July 16, 2025 • 42 mins
What if Berkshire Hathaway were built today, with the best of technology and long-term thinking baked into its DNA? That’s the question Matt Foran and his team at StoicLane are answering—by doing it.
In this episode, I speak with Matt Foran, co-founder of StoicLane, a holding company quietly building one of the most interesting portfolios in private markets. With over 70 acquisitions across four major verticals—accounting, PEO, appraisal and mortgage services, and vacation rentals—StoicLane now manages $300M in TTM revenue and expects $60M in EBITDA this year. But it’s not just the numbers. StoicLane stands out for its permanent capital structure, seller-friendly integration approach, and deep use of technology and AI to transform old-school industries.
We dive deep into how Matt thinks about company building, permanent capital advantages, competing with PE firms, and the cultural flywheels StoicLane is creating as they scale.
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Transcript
Episode Transcript
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(00:00):
So what is Stoic Claims?
(00:02):
We are a holding company focused on real estateand small business service, roll ups, where
ultimately we are bringing a degree oftechnology to these firms such that over a long
period of time, we can transform thoseorganizations, integrate them correctly, build
(00:23):
technology in a way where we actually generateinvestment return and build better solutions
for our clients.
Give me a sense for what the business is atscale today.
We have acquired 71 companies, so that spansfour verticals.
We are the seventieth largest accounting firmin The US, the thirty fifth largest PEO, the
(00:48):
fifth largest appraisal and mortgage servicescompany, and the second largest vacation rental
property management firm.
In total, those firms represent roughly300,000,000 of TTM revenues, and we expect to
generate about $60,000,000 of EBITDA acrossthose verticals this year.
(01:10):
You have a very unique holding companystructure.
Tell me about your holding company structureand how that helps you as investor.
Stoic Lane is built with a C Corp on top andLLCs below.
Our investors have put money into that C Corp.
They buy shares, and we deploy that money intoour verticals in LLCs for each different
(01:32):
business.
What it means for the companies that we arebuying and our message and what we drive
ourselves towards is we expect to own thesecompanies forever.
And that's a really important message vision.
It's how we line up our incentives, andultimately, it's how we behave.
So with an idea that this isn't a three or fiveor seven year flip, what we go to market with
(01:59):
in each of our verticals is a message tosellers that we are going to create a long term
durable firm with their company.
So as an example, in our vacation rentalbusiness, we have acquired 26 companies.
When we started in that space, we stood up on astage at their association with three other
(02:22):
roll up, firms and told a very different story.
What we said to them is, we expect to build thebest company in The US.
It is going to take time.
We respect the legacy of what they've created.
We don't expect to disrupt their businessesdramatically.
We have a path for those sellers to participatein the business, both operationally as well as
(02:44):
economically.
And ultimately, we will build the mostreputable organization that exists.
And we can do that because we expect to be apart of this permanently.
If you contrast that to the folks sitting toour side, they were talking about how quickly
(03:05):
they would bring in a bunch of firms, tie themtogether, and flip them.
For someone who spent and I'll give you anexample of a gentleman from Lake Tahoe.
He spent twenty one years building his firm.
He's on the local tourism board.
He's a part of the community.
Every person who works there is a great friendof his, and he knows every single homeowner.
(03:27):
He knows every single guest.
He can tell you about their family.
He is a true hospitality genius.
He didn't wanna sell to anybody else.
All those firms had called him regularly.
When we had a conversation with him, it wassimple.
We want you to be a part of this long term.
We will absolutely keep your brand.
(03:48):
We are excited for the business that you'vebuilt, and we want to continue that forward.
And for that reason, he decided to sell to us.
And that story repeats again and again andagain.
That was our first acquisition in that space.
And by deal four, we had lived up to ourcommitments and what we said on that stage, and
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there was proof of it.
So if you take the legacy piece of what thesesellers want to protect, plus the
predictability of our process and add to it theknowledge that we're looking to do this for a
very long period of time.
It gives us an incredible advantage with aparticular part of the market that we're
(04:31):
looking to acquire.
Tell me about your background and thebackground of the overall Stoke team.
Stoke was created by three of us.
Our backgrounds are predominantly in fintech,real estate and insurtech.
So we've built multiple startups.
We've run large organizations.
And as a part of all of those, we have a veryhigh bend towards technology deployment.
(04:55):
So, that includes, you know, I think across ourcore team, we've probably launched at least 10,
if not 15 startups.
Many of them have led to exits.
And as a part of that, it has taught us adegree of pragmatism on how technology works.
(05:16):
So what we focus on at Stoic is taking highlyfragmented businesses where our technology edge
comes in is the ancillary pieces that create alot of value.
So we are very comfortable with core systems.
We are the lead partner or the best in classpartner for Prism and PEO, for Escapia and
(05:43):
Vacation Rental, for CCH in accounting.
What we expect to do in each one of those isbuild a great architectural relationship with
those platforms as well, gain access to APIsthat others don't have or systems, schemas,
data architecture, etcetera, and build on topof it in ways where we can provide better
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customer service, higher quality of processes,more efficiency internally for our operations
team.
So you alluded a little bit about youradvantages versus private equity in terms of
keeping the legacy brand alive.
What other advantages do you have directlycompeting against private equity firms on
deals?
The simple answer is the long term nature ofwhat we provide, both in terms of decision
(06:31):
making, execution, time to integrate and thetreatment generally of all folks involved as a
part of that resonate with the seller groupthat we're pursuing.
So if you look at the targets that we focus on,again, highly fragmented, owner operated,
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usually a lifetime to build.
It is a group of people who assign very highvalue to the treatment of their employees, to
the behaviors of how clients are handled, tohow they operate within their community.
And that permanent piece allows us to execute aseries of tasks with a bit more nuance and a
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duration that is unique.
I lived through selling my startup to a privateequity firm.
It was an incredible team.
To this day, still think they're one of thebest set of operators I've ever worked with.
However, the speed at which they had to makechange to our organization and to the other
acquisitions that I watched them make reallywas based on timeframes that we don't have
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constraints on.
So I think that's one part.
It's duration and the ability to take stepsdifferently that protect key employees, key
client relationships, and allow us toparticipate in the vendor ecosystem in a way
that's unique.
Just to play devil's advocate, you mentionedyou were previously acquired by a private
(08:10):
equity firm and they executed at a blazing fastpace and I'm sure cut people, cut vendors, you
know, the traditional private equity playbook.
Isn't that what you need in order to get thegood multiples and high IRR?
How are you able to avoid that and stillachieve the financial outcomes?
(08:32):
It's a great question.
And I I don't think it has to be one or theother.
But what I have seen and I'll I'll stay on thevacation rental example.
There's a firm in our space called Vacasa,which is an incredible firm with great people
that has a really, powerful story.
But they did move at that speed with thosedecisions, with a playbook that you would
(08:54):
expect.
And ultimately, it looked like is they would goin, buy a firm, exit the top of the house
management, change the technology, change thebrand, move a very high percentage of the roles
into centralized locations.
And ultimately, it disrupted the ability todeliver services on a local level.
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They lost the local knowledge, the localrelationships.
They traded, you know, brand towards, you know,something that didn't have brand recognition.
These companies, you go to The Cape and some ofthese firms have had three generations of
families traveling to them.
They know that company.
That's the only place they call.
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It just doesn't work in that space.
So there are certain decisions that you make intransformation of these companies that with a
three year time frame aren't possible.
For us, they are.
