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All right. Hello and welcome back. This is Colin Keeley here,and I'm Brent Sanders. We are two guys buying and building wonderful internetcompanies.

Yeah. And this week we are, talking about one of your, your newoperating manuals. So you've done what, half dozen of these so far? Maybe more.

Yeah, new operating manual, business breakdown, empirebreakdown. I've been trying to, I don't know if I'm gonna change the name cuzother people use business breakdown and that seems like people Google that moreso anyway. But yeah, Brent Beshore a founder of permanent equity and the ceo.Formally called Ad Ventures, which is a horrible name, and he rebranded it, sorecently.

And so they are unique. They do 30 year funds. Wow. So insteadof the usual, five to 10 year private equity fund. So they have no intention ofselling. They rarely use debt. And he founded the company. So he bought hisfirst company in 2007. And he didn't raise outside capital until 2017.

So he is only been at it for, five, six years now. They raisedthe first fund, 2017, 50 million, 30 year fund, 10 year investment period. Thesecond fund, fund two in 20 19, 240 8 billion, 27 year fund, 10 year investmentperiod. And, well, I, we'll just jump into it. I could talk about hisbackground.

So background similar to many other entrepreneurs. He started afew businesses in marketing and advertising. Most of 'em went somewhat poorly.The first one was a branding events company. He ended up selling it to anemployee. Then he started an ad agency, which went a little bit better. Brentgot introduced to someone that wanted to sell their business, and he decided tobuy it with an SBA loan.

And so for that first acquisition, he Googled, how do I dodiligence? Like do diligence. So he knew nothing nice. He calls himself likethe forest gum of private equity, cuz he had no finance background whatsoever.But the first acquisition went well. He was able to repay the SBA loan earlyand then he had all his extra cash flow, right?

And he basically built out a small team to start acquiringother businesses. Um hmm. And so five years later they had a portfolio aboutfive businesses in a small growing organization that could like, find,negotiate diligence. These like small business acquisitions. It was all selffunded, with SB alone as well, and he was calling it the world's smallestfamily office.

And so that was kind of the plan to just keep going on downthat path. But, he answered, Patrick Oshan ASI famous like podcaster investmentand he's a very wealthy family that invests in stuff. Patrick asked somequestion that was completely unrelated on Twitter. And they, Brent replied andthey had a call, and then they kind of hit it off talking about unrelated, likeinvesting topics.

Patrick flew out to Columbia, Missouri, where Brent is from andlives. They talked for 14 hours and at the end of it, Patrick asked like, Hey,my family wants to invest. How do we make this happen? And Brent's like, no,no, no, no, no. Like, everything's going well. I don't wanna blow it up. I don'twant to take outside money.

And Patrick was, pushing and he is like, no, like we want toinvest, like what would it take to have you accept outside capital? Like youdesigned the structure of the terms and we'll figure it out from there. Andthat's how they ended up in this kind of unique structure, which we could gothrough.

But the whole goal was to align everyone's long-term incentivesand like, Kind of have this unique long-term approach, which is why I surewanted to do a breakdown of this, is like there's all these different ways todo long-term holding and they're one of the, premier ones of doing it, whetherit's right or wrong or whether you want to do it that way.

So before we dive into it, obviously they, we know they starteda, a fund, right? So I guess did he indicate why he wanted to even set up afund or is there, were there other. Options that you could go that's like, go,because right. It's like, that is a, that's sort of the, the capsule in whichso many people operate and we've explored this in, in different realms and inways and, there's, there's this and that, but it, there's always this thing wecame back to.

It's like, well, you don't wanna be weird, but to his point, heis like, he didn't even really want to do it, so he could be weird. So I wascurious, like, how did they end up on a fund?

So like, why raise outside money at all is a fair question.Like you could just continue to compound at a high rate. we deal with this aswell, like we don't have to keep raising outside capital.

We could just do that. But it's leveraged. Like you could moveway faster. You could buy bigger businesses, you could buy more businesses. Sothat was kind of like why he was pushed to do it and he wanted to work withthese partners, these families to do that. And then why do this kind of uniqueapproach.

He talks to all the benefits of it, but it's basically like,you could do the usual short term thing where you buy, you kind of improvethings and flip it. But the worst thing is just that, or all the private equitypeople kind of acknowledges what your best companies are and you just hate tosell them.

