Episode 12 - Jose Moreno, AIJ Holdings

If we are not able to help you to develop in any ways, even not through us, but through our over 130 partners or for somebody who is related to us, we're simply a bank, a money provider and if I have to look at risk adjusted profile of an investment, Citroen is great but it's illiquid. I would rather get a high yield account or invest in venture debt with 16 17% return in some prominent cash generating late stage startups.

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?

Welcome to Search Funded the Entrepreneurship Through Acquisition Podcast I'm here today with Jose Moreno, Managing Partner at AIJ Global Holdings. AIJ is an international investment firm with interests across multiple asset classes including private equity, venture capital and surge funds. I guess my first question would be, since it seems that you're a little bit different from a lot of the search fund investors we talked to, I was wondering if you could just give a little bit of a background on how you became interested in entrepreneurship through acquisition and search funds and where that came from. Were there any prior life experiences or where did you come to have this interest in ETA and decide that it was an asset class that you wanted to invest in?

Nick, thank you for having me today. It's a pleasure to be here with you and with all your audience. We started AIJ while I was starting at ISC Business School, my MBA there I met one of my partners and I was trying to pitch him an idea of a startup which actually failed. Like nine out of ten. I think I did three or four startups, they all failed. And in that process we learn about the model search funds and then we realize it's kind of broader and there's other concepts such as ETA that it could be an interesting idea to pursue, try to do a bit of search funds, self funded and so on. And in the process we realize we can also use our knowledge, our expertise, running businesses, optimizing business processes in it, which is part of my background. My partners are more in real estate development. So we realized basically that we can also invest and we can use all this experience to help others. And at the end we started as a company in which I was empowered by my partners to run the show. While my role is to make good decisions and empower others to run and build great ventures. That's how we started six and a.

Half years ago how has the experience been since then? Are there any particular investments that you're most excited about or ones that stood out most to you?

Well, so far overall you have your ups and down, but if I check our numbers, they are all doing above average. I would say they're all doing great. And any specific investments, I think they're all good in their own ways. We have seen great development with some CEOs running companies even though their numbers are simply okay to some standards, for us it's a long term game. So as long as people learn, they will do better. While others, they are being more efficient using their time and their resources and they're being skillful, let's say, and resourceful in order to grow companies faster. So they are doing amazingly great. We have Companies with returns of 5x in less than 3 years based on low hanging fruit and I'm just talking about search and so if we go to DC and other things that are not included in part of this podcast, we have better returns. So. But at the end it's a long term game for us.

Definitely. Yeah, I think that that's definitely the approach to Surge is that it's not just a quick turnaround, it's something that you buy and hold for the long term and that's where the real rewards start coming in. With the compounding of that, what would you say differentiates AIJ from other search fund investors? I noticed you have a lot of international investments. Is your thesis different in any way or your approach different from other search fund investors?

Well, I need to go back to our questions from where we come from. We come from an idea between two friends who met at an MBA and thought this could be a great way to keep working with amazing people from all over. It's not only about searchers or entrepreneurs through acquisitions or any other way of entrepreneurship, but also investors. So for us, we put people first. We look for people who are, I would say, great, which even though it's a bit shallow word, we look for people we like to work with. We enjoy interacting and discussing business and other topics. Then we look for people who are honest and we can trust them. And then people who are resilient and capable. Because capability could be many things, could be critical thinking, it could be whatever you imagine. But at the end people always say like analytical skills and so on, you need certain skills for true, but all of them can be learned in the process. And analytical skills in engineering is not the same as finance. You need to learn how to be skillful in analytics, in any of these fields. So how we differentiate ourselves, we put people first. We look for people that are decent, that are honest, that are hard workers and they want to really run and believe they can build a great venture through the search fund on any other entrepreneurship path. At the end, it's a personal journey and we're here to support you. Of course we need to make money and returns are important, but we believe it's a consequence of doing a great job with you in any way you allow us to. To help you.

Sure. And since you place such an importance on people, it seems like that's pretty much what you're looking for when you invest in a search. I was wondering, how do you suss out whether someone has those characteristics you're looking for, such as being analytical and honest and all of that. How can you uncover that just through an interview?