We do expect over time that some of thesepieces that traditionally get handled by
private equity will really have to take place.
(10:01):
But it's once you really appreciate the nuance,once you've really built the right
infrastructure around it and had the time toexecute those changes correctly.
So I think it's on a business by businessbasis.
Again, I don't think it is One is necessarilybetter than the other.
But in the areas where we focus with the typesof sellers that we deal with, with the types of
(10:23):
businesses that we're operating, our model isexceptional.
There are other places in our accounting firm,as an example, where we move much quicker.
It makes more sense to move on technology.
There will be a singular brand in that space.
And in that company, which is called ArcherLewis, it is an organization that will be the
preeminent SMB tax payroll bookkeeping andultimately, you know, other types of services
(10:48):
firm.
And that company is moving quickly on tech.
They're moving quickly on brand.
And there are a number of other changes thatthey're making where it just makes more sense
in that specific area.
And the long term vision of that firm iscutting out a strata of the industry where the
(11:10):
big four really focus on the largeorganizations.
You have H and R Block and others who focus onpersonal.
Archer Lewis will be the brand for SMBs.
And we feel there's no reason to slow down thepath to that existing.
I've never met a private equity firm thatdidn't say they didn't have proprietary deal
(11:30):
flow.
I probably had hundreds of conversations.
Yep.
But I I've double clicked on some of yourdeals, and you do actually have non bank deals
and quite a few, if not the majority of yourdeals.
How do you get sellers to avoid an auction andto sell directly to you on a visa via one to
one transaction?
It comes back to delivering on our commitmentto these sellers.
(11:53):
I think that's the easiest answer, but thedetail behind that is important.
So when we stand up on a stage and explain whatwe're looking to achieve with our businesses, I
think it resonates.
If I spent half my life building my company andI heard that the outcome of this sale would be
that, you know, what I have created willpersist indefinitely with a predictable, team
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behavior, and I get to continue to participatein it, it's more attractive to me personally
than perhaps sheer economics.
And we've seen this a number of times.
So one part is what the vision of what we'retrying to create.
The second part is as we get into these sectorsand actually transact, we treat people with a
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high degree of respect.
We are incredibly transparent.
We spend a lot of time with the brokers in thespace, with the leaders in the space, and we
explain exactly what we're doing.
When we got into vacation rental, we invitedour competitors, the key players, the brokers
all out to dinner together and told themexactly what we're going to do.
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And we've done exactly that.
So as we drive forward through deal five, dealsix, deal seven, and people see that we're
doing exactly what we told them we would do.
Plus, you get a year behind you and the sellershave made it through that transition period.
It's usually chaotic in the beginning, but asyou get through, you know, a few months, few
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reps working together, they absolutely becomeour sourcing team.
They all have friends in the industry.
These are collaborative spaces, accounting.
You know, you don't really compete with someonewho's 20 miles down the road.
Same thing with vacation rental.
Same thing with PEO.
So these folks work together across differentgeographies to help deliver better service, to
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help identify better people to have on theirteam.
And when they sell their company, inevitably,any person that they've worked with in the past
will ask them how it's going.
And the answer is it's going well.
Surely not perfect, but the future is what theyhope to achieve for their team, for their
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clients, for their community.
And what that results in is we get phone callsregularly from people who have talked to our
sellers.
We have sellers who will actively reach out tofriends who they think would be a good fit for
us.
Our first MSP deal came from a person workingin one of our companies calling a friend and
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telling them, look, I think you have a greatcompany.
I think you're building something that will bevery valuable.
But for you to get to the next level, I thinkyou should sell your company to Stoic Lane,
which is absolutely incredible.
So we see that sort of interaction happeningrepeatedly.
I want to double click on on something subtleabout your business model, about the holding
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company model.
One is every seller ends up being a shareholderin the ultimate holding company.
So there's this kind of startup like equity inthe holdco that really incentivize people to go
on and and get other people to to get acquiredby the holding company, therefore increasing
their their value.
Also, there's this interesting aspect that yousee in a lot of very top, call it top 1% tech
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companies where the culture becomes so greatthat that the startup employees become these
these bastions of the culture and go out andadvocate for it, whether or not it's driven by
the equity people just like to be around tohave other excellent people within the
organization.
I think that that's powerful as well.
And that just accrues to any great whetheremployees have equity or not.
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Just excellence in itself is inspiring andexcellent people want to work with other
excellence.
So, maybe a few versions of this just to giveyou a full appreciation of it.
So when we talked about the structure of Stoic,on paper, it sounds simple.
C Corp at top, LLC is below.
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In reality, the incentive structures that goalong with that are more complex and iterative.
So at Stoic, there's not a single employee thatdoesn't have ownership in the company.
Stoic Management collectively is the largestshareholder of Stoic, both on an invested
basis, but also on a common grant basis.
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Our incentives are based on multiple ofinvested capital.
So for all of the employees of Stoic, we arerewarded by essentially achieving 5x MOIC
on our investors capital.
What's the timeframe on that?
We have to be essentially at 5x for three yearsin a row in order to achieve the highest value
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within our equity.
As a part of that, we have no fees.
We have no carry.
So it is us very much aligned with ourinvestors' interest.
Below that, in each one of our verticals, ourleadership teams have management incentive
programs that are tied to the performance ofthose companies in very similar ways.
(17:24):
When we purchase a firm, on average, nearlyevery seller has rolled roughly 10% of the
value into the business.
So we have strong alignment from top all theway to bottom in terms of exactly what you
described.
We have a set of employees, sellers, teammembers who all are looking to deliver the
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greatest degree of value creation for ourshareholders.
Do you guys run like a reverse referencesprocess?
Have you guys operationalized that?
I wouldn't suggest that we have come up with areally strong operational process for it, but
we do reward referrals.
It's understood when we acquire a firm and amention of that is discussed where we tell our
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sellers, if you bring a deal to us and weclose, we will find a way to provide you
economics.
So we have done that.
It is a great way of rewarding someone forbringing an opportunity to the table that we
likely would not have seen otherwise.
Over time, I would expect that to continue togrow.
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So with 71 firms in three and a half years, thenumber of potential advocates, as you call it,
just continues to grow.
And I think across 71 companies on a sellerbasis, almost every one of those folks would be
a promoter of what we are doing.
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We have certainly had a few, moments where, therelationship is imperfect.
It's usually known at close.
It's folks who want to sell and leave quickly.
So there are a few people who have exited thebusiness and we haven't had an ongoing
relationship with them.
I think they would still suggest that we'regreat people and treated them exactly as we
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expected.
But the majority of the people who we havebrought into Stoic, would stand on a stage and
speak our praises.
And it's because they've done a great job.
You guys seem to have this culture of reallydelivering on what you say you're gonna do,
which is extremely differentiated, and anyonein business for several decades will understand
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this.
I wanna really unpack on how that actuallyplays out both in year one, year five, year 10,
and is there a compounding aspect to it?
So, I think we actually see the benefit of thiswithin twelve months, and it's in different
versions at different time periods.
But the, deliver on your commitments or live upto your handshake is the way that I've always
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kind of described it.
Let's go back to the Tahoe example, because Ithink it's a crystal clear one.
We acquired that firm in January of twentytwenty two, and everything we wanted to do,
went off the rails pretty quickly.
And I mean that in all the best ways.
(20:28):
And we sat down with the two leaders of thatfirm and literally apologized.
Said, hey.
You know, all the things that we thought wouldgo really well here, we're struggling.
