,000,000 bucks carry on average in this model.
(35:07):
That's a, that's a number that, you know, most people, most of
these CEO's can't door. And so in the 1st 10 years of
Pacific Lake, what we found is our most successful companies
would reach this point where theCEO would say, look like this
has been really good. I, I like what I'm doing.
I've got my arms around the business, but like, I really
like some liquidity to pay down my loans or buy my home or send
(35:30):
my kids to school or whatever itis that they want to do.
And our only path at that point was to sell the company, to give
the CEO and the investor group liquidity and to set the company
up for its next chapter. And we did that.
If the entrepreneur is like, look, this is important to me or
I need to get off the bus, that's what we do.
But we lamented that in a numberof cases and honestly, I think
(35:51):
the CEOs did as well. And so in 2019, we launched a
second strategy that basically solves that problem for the
entrepreneur and investor group in Pacific Lakes.
So we call this the long term hold strategy.
What this strategy does is it recapitalize businesses in the
search fund ecosystem that reachthat point and sets them up for
(36:12):
the next chapter. So we give the CEO some
liquidity. We give investors some
liquidity, particularly ones whodon't want to hold the business
any longer based on sort of the terms of their own funds.
We sometimes put primary capitalon the business and we set it up
for its next chapter. And in every case when
Pacifically is doing a long termhold investment, the CEO is
(36:34):
staying on for that next chapter.
That's an important an importantcharacteristic of a business
that we think will recap with with LTH.
So we've done that 14 times overthe last six years and it's
proven to be a very successful strategy.
It's almost like two different funds and inside Civic like
where the second fund is findingliquidity for the first fund to
(36:56):
be able to exit these companies.But still you guys retain the
asset, especially if you're verybullish on the future of that
asset. Yes.
With one caveat though, liquidity is really for the CEO
not, you know, to take some chips off the table and other
investors. We typically actually roll our
investment, right. We are not buying and selling
from ourselves in these two funds.
(37:17):
But the point stands. It addresses this, you know,
fundamental issue we were seeing, which is like our very
best winners were having to sellbefore anybody was ready to get
off the bus because of very reasonable and rational, you
know, things that arise for a successful CEO who want paper is
all of a sudden we're 25,000,000dollars.
And so that that has that has helped us, you know, roll those
(37:40):
businesses for for longer and compound the returns over time.
That being said, there will be many businesses that reach the
four or five year mark where forwhatever reason, it's the right
time to sell. The industry is changing,
competitive dynamics are changing.
Something in the CEO's life has changed and you know, they may
have been very successful for five or six years or however
long and still think it's time to move on to the next thing and
(38:03):
that that's OK. So the majority of our
businesses realize it in that fashion typically to either you
know private equity, private equity back sponsor or strategic
and you know that that model works well too.
Yeah. At that phase, I would imagine
and correct me if I'm wrong, like are you operating very
similar to another private equity firm that has just done a
buyout? Because you have a business, you
have a whole period, you're looking at your IR internally
(38:26):
and what type of marks you kind of need to hit and kind of
making a decision on where you need to sell or when you should
sell. Well, remember, you know, we are
not majority owners in these businesses.
Nobody is. It is, you know, kind of by
definition a in almost all cases.
There are, there are different models, by the way, we're like
an investment firm will be a majority owner in a business
(38:47):
that looks like a search fund acquired business.
But in our model, again, you know, we're 20 to 25% of the cap
table on average. And then there's a syndicate of
investors who we know well and we trust and we're aligned with.
But we as a collective, we'll make a decision on when the
right time is to sell a business.
Again, a fiance preneurs like, Iwant to get off the bus.
We're probably all getting off the bus together.
(39:07):
But otherwise, there are not many circumstances in which, you
know, Pacific Lake is forcing a sale like that.
That isn't typical. It's typically, you know,
building alignment with the investor group in the management
team of the company that it's the right time.
Yeah, that, that makes sense. Yeah, especially in a minority
model and and the entrepreneur having so much control over the
(39:28):
asset too. So that makes sense.
What about on the Valley creation side?
Are you supporting the entrepreneurs all the way a
traditional firm would? Or are you letting the
entrepreneur run with the strategy?
Just help me understand the board dynamics and how you're
setting prioritization or strategy or at the board level,
how you're kind of governing thebusiness and figuring out where
(39:48):
to invest more or scale or maybeuse inorganic channels and layer
on additional acquisitions and things like that.
Yeah, yeah. There's a lot to unpack in that.
So the first thing you'll say isspecifically because a dedicated
value creation team, which I know is pretty standard.
Private equity, it is not standard in search and we're
afforded the ability to have a dedicated value creation team
(40:11):
because we're the largest investor in this part of the
ecosystem and over time have been able to build out a team.
So we have a dedicated team of folks who just work with our
companies post acquisition to help them grow and scale these
businesses. And I can talk more about you
know the different ways that that we help them.
We're often taking board seats as well.
(40:31):
There is always a board, whetherPacific Lake is on the board or
not. All of the companies we acquire
have a board that, you know, that govern the company.
And we, we participate in those very frequently.
And the board, you know, plays multiple roles as is, as they do
in, in private equity, right? It's, you know, governance, it's
helping drive the strategy. In our case, it's a lot of
(40:54):
coaching of the CEO's as well. And again, coach ability is an
important attribute. And so we take seriously our
role as investors and board members that, you know, guiding
these, these relatively new CEO's as they go through the
journey is an important part of the, the board and investor's
job as well in terms of value creation.
(41:14):
You know that I'll describe the levers, but they're probably
things you, you would guess they're pretty typical.
It's, you know #1 helping the CEO become a leader of a
company. We like to say, you know, every
day they're, they're, they're leading the biggest company
they've ever LED. If, if we're doing this right.
And so, you know, there's a lot to teach them about leadership
(41:35):
and, and we take that very seriously.
But then beyond that, it's helping them build out their
executive team. So we do a lot.
We have a women in our team who is a former executive recruiter
and that's still largely what she does for the Pacific Lake
portfolios, help them hire and retain great talent.
