Episode 20 - Kevin Bibelhausen, Fruition Capital (and Heritage Fabrics)

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 your host Nick Law and today our episode is with Kevin Bieblehausen. Kevin is a self funded searcher who acquired Heritage Fabrics, which is a fabric wholesaler based out of North Carolina and on top of running Heritage, Kevin is also the founder of Fruition Capital which invests and self funded searchers. Kevin's got to be one of the most fascinating guests that I've had on beyond his search story, which is very interesting and exciting itself. His personal journey is one of the most unique of anyone I've had on the podcast. Kevin was a music major in college. After graduating he became a musician, did that for several years, but eventually realized that he wanted to find another way that he could utilize that same creative energy but actually be able to build more wealth than musicians typically are. He came across ETA as an option, he considered it, but he first ended up going into healthcare it, working in IT at a healthcare company and unfortunately at the height of the COVID pandemic he got, Covid suffered myocarditis and was hospitalized. He came close to dying, basically had a near death experience and it was during that experience that he realized that what he wanted to do with his life was to buy and run a business and that's what he wanted to focus the rest of his time on. That's what he did after that and due to that laser focus he acquired Heritage very soon after and he's a very purpose driven guy. The reason behind his search and why he founded Fruition is because he really believes in the societal benefits as well as the individual wealth creation opportunity that comes with search. And so that's why he's been trying to spread this opportunity to as many people as possible and allow them to take the self funded search route. So this episode's a little bit different from others if you can't tell already. My audio did not get recorded for some reason when we were doing it live. And so I'm just going back and doing everything on my side myself again right now because I did think this was a very important episode that I wanted to get out. But the plus side of that is it does give me the opportunity to talk a little bit more about myself, which I haven't done a lot of on this podcast yet and just wanted to update everyone on my search journey. I also felt like it might help you to get to know the host a little bit better. I know that we have a lot of new listeners lately, and it would also be extremely valuable for me to get some of your feedback and potentially see if there are ways that we could collaborate or at least connect in a more meaningful way than we have thus far. So the reason that I originally started search funded was mostly just to network, to build some credibility, learn as much as I could, and hopefully develop relationships with investors as I prepared for my traditional search fund raise. And it definitely has been very helpful for all of those. I did get some great investors, I learned a lot, and most importantly, I really benefited by how collaborative and helpful the search fund community is. It was something that I had heard a lot coming in before I became more involved in the community. But it honestly, honestly, it's still been very humbling to see how willing and helpful so many people have been and continue to be. Even some of the most successful people in the community have been extremely generous with their time and their help. And I really do value that about this community. I hope it stays that way as it continues to grow because it has been really amazing. And I don't think I've ever been part of any other industry or business community that's like this. But I did end up getting about halfway through my raise and after that it kept dragging on and on. I got a few hard commitments, I got dozens of soft commitments. Then most of those soft commitments were dependent on getting more of the old capital, or I guess you could call them institutional investors. And I wasn't able to get enough of those while I was still trying to raise at least. And that is some advice that I would give to anyone who is trying to do their traditional raise right now is that you probably should get in as many reps as possible with the smaller, newer investors before you go after some of the bigger ones, because those big names are basically essential in getting the rest of the investors on board. And a lot of times you only get one shot to make a first impression. And honestly, almost all the investors basically ask the same types of questions. So once you've gotten some practice in with the newer investors and you know what lands and what doesn't, it's probably better at that point go after the more famous ones because the famous ones also all know each other pretty well and talk, as I found out myself. So that's my advice if you are going to raise now. But anyway, as I was raising, I was Learning more about the different models that are out there, independent sponsors, self funded, etc. And conversations like this one with Kevin really kept reinforcing it to me that self funded is a much more achievable realistic option than I had initially realized. And because of that, over the past couple of months I've shifted my focus and I've been searching full time as a self funded searcher. The major reason I made that decision is that that it actually fits what my long term goals are the best. I have always wanted to be a business owner, not an employee. My purpose in life, my why, is to be the best people manager I possibly can. And the reason for that is that I would attribute a very large portion of my growth in life to having absolutely wonderful bosses who were either mentors to me or people who just created really positive, empowering work environments that allowed me to level up really quickly in my career and become a more happy, productive, confident person and really just a more fully expressed version of myself. And I've also had the opposite of that, especially early on in my career. Some really not great bosses that I felt really set me back and also just made me miserable and had a negative impact on my self worth and identity. And because of those experiences, I feel like the greatest impact that I can make on the world is by creating that sort of a work culture that does empower people and allow them to be the best versions of themselves. And you know, I've thought about other ways I could make impact on the world. I really like yoga. I've thought about being a yoga teacher or maybe a therapist or a shaman. And all of those things are very helpful for the people who do seek them out. They have been very helpful for me. But at the end of the day, day, you spend a large portion of your day almost every day at work and it just has such a big impact on who you become as a person. And so if I can play some role in creating a better work environment for people, I think that's the impact that I want to have on the world in my life. And that's why I feel like I really need to own my own business. Because even if I were a manager in someone else's organization, there would always be the competing incentives of me wanting to be a good employee so I don't get fired, and then also at the same time trying to be a good manager for the other employees. And rather than dealing with those underlying tensions, I'd prefer just to run my own company the way that I want to. And create the sort of culture that I want to create. And I have been hearing lately that it is becoming much more common for the traditional searchers to get fired from their jobs. And to me that just seems like such a waste of time to search for a business, find it, finally start running it, and then get fired. And so that's why self funded definitely makes sense for me. That being said though, the self funded journey is a very lonely journey. I was talking to David Lovejoy over at Horizon Search about this. He's another podcast host, if you haven't heard. His podcast is kind of similar to this one, but it's a little bit more broad in topic. But I would recommend checking it out though, because he has a very funny guy and he has a lot of great guests on as well. But we were thinking that there should be a way to make the self funded model more attractive to more people. I think there definitely are still huge positives of the traditional model that does make it more attractive than the self funded for a lot of the type of people who are interested in search funds for one thing. And I think most importantly you have the mentorship of your investors, many of whom are former successful searchers themselves, especially the best investors I would say that they are. And then you also have easier access to growth capital and you're usually going out and buying a larger company, which does allow you to be more strategic the beginning. And rather than working in the business, you're working on it as they say. But at least when it comes to that mentorship piece of it, I think that there are things that we could do to bring that same level of support to the self funded that isn't so widely accessible these days. And one of those is that we were thinking of creating a mastermind group that would meet bi weekly or monthly, be groups of five to eight searchers in each group. Each group would be led by someone who is a bit more experienced, someone who had at least successfully searched and exited. And that way it would be a space for people just to meet on a regular basis, see what other people are seeing, bounce ideas off of each other and more than anything just feel supported and know know that there are other people that are working on the same thing that you are. Because I think for a lot of us, our family and our friends might not fully get it, especially if our friends didn't go to business school. And without that legitimacy of the two year salary it just makes it even harder. So this would be an attempt to solve for that and the groups would be thoughtfully put together. It would be people who are at the same stage of their search. There'd be one group for those who are still searching, one for those who are operating, and one for surgeries who are getting closer to their exit. And we would also ensure that it would not be competitive in any way. We would have a selection process that would select four values and culture fit and we'd make sure that each group would have people from different end industries and different geographies just to make sure that everyone could feel as open and vulnerable as they want to be about what they're seeing and what they're doing in the search. And there would be NDAs and everything as well. But finally I know that almost everyone does have zoom fatigue at this point. I think we're all kind of tired of being behind computer screens. So if this doesn't sound attractive to you yet, we definitely will make sure that at the very least there's an in person component to it. And I think most likely that will come in the form of a one or two day retreat where we would bring in a lot of the types of guests that have been on this podcast, along with other industry experts to work one on one with each searcher and help them level up in all aspects of their business and personal leadership journeys just to try to drive as much value as we can in those two days. So if any of this does sound interesting, do you please feel free to reach out to me on LinkedIn. My name there is Nicholas Lal. I don't think there are too many of us on there. I'm pretty sure I'm the only one that's in New York, so feel free to add me as a friend. Send me a message, tell me if this is something that you might be interested in or if you think there are ways that it can be improved upon. Because we are definitely going to launch by the end of this year, but we are also still in somewhat early planning stages right now, so there's always room for product improvement and would love to get any feedback you have. And even if you're not interested in anything I just said, still do feel free to reach out because I would love any feedback you have on the podcast. It's always good just to connect and get to know anyone who is listening. But without further ado, I'll get to this episode with Kevin. I hope that you enjoy it because I know that I really did.