And this was probably two months in.
We had issues with payroll.
We had issues with, payment processing, allthese things that are really basic back office
items, we weren't delivering on their behalf inthe way that we had committed to them.
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We were very clear about it, very transparent,and we were accountable to them in terms of, we
made commitments, we failed, here's what we'redoing about it.
I would suggest within three months, had turnedthat around.
We were starting to pick up steam.
We had learned exactly how the systems, thetooling worked, and we brought really great
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people to the table behind it and started todeliver.
So I think the part that you're describing is abit of a trough or what we jokingly call the J
curve, where we needed a bit of time tounderstand, to learn, and to bring value to our
sellers in excess of what they brought to us.
So six months in, we found our stride, westarted to pick up steam.
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By the end of the year, we were deliveringexactly what we said we would.
We had taken a lot of the back office headachesaway from the team, things that they really
didn't want to spend time on.
We had brought really talented people into theorganization, and they were helping in areas
that traditionally these firms don't excel, notbecause they're not great at it, but just they
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weren't running at scale.
And, you know, as a part of all of that, wecontinued to be very transparent in where we
were creating wins and where we continued tostruggle.
So I think the first year was absolutely achallenge.
By the end of the year, we were on the rightfooting.
You could see the trajectory.
(22:19):
You could see that thing.
The flywheels were starting to move, albeitslowly.
By eighteen months, they were humming.
Like Berkshire Hathaway, you guys have a taxadvantage to your structure.
Tell me about the tax advantage, both forsellers who are selling into the structures and
also your co investors in in the structure.
There are two parts.
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The first part, we created Stoic, when we thinkabout permanent, it was one part how we operate
and how we build businesses and how we'reaccountable for a long period of time.
But that also creates a high degree ofefficiency when it comes to taxes.
So we looked at a thirty year period.
If you had two firms identical in performanceof us versus a traditional LPGP structure, how
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would that look for an investor?
And because there isn't a responsibility orrequirement to turn the funds over every
approximate ten years, we think it is asubstantial difference in long term value
creation for those investors.
I think our mark was something like a 26 timedelta over that thirty year period.
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So the first part is for investors, they don'thave to redeploy or reinvest.
And those two to three points in time wherecash doesn't have to come out and be redeployed
matters a lot.
We also recycle the cash within our companies.
And just to double click on that, so theredeploying, it's not just just a taxable
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aspect, and it's not just a you don't have tomake another decision, It's also the j curve.
You don't have to wait for another three yeardeployment cycle where your money's not at
work.
I think private equity has something like twothirds kind of deployment.
So you you commit to a 100,000,000 on average67,000,000 across the life of the fund will be
(24:14):
deployed.
So you don't have that cash drag on a third ofyour capital.
That's absolutely right.
We will have drags as we move a lot of cash outof these businesses into future verticals.
So we do expect to create a new vertical everyeighteen to twenty four months.
So it's not to say that we are perfectlyefficient.
But, we do like the idea of getting throughthat j curve, building a lot of value, getting
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that compounding, and not having to walk away.
So I'll give you two parts to that.
One is, Al, my cofounder, started a companywhen he was 23.
They had 3 and a half million dollars ofinvested capital.
They sold it three years later for$250,000,000.
Incredible outcome.
If you look at that firm today, it's calledInova.
(25:03):
It's publicly traded.
It's generating north of $450,000,000 of EBITDAa year.
So incredible outcome for the investors,incredible outcome for the team.
And it's not to say that they would plate itexactly the same to achieve where it is today.
But they had a lot of headroom above them.
They'd created a really great company that hadan incredible future ahead.
(25:27):
And they exited the business, moved on, hadthey just held on to it, it would have been
substantially greater in terms of absolute andon a percentage basis returns.
So as you get through that J curve and you havethe opportunity to really build upon what is, a
(25:48):
great firm, we can run that indefinitely and ina way that continues to compound.
And I think the second part to that is you'reseeing firms recognize this more and more.
I think if you go and research how manycontinuation vehicles are being built, it's a
reflection of this.
It could also be a point about liquidityavailability and exits and other things.
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But I think there are a number of reallybrilliant private equity firms who have seen
that some of the more recent strategies canbenefit from more time, and they're building
vehicles to execute against that.
There's a couple aspects of this kind ofpermanent this trend towards permanent or
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evergreen structures.
One is, as you mentioned, paradoxically,investors both want the ability to take out
money.
Typically, it's within five years instead often, but it could be twelve, fourteen years for
venture capital.
And two is they also don't want their money outsooner than they want it because of this
taxable aspect.
So you kind of could have your cake and eat ittoo.
(26:52):
And then there's this interesting feecompression.
So these evergreen structures have lower fees,but in some models actually have higher equity
value for the underlying management companybecause they're evergreen investors.
Think of it as episodic customers for SaaScompany versus recurring customers.
The recurring customers, the evergreencustomers are actually worth more to the
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underlying manager.
So there's this kind of like win win win aspectfrom that as well.
We see that very similarly, in the way that youdescribed it.
And I think, for our approach, the taxadvantageous piece, the timing, when we talked
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about structure earlier, considering all thoseitems, it's rather complex.
So when, you know, you think about liquidityand the point you just made about timing of
investors and private equity and the, you know,the path to getting their cash out at exactly
the right time period.
That is a very, tough needle to thread.
(27:56):
If you look at the availability of liquiditythat we are creating for our investors, we
expect them to participate very long term.
That's how we built the organization.
That's how we structured.
That's what our goal is.
But we do expect that there may be some whoneed cash out for different reasons.
And for that purpose, when we talked aboutliquidity earlier, us providing a share buyback
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path, we think we'll achieve that outcome.
So as we start to build a lot of cash in ourbusiness, inevitably, will be shareholders who
will say, you know, for one reason or another,it's my time, and I either need to exit some
part or all of my investment.
On an annual basis, as we grow and haveavailability cash for that purpose, we expect
(28:42):
to provide an annual offer to repurchase thoseshares.
We'll get right back to interview.
But first, we're looking for the next greatguest.
If you or someone you know is a capitalallocator and would make for a great guest,
please reach out to me directly atdavid@whispercapital.com.
So you send me over some AI that you'redeploying within your companies, and I know we
can't get into that specific use case.
(29:03):
It's proprietary, but I just saw a post byRobert Smith from Vista talking about how AI is
electricity and they're they're deploying intoevery single company in their portfolio.
What ways are you deploying AI within your rollups?
We very much agree with the comment of it beingelectricity.
So for us, we have, as we discussed earlier, apretty strong background in technology.
(29:28):
And we see AI to be similar to all other formsof what technology has offered organizations in
the past.
So we're highly pragmatic about it, but we useit everywhere.
So as a starting point, we think about a set ofobjectives that AI should achieve.
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That includes employee up leveling, processoptimization, quality control improvement, and
a series of other changes that it shouldultimately provide.
As a part of that, what's particularly uniqueabout AI today versus other forms of technology
is simply its availability.
(30:13):
So historically, open source libraries ofPython, really incredible, changed the world,
similar to cloud computing.
And you can go through a list of advancementsthat have allowed for startups to grow faster,
cost less money to launch, etcetera.
AI is something that everybody can touch.
(30:34):
It means it's highly iterative.
It means that it's highly accessible.
It means that really kind of getting engagementand adoption is much simpler.
But you have to have folks who know how tobuild around it.