At the moment we have two interviews. They are, I think it's called double blinded interviews. So our principal and myself, we do independent interviews and then we compare notes and then I make a decision whether it makes sense or not to me invest in a person. So that's how we assess different attitudes, skills and so on. Of course it's not a perfect method, but at least what we are trying to understand is first, whether we can work with you. Second, does it make sense to give you a chance, let's see, in the next 12 to 24 months if it makes sense to continue working and partnering, an acquisition or in something else. Those are the things we look at the moment. It's not perfect, but we need to trust that people have done their homework. Of course we have cases, they have not done much or they want to simply have an informational interview. We simply have people who just want to fill in. They're capable to oversubscribe for simply sake of, you know, I overachieve. So I focus more on people. Our principal focus more on the analytical and hardcore skills about industry analysis, market analysis, macro trends, how do you structure your deal, your financial model? Well, I'm just trying to understand who you are. How do you decide to go through a search form path plus your MBA after some years out? How do you get that idea? It's not only how you learn about it. Sometimes it goes way back in your personal story. And your history as an individual could come from your parents who are entrepreneurs, your brothers are entrepreneurs, your uncles are entrepreneurs. You go to an exciting boss, a very exceptional person who was an entrepreneur and you saw them as a role model, model in some degrees. And entrepreneur does not mean necessarily starting A business, running a business, or let's say unicorn, a big thing. It could be as simple as a side business that you saw in your family some years ago and your parents probably still running it.

Sure, it makes sense. I think having a story that actually makes sense is a great thing to have. And then the beauty of Search fund is that you have your couple years to evaluate the person, see if they are.

Yeah. And even if you go and check your extracurricular activities, volunteering, sports and so on, it's also some kind of entrepreneurial venture. You're using certain resources and try to achieve something out of your control with those resources and that influence. So even if you think you are not an entrepreneur because you have not done a startup, you have not started a business with friends or by yourself, most likely if you check your experience, you can see you have some entrepreneurial threat or characteristics. When you see your career, what you have done in terms of volunteering and sports and any other extracurricular activities. This could be as simple as fundraising. In order to be able to perform, perform a play or to have materials to buy custom for a school play because you didn't have enough money, you want to play specific one, let's call it Cinderella or, or Cats or things like that. That's also a way to show entrepreneurship.

Definitely.

Yeah.

I think that a lot of, especially people who maybe earlier on in their careers, that's a way to find their entrepreneurial spirit. Myself in college was through volunteer groups when we had to fundraise. That was an example of me realizing before I even had a career that I really enjoy doing things like sales. So I think that's a great way for people to. Even if they feel they don't have entrepreneurial background, they, they can probably find something if they look back and say that points me to wanting to do this. I guess to the second part of what you had mentioned, your partner maybe focuses a bit more on which is industry fit or market fit. I've noticed that you guys have invested in searchers pretty much all over the world and some really remote places. So I was wondering, given that your investments are so widespread, how do you determine whether a searcher is a fit for his or her market? If it's a market that you haven't yourself interacted with in the past?

Well, it's more like a gut feeling just because I don't know what we're facing. I've lived in 11 country 13 cities in all my life and still I'm trying to figure out where to go Next. So I'm very open minded about what could be a place to move to do business and so on. And the same approach I do there I do when I see a person. We follow the same criteria of any other existing market. Perhaps in the macro the hard skills were a bit more open just because we don't know the market and we see if we like the person, if we see a good track record, if we see good stuff during the interviews and this person manages to have a good group of local investors, one or two that they could help them in the local language in the same time zone and just go through the specifics like how to do business locally. We're happy to support. It's about opening a new market and when you are the first person in that country, there is no rule, a playbook, there's no boilerplate. Maybe on the legal side, some us, Delaware or UK limited companies for your legal structure if you complete your fundraise. But besides that, when you are in the ground, we don't know. We just want to make sure that you did your homework and you understand how sanctions could work in different markets. So we hope that in those 20, 30 or 50 calls that many investors tell you to do, 20 could be better than 50. If they have their. They could a good quality just speak with people from different geographies. We have been the first investors in many markets. We're still one of the first ones. In many others, many cases we are part of that. Other cases they get apparently better investors, but that's a different story. But we support anyone who have the courage to be the first.