We do a lot on go to market. So we have a gentleman on our
(41:56):
team, Don Taylor, who is himselfa very seasoned sales executive
and he's teaching our companies and working with our companies
around their go to market motionand professionalizing their
sales organization. Today, every company, whether
you're a software business or not needs to think about, you
know the how technology is changing either your company or
(42:18):
your industry. And so we have an operating
partner that focuses on that andwe also have one who focuses on
M&A and operational excellence and generally and and as you
said, at some point for many of these companies an inorganic
strategy makes sense. And so having someone who
understands when that's the right time, how to find the
(42:40):
right targets and ultimately howto integrate them as has become
really key. So I'm super proud of the value
creation team we have here and Ithink CEO's really appreciate
both our breadth and depth as they go through the journey.
That's, that's great. Are you using a lot of?
Is it mostly the internal value creation team that's driving
value with these entrepreneurs or are you also relying on
(43:03):
partners and external vendors? There's a little bit of both for
sure. You know, there are certain
times where it makes sense for us to lean in.
And there are other times where,you know, our job is to connect
the entrepreneur with the best resource to help them.
And if that resource is external, we're very happy to do
that. So, you know, we we are partners
(43:27):
with the organization called OneGuide.
I'm not sure if they've come across your desk at all, Shiv,
but what they do is help pull together resources for private
equity firms and their portfoliocompanies so that those firms
can connect their companies with, with great resources.
And we use one guide in their platform all the time.
(43:49):
And what I'd say they're, you know, they're great at many
things, but one thing they're great at is constantly adding
new experts and vendors to theirplatform that we can then we,
we, we can then go to. So, you know, if someone has a
need, particularly around something like compensation
planning, we may not be the bestpeople to roll up our sleeves
and dig into compensation planning, but yeah, there are
(44:11):
lots of great experts out there who can do that.
And so if we can connect companyto a resource like that, we're,
we're always very happy to do that.
So it's a, it's a mixed bag of of our team and external
resources, but always thinking about what's the best for the
company at that time. Yeah, that's awesome.
And we're coming up on time. But before we close out, I've
just one last question about this.
(44:31):
Given that you guys have been doing this for so many years and
have back so many entrepreneurs,what would you say are some of
the biggest lessons on the wins and losses that you've had?
That's a great, that's a great question.
I'd say, you know, one thing we found is you're, you're never
wrong to focus on people and partnerships.
And so, you know, that starts with entrepreneurs, you know,
(44:54):
thinking about who are the partners that they should bring
around them before their search has even begun.
And you know, we, we hope that, you know, Pacific Lake is on
that consideration set. But regardless, we're always
happy to talk to entrepreneurs about, you know, who to surround
themselves with. So I think surrounding yourself
with the right people, the frontis really important and then it
pays dividends throughout. So it will help you attract the
(45:17):
right people to your executive leadership team over time.
And the value you can get from adding, you know, a new high
horsepower person to your team, it is really critical.
So again, like comes back to people and in partnerships and
in terms of lessons, I think theplace I see most CEO's fall down
(45:38):
the most because they are very ambitious and they want to grow
is not setting the right priorities or or setting any
priorities and trying to do too much too fast with too few
resources. And so I think that's one thing
the board and we can help with is making sure that the CEO
understands like what are the one or two things I'm going to
do next? How do I bring the people I have
(45:59):
around me who support me to do that, you know, well and
efficiently and, you know, then I can move on to the next thing.
So, you know, again, like ambition can, can, you know,
lead us to go awry of those things.
But I think the importance of, of prioritization and, and
partnerships and can't be, you know, can't be underestimated.
So that that's what I encourage them to focus on.
(46:23):
Yeah, that that's great advice. And if there are entrepreneurs
listening that may want to partner with Pacific Lake,
what's the best way to get a hold of you or Pacific like?
Thanks for asking to get a hold of me personally.
My e-mail address, illillgiveoutisjustlindseywithane@pacificlake.com.
And you know, anybody who's interested in learning more
(46:47):
about the ETA model or, you know, working with us
specifically, you know, I'd be happy to hear from them.
And then, you know, I'm also happy to kind of triage to other
folks on our team that might be best suited depending on the
topic. So I would welcome the outreach.
Yeah. We'll be sure to include that in
the show notes and all the otherlinks about your firm and
(47:07):
anything else that we can share.And with that said, Lindsay,
thanks a lot for coming on and sharing your wisdom.
It's a topic that we previously haven't over on the podcast.
So I think a lot of firms that think about deal flow and even
backing their own form of entrepreneurs and search funds,
I think can learn from it. And even people that are
actually actively in this space and trying to learn from the
lessons that you've you've builtover the years is after doing
(47:28):
this for many times over. So appreciate you doing this.
Thanks. Thanks for having me there was a
lot of fun. Thanks for listening to today's
episode. Before you take off, just a few
requests from our side #1 if youhaven't done so already, please
subscribe to the podcast on iTunes or Spotify or YouTube or
wherever you go to listen to your podcast #2 If you are in
(47:50):
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
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.
(48:13):
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.
Hey everybody. Before we jump into today's
episode, I just want to point out a few ways in which you can
work with us here at How dessas #1.
If you're an investor and you'rein the middle of a transaction
and you want to figure out what is the marketing potential of
the target investment that I'm looking at, you can engage with
us in the due diligence engagement or within two weeks,
we can give you a very clear picture of all the levers within
(00:21):
the marketing function of that organization for them to drive
more revenue and pipeline for the business while being
incredibly efficient #2. If you're the founder, CEO,
operator, or investor of a company where marketing is just
under leveraged and it's seen asa growth lever where that
requires more investment. We can come in and do a deep
dive across three to four monthsand analyze all the
(00:42):
opportunities within that business on the marketing side
by looking at demand Gen. paid media, account based marketing,
content marketing, product marketing, SEO, website, and
much more. And come back with a set of
recommendations and a road map for what marketing needs to
execute against to drive more enterprise value for that
business. And #3 if you're the CEO of a
(01:03):
company that doesn't have a CMO right now or there's a gap in
the organization because of VP marketing, CMO was recently
transitioned out. We can come in in a fractional
CMO capacity and partner with you on that business and lead
the internal team and the operational plan so that the
marketing function continues to make progress and drive more
pipeline and revenue. And will also help you hire your
(01:26):
next CMO by being part of that hiring process and on board that
new person once they're ready tojoin the organization so that
they get a running start. These three types of engagements
are some of the most common waysin which investors, CEOs and
companies work with us. And we have a proven track
record of driving a ton of enterprise value and revenue
growth across those companies. To learn more, go to
(01:47):
www.hassas.com where you'll get a lot more information in terms
of the types of engagements I'vedescribed.
And you can see case studies andother examples of the work that
we've done. So you have a lot more
confidence in partnering with us.