Like you have to sell 'em to realize your return. But if you'reway better, if you could just hold those for a much longer period of time andmake the improvements like, That, are worthwhile and pay dividends over like10, 20 plus years, which is what he wants these family, run businesses to bebasically.

I, I feel like there'sthe typical two and 20, right? And so it gets into this concept of, of the fees,which is. You hear people doing every permutation of two and 20, but that'slike the, the typical, boiler plate.

Don't be weird terms that people come with. And then there'sthis thing of like, well, what are you getting for your fees? And, do youoptimize for carry? And so it seems like they were doing something uniquethere. You wanna talk about that? Yeah,

the fees are probably the weirdest thing actually with the waythe fund is structured.

, so two and 20 standard, they don't take any management fees.So they have zero fees outside of carry, no deal fees, no financing fees, noportfolio company fees. So the obvious question is like, how do you pay thebills? Like you have a team. Mm-hmm. How do you compensate them? Especiallywhen there's no carry in the traditional sense of there's no exit, like downthe line.

Mm-hmm. And so they take a percentage of cash flow. So theylook at the cash available for distribution and measure it against the equityinvested, and assuming it crosses, at least the 15% gross return. So an aboveaverage cash on cash return, permanent equity takes a percentage of that andmm-hmm.

It seems like they take a higher percentage, the better thingsare performing. And that's how, that's how they pay the bills. That's how theypay everything. So I don't know if it was quarterly or what, but. That's,that's how they're distributing out capital.

Interesting. So, this all works as long as everything continuesto, to cash flow Well, and it seems like that's part of their criteria, right?

It's like they're not doing turnarounds, they're not doinganything that's like, has the even potential or, front potential of, not havingstrong cash

flows. Yeah. And the other part here is they don't use debt. Sothey're, the cash doesn't have to be reserved for like a big debt service oranything.

Right. But yeah, it is weird and it's not the traditional wayof like a holding company and the Constellation style of like, keep all themoney in the comp company redeploy it. It's mm-hmm. They're constantly puttingout, dividends or distributions to the investors, which isn't the most taxefficient route.

But I guess if you were just a single like family that ownssome small business, this is effectively how you would operate. So it'scontinuing to, operate and be compensated in that way, but, And not the mosttax efficient way to go about it.

Can we switch gears and talk about the portfolio for a moment?

Because I think this in, in my mind, I took a look at theportfolio and I was like, huh, it makes sense cuz but it's also pretty unsexy,right? Like what's in the portfolio currently? I was looking on the site aminute ago and what is it? There's like a, so it started. I believe in, in theAdWord ad world.

I think that was, he was saying it's first acquisition, so I'massuming it's media cross. And then there's sort of these, aerospace parts,manufacturing certification or, or, or certified repair of F FAA certifiedrepair pools, matchmaking architectural glass. And a consumer productsmanufacturer of pool lighting and inflatables and, and other products.

So it's like, I, I guess you would have to assume all these arecash flowing really well, that that's, I think, one of their main criteria. Butit's in these, these, businesses that are, they're on sexy, right? Like there'snothing that I said that. Attracts, your typical venture money or anywhereclose to that, which I think is, is awesome, right?

Like, that's just proof positive that it's, the riches are inthe niches and these are, are generally overlooked places. So it seems like,based on this approach of like, okay, there's gonna be no fees, we're, we'reheavy on cash flows and that's how we're going to, to pay our investors andourselves that these seem to be businesses that.

Have, I hate to use the term moat, but have, like really strongdefensible spaces and are obviously are continuing to grow.

Yeah. Brent's always good at speaking in things that are likememorable lines. So he often says, if you haven't gotten Rich doing it, then weprobably aren't going to. So yeah, it's all like, these things have been cashflowing, three plus million dollars a year for, the last three years at least.

Durable businesses at. The two that are mentioned a lot arepresidential pools. So it's the largest swimming pool builder in the country.But they only operate in Phoenix and Tuscan. Tucson. Tucson. But yeah. And thenthe other one that's really funny is selective search, so luxury matchmaking.

So like finding, a wife or a spouse for a, wealthy individual.And the minimum, I think is a hundred thousand dollars engagement. And some ofthem pay seven figures, so over, over a million to go find you, a spouse. Andthe one example he gave recently is like, I'm looking for a wife.

