Private Equity Is Coming for Your Sector: How to Be Ready Before the Call with James Vanreusel

Welcome to the B2B Growth Blueprint podcast, where we talk with entrepreneurs, founders, and leaders at B2B services, tech, and SaaS companies to learn the systems and processes they've used to create success for their business. And we'll also learn from marketing and sales experts to provide insights to help you grow your business. I'm your host, Mark Osborne, and the podcast is brought to you by Modern revenue strategies and their 10x ROI B2B growth guarantee. Schedule a free diagnostic call to learn the fastest path to double your B2B revenues in just 90 days. Hello and welcome to another episode of the B2B Growth Blueprint podcast. I'm your host, Mark Osborne, and today I'm very excited to welcome my guest, James Van Roessel. Now, James is the founder and CEO of VanRoessel Ventures, which is a CFO advisory firm that supports founder-led and mission-driven businesses through fundraising, M&A, FP&A, and strategic finance with a global focus across tech, healthcare, and impact-driven sectors. He's a CFA charterholder and Certified Exit Planning Advisor, and he spent the early years of his career on Wall Street as VP at Bank of America Securities. generating $8 million in annual sales before moving into international finance and serving as CFO for SPBD, where he launched and operated microfinance banks across Samoa, Tonga, Fiji, and the Solomon Islands. Today, James leads fractional CFO engagements across more than a dozen organizations and is recognized for his work guiding founder exits, navigating sector roll-ups, and structuring the financial side of complex M&A transactions on both the for-profit and nonprofit sides of the market. What makes James's perspective really unique is that he sees the deal landscape from multiple seats at once. He's been an operator, an advisor, a financier, gives him unusually clear read on where the next wave of consolidation is heading and how owners should be positioning themselves before private equity comes knocking. So, James, welcome to the show.

Thanks, Mark. And thanks for the intro.

Absolutely.

I'm very excited to be here.

Yeah, we've got a lot of fun topics to dive into. But before we do, give our audience a little bit of background of the twists and turns. How did you go from Wall Street to Samoa and now back in— I think you're in the Bay Area, right?

Yeah, yeah, yeah. So kind of stepping way back. So originally I'm from Europe. I grew up in Belgium.

Okay.

And I always had a strong desire to come live in the US. So my ticket in was to go to business school down in Texas, a little bit of a culture clash, but it was a lot of fun. And from there, I got, as you said, you know, my job on Wall Street actually was in San Francisco. during the internet boom, '99 through 2000. And which was a lot of fun, but I had to get up really early for stock market hours. So moved to New York, did the whole Wall Street thing for another 8 years. And then I'd gotten interested in more social finance and mission-driven social enterprises. And I transitioned over into microfinance. And so I was working in the South Pacific with an entrepreneur who was building out microfinance banks in that area. As I said, no worries. So building out microfinance banks in that area, we, from there, I had grown a little bit restless and wanted to do something different. And at the same time, I'd gotten married, moved to San Francisco, And within a few days of moving, the largest investor in the microfinance network emailed me and said, hey, you should, you know, you're new, you should get to know some cool people, you know, meet the CEO of one of my portfolio companies. He's a great guy. And so I sat down with him and it turned out he was looking for a part-time CFO. And so I thought, okay, great, let me, let me work with him on a really cool project. He was doing It was a nonprofit software company doing work in Kenya and Nepal. And so I worked with him while I was trying to figure out what to do. And that's kind of how the whole corporate finance consulting company started. This was back in 2014. So it's been 12 years now. And, you know, kept that hybrid structure of kind of a for-profit background with nonprofit mission-oriented companies. As well. So, you know, we do, we work with a lot of, you know, VC-backed companies, bootstrapped companies that I think we're gonna talk about a little bit more, especially on the private equity side, but also a lot of international nonprofits.

Super interesting. And, you know, certainly you've seen the world at least through the lens of a balance sheet as you've worked with all these companies and all these different environments. And I think that gives you sort of a really unique perspective and one that our audience will value for a lot. And when you and I were sort of chatting before the call, there's this sort of concept today that private equity moves into certain sectors and some folks are terrified of that because they feel like it's going to come in and crush them. Others are excited by it because they feel like, oh, this is my opportunity to to get a big exit, but it's certainly a sort of a trend in the space that people are trying to stay ahead of. And you made sort of a comment when we were talking about PE is coming for you in 6 to 18 months. In fact, I work with some other folks that they've actually even used that in messaging to business owners as they're trying to get meetings. Talk to us a little bit about if someone is in one of those sectors, And they start to hear from their peers, oh, we're getting unsolicited calls from private equity, or they start getting those calls from private equity and they get this sense like we're in one of those hot sectors. What are some of the things that they should be doing when they recognize that to ensure that they're positioned for the best possible outcomes of that context?