And with that said, let's get tothe episode.
Enjoy the show Come to the Private Equity Value Creation
podcast where we interview leading investors, operators,
(02:09):
bankers and advisors to help youanswer 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. Capital allocator.
So with that said, let's jump right in and let's get started
(02:29):
with today's episode. My guest today is Lindsey Gray
and she is a partner at Pacific Lake and they specialize in
entrepreneurship through acquisition or another way of
saying this is the search fund model.
And what I really loved about talking to Lindsey about is that
the their process for backing entrepreneurs and how they've
(02:50):
bet those entrepreneurs and how they support them as they look
for companies to acquire and howthey follow that on with
additional investment value creation, planning to help those
companies scale and eventually even exiting those businesses.
So it was a really great episode.
And it's a topic, yeah. I think a lot of entrepreneurs
think about search funds are kind of this term that gets
thrown around. And about five years ago it was
(03:11):
a really big term and then it kind of died down and now it's
become big again. And a lot of people are looking
at this business model as a way to deploy capital because the
entrepreneurs are attached to the investment before the
capital is even deployed. And that helps potentially
increase the likelihood of success.
So it's something that I think alot of firms should be thinking
about. And I, I think the wisdom that
(03:33):
Lindsey brought on the podcast, I think will help a lot of you
as you think about your investments as well.
So with that said, I'll leave you to it.
Enjoy the episode. Alright, Lindsey, welcome the
show. How's it going?
Great. Thanks for having me.
Excited to be here with you today, Ships.
(03:53):
Yeah, excited to have you on. So why don't we start with your
background and Pacific Lake and let's go from the.
Great. And so first on me, I'm a
partner here at Pacific Lake. We are a search fund investment
firm where we back entrepreneursand the search fund model also
known as ETA or entrepreneurshipthrough acquisition and and I
(04:14):
have spent the entirety of my career working within supporting
entrepreneurs. So earlier on I was in early
stage venture capital in New York and I got into that space
because I wanted to be in a position to support
entrepreneurs building and growing great businesses.
And in the mid 20 teens, I got exposed to the search fund model
(04:37):
and started investing personallyin the space.
Initially thinking that by getting exposure to this other
path to entrepreneurship, I might be a better venture
capital investor. But after seeing the returns of
the space and really understanding the model and the
ability to work closely with entrepreneurs building great
businesses through this model, Iultimately made the decision to
(04:59):
join Pacific Lake about four years ago, and it's been a great
journey. Yeah, that that's great.
And talk about this search funder entrepreneurship through
acquisition model because it's one of those topics that was a
bit of a hot button topic a few years back with some seemed like
everybody was running a search fun model and then it kind of
went out of style and then but it still exists.
(05:21):
I've heard entrepreneurs and investors kind of talk about it,
but it's a little, it's a littledifferent because in a lot of
cases, first the companies acquired and then if a CEO
changes required, then you kind of go and look for a CEO.
In this case, you're kind of doing it the other way where
you're backing an entrepreneur and then you're trying to find a
company for them to kind of invest in.
(05:41):
So talk about the benefits of that or or why take this
approach instead? Yeah, yeah, absolutely.
Yeah, we're kind of in a corner of the private equity market.
But as you say, the model is different and in some ways, you
know, turns the traditional private equity model on its
head. So I'd be happy to walk through
how it works. You know, I'll also say there
(06:01):
has been an explosion in popularity of this model even
since I've that involved over the last five to six years.
Um, and we are seeing not only more folks get interested in
entrepreneurship through acquisition, but also a
proliferation of the model and what it means to acquire a
business, you know, through the search fund model or through
(06:22):
ETA. So I'm happy to talk about, you
know how it works and then also where we're seeing some of the
the divergent in model. Yeah, yeah.
Let's start this. Walk us through how the model
actually works and the benefits of that.
Yeah. So you said it before, we start
with the entrepreneur, not the company.
And so the the way we describe search funds are it is a path
(06:46):
for to facilitate and someone becoming a CEO and in particular
CEO of a scale scalable business.
So what we do is we first back individuals who have opted in to
the search fund model and who are looking to run for the long
(07:07):
term a company that they find and acquire with the help of us
and their other investors. And So what we do is we
initially put in a little bit ofcapital, typically about 500 K
alongside other investors. So we may be 2025% of that
initial 500K, which is meant to provide the capital for an
(07:30):
entrepreneur to go out and find a business.
So over the course of typically somewhere between 18 months and
two years, this entrepreneur whohas raised this 500K will pay
themselves a salary. And we'll use that capital to to
hit the road, right? To go out and meet prospective
sellers of businesses that they might acquire, to conduct
diligence on those businesses and then hopefully to ultimately
(07:53):
acquire one that will enable them to be the CEO.
And when they do, their investorgroup, like Pacific Lake, puts
in the equity capital for them to acquire that business.
And so, you know, when I said we're facilitating a path to the
seat, the CEO seat, it's really starting at the very beginning
(08:14):
of thinking about what company they might want to buy all the
way through acquiring that business and then ultimately
growing that business and havinga successful outcome on the
other end. And so walk us through that
search process, right? Because with the entrepreneur,
they probably have strengths andweaknesses or areas where they
are better and their counterparts and then areas
(08:36):
where they're not as strong. And that should likely influence
or impact the types of companiesthat they are fit to lead.
So how do you factor that into the search process?
Are they leading the search or are you helping them with the
search? Like who's doing what role in
that process? Yeah.
So the truth about that, the whole model and we can talk
about the search parts specifically is it someone opts
(08:59):
in to this because they want to be captain of their own ship,
right? They want to drive.
It's an entrepreneurial path that they are they are taking.
They wanna drive, you know what business they buy and ultimately
how they run it. Someone raises a search fund and
the model I just described because they most likely are an
inexperienced operator. In our case, many of the
(09:20):
searchers we back are immediately post MBA or they may
be a couple years post MBA or have forgotten an MBA but have a
similar level of work experience.
Regardless, in most cases, they've never run a business
before. And so while they want to be
captain of their own ship, they want to have kind of the
authority to make the final decisions on the search and,
(09:41):
and, and the operating phase. They know that they need to
surround themselves with folks who've done this before.
And in the case of Pacific Lake,you know, we have backed over
300 search funds in the 16 yearsthat we've been around.
We've acquired over 150 companies.
We've had six more than 60 exits.