Yeah, well Nick, happy to be with you. I've often looked back at this whole industry. If you want to call ETA or self funded. An industry I really got interested in 2018. I think I heard a podcast first mentioned it. I think it was the HBR ideacast and fell in love with the idea, read the book and just like attached myself to the story of a guy who bought a porta potty business. And that's what I had to do. That was the coolest thing. I don't feel like I'm a tech entrepreneur. Like I didn't want to go out and raise VC money, I didn't know how to raise VC money. I didn't think I was qualified, I'm probably not qualified. And entrepreneurship in general just seemed very unattainable for me because we tend to think of entrepreneurship as, you know, the big sexy unicorn type companies and, you know, you and a couple developers creating some dating app or. And then when I figured out that, you know, small businesses could be bought and sold kind of was a game changer, I realized that's kind of a silly statement to make. But, you know, I grew up in a neighborhood where there was a lot of small business owners. You know, this guy owned an asphalt company, this guy owned a construction company. But I mean, I didn't know what investment banker was until probably about 2016, 2017. I thought that businesses were either started or they were passed down generation to generation. You know, it never really occurred to me that they could be bought and sold. And so once I figured out that that was possible, I kind of unlocked the whole part of my brain and a whole desire to kind of get into this game. So. So I, I found out about it in 2018. I tried to acquire a business, small business. It was probably about a $600,000 transaction, something like that, and got through the whole process, was basically at the altar, ready to get married and deal fell apart at the last minute because the bank came back to me and said, actually, I'm going to need you to double your equity injection. And I said, well, I've already put every nickel I have into this, so I'm all tapped out. I don't have any more money. So knocked on a couple doors, didn't really know what I was doing. I found a couple, like investment banks locally, but it just didn't pan out. So I killed the deal, walked away, kind of licked my wounds and went back to my corporate job and, you know, did the whole career ladder thing. Tried to move up was I started in project management on the IT side and then I eventually got into board of mounts to be the deputy cio, chief information officer for a large public health system. So, like, I was making steady career progress, but, you know, I wanted to do more. I couldn't go as fast as I wanted. I. You know, you kind of hit that ceiling in your career, or you feel like you hit a ceiling in your career. And Covid happened. So, like I said, I was working at a. At a hospital system, the busiest emergency department in the country, and I was in the technology sector. So what happened during COVID was technology became critical, and Covid was the biggest driver of digital transformation in the healthcare industry that we've ever seen. And so we were very busy and very burnt out by the end of it. And through that whole thing, I also, I got Covid myself, and it impacted my heart. The long story short on that is they basically told me I would need a transplant. Fortunately, I was able to. To get off the list and recover with so, like, IV medication over a full year. I had an home health nurse and all that, and then I had oral medication, but eventually was able to kind of get back to normal. And through that whole process, it was very clarifying experience to realize how fragile life is, how short life is, and. And, you know, desire to take more risk to get to the things that I actually wanted to do. Like, I had a renewed passion to, like, yeah, I do want to work for myself and I do want to go buy a business, and I don't really care what industry it's in. I just want to be in the game. Like, I will love anything that I buy. You know, that's. That's what I knew, you know, and I didn't matter. I just wanted to. I wanted to lead a team, manage a team, own the business and grow it. And so I kicked off. I both applied for the Duke MBA program from the hospital and started also looking at deals while I was in the hospital. And in January 22nd, I fully kicked off my search. And by the next year, so, well, the goal that I laid out was, I'm closing before the end of the year. I'm buying a business in 2022, and I missed it by two weeks. We ended up closing January 13th, Friday the 13th, actually, 2023. So, you know, I missed it by a little bit, but I guess I give myself an A minus there. But that's kind of the whole genesis of how I ended up talking to you is a passion to do this for the last, you know, five or six years or finally getting. Getting something across the finish line in a way that I just didn't even know was possible.

