Episode 1 - Dustin Johnson of Viva Partners

A growing industry with a business that has sticky and recurring revenue. They want to see that you really, really, really understand that and that's what you're going after and that you then are thinking about it in a creative way in terms of looking for niche industries.

So the big question is this. How are entrepreneurs who aren't scaling tech startups or building lifestyle businesses from scratch doing it? How do acquisition entrepreneurs find businesses, buy them, and then create generational wealth while taking on less risk? Hello and welcome to the first episode of the Entrepreneurship Through Acquisition podcast. Today we have a pretty interesting case about a search fund that's run by Dustin Johnson. The name of his search fund is Viva Partners and he's running it together with his wife Camilla, not only as business partners, but also a married couple with two young kids. So, Dustin, first I'd be interested to know how you came to the decision to launch the search. You and Camilla both have incredibly impressive backgrounds. Camilla is part of launching a 70 person startup. Most recently she was at McKinsey. You have an investment banking and private equity background. So what was your process? How did you both come to the conclusion that you wanted to quit those very successful, well paying jobs and go launch a search across the world? How did you approach that financially, especially while you're trying to raise a family while doing it? And why did you decide to do it now at this time?

Yeah, no, of course. And thanks, Nick. Kind words. Yeah. So for us, we, you know, we were at the point in our career where we just felt like we had lots of experience, as you said, you know, post mba, we've done, you know, for eight, nine years post mba. And we're just kind of feeling like for me personally, I was always fascinated by the search. Like rep was one of the classes I most enjoyed at insead. And I just felt like this entrepreneurial approach or this kind of lower market private equity approach to entrepreneurship just made a lot of sense. And so I was always fascinated and had followed the search fund world for a long time while I was working private equity. And so I was keen to do that because also like being in private equity, I kind of like, you know, working with lots of different companies and seeing different management teams. You kind of work with people and you kind of say, well, there's no magic necessarily that they have, like, I really think I could do this and run and grow a business really well. And, and then you look at kind of the equity returns on that side of it that you're like, well, you know, I'm making all Right, Money, I guess. But you know, there's also a big financial incentive if you do a great job. So I was kind of in that mindset already and I think I'm fairly hands on, kind of entrepreneurial mindset. Camilla was also at the point in her career with McKinsey that she just felt like, you know, doing the projects, you don't necessarily so hands on and see things longer term like come to fruition and that. And she had done a startup previously which was more entrepreneurial and kind of had looked back on that experience with a lot of good memories and passion for kind of pursuing something like that. So for both of us, it was this kind of, it was just a moment in our careers where we felt like, yeah, you know what, we're getting to the point that if we don't follow that passion now, we're kind of going to get very far down the road of these corporate careers, which is also fine. And so, yeah, it was more or less that. And then it was kind of came to the realization at the same time of like, well, you know, I'd like to do something like this. I would as well. And so then we thought, well, maybe actually if you look at our backgrounds, it's super complimentary. Do we want to take that risk? Like from a personal, financial career perspective? So we had a lot of kind of, let's say deep heart to heart conversations about those kind of things and just decided, you know what, you only live once, let's do it. I think some of the, some of our friends thought we were probably completely crazy and maybe still are, but, but look, for us, yeah, I think it just was the right time and moment, made a lot of sense and we just felt like, yeah, you know what, you only have one life to live, so let's do what we want to do.

So what was that process like? Did you have the idea and then a year later you decided to launch? Or was it more spontaneous than that or.