A huge chunk of my life is playing golf. And so my new wife hasto be under seven handicap. And go find that.

Oh wow. Well hey, here's a reminder. Go buy your wife flowerscuz you saved yourself at least a million dollars on finding your, at least,you were able to tie the knot and have a child.

So, you got that far without having to, to pay a recruiter. Butmakes sense. I mean, super niche and I like it. I mean, so it's, I love thatit's broad. This is just my commentary, but I love that it's broad. But whatI'm informed by your, your breakdown so far is that, That company is clearlyvery profitable and that's what likely attracts them to, I mean, there's noroom for, a flat liner in this portfolio.

Yeah. Profitable, durable, all the things you kind of usuallylook at. I would say besides like a search fund, they're just looking at biggerthings and even mm-hmm. Like they're moving up market. I think they're lookingat, public companies taking private as they've grown bigger and bigger. Helikes to call 'em a adolescent businesses.

So too big to be small. Too small to be big. But yeah, they'remostly not integrated. Other things about 'em, they help out on the recruitingfronts, sales and marketing, finance and operations. But, they just ran theirfirst like conference, like bringing all the CEOs together. So they're muchmore in like the constellation playbook where everyone's kind of independent.

You can share knowledge across each other, but you know,everyone runs their own company for the most part.

Interesting. Interesting.

other interesting stuff about 'em, they are, kind of unique.They don't send cold emails or anything anymore. They don't do outbound. Theyreally hammered home this like, inbound approach of like focusing on content.

So they have a book, the Messy Marketplace. It's prettypopular. They have a tremendous amount of writing on their website, kind ofeducating the small business owner about selling. They do a podcast, kind ofall the things and. In this space. I mean, there aren't that many people doingthat very well.

I'd say Brent is one of the best. Andrew Wilkinson, you know usto some extent. There's a million in venture capital who do it well, but,pretty unique approach in the private equity world. And he also runs mm-hmm.Capital camp. So they're investing conferences for LPs and gps.

Yeah. I think we talked about the, the last time they don'tactually go camping, but it's, it's, it's more of like an outdoor setting inis, it's in Missouri, right?

Yeah, in Columbia, Missouri. So that's where they're based.They actually, so I'm going to capital camp that I'm arriving a day early andthe like cookout is at their house. So the house Oh cool. Is their office. Theyjust like took over a residential house and they all work from it. So if you goon the website, website, you can check out like what it looks like.

Yeah. Very cool. When it comes to, as we talked about, like theoutcomes, these distributions, it sounds like people are just kind of, this iswhat you'd characterize in the past as mailbox money, right? Like this is,people are getting payouts as they go and the funds are 30 year funds, butthey're, they're rolling new funds every, what, five years?

Like what's the, the pace of this like,

So it's not super defined. So how they ended up, it'stechnically a 27 year term on their funds. Okay. And, the way it ended up therewas Brent asked for 50 years initially, and one family office advisor advisorssaid, no, we're, we're not gonna let you do that.

We're not gonna let the family do that. And Brent saidbasically like, okay, like, what's the longest you've ever seen? And he said,27 years plus extensions. And Brent's like, okay, okay, cool. Sold. We're gonnago with that. And so that's how they ended up with it initially, and they justcontinued with it. But they have 10 year investing, like periods, but it lookslike they deployed their first fund in like three years or something.

It's like pretty quickly. So there's, they don't take amanagement fees, so they're not, LPs aren't paying, like there's not a big rushto deploy capital, but Right. It seems like they have a lot of good deal flow.At least they think so. So they're deploying it, relatively quickly.

One thing that I found kind of independent of your, your writeup was around, what they did, and I think this was from Emily Holdman who I, Isaw speak, about kind of what they were doing with these companies and itsounds like they, they kind of slow roll these acquisitions in the sense likeyear one they really don't do anything.

And they do that in a sense, from what I heard is like just amessage, Hey, we're not here to do the typical private equity thing. We're notgonna upset the Apple cartt. And, when we do start to get involved, it's, it's,it is pulling special players in from, the, the holding company to maybe stepin and do something specialized.

Or I think what I heard him say as well was like, maybe we'llreplace a CTO and that'll be like one big thing that we'll do, but they're notcoming in doing turnarounds. They're not coming in and making major changes. Soit seems like the. The strategy is to really attract the best businessespossible, get the best possible outcomes, and like get out of the way to anextent.