That's really incredible. Congrats on closing so quickly. And I think it's clear that you are doing what you're meant to be doing in life when you've had that life or death experience and you just.

Knew that that was what you wanted.

To focus your time on. And that's probably part of the reason that you were so successful. But I was curious if there is any one activity or thing that you did that you would attribute such a fast closing to. If a self funded searcher came to you today and said, hey, I have six months or every year and I really need to get this done as quickly as possible, what sort of advice would you give?

Boy, that's a loaded question. And I'll give you a very honest answer about what I believe because I've considered doing traditional search. I kind of kick the tires. And here's the thing. I think any self funded searcher or anybody that's interested in this path has to have almost an unhealthy passion, level of grit, level of determination, level of belief in themselves that they can do something that is incredibly difficult. Like it's very difficult to find a deal, very difficult to get it under loi and it's even more difficult to get it from LOI to close. So the reason I think it was shorter, number one, traditional searchers have a salary. You know, like there is no real pressure. I put the pressure on myself to say I'm buying before the end of the year, that is what is going to happen. And I was funding myself. Like I, a lot of these, a lot of people, even for self funded, like they'll, they'll take savings. Like I know a couple people who worked at like big firms, like they worked at McKinsey or they worked at investment banking, PE or whatever and they've got a nest egg kind of that they saved up and they can draw on those savings and search full time. I didn't have that. Like I had a, I had a pretty large mortgage and I needed to keep my bills paid. So I consulted, I worked while I was searching. I did a lot of search on the nights and weekends and I worked remotely, which I definitely took advantage of. I was not the best employee while I was searching. I've said that multiple times. I'm not necessarily proud of the level of employee I was. But you know what, it worked and so I can't really fault it. So there's the fact that there isn't a safety net and you really gotta show up and grind. If you Want to get it done from being self funded, not have the comfort of a funded salary. And also like the most simple solution is are you looking at proprietary deals? You're looking at broker deals. Because most traditional searchers are only looking at proprietary deals. Meaning they got to go through all the sourcing efforts of reaching out to business owners and getting, getting business owners from cold to I'm ready to sell or I'm interested in selling. Whereas if you go brokered, they've already skipped that step, or they've not skipped it, but they've already gone through that step. That's the broker's job, right? Is to find these people, get them to the point where they're ready to sell, package up the materials, go out to the open market. So I was only looking at broker deals. I had a timeline and I knew I didn't have the ability to basically wait around for these relationships to develop naturally that need to happen. If you do proprietary search, it just takes longer because of course it does. You have to build that relationship and get the seller to a point where the potential seller to the point where you know they're ready for, they're ready. And there's just a much higher risk of deals failing that way because you don't have an intermediate area, you don't have somebody trying to talk them off the edge. So I think those are two really simple things like self funded, you're on your own dime and time is not your friend and so you better hustle. And also just the, where you source the deals from if you want to move faster. Look at broker deals. I know there's all kinds of, you know, oh, everybody thinks the broker deals are picked over. Well, anything you buy is going to have hair on it. Just because somebody passed on it doesn't mean it's not a good deal for you. It doesn't fit their buy box. So I don't necessarily agree with all the negatives around brokerage search. I think for the vast majority of.