Yeah, no, that's a great question. And I think, you know, Companies should always be ready for sale. Yeah, right. It's, it's, it's not something you can just, you know, flip a light switch and you're there, right? It will take at least a year to get ready, if not longer, depending on the state of your books, etc. You know, I think the one thing you don't want to do is rush things because, as you said, private equity is coming for you in 6 to 18 months, usually you can already see 1 or 2 acquisitions being made. And private equity isn't usually the only buyer in the space, right? There's, you know, there is PE, but there are also strategics, it could be competitors. So there can be a bidding war that happens. And they can't buy everything at once. So usually private equity comes in because it's a fragmented space, and so there are lots of different players. And if you are one of those players, then that is most likely good news. And so then you need to start thinking, okay, if private equity is coming and I'm gonna get a call at some point here, it's still gonna take them time to do all that due diligence and everything. But I would take it very seriously and I would say, okay, can I make an investment here and, you know, accelerate things? I mean, you can go on to an LLM and just say, hey, what do I need to do here to increase my valuation? But I think what you really want is you want to find somebody who specializes in this. So not necessarily a broker, Right? But somebody who specializes in coming into a company, let's say 2 years before an exit and starts working with you to maximize your valuation, especially for private equity, because private equity is looking for very specific things. They're looking at, you know, EBITDA. They're looking at, you know, keeping the expenses under control. You want to show up with you know, as little debt as possible because their whole strategy is to lever you up to buy you. And, you know, and those are pretty specialized things to understand. And finding the right person who can help is, I think, is really valuable because you can easily double or triple your valuation. And so the investment really makes sense.

Yeah. Well, and thinking about that, like so often business owners have been thinking about making investments in their business for some marginal return of, well, I'm going to increase my, maybe my top-line revenues by 10%, maybe my profits by 5% by making this big capital investment. And that's sort of the year return payback. But When you think about increasing the multiple that could be paid for your business, that becomes a much bigger denominator in that calculus of how worthwhile it is to make these investments in improving systems and processes and things that make your business really best in class so that when private equity is evaluating this versus that, and oftentimes they have multiple options, You can really stand out among those options.

Yeah. And what they really, you know, they want to, you want to show up to PE with as high an EBITDA as possible, right? Both dollars but also percent of revenue. That's really the thing you want to look at. What's my EBITDA as a percent of revenue? And one of the, you know, what they're gonna do is they're gonna look at your company and say, you know, where can I save money? And typically, if it's a roll-up, your shared services, your overhead is all gonna disappear.

Yeah.

That's a benefit that they're gonna get from the acquisition. And so if you can make that as small as possible, right, by condensing your SG&A, you know, your overhead and maximizing, you know, above the line, so maximizing your gross margin, That's gonna really boost your valuation because they're gonna see that you are, you know, lean and mean and everything is focused on the top line and it's all flowing through to the bottom line, the EBITDA number. And so if you don't do it in advance, they're gonna pay you less and they're gonna do it after the fact.

That's right. Now, I have heard it said that investments with, you know, advisors and you talked about finding a specific advisor that could prepare you for, you know, these types context, those sort of investments can oftentimes be added back to because it's really a one-time investment of, you know, getting the company ready. And so when you think about making those investments, it makes even more sense to make those investments because it flows back into that EBITDA, or at least in the way that you're valued while improving the overall business operations. Is that true?

Yeah, yeah, that's right. So, so it's It's wise to do a quality of earnings exercise, figure out, you know, what is, what are the repeatable earnings, what are the repeatable expenses, pull out the one-time items. And that's really what you want to look at. So, yeah. So if you're hiring, you know, this individual that can probably get pulled out, you know, the prep work of hiring a corporate attorney just to review all your contracts. both, you know, with your customers, but then also, you know, probably an HR lawyer just to review your employee contracts just to make sure there's, you know, there's nothing hidden there that they can just kind of latch on to and say, ooh, that's gonna, you know, come back in the valuation.