So if you think about, employee up leveling asan example, we have deployed a series of tools,
(30:59):
agents, that connect to Slack where the sourceof information that they use to provide
guidance is constrained as a way of avoidinginaccurate answers.
So the folks in our PEO who work on verycomplex payroll questions, very complex four
(31:22):
zero one, health care questions, are able toessentially enter a question into Slack.
A series of bots are reviewing and sourcinginformation from Prism Guides, which is the
technology that they run on, or local laws onPTO or changes in four zero one k regulation
(31:47):
and providing them answers back so that theycan be more valuable to our end clients.
I think that's a very underrated aspect of AI,the consumer sandbox.
So if you had an organization of 100 people andone person knew how to use Python, all the
ideas of the company for how to use Python anduse, you know, machine learning had to come
(32:07):
from that one individual versus now if you havea 100 people, they don't necessarily have to
code in Python, and they don't even have tocome up with the end case of how to deploy it.
They could just make certain queries to findout whether it makes sense to invest into
technological solutions.
This consumer sandboxing, I think, isunderrated.
Somebody was telling me about cost segregationstudies for a real estate investment, and I
(32:30):
just went on perplexity and did a whole AI qand a, not because I was going to use that to
create a cost segregation study, but I wantedto know whether I should pay a law firm $10.20
k to do that.
I think there's this interesting kind ofexploration aspect of AI that's not not fully
appreciated.
And the appreciation of it, that's a reallycritical piece.
(32:55):
We, sometime back, had our legal team write anAI use policy that aggressively focused our
organization on its usage.
And coming from our legal team, you canappreciate their degree of conservatism and
appropriate risk management in the use of thesetools with PII and everything else that's
(33:18):
mission critical.
But coming from our legal team, they are usingthese tools.
It is something that with the right people, toyour point about, I think, accessibility, we
have folks like Mary, who runs our finance teamin our vacation business, or Erin, who's
(33:38):
running a big chunk of our MSP.
These are folks who can write Python, who canwrite SQL queries that actually work, who have
tech backgrounds that we have recruited tostoic back to that point of what makes us
unique.
They are all technologically savvy and have anability of going a layer below most.
(34:03):
But they are in operating roles and they're infinance roles and they're in legal roles, and
they have an appreciation for these systems,tools and capabilities.
But to the point about why AI is perhapsunique, to your exact point about perplexity,
it is right at your fingertips.
So if you have the ability of understanding theconnectivity to a layer below on a systems
(34:29):
basis, and you can quickly ping away at any oneof these platforms and ask it how to make those
connections and answer advanced questions, youcan really build some powerful tools in time
periods that historically were impossible.
Preparing for this interview, I did someresearch and saw that there's really only three
(34:53):
well known organizations like Berkshire, IAC,Coke, that really deployed this type of model.
Why aren't more people using holding companiesin order to acquire companies?
It's a great question.
So I have a few answers.
My first would be there are more peoplepursuing this structure than there have been
(35:16):
historically.
And I think that's a recent phenomenon.
You probably have to have three things for thisto work.
The first is you have to have the right people.
We have a track record of building companies,creating a lot of value for shareholders,
executing deals in ways that are verycomplicated and nuanced.
(35:38):
And we have a few edges in terms of network ofreally talented people, technology and a few
other advantages that maybe some others do not.
You have to have a vision.
So I think you have to go at this today with avery strong position that this is permanent,
that this is greenfield, that this is longduration.
(36:01):
And you have to commit to how long thatactually requires you to be a part of this
organization, which for me is permanent aswell.
Lastly, I think the highest hurdle is thecapital piece.
Getting investors to commit to a structure likethis from day zero is very difficult.
(36:23):
If you look at the examples of what you stated,many of these, don't think were meant to be
permanent, or they wouldn't have said that dayzero.
Danaher is a great example of this.
I think they had a very unique situation thatallowed them to have capital to do their first
deal.
Berkshire, everybody's researched.
(36:45):
Berkshire knows the details, the history.
Even IAC, there are organizations that had aunique entry point, got a few wins behind them,
and it afforded them the ability to move itforward to a position that gave them duration
unique to others.
(37:06):
And I think that last piece, that last hurdleis so challenging to get over that there are
very few people who can get the approval ofinvestors in capital to have that mandate.
So I think that's probably the hardest part,which is obvious.
(37:26):
But I do expect that there will be moreorganizations pursuing this path.
And I think it's evidenced by what we discussedearlier, which is the continuation vehicles.
I think more companies, people, leaders,financial.
Financial minds are seeing where thecompounding piece of really great companies
(37:49):
provides higher returns over longer periods,and they're finding technical paths to it,
whether that's at the onset or later in theprocess of what they've built.
The part that's really challenging
Well, this has been a masterclass on usingholding companies to buy private assets.
(38:09):
As you mentioned, I think there's gonna be muchmore of these.
What would you like our listeners to know aboutyou, about Stoic, or anything else you like to
shine a light on?
Oh, I appreciate that.
We have an incredible organization thatattracts really great talent, And we're always
looking for amazing leaders in our businesses.
(38:30):
We would love to talk to really talented peopleto pursue our strategy with us.
We have an investment team that's on 71 dealsin three and a half years.
If you're looking to participate in anorganization that closes deals, we've got it.
And maybe a dumb question, but you made a callfor talent.
(38:51):
Is that the constraint that you see in most toporganizations is that if they had more talent,
the other constraints would would go away?
Yes.
The easy answer is yes.
You had a great executive coach on, a whileago.
I think his name was Alexis.
And he was just yeah, I that was an incredibleepisode.
(39:14):
And part of his statement about great people isa multi problem.
A demonstration.
The ability to solve multi step problems.
Yes.
You hear something like that said so simply,and it's so clear after you hear it out loud.
(39:35):
What we focus on, what we are responsible foraround execution is that every day of the week.
And finding people who meet that definition isan advantage to any company.
And I'm very excited by the fact that I thinkwe have that type of person in spades across
(40:03):
everything we do.
But it's exciting to find more people with thatskill and bring them in.
And to your question of is that the constraint?
Think it is because no matter the problem, ifyou have people who can unlock those
opportunities and we have it in every one ofour businesses, you can achieve outcomes that
(40:29):
otherwise wouldn't exist.
So I think the answer is simply yes.
There there's another term, Layla Hermosy, AlexHermosy's wife, and I've been trying to
schedule her for a podcast.
She's she's amazing.
She runs, Alex Hermosy's business.
And she talks she has this term called barrels,which are basically people that could roll onto
themselves.
(40:49):
So people that take something essentially likemini CEOs that could go on and solve tasks and
self basically know what to prompt themselveson what they need to do, like basically create
mini businesses.
That's really what scales an organization, notnecessarily even great reports or great VPs of
this, but people that could create the task,bring resources internally around that task,
(41:12):
maybe a business plan or maybe just a operatingdocument and just execute that.
That's what she sees as a constraint.
Similar to the Alexa's comment, that that'ssuch an obvious thing as you say it out loud.
And if you look at what we are constructingwith accounting, PEO, with MSP, the
(41:35):
intersection of those capabilities provide avery large client set of SMBs that have similar
needs.
And we already have, you know, a massive numberof organizations who need other services.
And you have someone who's a barrel.
(41:55):
They can prioritize it correctly, and they'rewilling to go step out on the edge and take a
risk.
And that's that's a pretty unique skill set.
So, yes, I I do think in everything that we do,it's gonna come down to talent.
Well, Matt, thanks thanks for your time, and Ilook forward to sitting down and continuing the
(42:16):
conversation soon.