People that's the way to go for sure. I think in the traditional search it may make sense to do proprietary, but otherwise it's really way too time intensive. I mean you gotta first of all convince someone to sell their business and they gotta get all their ducks in a row, talk to their accountant and their ideas for valuation are probably gonna be way too high. And so it's possible if you have two years, but otherwise it's probably not worth wasting that much time. So, so as much as people discourage the broker searches, I think if you're doing self funded. That is the way to go about it. That being said though, I'd love to learn a little bit more about your search process and if there's anything that you would have done differently if you could go back in time, like when you invest in a self funded search in a day, what would you tell them? How do you avoid broken deals? What are some of the mistakes that you made that you would tell people not to do if they were going to do a self funded search today?

Oh yeah, I was completely green. I knew I wanted to do it, but I didn't really know what I was looking for or really how to look or how to qualify a deal quickly. I mean, I remember one of the first sims I looked at I sent to somebody that I thought I could get excited about it and they're like, dude, this business has negative net income. This isn't going to fly. Oh yeah, good point. You know, just because I like the business, you know, it's probably not going to be able to get an SBA loan on that, you know, bit of a different transaction. So you know, it's, it's a, it's trial and error and you got to be comfortable making mistakes and looking like an idiot and getting out there. Yeah, I mean as far as the lessons learned and I think some of the best searchers I see right now, and I mean I didn't do this, but this is sort of best practices that I feel like have been developed over the last couple years. It did have metrics like you should be targeting like, okay, so I want to submit one loi a month. Is it going to be on the very best business that you can. No, but it gets you in the habit of churning those, Lois, and just getting at bats, just trying to take hits, you know, and eventually one of them is going to connect. And it may be the deal you close on, it may not be. But guess what, you're going to learn something in that process. You're going to learn how to negotiate with the brokerage, go back and forth. You're going to know what, you're going to understand more about the process. If you view it as kind of, you know, for lack of a better word, academic. You can learn something through this whole process and just continually get better until you finally get the deal that you're actually going to close on, that all the stars kind of align and, and you're able to get through the whole process. So I mean, I submitted two or three LOIs in 2022 before I was able to get heritage really through the first couple hurdles. And those hurdles are basically can you get a loan on it? And then a quality of earnings study. So do the numbers flush out? Does this business actually make what they say it makes? And most of the deals that fell apart for me had something to do with the initial financing, had to do with the debt either. It was, one was just the economics didn't quite work out. I needed to raise more capital than I wanted to. And the other one, the add backs weren't able to be documented. And so, and that was like, you know, the majority of the sde, you know, and it just, it just didn't pencil without those add backs. And there was a lot of personal expenses that were commingled kind of messy. Those are the two I remember. But I think there was a third one in there. But yeah, it usually falls apart in the beginning due to not being able to get debt.

So I was wondering if you could talk a little bit about how you financed your acquisition, how you got the investors and then secondly, what do you look for when you invest in search now? Because you are not only a search fund entrepreneur running a business, you're also investing in searchers.