So it's fair to say we have pretty good pattern recognition.
And so our job in the search phase is to teach these
(10:05):
entrepreneurs what good looks like and to support them as they
go out and look for it. So happy to get more into that.
But but but that's, that's kind of how the model works.
It's a, you know, player coach model, if you will.
And you know, we're, we're here to coach and advise.
And so as the business development process of actually
(10:26):
sourcing the deal is being led by the entrepreneur.
That's right, that's right. So we, we teach them to fish,
but ultimately they're doing thefishing.
So we spend a lot of time up front and before we even back
CEO, frankly, in the the time we're or back searchers and the
time where we're getting to knowthem and, and deciding to work
together. I'm talking about what a good
(10:46):
search looks like and what will increase the probability that
they find a high quality business to acquire and run.
And so in in our case, you know,we believe an industry thesis
driven search is the best way toacquire a company.
You know, you build a thesis about industries that are
growing that have mission criticality and, and ultimately
(11:11):
kind of underwrite those industries and then go out and
look for a business within that industry where there may be a
willing seller who wants to sellto someone who will take over
their business, like a successorand run the business.
And so, you know, we, we teach them how to underwrite an
industry. We work alongside them as they
do that. We talk about how to engage
(11:32):
sellers and how to, you know, position yourself to, you know,
be a likely acquirer and then ultimately how to get a deal
gotten. So how do you negotiate with the
seller and, and ultimately do the nuts and bolts of the
acquisition process? So yes, they are deciding what
industries and they are leading the search process, but we're
there along the way to guide andsupport them and redirect in the
(11:55):
case where we think they may be going down a path that won't be
fruitful for them. On the thesis side, that almost
precedes the search, right? So who is drafting that thesis?
And like what is the process? Look inside your firm.
Is the entrepreneur coming and saying, hey, look, I have
expertise in manufacturing or chemicals or in software or in
(12:15):
marketing, whatever it is, and I've built this thesis in this
market and I want to try to finda company here.
And then are you vetting their thesis or are you Co creating
that thesis together? Almost neither.
So what I'll say is when we lookfor what searchers to back and
we are not really super focused on what industry they plan to
(12:35):
search in. We're interested in
understanding, can they think about what makes a good
industry, right? Do they have the sort of ability
to think through with thesis andand you know, have they paid
attention to kind of what good looks like for other searchers?
So you know, in particular, are they looking at industries that
are sizeable? Are they looking at industries
(12:56):
that have good growth still wins?
Do they understand mission criticality?
You know, we're we're underwriting their ability to
analyze an industry. We're less concerned.
Do they pick an industry we like?
And the reason for that is searchers ultimately search in
multiple industries before they acquire a company.
And so it's OK if we back an entrepreneur and you know, they,
(13:17):
we, we haven't already upfront aligned on what industry they're
gonna buy and like that, that isOK.
And that's pretty typical. We're also looking for other
qualities that we have seen makea successful search for and
ultimately a successful CEO's that are not related to
industry. So, you know, some of those
characteristics that we look forare things like we internally
call it followership. Can they build strong
(13:40):
relationships with the people around them.
And the reason that's particularly important in this
model is remember they they haveto convince the seller to sell
them their business. So can they build relationships
and do that well? And most of our deals, over 90%
are proprietary, have been proprietarily sourced, meaning
they've got to build relationships with the seller
who isn't already out selling their business.
(14:02):
They need to convince really high quality talent to join
them, even when the business is still really small.
And they need to convince their investor base to kind of stay
with them along the way and support the vision they have for
the company. So we're looking for things like
that and also figure it out. Ness is another kind of silly
term we use internally, but thatultimately represents sort of
(14:23):
what it takes to be successful entrepreneur with these
businesses. Which means you know, you're not
always going to know what problems are in front of you,
but you have the ability to rollup your sleeves and dig in and
and solve hard problems. And so that's what we're
aligning with them on up front. It's almost like vetting the
software skills of figuring out is this person capable of
(14:44):
leading. It's almost like a pre interview
to figure out if you're actuallygoing to back this person and
deploy capital behind whatever whatever company they find.
That's right. And typically that interview
process, if you will last many months, sometimes as much as a
year or 18 months of getting to know them.
And so it, you know, over time you can see patterns in their
behavior that would indicate, you know, do they have the
(15:07):
qualities that will make them successful in searching and then
ultimately, you know, in operating.
And so, you know, we've aligned on that and then we, we back
them and we've kind of have somealignment around what kind of
industries are interesting and what sort of business models are
interesting to pacifically. But then ultimately it's up to
the searcher to kind of decide, you know, where they want to
(15:27):
fish. And so we often will be their
thought partner in that. We'll spend time, we do, you
know, industry underwriting whiteboarding sessions where
they'll come in and talk about, about it.
But, you know, what we're askingthem to bring to the table is a
thesis about, you know, look, look around the world and think
about what's happening in the world and come up with a thesis
or a set of theses that we can run down together that will lead
(15:48):
us to an industry or typically, you know, a small niche within
an industry and that we think may be fertile ground.
And during this time, are they kind of quasi Pacific Lake
employees or they're kind of self funding their way through
this? Like how, how does that work?
Are there almost like entrepreneurial and looking for
these opportunities? Like how how is how does the
(16:09):
relationship get structured withPacific Lake at that point?
Yeah, they, they are not employees of Pacific Lakes.
So they launched their own search fund.
They, you know, create a legal entity that they they create
before they take capital and that is that that entity is what
receives that 500 pay of capitalthat I mentioned that funds the
(16:31):
rest of their search. So they are an employee of that
organization. Sometimes, by the way, partners
bit 22 searchers will come together and and partner search.
That's pretty common here. Sometimes it's an individual,
but regardless, they raise capital into that entity that
funds their search, which again,typically takes somewhere
between 18, around 18 to 24 months to find a business.
(16:54):
And so they're an employee of that that organization while
they're searching specifically take put some of the money into
that search. When we say we back a searcher,
what we mean is we are providingthe search capital.
We like to do that as part of a syndicate.
So we're typically somewhere between, you know, 15 to 25% of
that pool of search capital. The remainder is made-up of
(17:16):
other search fund investors thatare are, you know, doing the
same, the same sorts of things as us.
And the search fund ecosystem isstill pretty small.
So it's a repeat game with with those investors.