Right.

So, you know, and at any point in time, if you can maximize how your operations work, you're gonna be making more money anyway, whether somebody's coming in to buy you or not. So, you know, all these exercises are good to do in any case.

That's right. As they say in the Exit Planning Institute, exit planning is just good business planning. And all the things that make your business more attractive to a potential buyer make it more fun to run and ultimately more profitable for you to run.

Yeah, that's right.

So we talked a little bit about some of the things that companies should think about if they spot that they're in one of these contexts. But you've got some perspective and you've seen a few cycles of these things over the many years that you've been doing this. What are some ways that you can look into that crystal ball and make some predictions around what's likely to be upcoming sectors? Or how do someone in a sector think, what's the likelihood that my sector might be one that PE moves into?

That's next. Yeah, not always easy to figure out, but I think if you can, you know, like I play a lot of tennis and there are plenty of, you know, PE people at my tennis club and usually the ones I play with are on the younger side. So they might still be associates.

Uh-huh.

So, you know, I don't know how much they can really talk about this stuff outside of the company, but they, you know, that's where you're gonna get the information from. You know, what are they looking at? What, you know, maybe it's something that they're not doing any business in right now, but, you know, a couple of years from now might be an interesting area, especially with business cycles, right? That, you know, industrial sometimes are really bad, you know, and then 4 years later, they're, you know, they're very popular. And, you know, and it's always, they're always looking for companies that are throwing off a lot of cash.

Yeah.

So, you know, and it's usually the more boring stuff, right? There's the companies that the venture capitalists like to look at and then there's the companies that the private equity people like to look at. And usually those are the more boring ones. So, you know, but they throw off a lot of cash. Yeah, because they have to pay for the debt.

Do you see that private equity tends to move either sort of vertically or horizontally in certain industries? So, you know, if they move into, you know, a common thing not that long ago was, you know, dentistry and buying independent dental practices. So then are they more likely to move into other, you know, sort of independent healthcare practices that are, you know, operating in local markets, or are they more likely to move into dentistry supplies or, you know, providers to the dentistry industry? What have you seen?

Yeah, I, I, uh, I think it could be both. Yeah, you know, the benefit of, of going vertical, vertical integration, is that you already know one, one area Right. And so now you're looking, you're already doing the due diligence on the suppliers, vendors, and you're starting to figure out, oh, this could be interesting. You know, this seems like a really good business to be in. It throws off a lot of cash. It's, you know, good EBITDA margins, very reliable. You know, they're not, you know, you need to figure out in the due diligence, are some of the suppliers gonna go under? So there could be a supply issue. And so a lot of the work's already been done. So I think it's an easy way if there are, you know, other companies involved with, you know, as you said, dentists, that, that's an area that you would probably look into.

Yeah.

Because that's interesting. Starting a whole new area takes time because you need to do a full industry analysis, competitor analysis, etc. You know, who are the players? Is, you know, who else is trying to do a roll-up there? Who am I competing with? It'll just take a lot of time. Doesn't mean it's bad and it doesn't happen because it does. But the first, the vertical integration is kind of the easier path and one to maximize.

Interesting. So definitely a way to read the tea leaves is as you see, you know, within the verticalization of the industry, a way to stay ahead of it.

Yeah.

So a lot of our audience is, you know, founders, entrepreneurs who are growing and running businesses. But there are also a fair number of sort of advisors to those businesses who listen and tune in. As you see the dynamics that change in a sector, you know, when there is a roll-up or when things are happening, what are some of the angles that, you know, other advisors might play, whether it's service providers or brokers or bankers or, you know, other folks What are some of those things that those folks should be thinking about when they start to see that acquisitions are happening in a particular sector and maybe a sector where they have clients, experience, expertise?

Yeah, I mean, it takes a whole team to make this happen successfully. So I think when, if you're the business owner, you want to figure out like, okay, who could my team be? Right. And a lot of the vendors belong to different networking groups and they kind of know who they like to work with. They've had experience with each other or they know who the right people are, right? You know, you'd be amazed how many different types of lawyers there are.

Yeah.