Yeah, well, it was a bit. It was complicated for us because we were living in Switzerland and then we kind of, we said, well, look, I, Camilla was, was already looking at something more like a startup and doing something entrepreneurial. And I was on her shoulder a little bit. Like what? You know, I always thought buying something would actually be lower risk and give you the same kind of fulfillment. And, and so then it started like that. And then it started as well, actually if you want to do something and I want to do this, why not do it together? But it was more complicated because we were in Switzerland. And we said, well, we are going to actually do a search. Once we decided to do it together, where are we going to do that? We thought, look, we. A big part of search is like identifying with the seller and like being that son or daughter that the seller never had to run their business. And we thought, look, in Switzerland, we're not going to be those people because it just from a cultural perspective. And so we thought, where does that best suit us? It would either be Brazil, Camille's Brazilian, or Canada, North America. I grew up in Canada. Canadian. So it did involve then for us, like quite a. A lengthy process of saying, okay, well, we're going to actually relocate to Canada. We decided more because, yeah, Brazil was challenging and we just felt Canada, North America be a better market. We had to relocate, we had to do fundraise, we had to kind of all of those things. So it was from the point that we decided to go for. It was a resign for jobs. It was like 8, but was right around Covid. So it was. Would have been May of 2020, and we were relocated to Canada in December of that year. Fundraiser verbally closed by about the same time and then legally kind of closed and up and running by March of 2021. So it was from the point we decided to the point we were like searching and rolling was nine, 10 months.

Yeah, very exciting times to be involved in this.

It was a bit of a hectic time to go through that all just because it involved a move during COVID and fundraising, which actually. Fundraising. What made it easier because everything was virtual, but it was a lot of moving parts of it. Sure.

So tell me more about the fundraising process. First of all, how did you find the investors and did you have anything specific you were looking for and the type of investor you wanted to work with?

Yeah. So we in the conversation with just kind of educating ourselves about the process and about search, we did connect with a few investors and there were a few people here in Canada that were quite helpful. And in that basically, once we started reaching out to investors, fundraising specifically, we basically just made a long list of just looking at all the others, every other search fund we could find, listing all their investors, and then prioritizing how we would talk to people or in what order we were given the advice that, look, given we're raising, we were going to be based in Canada, we should get a handful of Canadian investors first and then go after the larger US Investors. We did that. But I would say one thing that I would say I would maybe do a little bit Differently is that we were told, okay, get some Canadian investors and then go after the tier one US large, well known investors. I would say actually just get some reps in. We maybe should have just got some reps in our. In terms of doing those pitches before going to the Canadian investors and directly to the bigger US Investors. I just think when we first started with the Canadian investors, we just had to improve our pitch and refine our pitch. And I think we could have had more traction in Canada had we just started off, just done 10, pitched to 10 random people that aren't necessarily like really well known investors and then go off and try to do the fundraise that you want to do in the sequence that you want to do it. We were pretty like, I think objectively when you're raising a fund, it did feel like, oh man, I don't know, it was pretty in retrospect, like it was pretty smooth and straightforward for us, like thankfully and. But I do think we had to revise our pitch and work through it and we did get, I do think sequencing how you sequence your fundraise matters a lot. You really want to have. I think the reason it went fairly, fairly well for us is we were able to get traction and keep traction and keep it moving and get this sense of FOMO amongst investors that we were going to fill up. And so the faster you can do the fundraise, the easier it is in some sense because it kind of builds on itself.

So, so really cool.

Glad to hear that it went relatively smoothly. So you mentioned that with more reps, the pitch improved. Were there any key improvements that you saw that made a big difference?

Yeah, so I would say the main, I would say one of the main ones is as we were thinking about industries, example industries, and people would say, okay, tell me about a business or an industry that you'd like to acquire. I think at the beginning we were maybe a little more creative than we should have been. I think that especially the larger US investors, they want to hear the search fund playbook deal, which is a unique niche industry that is highly recurring, very sticky recurring revenue. And that's the primary characteristic. The other one is like in a growing industry, a growing industry with a business that has sticky and recurring revenue. That's what they want. They want to see that you really, really, really understand that and that's what you're going after and that you then are thinking about it in a creative way. In terms of looking for niche industries. I would say that's what they want to hear. I Don't know if all searchers in practice actually really do that or pursue it in that way, but that's what the search fund investors really, really want to hear. That you've nailed that, right?

Yes, I think that's super helpful advice for anyone interested in raising a fund. In terms of the terms with the investors, I noticed on your website that you said that you don't have a time horizon for an exit from the. Is that something that you had to. Was it difficult to get the investors to agree to that or how did that work?