We often invest with the same types of folks and we love doing
that. You know, we have found that
it's an ecosystem that, you know, really supports
entrepreneurs as well. And so we are one piece of that
(17:38):
team that the entrepreneur is assembling, but that there are
others around. And then maybe worth just taking
it one step further, which is tosay what we get as investors for
putting up that search fund capital and funding that phase
of the journey is a right of first refusal to invest in the
deal, you know, pro rata. So you know, for 20% of the
(17:59):
search, we have a right to 20% of the equity when a searcher
finds a deal. And that is the case with all
the investors that put up the search fund capital.
So you know that is kind of a core tenet of the model and you
know in our case are following rate is very high north of 80%.
And so, you know, getting alignment upfront, spending
time, you know, evaluating what searches we're going to work
(18:22):
with is really important. That ultimately leads to good
alignment when they find a company and, you know, we
invest. Pretty.
That was going to be my next question is just what percentage
of these initial search funds are actually translating into
deals for you and how long does that take?
Yeah. And so we could talk about the
ecosystem sort of the search fund or ETA community and then
(18:45):
we can zero in on what it looks like for Pacific Lake.
Acquisition rates in the search Fund ecosystem hover around
these days, you know, 60% give or take.
And Stanford produces a study, Stanford Search Fund study every
two years that always has reallygreat data on this specifically
acquisition rate. The acquisition rate of our
(19:07):
searchers has always been above what we see as an industry
average and we attribute that toseveral things.
But you know, we believe a key driver of that is this industry
thesis driven search model wherewe are our searchers are
primarily, you know, doing proprietary deal sourcing with
this industry thesis guiding guiding them.
(19:29):
And we believe that leads to higher acquisition rates and
that the data would support that.
So in our case, it's over 70% ofour searchers are requiring of
course with some variance from year to year.
And then our follow on read as Isaid is, is has typically been
above 80% meaning of the searchers that ultimately
acquire you know our, our followon with them is is quite high.
(19:54):
Got it. Yeah, got it.
That makes, that makes a lot of sense.
So for you, it's almost like theacquisition channel to deploy
your capital, but you need to back these folks to to get
there. What what about on the
entrepreneur side? Like as you're running these
searches and you're meeting a bunch of entrepreneurs to to
potentially back and getting to know them, Like what percentage
of those folks actually translate into a search fund
(20:16):
vehicle that you're willing to invest capital into?
Yeah, that's a that's a great question.
If you think about the very top of the funnel, people who are
exploring ETA as a path to entrepreneurship, I'd say in a
given year we may hundreds of people, maybe north of 1000
(20:36):
people. I'm going to be on Harvard
Business School campus tomorrow.And if that kind of giving a
presentation, think of it as a entrepreneurship through
acquisition 101, educating folkswho are at HBS about what this
model means. But how many of those actually
decide to search will be, you know, far fewer.
(20:57):
And we like to say this is an opt in model.
We do not, we're not trying to convince anyone to search.
It's a hard path. It's an entrepreneurial journey
that requires a lot of self, self motivation.
And so we're not trying to convince anyone to search.
What we are trying to do is educate people about what this
is and that it is a viable path to entrepreneurship.
So the right people opt in. So ultimately we'll back 20 to
(21:19):
30 searchers per year. In the past, you know, that's
been I think last year we saw about 150 searches just host if
you, if you filter out people searching internationally, we
only back searchers who are going to acquire in the US or
Canada. And so it'll be somewhere around
150 search funds that get raisedof which we will invest in
(21:41):
somewhere between 20 and 30. Yeah.
I guess the thought on that is like is are there certain
characteristics that you're looking for?
For example, does the entrepreneur need to bring
capital to the table? Do they need to have a previous
successful exit or a success story that they're coming from?
Or can it even be someone just that's straight out of Business
(22:01):
School that maybe has some expertise or or unique insight?
Or is it, it can be either or. I'm just curious, like, are
there, is there a certain profile of folks that you're
looking for? And then a second question
associated that would would be, are there any things that you
notice in during that process that would make you walk away
from an entrepreneur? Obviously there's the red flags
(22:21):
that are obvious, but the outside of that, any specific
things that make you feel like this is not the type of
entrepreneur that we would back?Yeah, Yeah, we can talk about
this for for for a while. So I talked about the criteria
that we typically look for. You know, there's the ability to
underwrite an industry, there's the followership, there's the
ability to figure things out. Those are called attributes,
(22:43):
qualities that a person has. And we look for those things
pretty consistently across searchers.
However, when we look at what people have done before coming
to the search fund path is very diverse and we have not found
much correlation between what you did before searching and
(23:05):
your your success. So just to give you a sense of
the range, we have had successful searchers that whose
prior experience was in the military, they were investment
bankers or in private equity, they were in consulting, they
worked in nonprofits, they worked in sales at a large
company or at a small company. I mean, the range of
experiences, the backgrounds that people have is quite
(23:27):
diverse. I think it, you know, is it's
the attributes, it's the the qualities that I described where
we see, you know, can more correlation between, you know,
those who succeed in this path and and those who don't.
The other thing I'll say we lookfor and, and this is very
relevant this current time is we, we look for someone who has
(23:49):
burned the boats. You know, they're, they're,
they're pursuing just this path.ETA or searching is not a backup
plan. It's like, not like, oh, I
didn't get that job at McKenzie.So maybe I'll find a business to
buy. They are convicted that this is
the path for them and that they want to be CEO and, and this is
how they're going to do it. And so I would say the thing
that probably would lead us to not back the a searcher that we
(24:12):
need the most frequently is, is that it's like this feels like a
backup plan or something they'reconsidering along with an array
of options that look typical to what, you know, people do post
MBA or you know what that equivalent chapter of life.
The other thing I'd say is a lack of coachability.
So given that we are primarily backing people who are not, you
(24:32):
know, extremely experienced, we are looking for people who will
take coaching. And so that is something that
you can suss out over built, youknow, over time, building a
relationship with someone is, you know, do they ask good
questions? Did they take good feedback?
Did they implement that feedbackbefore the next meeting, what
have you? And so you know that that's
another, another key factor thatthat we're considering.
(24:56):
I guess, yeah, coming from different walks of life
definitely introduces different opportunities that can be
spawned by different entrepreneurs.
What what about in terms of skills themselves?
Like are you vetting for the ability to sell the, you
mentioned relationships earlier,but even just like going out
there and spotting opportunitiesor having the ability to build
(25:17):
great products or identify what users really care about and
particular markets. Are you looking for those kinds
of skills? Or are you thinking about it
more as like almost like a operational leader that has
financial expertise and can optimize and and kind of build
enterprise value over time? Yeah.