Right. I mean, were your findings similar?

Yeah. Brent says this as expectations are lower when you payless. So if you pay a lot, you have to do a lot, so mm-hmm. They definitely arenot paying top dollar. They have this huge top of funnel and they're basicallysorting people that wanna work with them.

And the people that wanna work with them are much more aroundlike, oh, we really care about our employees, we care about the legacy. And sotheir whole, sales proposition is like, oh, we're gonna take good care of yourbaby. We're not gonna flip it and we're not gonna make that many changes. Sooften it looks like buying a business, keeping everyone in place, keeping theteam in place, and like, these are kind of, old timey service businesses.

So it's like mm-hmm. Updating the website and, people call us,we're actually gonna answer the phones instead of not answering the phones. Soit's like kind of doing super basic best practices, as opposed to like the techsector where the expectations are higher. Yeah. But yeah, they don't seeminglydo a whole lot on their businesses.

They just buy things that are cash flowing nicely. Interesting.

Interesting. Anything else you wanna talk about in thebreakdown? Or should, should folks just go, go read it on your site?

The one other odd thing that I saw was, traditional privateequity funds, they have a bunch of partners. And the partners are like, theyfind their deal, they run their deal from the beginning of like meeting someoneall the way to like completion.

And they don't do that. So they haven't scaled in the way atraditional private equity fund would By hiring more partners, they basically haveit like a, assembly line or like a, a operating company would do it wherethey're specialists at each stage. So there is like the specialist formarketing, there's a specialist for like loi.

And so like an LOI gets signed that goes to like the post LOIperson. And so it's like a continuous system of handoffs, which I thought was away different way of approaching this. It's all done in-house, so they don'tuse like outside firms for the, quality of earnings or whatever. But there'slike the quality of earnings guy that does that.

That's cool. It's kinda like a band, right? We're just passingit on to the next person. Well, I mean it, that's an interesting concept for. Iwonder what that does to the stress of acquisitions when it's like, there'saccountability, right? There's like deal accountability for the deal lead, orthe person who's like championing this thing in an organization versus, Hey,we're, we're a team.

We're all gonna sound good. We're all, we're all gonna soundbad. And, that, that is, that's kind of a cool aspect. Any, any s that you in,in studying this that you would, would

adopt? So sourcing is the obvious one. I love their contentapproach to kind of scale conversations. So they've done that, super well, andI think we should steal a lot from them.

And we, we actively are with the podcast and everything else.The structure is the big question. It is super complicated and weird. And sothey were able to get this off the ground with like two big family offices andfilling in a bunch of smaller, wealthy folks. I think it would be pretty hardto raise money on this style of fund, I imagine, if you didn't have those biganchors.

But the big advantage of this, like a holding company is justweird cuz you're constantly have to value the whole thing. And if you'reraising more money, you value it, you raise money, you value, you raise money.This is just like we raised the fund. Cool. We gotta keep this for long termand let's raise a new fund in like three to five years.

Yeah. So that's really nice. The baseline fees or like the nofees thing is super odd. I guess you, we could do it in theory and then we justhave to take a percentage and you couldn't use debt cuz, or else you had verylittle cash flow to go around. Mm-hmm. But all that is just kind of unique. AndI don't know whether you do take it or not.

I don't know. Do you have any thoughts around the structure,

The one takeaway I wouldhave is that it's easy to craft these. I think you have to have an interestedparty that wants to fund it. I'm sure sitting alone in a room and coming upwith like, okay, this is the perfect structure, and then going out to market,trying to sell someone on it.

Like the lesson learned is like if you're going to do this,think you need to be a in demand. Have someone who is driving you to do itversus the other way around where you're saying, Hey, I have this, thisconcept, I want to do it. I want to, start a, do a first time fund. Right?That's a very bumpy, difficult road versus, I having somebody with the fundsthat just wants to, wants to execute it and wants to kind of help you structureand structure something together.

That's one interesting learning. The, the other part that I, Ilike is the idea of doing little in the, in the initial stages. I think thatthere's something to that, and obviously that lends itself to, as you said, ifyou're, you're buying something that's lower in the market, you're gonna haveto do more.