I'll answer the second question first because it's, it really is just like, I know it sounds cliche, but it's, it's great, man. It's. How bad do you want this? How many phone calls are you going to make? How many emails are you going to send? The capital is out there. And I, and I as somebody coming into this, I don't come from money. Like I don't, I don't have a high net worth network. I mean I do more now, but I've been doing this for a couple years. Right. But like all the people on my cap table I didn't have relationships with, they're all, they were all investors first. They're friends now, but they weren't then. And so I got a couple referrals from people that sort of mentors in this space. I was DMing people on Twitter. I have, I built most of my cap table through connections I made off of Twitter. And I had like 300 followers. You know, like, like you just, the money, the money is out there. You just kind of have to keep being diligent and looking for it. So like, and I, I at one point I remember posting like, I will crawl over broken glass to get this deal done and return capital for investors. Like that's how strongly I felt about it. So persistence is really, is really the thing, it's the really the secret ingredient. And as to. As when did I start the process? I started the process too late. Why? Because I, I initially partnered with one of these firms that promises like, oh, well, this is the raise done for you, and we're going to do, you know what, basically you give us equity, and we'll do the whole raise and it'll be great. And I, you know, as somebody who. I came from operations, right, And I said before, you know, I came into healthcare and technology and it, and I didn't know how to raise money, and so I thought that was a great idea. And so I signed contracts to work with them. And three days before I signed MyHeritage Loi, which they knew about because we had been talking about it, they called me and said, yeah, you know what? We're just super busy. So anyway, good luck to you. So we're going to tear up these contracts. And so where most people like the advice that I give and, you know, the most successful searchers have, is to start building those investor relationships early. I didn't do that because I didn't, quote, unquote, have to. I thought it was done, you know, so I was starting basically right before the loi and like, when do I start reaching out to these people? Okay, so basically a few conversations, and they're like, get your quality of earnings and then just hit it hard. Okay? So I got to that point, get to the quality of earnings. I had a couple names that I was working with, and then I just had to go start recruiting my own investors and putting my name out there. And that's why I've been so bullish on social media, because of the power that, that, I mean, just the limited reach that I had with 300 followers, you know, and just talking about what I was doing and talking about the deal led me to be able to raise $800,000 in five weeks. I raised 800,000. Again, no experience. And I did it between Thanksgiving and Christmas of 2022, which is freaking insane. Like, it just like, all the things that, you know, I made it incredibly difficult on myself. And you don't have to. You don't have to make it that difficult. You don't get, like, extra points for difficulty. There's no such thing as style points. So that was one of the reasons that, you know, we can talk about fruition capital here in a minute. But, like, the experience that I had in going out to my minimum check size is $50,000, and I had to raise 800, so you know, a couple back of the envelope math. My cap table is pretty large. My cap table is over 10 people. It's a lot of people for a search deal. I love them all, they're great. But it would be really nice if you were able to have a tighter cap table. And so for fruition we thought that, you know, it was me and a couple, couple partners and we were like, this fund model works better for an equity raise. We can pull capital from investors. And then for my deal specifically, you know, instead of me raising 50 at a time and oh by the way, closing up my first SBA loan and preparing to be a first time CEO and dealing with all the legal due diligence and there's a lot of firsts for searchers and all of this. And do you really want to add capital raise to that? You know, I, it's a lot of people, you could do it. You know, I'm not telling you you can't do it. I did it. If I can do it, most of you listening can probably do it. But it is an additional level of stress and something that, you know, you could be able to partner with a fund like ours and say we're going to take out the majority of your raise. So our model and fruition is to say, okay, you're going to raise 800, we're going to write you a 6, $700,000 check and then we want you to have other investors on the cap table. Like we'll be what's called an anchor investor and we can refer you to people who kind of want to do co invests but you know, oftentimes people bring either their own equity or friends and family equity or just develop a relationship with investors. So you're not totally dependent on our firm, on our fund. But I mean, I can't tell you the amount of stress that it would relieve for me. And I know some of our searchers, we funded about eight searchers. Now how incredible that is to just get a massive check and then know you only have to get another 100, 200,000. Like that is a substantial difference between saying, okay, well now I got to climb Mount Everest and raise 800,000 million dollars. Whatever I got to raise, well now I only got to raise, you know, 10% of it. You know, that's, that's pretty nice, you know, if you're able to do that. So anyway, that's my capital raise story and, and the do's and don'ts and the lessons learned and that's why we started the Fund.

Yeah, I'm sure that's so helpful for searchers to be able to have that huge chunk of their raise done so quickly. And then I'm sure the follow on investments are probably easier also once you have a large investment like that.

I was curious if you could talk.

A bit more about your motivations for launching fruition. What made you decide to be a search fund investor on top of being a Search1 entrepreneur? What was the opportunity you saw and why did you decide to do it now?