So there is a it's important that there's a history of past
(25:40):
success, right, regardless of what path you took and skills
that you required along the way that made you successful.
But different folks we back willhave spiked and continue to
spike in different areas. So as an example, you know,
folks who have a military background very often spike on
leadership. And when they talk about what
made them successful in their military journey, it's it's that
(26:03):
great. But we'll lean into that.
If you've never, you know, underwritten a deal before, we
can teach you that others are excellent salespeople, as you
said, but but similarly, you know, maybe haven't done lots of
financial modeling like that's OK.
And we made back someone who wasa great investment banker who's
never really sold a product or managed a big team.
(26:25):
And as long as we see the sparksof their ability to do that, we
understand that they will. There is learning on the job
that is going to happen for all of these folks.
So you want them to spike somewhere they have to have the
qualities that we described before there have to they have
to have horsepower, right. So we talk about like testing
their ability to underwrite an industry and and all of that.
But, but I think it's important to say there's not like a
(26:48):
checklist of skill sets that, you know, we're we're, you know,
running down as we meet someone like they've never done a deal
before. They they won't be successful.
Like that's absolutely not the way you know, the the way that
this model has worked. That's great.
And then as you know, the searchprocess is going on.
We talked about that earlier. But let's say you do find a
company from there. Is it just more like a standard
(27:10):
private equity process or are you approaching it differently
because it's a search fund and now you're backing this
entrepreneur? Yeah.
And this may be a good point actually, if you don't mind a
slight pivot, and I'll come backto this to talk about.
There are a few different types.I talked about the proliferation
of the model and how entrepreneurship through
acquisition is now an umbrella that encompasses different
(27:30):
models. So what you and I have been
talking about, and I think what lives in most people's mind is
sort of your typical search funddeal is a single acquisition,
right? It's an entrepreneur who meets
the seller who owns one company.The plan is to buy that one
company and run that company until you sell it.
That model is still alive and well and we do a lot of that.
There are also, you know, increasingly more entrepreneurs
(27:54):
who take this ETA path who have a specific desire to do a
consolidation in an industry or roll up or a holding company
where they're going to acquire multiple companies under, you
know, the holding company umbrella.
So you know, think of it as different types of multi
acquisition strategies. And we believe you can be
(28:17):
successful in ETA and all of those paths.
So sometimes it's thinking about, you know, searcher
strategy fit, if you will, and then, you know, supporting them
accordingly. But when I talked about the
proliferation of the model, it's, it's to say there are
different flavors of what you acquire and how you acquire it
that we're seeing in ETA today and that we support, you know,
(28:39):
we, we support that variety of, of searcher and model that being
said is, you know, talking abouthow a deal gets done.
So, you know, there are some differences with the typical,
you know, private equity, private equity structure and
some things that are similar or the same.
We are doing full buyouts of these companies.
So the investor group puts up the equity.
(29:00):
There's typically some debt put on these businesses to do a full
buyout. Occasionally a seller will roll
and, and things like that, whichis also not atypical and in
parts of private equity, but butit's a, it's a full buyout of a
company. And again, in a typical, you
know, search back search where we've put up the capital for the
search, you know that that similar investor group, maybe
(29:24):
even the exact same investor group puts up all the equity
capital for the deal. As I said, in our case, this
isn't the case with all search fund investors, but most of our
deals are proprietarily sourced.And so, you know, it is the
entrepreneur having a direct relationship with the seller and
convincing them to sell the business and that they will be
the entrepreneur will be good steward of that business in its
(29:45):
next chapter and negotiating theterms of that deal.
So entrepreneur will put a business under LOI, you know,
conduct diligence. It's a similar diligence process
at a private equity firm would take and then ultimately close
the deal. But you know that that's kind of
a typical process. What percentage you mentioned,
(30:06):
obviously the just backing an entrepreneur for a singular
investment is the main thing that you guys focus on, but what
percentages are what percentage of deals are more of these
roll-ups or the other types of deals that you mentioned?
So this is becoming a lot more popular and you know, we, we did
deals in the past that became, you know, where the companies
became highly acquisitive and that ultimately built value
(30:27):
through an inorganic strategy over time.
So it's not that we've never done that before, but I'd say
what is becoming more popular and this has been the case for a
couple of years. I mean, it's not like it's brand
new yesterday, but it's folks coming to us with specific
thesis or specific desire to do what consolidation or a holding
company. And, and sometimes the holding
company, they already have a first acquisition, sometimes
(30:47):
they don't, you know, they, theyhave an idea about what they
want to build. And the idea is after the
capital is put in, they will find the company to buy.
So again, like many flavors of this and, and we do all of those
flavors and believe that sort ofthe innovation around what ETA
can be is a really important part of sort of maturing this
(31:07):
model and, you know, finding newpockets of success.
So in terms of a percentage, I mean, it's, it's hard to say
shit honestly, like the ecosystem is evolving so
quickly. But I think, you know, there's a
decent chance that somewhere between, you know, somewhere
around 20% of our current fund will get deployed into something
(31:28):
that is not just a single asset acquisition.
How much of the company is the entrepreneur retaining as you
are deploying the capital? Because obviously you're the
capital partner and they're doing the search like I'm
assuming it also depends on whether they're bringing capital
to the table. But just help me understand and
how is that different from let'ssay that entrepreneur landing
(31:48):
CEO, they're gonna be backed business where they're bringing
capital or they're just being employed?
Yeah. So typically when you raise a
search fund, the entrepreneur isnot putting up any capital
upfront. Their syndicate of investors is
supplying all the Capital plus perhaps as I said some debt and
maybe some seller role. But the entrepreneur themselves
(32:10):
is not putting up putting up capital and that that's almost
always the case and that is partof the model.
So it's not, it's not expected that they would.
And then they vest into their equity, equity ownership.
And so the best vesting is typically 1/3, a third, a third.
And you know, a third vest at acquisition, 1/3 is time based
(32:33):
and a third is based on performance metrics negotiated
with their investor group. And so without putting in any
capital upfront, the entrepreneur can vest into
meaningful ownership in that business over time.
And you know, some stats that might be worth sharing.
We were, we were just looking atthese like can't I, I think it's
(32:56):
helpful to give a sense of the magnitude.