Thank you so much.
Thanks for listening to my conversation.
If you enjoyed this episode, please share witha friend.
This helps us grow.
Also provides the very best feedback when wereview the episodes analytics.
Thank you for your support.
So what is Stoic Claims?
(00:02):
We are a holding company focused on real estateand small business service, roll ups, where
ultimately we are bringing a degree oftechnology to these firms such that over a long
period of time, we can transform thoseorganizations, integrate them correctly, build
(00:23):
technology in a way where we actually generateinvestment return and build better solutions
for our clients.
Give me a sense for what the business is atscale today.
We have acquired 71 companies, so that spansfour verticals.
We are the seventieth largest accounting firmin The US, the thirty fifth largest PEO, the
(00:48):
fifth largest appraisal and mortgage servicescompany, and the second largest vacation rental
property management firm.
In total, those firms represent roughly300,000,000 of TTM revenues, and we expect to
generate about $60,000,000 of EBITDA acrossthose verticals this year.
(01:10):
You have a very unique holding companystructure.
Tell me about your holding company structureand how that helps you as investor.
Stoic Lane is built with a C Corp on top andLLCs below.
Our investors have put money into that C Corp.
They buy shares, and we deploy that money intoour verticals in LLCs for each different
(01:32):
business.
What it means for the companies that we arebuying and our message and what we drive
ourselves towards is we expect to own thesecompanies forever.
And that's a really important message vision.
It's how we line up our incentives, andultimately, it's how we behave.
So with an idea that this isn't a three or fiveor seven year flip, what we go to market with
(01:59):
in each of our verticals is a message tosellers that we are going to create a long term
durable firm with their company.
So as an example, in our vacation rentalbusiness, we have acquired 26 companies.
When we started in that space, we stood up on astage at their association with three other
(02:22):
roll up, firms and told a very different story.
What we said to them is, we expect to build thebest company in The US.
It is going to take time.
We respect the legacy of what they've created.
We don't expect to disrupt their businessesdramatically.
We have a path for those sellers to participatein the business, both operationally as well as
(02:44):
economically.
And ultimately, we will build the mostreputable organization that exists.
And we can do that because we expect to be apart of this permanently.
If you contrast that to the folks sitting toour side, they were talking about how quickly
(03:05):
they would bring in a bunch of firms, tie themtogether, and flip them.
For someone who spent and I'll give you anexample of a gentleman from Lake Tahoe.
He spent twenty one years building his firm.
He's on the local tourism board.
He's a part of the community.
Every person who works there is a great friendof his, and he knows every single homeowner.
(03:27):
He knows every single guest.
He can tell you about their family.
He is a true hospitality genius.
He didn't wanna sell to anybody else.
All those firms had called him regularly.
When we had a conversation with him, it wassimple.
We want you to be a part of this long term.
We will absolutely keep your brand.
(03:48):
We are excited for the business that you'vebuilt, and we want to continue that forward.
And for that reason, he decided to sell to us.
And that story repeats again and again andagain.
That was our first acquisition in that space.
And by deal four, we had lived up to ourcommitments and what we said on that stage, and
(04:08):
there was proof of it.
So if you take the legacy piece of what thesesellers want to protect, plus the
predictability of our process and add to it theknowledge that we're looking to do this for a
very long period of time.
It gives us an incredible advantage with aparticular part of the market that we're
(04:31):
looking to acquire.
Tell me about your background and thebackground of the overall Stoke team.
Stoke was created by three of us.
Our backgrounds are predominantly in fintech,real estate and insurtech.
So we've built multiple startups.
We've run large organizations.
And as a part of all of those, we have a veryhigh bend towards technology deployment.
(04:55):
So, that includes, you know, I think across ourcore team, we've probably launched at least 10,
if not 15 startups.
Many of them have led to exits.
And as a part of that, it has taught us adegree of pragmatism on how technology works.
(05:16):
So what we focus on at Stoic is taking highlyfragmented businesses where our technology edge
comes in is the ancillary pieces that create alot of value.
So we are very comfortable with core systems.
We are the lead partner or the best in classpartner for Prism and PEO, for Escapia and
(05:43):
Vacation Rental, for CCH in accounting.
What we expect to do in each one of those isbuild a great architectural relationship with
those platforms as well, gain access to APIsthat others don't have or systems, schemas,
data architecture, etcetera, and build on topof it in ways where we can provide better
(06:03):
customer service, higher quality of processes,more efficiency internally for our operations
team.
So you alluded a little bit about youradvantages versus private equity in terms of
keeping the legacy brand alive.
What other advantages do you have directlycompeting against private equity firms on
deals?
The simple answer is the long term nature ofwhat we provide, both in terms of decision
(06:31):
making, execution, time to integrate and thetreatment generally of all folks involved as a
part of that resonate with the seller groupthat we're pursuing.
So if you look at the targets that we focus on,again, highly fragmented, owner operated,
(06:52):
usually a lifetime to build.
It is a group of people who assign very highvalue to the treatment of their employees, to
the behaviors of how clients are handled, tohow they operate within their community.
And that permanent piece allows us to execute aseries of tasks with a bit more nuance and a
(07:21):
duration that is unique.
I lived through selling my startup to a privateequity firm.
It was an incredible team.
To this day, still think they're one of thebest set of operators I've ever worked with.
However, the speed at which they had to makechange to our organization and to the other
acquisitions that I watched them make reallywas based on timeframes that we don't have
(07:48):
constraints on.
So I think that's one part.
It's duration and the ability to take stepsdifferently that protect key employees, key
client relationships, and allow us toparticipate in the vendor ecosystem in a way
that's unique.
Just to play devil's advocate, you mentionedyou were previously acquired by a private
(08:10):
equity firm and they executed at a blazing fastpace and I'm sure cut people, cut vendors, you
know, the traditional private equity playbook.
Isn't that what you need in order to get thegood multiples and high IRR?
How are you able to avoid that and stillachieve the financial outcomes?
(08:32):
It's a great question.
And I I don't think it has to be one or theother.
But what I have seen and I'll I'll stay on thevacation rental example.
There's a firm in our space called Vacasa,which is an incredible firm with great people
that has a really, powerful story.
But they did move at that speed with thosedecisions, with a playbook that you would
(08:54):
expect.
And ultimately, it looked like is they would goin, buy a firm, exit the top of the house
management, change the technology, change thebrand, move a very high percentage of the roles
into centralized locations.
And ultimately, it disrupted the ability todeliver services on a local level.
(09:19):
They lost the local knowledge, the localrelationships.
They traded, you know, brand towards, you know,something that didn't have brand recognition.
These companies, you go to The Cape and some ofthese firms have had three generations of
families traveling to them.
They know that company.
That's the only place they call.
(09:40):
It just doesn't work in that space.
So there are certain decisions that you make intransformation of these companies that with a
three year time frame aren't possible.
For us, they are.
We do expect over time that some of thesepieces that traditionally get handled by
private equity will really have to take place.
(10:01):
But it's once you really appreciate the nuance,once you've really built the right
infrastructure around it and had the time toexecute those changes correctly.
So I think it's on a business by businessbasis.
Again, I don't think it is One is necessarilybetter than the other.
But in the areas where we focus with the typesof sellers that we deal with, with the types of
(10:23):
businesses that we're operating, our model isexceptional.
There are other places in our accounting firm,as an example, where we move much quicker.
It makes more sense to move on technology.