Yeah, it's funny because I mean we certainly knew there was opportunity because all of us were kind of in this space. I'm the only one that of the partners, I'm the only one that's like done it and currently operating a business. But they were, you know, real estate investors, private wealth managers, you know, real estate guys, all that, all that kind of stuff. And we knew that there was a ton of activity going on. And some of my friends who, you know, your audience may know, but the guys at SMB Law Group did almost a billion dollars in transaction volume their first year. I mean that's crazy. So, and that's, that's like lower middle market type deals. Those are the deals that we're talking about. So you're not talking, you know, $500 million deals, you're talking $8 million deals, $5 million deals, $15 million deals. Like all of that adds up to a billion dollars. It's wild. So we knew that there's plenty of demand, there's plenty of people looking to do this. And my whole thesis and this whole thing was like, like the lower middle market is our end of the low. The low low middle market is the wild west. And it's, it needs a little bit of professionalization. And so that's kind of what we've tried to bring with the fund. A little more structure, a little bit more professionalization, you know, making sure that people don't get taken advantage of. Like we don't charge our searchers anything. To me that's insane. Our capital is, I mean we take investor terms but we don't take a fee for raising equity for you. That's literally our job. We charge investors you typical fund structure, like a 2 and 20 structure. So it's you know, straight down the middle of the fairway, shout out to Masters week and I don't know man, like we, what we look for in searchers, like I look for people who, people kind of going back to the traditional and self funded people self select into what kind of searcher they are. Are you, do you want to be a CEO or do you want to be an owner? You want to be a CEO? Go traditional, you know, because you're, it's basically what, what PE Port co CEO would be. You know, you get a reasonable carry, you own a piece, but you're not, you can't really identify as a business owner in my opinion. You know, maybe, maybe people hate that. Whatever, you're not the majority owner no matter what. As the self funded searcher, you're the majority owner. So like you are an owner first and the CEO second, I guess. And that's what my focus was like. I wanted to be an owner. I didn't want to just be a CEO though. And so the people that self select into self funded search, they want to be owners. Okay, how bad do they want it? Why do they want to be owners? You know, this space is getting more and more popular. I'm sure you've talked to plenty of people who try to just look at businesses on a spreadsheet and think that they can run circles around these retiring boomers and then they get in and fall flat on their face. I prefer to look for people who truly want to be entrenched in the community who understand what small business is about. You know, one of our guys like bought a towing company and told us he wanted to drive the tow truck in the local parade. To me, that's a good sign. Like that's somebody that actually wants to be in the community and invest in the community and knows what it means to be a small business owner. You really do get to be a pillar of the community and you're providing livelihoods for your employees who live in that community. And it's kind of this virtuous cycle that you as an entrepreneur get to participate in. Those are the people that I care about. I really, you know, everybody can figure out their modeling, everybody can source a decent deal. But when you're looking personality wise, like, what attracts you to this? You know, is it the potential financial returns or is it the fact that you get to actually own an asset, you get to grow the asset, you get to improve lives of people in the community. Yeah, you get to improve your own financial situation. But truthfully to me, it's secondary because I would do this for a hell of a lot less money. I really would. Sure.

I mean, there definitely is a huge financial upside to search. But I think the reason a lot of people are attracted to it and why it is such a collaborative, helpful community is that it is One of the only options for MBAs where you are clearly adding value to the communities you're living in. It's not extractive in any way, and you can have a real impact on people's lives, whether they're employees, they're working for you, or the communities you're working with. And so we've talked about that a lot on this podcast, but it love that that is what drives you.

Of course you wouldn't do it if there weren't an upside. You know, this is capitalism, like, we, we understand. And that's, that's totally fine. Like, yeah, this was the best option for me to get outsized returns, you know, on my time. Great. You know, if that's your only motivator, I don't think you're going to be successful. I think you really got to understand what this lifestyle is like and understand that it's not something that you can just go out and get an SBA loan and quote, unquote, put an operator in place like you see online. It's just that stuff just drives me crazy. I can't tell you how many times people have asked me, like, like, so if I get the SBA loan and then I can go source an operator and like, I just, I just don't think you know what you're talking about. I don't think you understand that this is more of a grind. And by the way, you're going to PG $5 million and just put another random person in there, like, what are you doing? But you might be surprised. There's people out there that think that.

When it comes to fruition, who are your investors? Were they also the same ones who invested in your acquisition or were these different people?