Sure. And I think that's really impressive. I also noticed that on our first call you're very personable guy, you're great at building relationships. I was wondering if that's a skill that's been developed as an investor or how you've honed that skill. And more specifically, given that your searchers are all across the world on different continents, how do you take the time to build relationships with the different searchers that you're working with?

Well, I've been trying to bisc everyone since day one. Of course, between growing our business, other commitments and then in between we had Covid that stopped a lot of things for a couple of years. I tried to keep it as close as possible and I'm still trying to catch up with each one of our investment partners in terms of meeting them in person, outside conferences. Conferences are great to meet a lot of people, but if you want to build a relationship, I think the Best approach is to visit them, spend some time spending with them in their countries, in their cities, in their companies still have a lot of visits to do, a lot of dinners to pay. But at the end it's about trying to understand who is the person or the team that is running the company or who is our operating partner in a search for venture. And the only way to do it is to visit them, have lunch, meet them somewhere around the globe, party with them. That's the way to do it. Of course we also play organized golf tournaments and other things every now and then depending where we are. We try to invite people who are close by hard to coordinate, it's time consuming and I'm still trying to do my best but as well I also have my life and I try to balance that and I think I spend more time in airports and going around another way around. Of course everyone is welcome to blessed me in Barcelona, Dubai or elsewhere. I am I should probably make a calendar of my trips every now and then but more or less idea is that I can give you a quick example. Last week I was in Brazil. I attended a board one of our companies, its name is Azure. They do insuretech software for broker insurance brokers in Brazil, the other leaders there and in this on that trip we also have a small happy hour in Sao Paulo and I also have some lunch and dinners and drinks with some of our investment partners over there, searchers, operators, all of them. Everyone was welcome. Of course some people couldn't make it so maybe I have to go back and repeat the happy hour or just have dinners with them.

Yeah, definitely would use any excuse to go to Brazil.

Oh yeah, and we also had our fifth year anniversary last year in Turkey Natalia. We invited everyone. We have over 40 search form partners, operators, searchers and some of our founders from startup founders coming. We have close to 90 people including their partners, spouses and kids. So we spent five days celebrating that and also it was a great networking event. Probably some of your the people who have listened this they were there and they can share more details about five days at the beach interacting with and talking about business with other people in the same mood.

That sounds great. That's awesome. So yeah, I guess maybe switching gears a little bit, I was wondering if you could talk about some of the biggest learnings or challenges that you've had to overcome since founding AIJ and what was most unexpected for you once you started investing in search funds?