You know, typically if we look out, you know, over the history
of Pacific Lake and in our exits, you know, average TV at
acquisition is somewhere between, you know, somewhere
around $20 million of enterprisevalue when they acquire the
company. And if we look at our exits over
(33:18):
just the last four years, enterprise value has been
115,000,000 at exit, so growing from 20 to 120, uh, you know, at
exit, so meaningful growth. And So what that means is, you
know, the average carry when of the entrepreneur who becomes a
CEO, who, you know, vests as I described into their equity
(33:39):
ownership over time, that average carries $25 million that
exit, just looking at the, the exits we've had.
So without putting up any, you know, capital up front, you
know, if if you're successful inthis model, it can be very
lucrative. Does it get to a point where
like sometimes the entrepreneur that you're backing now you've
invested capital and the business is growing, but you get
(34:02):
to a point where that entrepreneur can no longer take
that business to the next level and you kind of have to find
another CEO? Or is that is in most cases like
continuing to back that entrepreneur?
Yeah, in most cases, we're continuing to back the
entrepreneurship. You know, we, we back them with
the expectation they will run the business.
But you get to a, a, an interesting point typically and
(34:25):
we, we saw this over the 1st 10.So pacifically it's been around
for 16 years as I said. And we, we, we evolved our model
and the last six years in response to, I think some of
what you're getting at with, youknow, how, what does the CEO
journey, you know, look like overtime?
So what we found in the 1st 10 years of Pacific Lake is, you
(34:47):
know, we were back a searcher. We'd support them in acquiring a
business, they'd acquire the business, they'd run the
business as a CEO successfully and they'd reach a point in time
where, you know, on paper they're worth quite a lot of
money. I mean, I just gave what I
thought was a pretty eye poppingfigure when I first saw it,
Like, wait, 25,000,000 bucks carry on average in this model.
(35:07):
That's a, that's a number that, you know, most people, most of
these CEO's can't door. And so in the 1st 10 years of
Pacific Lake, what we found is our most successful companies
would reach this point where theCEO would say, look like this
has been really good. I, I like what I'm doing.
I've got my arms around the business, but like, I really
like some liquidity to pay down my loans or buy my home or send
(35:30):
my kids to school or whatever itis that they want to do.
And our only path at that point was to sell the company, to give
the CEO and the investor group liquidity and to set the company
up for its next chapter. And we did that.
If the entrepreneur is like, look, this is important to me or
I need to get off the bus, that's what we do.
But we lamented that in a numberof cases and honestly, I think
(35:51):
the CEOs did as well. And so in 2019, we launched a
second strategy that basically solves that problem for the
entrepreneur and investor group in Pacific Lakes.
So we call this the long term hold strategy.
What this strategy does is it recapitalize businesses in the
search fund ecosystem that reachthat point and sets them up for
(36:12):
the next chapter. So we give the CEO some
liquidity. We give investors some
liquidity, particularly ones whodon't want to hold the business
any longer based on sort of the terms of their own funds.
We sometimes put primary capitalon the business and we set it up
for its next chapter. And in every case when
Pacifically is doing a long termhold investment, the CEO is
(36:34):
staying on for that next chapter.
That's an important an importantcharacteristic of a business
that we think will recap with with LTH.
So we've done that 14 times overthe last six years and it's
proven to be a very successful strategy.
It's almost like two different funds and inside Civic like
where the second fund is findingliquidity for the first fund to
(36:56):
be able to exit these companies.But still you guys retain the
asset, especially if you're verybullish on the future of that
asset. Yes.
With one caveat though, liquidity is really for the CEO
not, you know, to take some chips off the table and other
investors. We typically actually roll our
investment, right. We are not buying and selling
from ourselves in these two funds.
(37:17):
But the point stands. It addresses this, you know,
fundamental issue we were seeing, which is like our very
best winners were having to sellbefore anybody was ready to get
off the bus because of very reasonable and rational, you
know, things that arise for a successful CEO who want paper is
all of a sudden we're 25,000,000dollars.
And so that that has that has helped us, you know, roll those
(37:40):
businesses for for longer and compound the returns over time.
That being said, there will be many businesses that reach the
four or five year mark where forwhatever reason, it's the right
time to sell. The industry is changing,
competitive dynamics are changing.
Something in the CEO's life has changed and you know, they may
have been very successful for five or six years or however
long and still think it's time to move on to the next thing and
(38:03):
that that's OK. So the majority of our
businesses realize it in that fashion typically to either you
know private equity, private equity back sponsor or strategic
and you know that that model works well too.
Yeah. At that phase, I would imagine
and correct me if I'm wrong, like are you operating very
similar to another private equity firm that has just done a
buyout? Because you have a business, you
have a whole period, you're looking at your IR internally
(38:26):
and what type of marks you kind of need to hit and kind of
making a decision on where you need to sell or when you should
sell. Well, remember, you know, we are
not majority owners in these businesses.
Nobody is. It is, you know, kind of by
definition a in almost all cases.
There are, there are different models, by the way, we're like
an investment firm will be a majority owner in a business
(38:47):
that looks like a search fund acquired business.
But in our model, again, you know, we're 20 to 25% of the cap
table on average. And then there's a syndicate of
investors who we know well and we trust and we're aligned with.
But we as a collective, we'll make a decision on when the
right time is to sell a business.
Again, a fiance preneurs like, Iwant to get off the bus.
We're probably all getting off the bus together.
(39:07):
But otherwise, there are not many circumstances in which, you
know, Pacific Lake is forcing a sale like that.
That isn't typical. It's typically, you know,
building alignment with the investor group in the management
team of the company that it's the right time.
Yeah, that, that makes sense. Yeah, especially in a minority
model and and the entrepreneur having so much control over the
(39:28):
asset too. So that makes sense.
What about on the Valley creation side?
Are you supporting the entrepreneurs all the way a
traditional firm would? Or are you letting the
entrepreneur run with the strategy?
Just help me understand the board dynamics and how you're
setting prioritization or strategy or at the board level,
how you're kind of governing thebusiness and figuring out where
(39:48):
to invest more or scale or maybeuse inorganic channels and layer
on additional acquisitions and things like that.
Yeah, yeah. There's a lot to unpack in that.
So the first thing you'll say isspecifically because a dedicated
value creation team, which I know is pretty standard.
Private equity, it is not standard in search and we're
afforded the ability to have a dedicated value creation team
(40:11):
because we're the largest investor in this part of the
ecosystem and over time have been able to build out a team.