There will be a singular brand in that space.
And in that company, which is called ArcherLewis, it is an organization that will be the
preeminent SMB tax payroll bookkeeping andultimately, you know, other types of services
(10:48):
firm.
And that company is moving quickly on tech.
They're moving quickly on brand.
And there are a number of other changes thatthey're making where it just makes more sense
in that specific area.
And the long term vision of that firm iscutting out a strata of the industry where the
(11:10):
big four really focus on the largeorganizations.
You have H and R Block and others who focus onpersonal.
Archer Lewis will be the brand for SMBs.
And we feel there's no reason to slow down thepath to that existing.
I've never met a private equity firm thatdidn't say they didn't have proprietary deal
(11:30):
flow.
I probably had hundreds of conversations.
Yep.
But I I've double clicked on some of yourdeals, and you do actually have non bank deals
and quite a few, if not the majority of yourdeals.
How do you get sellers to avoid an auction andto sell directly to you on a visa via one to
one transaction?
It comes back to delivering on our commitmentto these sellers.
(11:53):
I think that's the easiest answer, but thedetail behind that is important.
So when we stand up on a stage and explain whatwe're looking to achieve with our businesses, I
think it resonates.
If I spent half my life building my company andI heard that the outcome of this sale would be
that, you know, what I have created willpersist indefinitely with a predictable, team
(12:23):
behavior, and I get to continue to participatein it, it's more attractive to me personally
than perhaps sheer economics.
And we've seen this a number of times.
So one part is what the vision of what we'retrying to create.
The second part is as we get into these sectorsand actually transact, we treat people with a
(12:50):
high degree of respect.
We are incredibly transparent.
We spend a lot of time with the brokers in thespace, with the leaders in the space, and we
explain exactly what we're doing.
When we got into vacation rental, we invitedour competitors, the key players, the brokers
all out to dinner together and told themexactly what we're going to do.
(13:11):
And we've done exactly that.
So as we drive forward through deal five, dealsix, deal seven, and people see that we're
doing exactly what we told them we would do.
Plus, you get a year behind you and the sellershave made it through that transition period.
It's usually chaotic in the beginning, but asyou get through, you know, a few months, few
(13:35):
reps working together, they absolutely becomeour sourcing team.
They all have friends in the industry.
These are collaborative spaces, accounting.
You know, you don't really compete with someonewho's 20 miles down the road.
Same thing with vacation rental.
Same thing with PEO.
So these folks work together across differentgeographies to help deliver better service, to
(13:59):
help identify better people to have on theirteam.
And when they sell their company, inevitably,any person that they've worked with in the past
will ask them how it's going.
And the answer is it's going well.
Surely not perfect, but the future is what theyhope to achieve for their team, for their
(14:19):
clients, for their community.
And what that results in is we get phone callsregularly from people who have talked to our
sellers.
We have sellers who will actively reach out tofriends who they think would be a good fit for
us.
Our first MSP deal came from a person workingin one of our companies calling a friend and
(14:42):
telling them, look, I think you have a greatcompany.
I think you're building something that will bevery valuable.
But for you to get to the next level, I thinkyou should sell your company to Stoic Lane,
which is absolutely incredible.
So we see that sort of interaction happeningrepeatedly.
I want to double click on on something subtleabout your business model, about the holding
(15:07):
company model.
One is every seller ends up being a shareholderin the ultimate holding company.
So there's this kind of startup like equity inthe holdco that really incentivize people to go
on and and get other people to to get acquiredby the holding company, therefore increasing
their their value.
Also, there's this interesting aspect that yousee in a lot of very top, call it top 1% tech
(15:33):
companies where the culture becomes so greatthat that the startup employees become these
these bastions of the culture and go out andadvocate for it, whether or not it's driven by
the equity people just like to be around tohave other excellent people within the
organization.
I think that that's powerful as well.
And that just accrues to any great whetheremployees have equity or not.
(15:57):
Just excellence in itself is inspiring andexcellent people want to work with other
excellence.
So, maybe a few versions of this just to giveyou a full appreciation of it.
So when we talked about the structure of Stoic,on paper, it sounds simple.
C Corp at top, LLC is below.
(16:18):
In reality, the incentive structures that goalong with that are more complex and iterative.
So at Stoic, there's not a single employee thatdoesn't have ownership in the company.
Stoic Management collectively is the largestshareholder of Stoic, both on an invested
basis, but also on a common grant basis.
(16:40):
Our incentives are based on multiple ofinvested capital.
So for all of the employees of Stoic, we arerewarded by essentially achieving 5x MOIC
on our investors capital.
What's the timeframe on that?
We have to be essentially at 5x for three yearsin a row in order to achieve the highest value
(17:03):
within our equity.
As a part of that, we have no fees.
We have no carry.
So it is us very much aligned with ourinvestors' interest.
Below that, in each one of our verticals, ourleadership teams have management incentive
programs that are tied to the performance ofthose companies in very similar ways.
(17:24):
When we purchase a firm, on average, nearlyevery seller has rolled roughly 10% of the
value into the business.
So we have strong alignment from top all theway to bottom in terms of exactly what you
described.
We have a set of employees, sellers, teammembers who all are looking to deliver the
(17:50):
greatest degree of value creation for ourshareholders.
Do you guys run like a reverse referencesprocess?
Have you guys operationalized that?
I wouldn't suggest that we have come up with areally strong operational process for it, but
we do reward referrals.
It's understood when we acquire a firm and amention of that is discussed where we tell our
(18:15):
sellers, if you bring a deal to us and weclose, we will find a way to provide you
economics.
So we have done that.
It is a great way of rewarding someone forbringing an opportunity to the table that we
likely would not have seen otherwise.
Over time, I would expect that to continue togrow.
(18:38):
So with 71 firms in three and a half years, thenumber of potential advocates, as you call it,
just continues to grow.
And I think across 71 companies on a sellerbasis, almost every one of those folks would be
a promoter of what we are doing.
(18:59):
We have certainly had a few, moments where, therelationship is imperfect.
It's usually known at close.
It's folks who want to sell and leave quickly.
So there are a few people who have exited thebusiness and we haven't had an ongoing
relationship with them.
I think they would still suggest that we'regreat people and treated them exactly as we
(19:21):
expected.
But the majority of the people who we havebrought into Stoic, would stand on a stage and
speak our praises.
And it's because they've done a great job.
You guys seem to have this culture of reallydelivering on what you say you're gonna do,
which is extremely differentiated, and anyonein business for several decades will understand
(19:43):
this.
I wanna really unpack on how that actuallyplays out both in year one, year five, year 10,
and is there a compounding aspect to it?
So, I think we actually see the benefit of thiswithin twelve months, and it's in different
versions at different time periods.
But the, deliver on your commitments or live upto your handshake is the way that I've always
(20:08):
kind of described it.
Let's go back to the Tahoe example, because Ithink it's a crystal clear one.
We acquired that firm in January of twentytwenty two, and everything we wanted to do,
went off the rails pretty quickly.
And I mean that in all the best ways.
(20:28):
And we sat down with the two leaders of thatfirm and literally apologized.
Said, hey.
You know, all the things that we thought wouldgo really well here, we're struggling.
And this was probably two months in.
We had issues with payroll.
We had issues with, payment processing, allthese things that are really basic back office
items, we weren't delivering on their behalf inthe way that we had committed to them.
(20:52):
We were very clear about it, very transparent,and we were accountable to them in terms of, we
made commitments, we failed, here's what we'redoing about it.