There are a couple. One of them is we need to be patient. One thing we didn't expect is that people could make different type of mistakes and let's say the antidote or the way to solve it could take much longer than expected. So original idea based on the primer and all the research, the company could be exited or let's say recap in five to seven years, no longer there, especially international markets. Covid changed a lot of perspective. The war in Ukraine and other geopolitical events also changed the timings and so on. So one of the things we learned is that we need to be more patient. Second one is a personal learning. We are here to help you, but you need to ask for help. I personally give you a lot of access to myself. Whatever you need, I try to answer in 24 hours. Even if I have an out of office until the end of the month, I still answer two critical things, business things. Of course if you are asking to fundraise or your ppm, that can wait. But critical things, I'm there. You have my WhatsApp, you have my number, you have all my team's numbers. So we're here for you. But you need to ask and I believe that sometimes if you ask back, people are happy to talk to you, not necessarily fully open and believe that you can help because they first need to realize they need help. That's something I feel is very important. But in other cases, I know some investors like to just have a catch up call for the sake of having that could make sense or not. But I believe that especially in the search phase, you are building certain capabilities. It's your venture. We're here to support you. We can answer questions. What is your project for you is one or two years of your life. For me is one option and I'm here to make sure you succeed and buy a company and grow it. And of course if it doesn't work, you have other alternatives and we also have other options. And if the relationship is good, I'm happy to invest in your next venture. We are happy to do that. We're here to support you in the long run and search one is the path you decided and we believe you are a good person. And if you want to pursue it and you've managed to get certain number of investors complete your fundraising, let's do that way. Otherwise we're open to other ideas. All right. Some challenges. Well, trust and honesty sometimes is hard to measure and we have had situations where I think trust, honesty and transparent communication were not present and we had very bad experience with few people. But still we try to keep it the way of Having an open, constant, transparent, honest, all these kind of things. Communication. We're humans and the best way to solve problems is to be upfront about these things. Irrespective of what you believe, I will always tell you what things happen. It doesn't mean that people will understand, which is okay, or people will do the same towards you. So it's asymmetric communication in many ways. That's one challenge. Second challenge, really like going again with trust, is trust and verify. We have a case of a searcher who oversold a cap table with some of the what people call the big names, which is basically some of the names you can find in the primer or in many of the events or people talk more often than our name. And when I asked this person, hey, do you have a hard commitment on all of them? He said yes, openly. And then when I just make some calls, guess what happened? Nobody was there. Third, trust the numbers. It's all about trust at the end for us. Like the biggest challenge is what to trust, how to better understand things. Because at the end one thing I tell people is first I need to trust you. And then I focus on challenging some of your assumption, not trusting whether you did a good job or not. Because one thing is if you did or not a good job based on the fact that you may be lying to me rather than you didn't know. So the challenges is all around that, how we interact with people and we understand we are not the right investor for a lot of people because we are not about transactions, we are not about 200% IRR. I'm happy that you have 50 or 60. I trust we can have another project that will make 100 or 200 and well, you may owe me 140 from the first, but that's a different story.

Sure. I think it's good just to have some key values to operate around and communication, trust, verifying that you should trust. Those are all.

Yeah. And also be a hard worker. It doesn't mean you have to work 19 hours per week like a banker. Sometimes being a hard worker means that you are there for your team and you delegate and you help them and empower them as well. Because a lot of the hard work I do is managing people. Because we're in the business of dealing with people and as we you go into the corporate ladder, they say you go higher. Most of the problems I hear from our co operating partners, our searchers or founders are around people, their own problems or the problems of their teams or the problems they have with the Seller, it's not the quality of the data of the seller is that the seller is not sending the information the way they were requested or they don't know how to communicate with the seller of the broker. So most of the issues like 60, 70% are around those miscommunication among people. The other part is kind of easy if we are aligned. But at the end we come from different cultures and we see it a lot in our international transactions and it takes a bit more or it takes an extra mile to put it in simple terms that we all understand.

Yeah, that makes a lot of sense I think. I mean search itself and small business ownership really mostly just comes down to people skills. So that's huge. Given that so many of your investments are the first in their country, I was wondering if they're are common issues you run into for searchers who are first in their country and if there's anything you've learned from that that you have any sort of a playbook now to help them hit the ground running. Because I mean, I guess in the U.S. for example, there's a pretty clear playbook of how to operate a search because there's so many people who've done it. But if you're the first in let's say an Asian or African country that hasn't done search fund entrepreneurship in the past, what are the challenges that searchers typically face as a first time searcher and what do you do to help them overcome those challenges?