So I would say the search fund community and the search fund terms amongst the traditional investors is very standardized. You can't do much in terms of negotiation. There's a few little things that I think are important and that you can negotiate but amongst the traditional search fund investors there's not much wiggle room. So we, yeah, I mean our structure is the same as every other traditional search fund and that is longer term. I think the key point in that duration as you're talking about is that, you know, it's not a private equity duration of looking to exit in four to five years. Many do exit. There are many search fund exits. There are five years but I would say the average is more like seven, eight years and the fund structures are longer, are longer term, 10 plus two year extensions, that sort of thing. So. So there is definitely a longer term mindset in the search fund community relative to private equity. And I think like that's a key selling point to vendors is. And that's something that not everyone cares about but some vendors certainly do that. It's like it's not just this. Yeah, we're looking to come in, improve and flip it and make some money. So yeah, that's. Yeah. I'm not sure if I answered your question. No, the duration point doesn't change much amongst the. I would say though something to consider is in the. Is in the self funded route, which I think should definitely be something that people who are interested in this think about and consider. And I think in a self funded route you have way more flexibility to structure whatever you want. It's more about who are you raising.

The money from and is there any reason you decided to opt for a funded search versus a self funded one?

So we did give this a lot of thought and we spoke to a lot of people about this because I think there are big pros and cons to both. The main reasons that we went with a traditional search fund are that we thought the mentorship was quite valuable, that the Ability to bounce ideas off and have the mentorship of investors, most of whom have been searchers, operators themselves or are very close to it. So they kind of have been in the trenches, they know how it goes. So we value that. We also valued the ability to do a larger transaction. So that was, we felt like given our background and our experience, we would have the capacity and capability to do a larger, a larger transaction and under a self funded deal. So I should say those are, those are the main like pros of why we went with a traditional search fund. The con is that like you have no negotiating or very little negotiating power in the terms and that sort of thing. So that's that now on the self funded search you just have absolute flexibility in terms of the terms. And I do think that you, while it's maybe more difficult to do a larger deal, I think there's lots of money around to pursue deals. So you can get a deal funded pretty easily and even reaching out to the traditional search fund investors, although they'll want the kind of standard terms. But one of the main pros of a self funded search is that you can do a smaller deal. And I do think our experience is certainly that if you're looking at a transaction less than $1 million of EBITDA, there's just way less there, way less competition, you can get better valuations. So it is easier to do a deal. It's definitely easy and especially if you own a much bigger part of that small deal, you can have a great like as good or better outcome financially and, and you can have, yeah, it can be really successful. I would say that on the self funded deal, on a smaller transaction like that you end up being a bit more jack of all trades, getting things done. Whereas a larger deal you have more let's say corporate infrastructure to kind of support you. So look, there's pros and cons to both. I really think there's a great place for both, both things and the way we looked at it was more like just that we felt like look, the mentorship is great and you know what we, if we end our two years without acquiring, we've also gained a huge amount of experience in searching and we would be able to go off and find something and do something smaller potentially. So yeah, I think both are good. So sure.

I think it's really good information. I guess it'll come down to personal preferences and needs and goals for the outcome.

And risk. I think that maybe I should also say the risk tolerance of it like getting compensated while you Search, you pay for that in the sense of like you're giving up economics. But I think we did have like a sense of how would I feel. We did have this sense of if we were just paying for our life out of pocket for a year or something while we're trying to find something, I would have a much higher sense of urgency to acquire and just do a deal quickly so that we can. So we're not burning cash and would we do the best deal? Maybe not, because we would just have this sense of urgency. So that was also another factor that we felt like buying time to wait for the right deal would be important. Some people wouldn't have that psychology. I think some people would say, you know, or have circumstances where they don't have necessarily have the sense of urgency to acquire. But for us, I think that was another factor. Right, sure.

Yeah, yeah, definitely. So it's been about a year now since you started the search. What has changed in that time? Have you learned that is the type of business you're targeting still the same. How would you say things have gone this far?

Yeah. So look, it's been amazing learning experience as well so far. What have I learned now? I would say like the day to day of a, of a searcher, I've learned, I mean, the day to day is like you're running like a sales funnel. So. Yeah, I mean, I had never really done that kind of stuff before. So, you know, using all the tools and getting the tech stack for all the outreach and pipeline management and communication and messaging and looking, you know, at it analytically. And so I actually think that's been a great learning. It's super applicable to a lot of the companies we speak to. They say, you know, things are going well, but man, we would crush it if we had a great sales team. So I do think actually the sales and sales pipeline management skills you learn actually super relevant for when you acquire, I would say.