So we have a dedicated team of folks who just work with our
companies post acquisition to help them grow and scale these
businesses. And I can talk more about you
know the different ways that that we help them.
We're often taking board seats as well.
(40:31):
There is always a board, whetherPacific Lake is on the board or
not. All of the companies we acquire
have a board that, you know, that govern the company.
And we, we participate in those very frequently.
And the board, you know, plays multiple roles as is, as they do
in, in private equity, right? It's, you know, governance, it's
helping drive the strategy. In our case, it's a lot of
(40:54):
coaching of the CEO's as well. And again, coach ability is an
important attribute. And so we take seriously our
role as investors and board members that, you know, guiding
these, these relatively new CEO's as they go through the
journey is an important part of the, the board and investor's
job as well in terms of value creation.
(41:14):
You know that I'll describe the levers, but they're probably
things you, you would guess they're pretty typical.
It's, you know #1 helping the CEO become a leader of a
company. We like to say, you know, every
day they're, they're, they're leading the biggest company
they've ever LED. If, if we're doing this right.
And so, you know, there's a lot to teach them about leadership
(41:35):
and, and we take that very seriously.
But then beyond that, it's helping them build out their
executive team. So we do a lot.
We have a women in our team who is a former executive recruiter
and that's still largely what she does for the Pacific Lake
portfolios, help them hire and retain great talent.
We do a lot on go to market. So we have a gentleman on our
(41:56):
team, Don Taylor, who is himselfa very seasoned sales executive
and he's teaching our companies and working with our companies
around their go to market motionand professionalizing their
sales organization. Today, every company, whether
you're a software business or not needs to think about, you
know the how technology is changing either your company or
(42:18):
your industry. And so we have an operating
partner that focuses on that andwe also have one who focuses on
M&A and operational excellence and generally and and as you
said, at some point for many of these companies an inorganic
strategy makes sense. And so having someone who
understands when that's the right time, how to find the
(42:40):
right targets and ultimately howto integrate them as has become
really key. So I'm super proud of the value
creation team we have here and Ithink CEO's really appreciate
both our breadth and depth as they go through the journey.
That's, that's great. Are you using a lot of?
Is it mostly the internal value creation team that's driving
value with these entrepreneurs or are you also relying on
(43:03):
partners and external vendors? There's a little bit of both for
sure. You know, there are certain
times where it makes sense for us to lean in.
And there are other times where,you know, our job is to connect
the entrepreneur with the best resource to help them.
And if that resource is external, we're very happy to do
that. So, you know, we we are partners
(43:27):
with the organization called OneGuide.
I'm not sure if they've come across your desk at all, Shiv,
but what they do is help pull together resources for private
equity firms and their portfoliocompanies so that those firms
can connect their companies with, with great resources.
And we use one guide in their platform all the time.
(43:49):
And what I'd say they're, you know, they're great at many
things, but one thing they're great at is constantly adding
new experts and vendors to theirplatform that we can then we,
we, we can then go to. So, you know, if someone has a
need, particularly around something like compensation
planning, we may not be the bestpeople to roll up our sleeves
and dig into compensation planning, but yeah, there are
(44:11):
lots of great experts out there who can do that.
And so if we can connect companyto a resource like that, we're,
we're always very happy to do that.
So it's a, it's a mixed bag of of our team and external
resources, but always thinking about what's the best for the
company at that time. Yeah, that's awesome.
And we're coming up on time. But before we close out, I've
just one last question about this.
(44:31):
Given that you guys have been doing this for so many years and
have back so many entrepreneurs,what would you say are some of
the biggest lessons on the wins and losses that you've had?
That's a great, that's a great question.
I'd say, you know, one thing we found is you're, you're never
wrong to focus on people and partnerships.
And so, you know, that starts with entrepreneurs, you know,
(44:54):
thinking about who are the partners that they should bring
around them before their search has even begun.
And you know, we, we hope that, you know, Pacific Lake is on
that consideration set. But regardless, we're always
happy to talk to entrepreneurs about, you know, who to surround
themselves with. So I think surrounding yourself
with the right people, the frontis really important and then it
pays dividends throughout. So it will help you attract the
(45:17):
right people to your executive leadership team over time.
And the value you can get from adding, you know, a new high
horsepower person to your team, it is really critical.
So again, like comes back to people and in partnerships and
in terms of lessons, I think theplace I see most CEO's fall down
(45:38):
the most because they are very ambitious and they want to grow
is not setting the right priorities or or setting any
priorities and trying to do too much too fast with too few
resources. And so I think that's one thing
the board and we can help with is making sure that the CEO
understands like what are the one or two things I'm going to
do next? How do I bring the people I have
(45:59):
around me who support me to do that, you know, well and
efficiently and, you know, then I can move on to the next thing.
So, you know, again, like ambition can, can, you know,
lead us to go awry of those things.
But I think the importance of, of prioritization and, and
partnerships and can't be, you know, can't be underestimated.
So that that's what I encourage them to focus on.
(46:23):
Yeah, that that's great advice. And if there are entrepreneurs
listening that may want to partner with Pacific Lake,
what's the best way to get a hold of you or Pacific like?
Thanks for asking to get a hold of me personally.
My e-mail address, illillgiveoutisjustlindseywithane@pacificlake.com.
And you know, anybody who's interested in learning more
(46:47):
about the ETA model or, you know, working with us
specifically, you know, I'd be happy to hear from them.
And then, you know, I'm also happy to kind of triage to other
folks on our team that might be best suited depending on the
topic. So I would welcome the outreach.
Yeah. We'll be sure to include that in
the show notes and all the otherlinks about your firm and
(47:07):
anything else that we can share.And with that said, Lindsay,
thanks a lot for coming on and sharing your wisdom.
It's a topic that we previously haven't over on the podcast.
So I think a lot of firms that think about deal flow and even
backing their own form of entrepreneurs and search funds,
I think can learn from it. And even people that are
actually actively in this space and trying to learn from the
lessons that you've you've builtover the years is after doing
(47:28):
this for many times over. So appreciate you doing this.
Thanks. Thanks for having me there was a
lot of fun. Thanks for listening to today's
episode. Before you take off, just a few
requests from our side #1 if youhaven't done so already, please
subscribe to the podcast on iTunes or Spotify or YouTube or
wherever you go to listen to your podcast #2 If you are in
(47:50):
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
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.
(48:13):
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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