And so I think that's part of what we've talked about in thepast is trying to kind of move up market a bit so we don't have to do so muchRight. Upon transition, right upon. closing the deal we're, we've basicallyhave to take the business on our back and, brush it up, clean it up, do, do alot more work than, giving it a year and seeing how things go and, notupsetting the Apple cartt.

Like keeping a, acquiring a team versus a product is kind ofwhat, what I would like to see.

Yeah. So they're buying something that's already functioningwell, with the team in place and everything, and they're mostly keeping theteam in place. The hard part is you have to do that and not overpay. So it'seasy, easy to find a great business and pay a bunch of money for it.

Yeah. But then you have to, use debt or something to juicereturns. But so they're both thread the needle. Maybe it's just like a huge topof funnel and then you attract so many people that are such a good fit thatthey're willing to give you a great deal. But I think that's much easier, likesaid than done.

Right. And you have to good, good judgment and everything tomake sure you're actually buying good businesses, but, it's simple in theory. Ithink it's, harder to execute on.

Yeah. Because anything that you see the nuance of, if yourbusiness is doing well, you want a good payout.

And, as we know in larger private equity, that's largely, kindof goes to the, the larger firms. And unless you really, really, really careabout your employees, which, cash rules everything around me, right? Like, it'shard to, to, to argue with, okay, I can get an extra. X amount of money or, oh,well, I guess everyone's gonna have to fend for themselves.

Like it's capitalism. More people tend to go with the, the cashand the better payout and, less implicated earnout. But, I think it's morenuanced than that. I'm, I'm generalizing, but I do think that there's anelement of like, exactly like you said, I think you can thread this needle asthey, they're pointing out and they're able to do.

And I think keeping it slow, like I think that's the othertakeaway is like, You can't come in and like whip things around and likehaving, I would imagine these businesses started slow and grew slow and arecontinuing to, they're growing, but, and it doesn't mean they're like stagnant.But I, I do think there, there's an element of like speed and expectation thatseems very like wise beyond his years on that aspect.

Yeah, he's very young. He started this relatively young, Ithink he's just like 40 now, so he's been at this for 15 years or something.And he is, he's also, I mean, just the way he looks, he looks even younger thanthat. He looks like he is like, 22 or something. He looks ridiculous in hisphotos.

But that's fair. I guess the other, the other aspect here islike industries. So they are not in a super competitive space. They're liketackling these much more boring spaces. So they're able to get 3 million plusEBITDA companies without being super competitive. Like if we saw SaaS businessdoing 3 million in ebitda, Like, we're gonna get blown outta the water in alllikelihood, cuz it's gonna be super competitive.

Yeah. So that is just an appealing aspect of being in, sleepiermatchmaking or whatever. Yeah,

yeah. I mean, then again, like for me personally, I don't, I'mnot really interested in, I'm not as interested, I should say, in non-softwarebusinesses. It's part of like, what, what jazzes me up about the businesses wehave.

But I mean, it's still like cash flow. I'm, I'm pro cash flow.So I get it, like, it, it, it makes sense. So this is a, this is a coolwriteup, so I, I hope you promote it. It seems like this one's been flyingunder the radar. The date on it that I see says November 22nd.

That's not right. Yeah. I'm not sure why that's saying that.

I gotta delete that. That maybe some issue with Webflow, butno, my general process is I set these live maybe like a week or so before Ipromote it. And then I keep adding to it, cleaning it up, and then I actuallywrite a Twitter thread and like announce it to everyone. So I'll announce it toeveryone shortly.

Yeah. Cool. Well, thanks for putting it together and, andtalking through it. I mean, I think this is, this is good inspiration. This isgood. Like, as part of your set of operating manuals, this is a, a goodaddition. I appreciate it.

Yeah, thanks. I think he, he's an interesting operator and heis just gonna keep getting bigger and bigger, so it's been kind of fun tofollow his journey,

yeah. And so, and then you're also gonna to this camp, soyou're, you're gonna get to meet him, right? It's like, it's sounds likecapital camp's probably kind of intimate,

small. Yeah, it's relatively small still. And he's, I mean,we're talking about him like he's a crazy famous person. He is not like a superfamous person.

He's not, Robert Ove Smith or something. So he is a much moreapproachable guy.

Good. Good. We'll enjoy it.

Yeah, I'm pumped. Okay. Take care everyone.

Yeah. Thanks for listening.

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