Yeah.

I mean, look, we've talked to lots of businesses, we've gone through a lot of like, kind of different iterations in our thinking and our approach to it. I would say so far what we've kind of taken away from it is that the number one reason that people are going to do a deal with a search fund is the personal relationship side of it. Because in most cases they can probably get better valuation from a private equity fund or some, or a strategic or something. And they know that, but they want to do a deal with you because they really like you. They really, they value some of the things that you bring in terms of like longer term orientation and identifying with them and their business and the people it. That is like the. We have tried the blasting messages like crazy and all over the place and we found that sure you have lots of calls and but you don't necessarily get to leads that are really actionable. Some of the other things I would say we've learned is there's some really very clear business models that are really great for search funds like, like software. And so we have made a real push on software and found it very, just super, super competitive. And there are still not to be discouraging because we still see lots of search fund software deals being done which is why we kind of still keep it in our minds and push on it. But yeah, it's just like the market there is just so hot and valuations are very high. People know it and so it's difficult, difficult to get a deal done. That's traffic Also those markets are super competitive. So that's some of the challenges we bumped into there that we're like, you know, acquiring this business. They've got 50, 100 competitors on capture. I'm not sure about that. So that's something maybe. And maybe one last takeaway would just be like again not to be discouraging but also just to like manage it. You know, be realistic. It is super competitive. There's so much money out there right now. Businesses, we get messages all the time saying yeah, you know, I received 10 messages like yours a week. So I do think we knew that going into it. But I do think managing expectations, it's more competitive than I even thought. And so again coming back to that point of like maybe doing something smaller on a self funded basis or, or and something that we have found to be very important is having like a very clear differentiated message like why are we different? And maybe that's a specific industry that you're focused on and you have experience in that. The back, you know, in the past maybe it's the way you're thinking about different things and how you align with them as a business, whatever it is. But like having a differentiated message is super, super important.

You mentioned that you found that just blasting a lot of businesses with emails and getting leads from that wasn't so valuable as other types of leads. Have you found a sales approach that is more effective or a way that you connect with more higher quality leads other than using these sort of outreach tools?

Yeah, I mean like look, we still use them and we still will use them just to manage the Process as well. And just to be clear, we do now that our, let's say mass outreach is fairly automated. So we do a huge amount of outreach, but we just don't really focus on spending a lot of that, a lot of time with it. We try to make it as efficient as possible. But what we do then and what we, you know, this is something we're pushing on more now is yeah, really thinking about what is unique about us as searchers relative to other searchers. Like what, what would we be good at, particularly good at? What are we particularly interested in? When we think about the sellers that have been attracted to us or that we've advanced with, why have they advanced with us? What's, what have the, what has it that's really clicked with them and us. And so kind of trying to identify those things and then digging into, okay, what industries and what kind of sub industries align with that message, align with our interests, align with, and then go really deep into those and contact all kinds of different companies and also think creatively about maybe how we get to an end result. I think just being the traditional search fund person that's like, yeah, I'm going to acquire a 4 million or 3 million dollar EBITDA business and you know, it needs to be 20, it needs to be like perfect on the checklist of all these characteristics. Yeah, it's pretty difficult. Right. So I think also thinking a bit more creatively, maybe acquiring smaller and growing, you know, maybe role, you know, acquiring a few businesses together or yeah, just being open minded to how to approach it. But find that area that you really like, that you really identify with, that's unique and then really pushing on that.

Yeah. From your website you've seen like a very mission driven organization. I was wondering if there's a specific mission or characteristic that you want the business that you acquired to have or how you'd like to run it. All three after you take over.