No, no. In fact, that was the frustrating part, is that, you know, of course all the LPs in my deal are direct investors, right? So they wrote me a check for Heritage. The people that have access to these deals, that have access to that deal flow, why would they invest through a fund? You know, because they have access to direct and so they don't pay the fees. They don't just like. So it makes perfect sense. Even though I tried to go back to the investors and like, what do you think about this? We're like, well, well, we found you, so why would we need the fund? Because we can just get other direct deals. Like, yeah, that makes sense. Now, not everybody has access to the Main street lower middle market deal flow. And just because I have one big law attorney partner who just likes looking at deals in his downtime and wants to be a direct investor. That's certainly not the case for most big law attorneys or physicians or whatever. So those are the people we're bringing into. So people who, you know, they don't, this isn't their hobby. Like they don't, they don't enjoy looking at, at sims every night. They don't enjoy, you know, doing due diligence and talking to searchers, doing all this stuff. They just want to put their money to work. They want to earn a return on their capital. So yeah, no, not the same people at all. Which was challenging because that was my investor base. And so I had to. Now we found for fruition, at least for me I've had to go out and it's more about educating people that this is an asset class. It's a growing asset class. New ish. But in growing, growing rapidly. And you know, comparing it to other investments, they may be in venture capital, real estate, whatever. And seeing like here are the pros and cons of investing in small businesses. Here's the difference in investing in venture capital, right? You write a check, you maybe see that money again in seven to 10 years after a big exit, hopefully you get one of the unicorns. Well, with fruition we buy cash flowing, boring businesses. So we kick off cash every year, year. So in that way it can be like, you know, a real estate investment where you're just collecting mailbox money. That's really nice especially for people who don't want to be involved in the day to day. They just want to put their money, you know, in a fund that can earn them 25% IRR. Great. So yeah, it's, it's been, it's been more about educating alternative asset investors that this is a legitimate alternative asset. Here's how the economics work, here's why we think you'd be interested. Here's how it is similar and dissimilar from other assets he may be in. And then also we get the pitch part of the story as you really are helping middle America. Like this money isn't going to Silicon Valley or New York or whatever. It's going to like to Toledo, Ohio. You know, it's going to buy, you know, an old auto repair shop in Toledo, Ohio or a towing company in Virginia or a specialty manufacturer in California or like just areas where capital wouldn't necessarily flow through the traditional channels. So that is kind of a compelling story to tell investors. And I mean something I absolutely believe in is that you're, you are building the middle class, you are Investing in the middle class, which I find to be very rewarding.

So why don't you talk a little bit more about your plans for fruition in terms of the types of companies that you'd like to invest in and how actively involved in those companies you.

Might be with fruition? Yeah, I mean we've certainly got some ideas and where we think the firm could go. But we were talking the other day with as it's no secret that a lot of the funds are friends with each other. Like they're all connections that I've made and you know, it's most of us are pretty friendly with each other. There's only a couple that kind of stay away from. But we were talking with another group and we said, well, maybe we'll go up market a little bit, but we really don't want to lose our identity which is in the self funded one to $2,000,000 EBITDA. Rang I quite like this range because it's sort of a Goldilocks zone. It's too big for mom and pop and too small for private equity. Not always, but usually too small for private equity. As soon as you get above 3 million or 2 million in EBITDA competition is insane. So whereas you might be dealing with maybe three to four other bidders in the sub $2 million range, you're looking at double, triple that and higher EBITDA deals. So it's kind of a nice area to play it and it's difficult to finance you really, it's, it's really hard to finance these deals without the sba. And the SBA has that pesky pg, which means only a certain number of people are going to be able to want to or able to take that PG and buy the company. So it's got enough. There's a lot of opportunity, but there's also some constraints that reduce, you know, some of the supply. So it's interesting. I like where we are are. So even if we go up market a little bit as we look to raise our next fund beginning in August, fortunately we actually just closed our first fund of 5 million last month. That fund was oversubscribed as well, which is awesome. For Fund 1 to be oversubscribed is a really nice blessing. And then we'll look to do a larger fund in August. We're looking about 20 million for that fund. So. So it'll be obviously playing in this same $1 to $2 million range and then maybe peaking up at independent sponsor deals. But yeah, that's kind of our plan moving forward.

That's great. Congrats on the quick progress. Seems to be a bit of a theme today, but was curious if you could talk a little bit more about the support that you might offer the entrepreneurs you work with, how much advice you give them, how involved in the company or the acquisition are you in terms of support.

Yeah, I think, you know, we were. I was talking to the other fund about this too, that part of our value is we can be involved, as involved as really they want us to be. And so when we invest, we usually, you know, we take a board seat. We don't have, like, we don't have any major powers, but it's more of an advisory. And we want to because of our network, you know, collectively as a firm. You know, we can source just about any specialists that you're looking for or answer any question through our network that you could possibly have have. So it's nice to have fund like us that has those resources. And that's what I would say we end up doing most of the time, is we kind of stay out of the way and we make sure that we review financials quarterly. We're pretty, you know, involved that way, but, you know, we just kind of hang around and we're there if they need us and if they basically just want the cash and. And they don't necessarily want. Want us to offer support. You know, that hasn't been the case yet. Most people, if they partner with us, want to leverage our network and see the value in having an anchor investor. So I haven't quite run across that yet, but it'll happen, or somebody will talk a collaborative game in the beginning and then, you know, not so much that'll happen. It hasn't happened yet. Most of our people are very interested in sort of the resources we can provide. And obviously that doesn't. There's no charge for any of that. You know, we were. And we're invested with you. We're your anchor investor. So everything that we do is in support of our sponsors. And, you know, their success is literally our success. So it's very important for us to offer. Here's a marketing consultant. Here's, you know, here's who you should use for bookkeeping. Here's who. Here's a few fractional CFOs you can use. Here's all this kind of stuff. We can kind of open up our Rolodex and help people.