I mean, there are a lot of different types of lawyers and just knowing, you know, who the right corporate attorney is to work with because there's you know, you can pay anywhere from $400 an hour to $2,000 an hour, right? And so, you know, and the $400 an hour person could be, you know, just as good. But yeah, it's a tiny firm, right?

Right.

Compared to some of the biggest ones. And there are benefits of that and benefits of, you know, paying less as well. So, you know, if you're a vendor, You need, you know, like, for example, I need to know 5, 6 different corporate attorneys that I could work with because they specialize in different industries, different size companies, different fee structures. And you're really trying to find, you know, maybe 2 that would work well, and then you can present them to the company, to the CEO. And they can make the decision who to work with. But, you know, it's a lot of, you know, it's the advisor that's getting you ready, the corporate attorney, the labor lawyer, you know, maybe there's a broker, you know, depending on how big the deal is. Smaller deals, you know, there are brokers that will help you for a deal that's $10 million and less. And there are others who will only do, you know, $20 to $50 There are others that do 100 plus. So you need to know like who to work with. You know, valuation experts. There are lots of valuation firms out there, quality of earnings experts. I'm trying to run through my group here. But yeah, just lots of people you want to be talking to and who are, you know, really essential. To getting it all done. And ideally, they all know each other, right? And they have experience working with each other because they know exactly what to do, when to do it. And yeah, they'll have had good experiences working with each other.

Well, and that's the benefit is there's like a shared shorthand in the same way that, you know, We're both Certified Exit Planning Advisors. We have some base level of understanding around certain topics and things. And so, groups develop that themselves as well as folks that pursue similar certifications or work in the same industry together. And so, I developed that shorthand, which is super important. So, you're obviously an expert in a lot of really interesting topics, and we could talk all day, but I got to be mindful of your time.

Yeah.

But before I let you go, like give us the pitch. Who exactly do you work with and how exactly do you help them?

Yeah. So we work with, as I said before, kind of a variety of different companies.

Yeah.

When they're bootstrap companies, we, what we do is we typically come in, you know, let's say 5 years before you're thinking of selling. And typically the business owner has, you know, spent the last decade perfecting the business model and they've become cash flow positive and it's really working, but they only have like $3 to $5 million in revenue. So they're on the smaller side and they say, right, I want to get to $30 to $50 million revenue and sell my company. How do I do that? And they've typically just had a bookkeeper for the last 10 years.

Right. Right.

So we'll come in, you know, strategically figure out, okay, what's the plan? Do you need to raise debt? Do you want to raise equity? Do you just want to keep bootstrapping it? You know, look at the accounting. Is it solid? You know, will it— if somebody comes, shows up in a year, could you sell the company? You know, looking at forward projections, liquidity, you know, HR, you know, got to build out the team. So making sure that that's all running properly. So ideally, you know, a couple of years in, You're still a couple of years from selling, but everything is good. So if you did bring in, you know, your lawyers and everything to check stuff, it should already be 99% of the way there. So that's what we do on the bootstrap side. On the VC-backed side, a lot of it usually comes around, you know, just before they want to raise money and they need to get stuff in good shape. So usually we come in after the seed round, before the Series A, when things become a lot more serious. and help them through the A, the B, the C rounds. And then on the, you know, our nonprofit social enterprise side, a lot, you know, it's the nonprofit side is mostly 501s, but they work internationally. So Africa, Asia, you know, all the different industries and SDGs. We also work sometimes with US nonprofits, that do the work in the US. And then we also do work for foundations where we do the financial due diligence for them. So whenever they make big new grants, we'll help them look at the financials and kind of flag any risks that they should know about. So that's kind of what we do. And yeah, we love scaling companies.

And what's the best way to get in touch with you?

Yeah, you know, email is always the best. So james@vanroeselventures.com. You know, we get all the messages through the website as well that get responded to. But yeah, I love, I love getting the emails.

Well, James, thank you so much for taking the time to join us. I learned a lot. I'm sure our audience did as well.

Okay. Thanks, Mark. It was a pleasure.

Talk to you soon.

Okay, thanks.

Thank you for joining this episode of the B2B Growth Blueprint podcast. We hope you've gained insights to grow your business. If you enjoyed this discussion, please rate, comment, like on your favorite platform and share to others who will find it useful. Do you know a CEO, founder, or leader at an early-stage B2B services, tech, or SaaS company who would like to be a guest and share their story? Send us a note. Let's schedule a conversation.