Yeah. And that is definitely part of how we, when we identify with potential vendors and part of the reason that we're doing this. I mean I should have maybe also mentioned that up front in that like part of the reason we're doing this is certainly to feel like, okay, we want to do something that we think has, you know, going to work every day and just doing, you know, if we want to just make as much money as possible, probably could have, should have kept my job in private equity or McKinsey or whatever. Right. You know, so doing something that we think that really also has value, that we're Motivated, Like I think both Camilla and I feel like we're motivated by not just work and achievement, but also by having positive impact and doing something that we think that has meaning and we see that meaning in other people's lives. So not just for us, but when we have a business, we would want other people that are aligned with that, that we feel like have that intrinsic motivation about doing something that has a positive impact. So that is for us, our part of our focus. And when we think of areas that we're focused on, yeah, that is very much kind of how we think about it. So for example, one of the areas we did spend quite a lot of time in like autism therapy, ABA therapy and looking at clinics that. And there's been a number of successful search fund acquisitions and businesses built in that area. So it's combining that doing something that we think has purpose and has a positive impact with also using our background and skills to grow great business. Right. So that is one of the ways. Yeah, we definitely feel like we maybe, you know, a bit different than some searchers, but also how we feel like what when sellers really engage with us, it's more because of identifying with that message than necessarily were we just happened to message them on the day they were thinking about selling their business. Right, sure.

No, that's really cool. And yeah, I mean ABA therapy I think is definitely a growing industry too, so fits that part of it too, I guess. One last question related to the surging process. You mentioned that there's a lot more competition right now in terms of acquiring a business. Is that due to surge funds becoming more popular or is it due to private equity reaching lower into the market? In terms of the deal size, I.

Think a combination of a lot of things. So I think there's just tons of money out there. And I mean even within Canada, I feel like you just take a look at private equity, Calgary, Google that and you'll probably come up with like six small private equity shops that you've never heard of or you never knew of that like popped up in the last two years or something like just people that have made money and now looking to invest in private equity. So I think there's just a lot more of this kind of lower, lower market, lower mid market. It's private equity, it's just private individuals, it's family offices, it's other businesses now looking to say, you know, it's easier to grow by acquiring some stuff. So all of those things, I even think entrepreneurship through acquisition, self funded search, or just call it some Random, you know, some person who just like there's just more information about this these days. So any. You know, I also hear from brokers, it's people reaching out to them all the time. It's just like this person really actually doesn't have the background to necessarily do this. But I just think that there's just a, there's just a lot more folks on it. The other thing is I do think like people get, because of the marketing, because of digital marketing tools out there these days. Also brokers and, I don't know, law firms and people doing quality of earnings or valuation. Like businesses are getting bombarded with all of these kind of messages and they, and they all start to kind of look similar enough that lots of times sometimes we get messages back from people like, oh no, I'm not interested in getting evaluation or I'm not like, I'm not looking just for a broker. Like they just get so many messages about this kind of stuff. They don't even read your message to see that like you're actually looking to buy the business. So anyway, I think there's just there and then search funds, like the search funds have become more popular and how many operating search funds are there in North America? And I mean I know both, both self funded and traditional search funds, there are tons. And all of these people are blasting messages. So yeah, it doesn't take that long for people to start getting a lot in there, a lot of outreach. So sure.

Really interesting. Really helpful for anyone considering the path, I guess. Yeah. One final question. So you and Camilla have two children also. So how has that been raising kids while running a search fund?

It's good because they're like our free interns. So. Yeah, no, it's great. I mean our kids are young, they're five and three, so it's pretty standard. I mean it's nice in the sense that, I mean we work from home. We were going to get an office when we started, but then with COVID just continuing to extend and we set up stuff at home. So. So it's. In all honesty, it's nice. You know, we have the flexibility that if kids or whatever, you know, you just schedule your day and you schedule everything around it. I would say it's. Yeah. And maybe that partly went into the reason for us of doing a traditional fund where we're being compensated while we search for both of us for, you know, for no one to be receiving comp when we have kids and stuff. Yeah, you know, some added kind of risk factor. But yeah, it's all good. I think the kids get a sense of also the ups and downs of the search life and when we lose opportunities, maybe they also hear it in our voice when we're a little bit down. But it's good. Yeah.

Well, yeah. Thank you, Dustin. This is super, really interesting and really, really helpful. So I really appreciate you taking the time out of your day to share your knowledge with us.

Of course, More than happy to. Thanks a lot, Nick.