I would suggest within three months, had turnedthat around.
We were starting to pick up steam.
We had learned exactly how the systems, thetooling worked, and we brought really great
(21:13):
people to the table behind it and started todeliver.
So I think the part that you're describing is abit of a trough or what we jokingly call the J
curve, where we needed a bit of time tounderstand, to learn, and to bring value to our
sellers in excess of what they brought to us.
So six months in, we found our stride, westarted to pick up steam.
(21:35):
By the end of the year, we were deliveringexactly what we said we would.
We had taken a lot of the back office headachesaway from the team, things that they really
didn't want to spend time on.
We had brought really talented people into theorganization, and they were helping in areas
that traditionally these firms don't excel, notbecause they're not great at it, but just they
(21:58):
weren't running at scale.
And, you know, as a part of all of that, wecontinued to be very transparent in where we
were creating wins and where we continued tostruggle.
So I think the first year was absolutely achallenge.
By the end of the year, we were on the rightfooting.
You could see the trajectory.
(22:19):
You could see that thing.
The flywheels were starting to move, albeitslowly.
By eighteen months, they were humming.
Like Berkshire Hathaway, you guys have a taxadvantage to your structure.
Tell me about the tax advantage, both forsellers who are selling into the structures and
also your co investors in in the structure.
There are two parts.
(22:40):
The first part, we created Stoic, when we thinkabout permanent, it was one part how we operate
and how we build businesses and how we'reaccountable for a long period of time.
But that also creates a high degree ofefficiency when it comes to taxes.
So we looked at a thirty year period.
If you had two firms identical in performanceof us versus a traditional LPGP structure, how
(23:04):
would that look for an investor?
And because there isn't a responsibility orrequirement to turn the funds over every
approximate ten years, we think it is asubstantial difference in long term value
creation for those investors.
I think our mark was something like a 26 timedelta over that thirty year period.
(23:29):
So the first part is for investors, they don'thave to redeploy or reinvest.
And those two to three points in time wherecash doesn't have to come out and be redeployed
matters a lot.
We also recycle the cash within our companies.
And just to double click on that, so theredeploying, it's not just just a taxable
(23:53):
aspect, and it's not just a you don't have tomake another decision, It's also the j curve.
You don't have to wait for another three yeardeployment cycle where your money's not at
work.
I think private equity has something like twothirds kind of deployment.
So you you commit to a 100,000,000 on average67,000,000 across the life of the fund will be
(24:14):
deployed.
So you don't have that cash drag on a third ofyour capital.
That's absolutely right.
We will have drags as we move a lot of cash outof these businesses into future verticals.
So we do expect to create a new vertical everyeighteen to twenty four months.
So it's not to say that we are perfectlyefficient.
But, we do like the idea of getting throughthat j curve, building a lot of value, getting
(24:40):
that compounding, and not having to walk away.
So I'll give you two parts to that.
One is, Al, my cofounder, started a companywhen he was 23.
They had 3 and a half million dollars ofinvested capital.
They sold it three years later for$250,000,000.
Incredible outcome.
If you look at that firm today, it's calledInova.
(25:03):
It's publicly traded.
It's generating north of $450,000,000 of EBITDAa year.
So incredible outcome for the investors,incredible outcome for the team.
And it's not to say that they would plate itexactly the same to achieve where it is today.
But they had a lot of headroom above them.
They'd created a really great company that hadan incredible future ahead.
(25:27):
And they exited the business, moved on, hadthey just held on to it, it would have been
substantially greater in terms of absolute andon a percentage basis returns.
So as you get through that J curve and you havethe opportunity to really build upon what is, a
(25:48):
great firm, we can run that indefinitely and ina way that continues to compound.
And I think the second part to that is you'reseeing firms recognize this more and more.
I think if you go and research how manycontinuation vehicles are being built, it's a
reflection of this.
It could also be a point about liquidityavailability and exits and other things.
(26:11):
But I think there are a number of reallybrilliant private equity firms who have seen
that some of the more recent strategies canbenefit from more time, and they're building
vehicles to execute against that.
There's a couple aspects of this kind ofpermanent this trend towards permanent or
(26:31):
evergreen structures.
One is, as you mentioned, paradoxically,investors both want the ability to take out
money.
Typically, it's within five years instead often, but it could be twelve, fourteen years for
venture capital.
And two is they also don't want their money outsooner than they want it because of this
taxable aspect.
So you kind of could have your cake and eat ittoo.
(26:52):
And then there's this interesting feecompression.
So these evergreen structures have lower fees,but in some models actually have higher equity
value for the underlying management companybecause they're evergreen investors.
Think of it as episodic customers for SaaScompany versus recurring customers.
The recurring customers, the evergreencustomers are actually worth more to the
(27:12):
underlying manager.
So there's this kind of like win win win aspectfrom that as well.
We see that very similarly, in the way that youdescribed it.
And I think, for our approach, the taxadvantageous piece, the timing, when we talked
(27:35):
about structure earlier, considering all thoseitems, it's rather complex.
So when, you know, you think about liquidityand the point you just made about timing of
investors and private equity and the, you know,the path to getting their cash out at exactly
the right time period.
That is a very, tough needle to thread.
(27:56):
If you look at the availability of liquiditythat we are creating for our investors, we
expect them to participate very long term.
That's how we built the organization.
That's how we structured.
That's what our goal is.
But we do expect that there may be some whoneed cash out for different reasons.
And for that purpose, when we talked aboutliquidity earlier, us providing a share buyback
(28:21):
path, we think we'll achieve that outcome.
So as we start to build a lot of cash in ourbusiness, inevitably, will be shareholders who
will say, you know, for one reason or another,it's my time, and I either need to exit some
part or all of my investment.
On an annual basis, as we grow and haveavailability cash for that purpose, we expect
(28:42):
to provide an annual offer to repurchase thoseshares.
We'll get right back to interview.
But first, we're looking for the next greatguest.
If you or someone you know is a capitalallocator and would make for a great guest,
please reach out to me directly atdavid@whispercapital.com.
So you send me over some AI that you'redeploying within your companies, and I know we
can't get into that specific use case.
(29:03):
It's proprietary, but I just saw a post byRobert Smith from Vista talking about how AI is
electricity and they're they're deploying intoevery single company in their portfolio.
What ways are you deploying AI within your rollups?
We very much agree with the comment of it beingelectricity.
So for us, we have, as we discussed earlier, apretty strong background in technology.
(29:28):
And we see AI to be similar to all other formsof what technology has offered organizations in
the past.
So we're highly pragmatic about it, but we useit everywhere.
So as a starting point, we think about a set ofobjectives that AI should achieve.
(29:50):
That includes employee up leveling, processoptimization, quality control improvement, and
a series of other changes that it shouldultimately provide.
As a part of that, what's particularly uniqueabout AI today versus other forms of technology
is simply its availability.
(30:13):
So historically, open source libraries ofPython, really incredible, changed the world,
similar to cloud computing.
And you can go through a list of advancementsthat have allowed for startups to grow faster,
cost less money to launch, etcetera.
AI is something that everybody can touch.
(30:34):
It means it's highly iterative.
It means that it's highly accessible.
It means that really kind of getting engagementand adoption is much simpler.
But you have to have folks who know how tobuild around it.
So if you think about, employee up leveling asan example, we have deployed a series of tools,
(30:59):
agents, that connect to Slack where the sourceof information that they use to provide
guidance is constrained as a way of avoidinginaccurate answers.