Well, it's not only the first, probably up to the fifth, sixth, 10 face similar challenges because at the end searching is very old in the us, maybe a bit older in Mexico, UK and continental Europe. It's just kind of new in the rest of the world when you're the first, well, it's like the wild wild west first because people ask you what a search for this. Unless they went to the US to a top business school or they went to Europe to a top business school, maybe now in Asia a bit, or perhaps Australia. They may not know what is that. They will hear that you are just an entrepreneur, probably like a startup guy doing something that is even more disruptive, innovative, really scared than whatever people have heard so far. So they may not trust you and they may not believe you are serious first. That's the first thing. Then if you try to position yourself as a private equity, yeah, you have a small issue. You are not a GP and you don't have committed funds in the way that people expect. So it's about selling yourself and assuming you finish Your fundraising efforts. Because at the end, if you did it, you still have. The first part is convince local investor, which is part of the chicken and egg problem you have. Like international investors want to see local, local when they understand a bit search funds or if they learn about it in this school, they want to see international big names and so on. So you need to start educating people and it becomes a process of education for all the country to the chambers of commerce, to the brokers and so on. Maybe some international brokerage networks, they may have some information about search funds. So they may be some kind of familiar. But if they don't see the opportunity, if you don't find the right person who is looking for that opportunity in that brokerage firm or any other professional services, it will be hard for you. And the issue is some of these guys see an opportunity, but they want to buy mandate, they want to have a retainer, they want to do a lot of things like you're a private equity or they believe like I better just have some money now and well, if it works, amazing anyway, I'm going to have something. And that's not the idea because at the end that's part of your job as a searcher. So the challenges is about basically building awareness and convince people to believe in you, to believe you're a serious player, that you are backed by serious investors and so on. And most likely local investors should be there to help you. Of course I can go and show up. Any other global investor or international investor can show up. But unless we are from that country or we have some kind of reference that we can make a connection to the other person that country. For example, I've done business in, let's say Mexico, in Chile, in the UAE or in China and say like I, you know, I know this guy and so on. Most likely that's the only way to connect. But if you are, oh yeah, I'm Jose, I'm from AIJ Holdings. So I am from this fund. It's not kkr, it's not cbc. Even CBC may not be known, KKR may not be known by these people in the SMB. But it's a matter that you need to connect with people through something that sounds relevant and probably showed your credentials because you need they do a deep due diligence on you as you do a due diligence to them. What you mean the same what you do when you're searching. So we can go with you, but it's better if you have a local investors who you convince. I can help you to convince local investors. Most likely local investor will able to help you to convince a broker, a bank, a business owner that this could be a great project for them.

Definitely. Is that pretty much required for you that the searches will also have international investors than if or local investors rather.

In the countries I like to see a diverse group of people with different skills, different mentality or different so on because when it's homogeneous it become a problem. I have cases where I've been the only international investor and it's boring because I really hate when people say like this is the way we do it here. When I ask a question, let's try to review it. And so no, this is the way we do it here because we are in this countries like hey guys, sorry. So we need to balance that. And also in certain countries they have certain ways of wanting some deals, some industries, some sizes. And we're here to support a person who wants to buy a company with certain economic characteristics and size. Well, you have a range, but it doesn't have to be the small one. So you can write the check of the size that is good for you. And for more local investors I want to write bigger checks and sometimes there is no equity gap. So having these kind of dynamics also allow us to get closer to whatever we think we want from the deal or whatever we could help the searcher to achieve.

Makes a lot of sense. Guess one final question. What is your why? Do you have a personal why or personal reason that you do what you do or guides your decision making?

My why is why I want to help this person or why I want or we want to invest in this person and it goes to the fact of how we can help you to be a better entrepreneur, better professional and a better person is possible. If we are not able to help you to develop in any ways, even not through us, but through our over 130 partners or for somebody who is related to us. We're simply a bank, a money provider and if I have to look at risk adjusted profile of an investment sidetrain is great but it's illiquid. I would rather get a high yield account or invest in venture debt with 16 17% returning some prominent cash generating late stage startups in which I know I actually have funds that give debt and I get my money from three months from now back part of it. So if it's all about money I have options but I still and we still believe that it is about supporting great people. Wanting to build amazing ventures and amazing ventures means taking them to the next level, make them more professional, more profitable, bigger, generating more employment wherever they operate, selling in new markets and so on. And if we do a great job there, if we see it in the board, if it doesn't, in whatever way you think we can help you, then we're going to get money, we're going to get the returns, we're going to get 5x20x whatever in the long run. But it's a long term game and we still need to understand why we should invest in you.

Yeah, I love it. Amazing. Thanks so much for joining Jose. I really enjoyed meeting you and I think this is a great interview and your passion for people really comes through. So once again, thank you so much for joining.

Oh, thank you Nig and see you next time.

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