At what point should Serger start reaching out to you? Should they just start building relationship now before they've even found a Business, or is it more once they've got the company under LOI and they need to get the raise done? At what point would it make the best impression on you for Searcher to reach out to you?

Yeah, I mean, I typically, what we say is post loi. That doesn't mean you can't, you know, send an email and be introduced and kind of get on our radar. I don't think there's anything wrong with that. I get those emails all the time. But obviously you're going to get the most attention when you have a deal, and whether or not that's the deal that closes. I've been working with some people, see, since August of last year, so it's April now, August, who have been hanging around the hoop looking for deals. And, you know, I just went back, we're about to fund this guy, and we, you know, our first connection was in August. So he's kind of been at this for a while. You know, he's had some things fall apart and, and. But he's kept us in the loop. That's really what you need to be doing. Because I know that a deal you bring me may fall apart. Believe me, I get it. But it's not necessarily ever too early to start making these connections. And if I were to do my search again, I had the commitment letter and everything, that ended up not happening. But I would just recommend keeping an investor list, have intro calls. Most of the people in this space are incredibly friendly and incredibly giving of their time. And we'll, you know, spend 30 minutes on the phone with you and answer questions and kind of point you to other people. I think that's time well spent. Just, it's a basic networking. And I think, you know, you could get out from behind your email and get on the phone with people, get on these zoom calls with people, have those conversations, meet, meet people in person. God forbid, you can do that, too, depending on where you are in the world. So that's what I would be doing. You know, obviously you're the most attractive when you've got an loi, but certainly before that, we're happy to hear from you.

And when it comes to potential investors in fruition, I was wondering if you have any thoughts on who those should be or who they might be and how should they get in touch with you if they are interested in investing?

No, look, what's interesting is that when I go on these podcasts and I talk to anybody, we've got a number of people who will end up reaching out, who are interested in both being investors and then also have an inkling of doing their own search. So it's been interesting in our fund and actually some of the other funds confirmed this as well, that you know, what they see is they see people certainly from certain industries, tech has been a big one where there's some cash on the sidelines, consulting, investment banking, and they want to put some capital to work and then they also want to have the fund as a potential equity source for a deal that they may do. So we kind of pride ourselves on that flexibility. So. So if you're listening and you are interested in potentially kind of getting both kind of being playing in both sandboxes, you can definitely do that. But yeah, we're happy to hear from anybody who's interested in acquiring a company who has questions about a capital raise, who is interested in investing as an lp. A lot of people, you know, I've brought on as LPs who just kind of want to see how the sausage is made because they want to do their own search in X number of years and they just kind of want to see what the deal process is like. So. So, you know, typically we don't share all that with lds, but for certain ones that come in who have that specific purpose, happy to take you behind the curtain and show you what the process is like. So yeah, I mean we're easy to work with, pretty flexible. So happy to hear from anybody. My email's pretty easy. It's just KevinBellhousing.com I'm pretty easy to get ahold of.

This episode of Search Funded is brought to you by smbpodcastnetwork.com the network is a collection of podcasts and shows from around the Internet which focus on bringing you interviews with amazing guests. Guests who share actionable advice, ideas and information for small and medium sized business owners and entrepreneurs. Visit www.smbpodcastnetwork.com to find more great shows and easily subscribe to be notified of new episodes. It's a great way to discover quality content. If you've discovered us today via the network, then I hope you're enjoying the show and will consider subscribing directly so you never miss any of our great episodes. This episode of Search Funded is brought to you by smbpodcastnetwork.com the network is a collection of podcasts and shows from around the Internet which focus on bringing you interviews with amazing guests who share actionable advice, ideas and information for small and medium sized business owners and entrepreneurs. Visit www.smbpodcastnetwork.com to find more great shows and easily subscribe to be notified of new episodes. It's a great way to discover quality content. If you've discovered us today via the network, then I hope you're enjoying the show and will consider subscribing directly so you never miss the any of our great episodes. This episode of Search Funded is brought to you by smbpodcastnetwork.com the network is a collection of podcasts and shows from around the Internet which focus on bringing you interviews with amazing guests who share actionable advice, ideas and information for small and medium sized business owners and entrepreneurs. Visit www.smbpodcastnetwork.com to find more great shows and easily subscribe to be notified of new episodes. It's a great way to discover quality content. If you've discovered us today via the network, then I hope you're enjoying the show and will consider subscribing directly so you never miss any of our great episodes.