So the folks in our PEO who work on verycomplex payroll questions, very complex four
(31:22):
zero one, health care questions, are able toessentially enter a question into Slack.
A series of bots are reviewing and sourcinginformation from Prism Guides, which is the
technology that they run on, or local laws onPTO or changes in four zero one k regulation
(31:47):
and providing them answers back so that theycan be more valuable to our end clients.
I think that's a very underrated aspect of AI,the consumer sandbox.
So if you had an organization of 100 people andone person knew how to use Python, all the
ideas of the company for how to use Python anduse, you know, machine learning had to come
(32:07):
from that one individual versus now if you havea 100 people, they don't necessarily have to
code in Python, and they don't even have tocome up with the end case of how to deploy it.
They could just make certain queries to findout whether it makes sense to invest into
technological solutions.
This consumer sandboxing, I think, isunderrated.
Somebody was telling me about cost segregationstudies for a real estate investment, and I
(32:30):
just went on perplexity and did a whole AI qand a, not because I was going to use that to
create a cost segregation study, but I wantedto know whether I should pay a law firm $10.20
k to do that.
I think there's this interesting kind ofexploration aspect of AI that's not not fully
appreciated.
And the appreciation of it, that's a reallycritical piece.
(32:55):
We, sometime back, had our legal team write anAI use policy that aggressively focused our
organization on its usage.
And coming from our legal team, you canappreciate their degree of conservatism and
appropriate risk management in the use of thesetools with PII and everything else that's
(33:18):
mission critical.
But coming from our legal team, they are usingthese tools.
It is something that with the right people, toyour point about, I think, accessibility, we
have folks like Mary, who runs our finance teamin our vacation business, or Erin, who's
(33:38):
running a big chunk of our MSP.
These are folks who can write Python, who canwrite SQL queries that actually work, who have
tech backgrounds that we have recruited tostoic back to that point of what makes us
unique.
They are all technologically savvy and have anability of going a layer below most.
(34:03):
But they are in operating roles and they're infinance roles and they're in legal roles, and
they have an appreciation for these systems,tools and capabilities.
But to the point about why AI is perhapsunique, to your exact point about perplexity,
it is right at your fingertips.
So if you have the ability of understanding theconnectivity to a layer below on a systems
(34:29):
basis, and you can quickly ping away at any oneof these platforms and ask it how to make those
connections and answer advanced questions, youcan really build some powerful tools in time
periods that historically were impossible.
Preparing for this interview, I did someresearch and saw that there's really only three
(34:53):
well known organizations like Berkshire, IAC,Coke, that really deployed this type of model.
Why aren't more people using holding companiesin order to acquire companies?
It's a great question.
So I have a few answers.
My first would be there are more peoplepursuing this structure than there have been
(35:16):
historically.
And I think that's a recent phenomenon.
You probably have to have three things for thisto work.
The first is you have to have the right people.
We have a track record of building companies,creating a lot of value for shareholders,
executing deals in ways that are verycomplicated and nuanced.
(35:38):
And we have a few edges in terms of network ofreally talented people, technology and a few
other advantages that maybe some others do not.
You have to have a vision.
So I think you have to go at this today with avery strong position that this is permanent,
that this is greenfield, that this is longduration.
(36:01):
And you have to commit to how long thatactually requires you to be a part of this
organization, which for me is permanent aswell.
Lastly, I think the highest hurdle is thecapital piece.
Getting investors to commit to a structure likethis from day zero is very difficult.
(36:23):
If you look at the examples of what you stated,many of these, don't think were meant to be
permanent, or they wouldn't have said that dayzero.
Danaher is a great example of this.
I think they had a very unique situation thatallowed them to have capital to do their first
deal.
Berkshire, everybody's researched.
(36:45):
Berkshire knows the details, the history.
Even IAC, there are organizations that had aunique entry point, got a few wins behind them,
and it afforded them the ability to move itforward to a position that gave them duration
unique to others.
(37:06):
And I think that last piece, that last hurdleis so challenging to get over that there are
very few people who can get the approval ofinvestors in capital to have that mandate.
So I think that's probably the hardest part,which is obvious.
(37:26):
But I do expect that there will be moreorganizations pursuing this path.
And I think it's evidenced by what we discussedearlier, which is the continuation vehicles.
I think more companies, people, leaders,financial.
Financial minds are seeing where thecompounding piece of really great companies
(37:49):
provides higher returns over longer periods,and they're finding technical paths to it,
whether that's at the onset or later in theprocess of what they've built.
The part that's really challenging
Well, this has been a masterclass on usingholding companies to buy private assets.
(38:09):
As you mentioned, I think there's gonna be muchmore of these.
What would you like our listeners to know aboutyou, about Stoic, or anything else you like to
shine a light on?
Oh, I appreciate that.
We have an incredible organization thatattracts really great talent, And we're always
looking for amazing leaders in our businesses.
(38:30):
We would love to talk to really talented peopleto pursue our strategy with us.
We have an investment team that's on 71 dealsin three and a half years.
If you're looking to participate in anorganization that closes deals, we've got it.
And maybe a dumb question, but you made a callfor talent.
(38:51):
Is that the constraint that you see in most toporganizations is that if they had more talent,
the other constraints would would go away?
Yes.
The easy answer is yes.
You had a great executive coach on, a whileago.
I think his name was Alexis.
And he was just yeah, I that was an incredibleepisode.
(39:14):
And part of his statement about great people isa multi problem.
A demonstration.
The ability to solve multi step problems.
Yes.
You hear something like that said so simply,and it's so clear after you hear it out loud.
(39:35):
What we focus on, what we are responsible foraround execution is that every day of the week.
And finding people who meet that definition isan advantage to any company.
And I'm very excited by the fact that I thinkwe have that type of person in spades across
(40:03):
everything we do.
But it's exciting to find more people with thatskill and bring them in.
And to your question of is that the constraint?
Think it is because no matter the problem, ifyou have people who can unlock those
opportunities and we have it in every one ofour businesses, you can achieve outcomes that
(40:29):
otherwise wouldn't exist.
So I think the answer is simply yes.
There there's another term, Layla Hermosy, AlexHermosy's wife, and I've been trying to
schedule her for a podcast.
She's she's amazing.
She runs, Alex Hermosy's business.
And she talks she has this term called barrels,which are basically people that could roll onto
themselves.
(40:49):
So people that take something essentially likemini CEOs that could go on and solve tasks and
self basically know what to prompt themselveson what they need to do, like basically create
mini businesses.
That's really what scales an organization, notnecessarily even great reports or great VPs of
this, but people that could create the task,bring resources internally around that task,
(41:12):
maybe a business plan or maybe just a operatingdocument and just execute that.
That's what she sees as a constraint.
Similar to the Alexa's comment, that that'ssuch an obvious thing as you say it out loud.
And if you look at what we are constructingwith accounting, PEO, with MSP, the
(41:35):
intersection of those capabilities provide avery large client set of SMBs that have similar
needs.
And we already have, you know, a massive numberof organizations who need other services.
And you have someone who's a barrel.
(41:55):
They can prioritize it correctly, and they'rewilling to go step out on the edge and take a
risk.
And that's that's a pretty unique skill set.
So, yes, I I do think in everything that we do,it's gonna come down to talent.
Well, Matt, thanks thanks for your time, and Ilook forward to sitting down and continuing the
(42:16):
conversation soon.
Thank you so much.
Thanks for listening to my conversation.
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