Chad Summe and Mike Veith – Corridor of Commerce at eGateway Capital (EP.364)

0:04Hello, I'm Ted Seides, and this is Capital Allocators. This show is an open exploration of the people and process behind capital allocation. Through conversations with leaders in the money game, we learn how these holders of the keys to the kingdom allocate their time and their capital. You can join our mailing list and access premium content at CapitalAllocators .com.

0:54and Mike Veith, partners at eGateway Capital, a Cincinnati -based thesis -driven firm that focuses on growth stage enablement technologies that drive the future of digital supply chains, marketing, and commerce. Our conversation covers their path to creating eGateway, their investment strategy, and process. Chad and Mike highlight the firm's regional and relationship -based sourcing and value -add opportunities that benefit from the importance of the Midwest in supply chains and commerce. Before we get going, my son Ryan wants to share his take on spreading the word. When I'm warming up for a wrestling match, I jump some rope and get focused by listening to anything but the Capital Allocators podcast.

1:43It's not that my dad can't help you compound capital, but let's just say it doesn't help me get pumped up for matches. But for any other use case, I'd highly recommend the show. Thanks so much for spreading the word about capital allocators. Please enjoy my conversation with Chad Sumi and Mike Feefe. Chad, Mike, thanks so much for joining me. Ted, thanks for having us. Well, why don't we start with your respective backgrounds? And Chad, I know there's a path before investing for you. Why don't we dive right into that? Yeah, I definitely have taken a non -traditional route. I started my career after the Naval Academy and submarines in the back of an engine room.

2:23I had a wonderful time and experience in the service, climbed out a hatch and found myself at Procter & Gamble. I was really a formative state to understand the consumer at such a great company and the maker of big brands and spent most of my time in baby care, their biggest division around the globe, marketing baby diapers. Funny enough, I have a family of four, so it was very apropos. I ended up on a smaller brand that we were taking digital and really became enamored with the tech space and digital solutions that were helping brands grow and jumped into one of our partners, coupons .com, and had a wonderful eight -year experience helping that company grow from a variety of different positions, running sales, ultimately becoming their chief operating officer, chief strategy officer, and serving both CPG space and retail.

3:16I started out digitizing promotions and went into digital media and being pioneers of what today is one of the fastest spaces in all digital media, which is retail media. So we launched some of the first media platforms for big retailers like Albertson Safeway and Dollar General and others. And it was just a really fun space to be pioneering and setting the course forward, which then brought me to eGateway in 2020. Mike and I and some other partners came together with a shared vision to really build a firm and not just a fund. That was my non -traditional route to investing. So Chad, before we turn this over to Mike, I got to have you bring me through some of these three big steps along the way.

3:59Five years in a submarine, what do you learn most from that experience that's carried you through today? Oh my gosh. I always say close the hatch for six months and you can get a lot done. I've tried to bring that experience into my civilian life. I was a young person and the most formidable experience of any person that's ever served is a higher order call and mission, which I really respect to this day. And it was such a gift to serve our nation. The submarine community, it's a small tight -knit community. So there's a lot of high stakes environments that give you places to really learn leadership early on in high pressure situations as a 22 -year -old, 23 -year -old walking on a submarine and suggesting that you have a division that's quote unquote reporting to you.

4:44They've lost more knowledge than you'll ever have. So that line and understanding of how to lead others is just ingrained to you from day one. What were some of those big leadership lessons? You quickly learn that leadership's not a title. When you're a young ensign on a submarine, commanding a head of a division of unlisted folks that have just a tremendous amount of knowledge more than you ever have, you have to earn their respect. And to earn respect is hard work. And I think on a submarine, to earn your qualifications, it's a tough environment. And it's through just doing that work every day that your ultimate ability to lead others comes from that.

5:24And so you learn quickly. It's not what rank you are. It's what you're bringing to others around. At that early age, how did you think about what it was you were bringing to the others? It's a really good question because in the military, it's a lot of specific knowledge around what you're leading. In our case, it was a nuclear reactor and an engine room and driving a ship. And so when you walk on, you don't have a lot of knowledge at all. And you don't feel very well equipped. It's just start eating, start going in and learning very methodically, academically, and then in a practicum and going situation by situation.

6:02And over time, you start to gain confidence. The military is a unique training ground because you become unconsciously competent more so than any experience I've had to date. through a tremendous amount of preparation, you can start acting without thinking. And those are the type of environments that we were living in every day. So P &G, for a long time, had this great brand training program. I'd love to hear what you learned there and how you think about applying it today. I joke often and say I just went from one uniform into a next. Proctor, they put on khakis and a blue shirt versus a military uniform.

6:42But it was such a formative experience for me coming out of the service where you can't rely upon all the training that I had and go into a world that's just centered on something so different at the time on the consumer. Now, there's so much I took away from Procter as just one big training ground. There's very few companies that have had just amazing success over 100 years of building great brands. And it was just such an opportunity to learn from so many great people, great brands, all centered around a common belief that the consumer's at the center of everything. The big takeaways for me at my Procter six and a half years was just to always get the consumer first.

7:26They also taught of communication skills. Everything at Procter is a one pager. I still try to do that to this day, of just being able to concisely share your thoughts and rationale for why you have your beliefs. The people you get to work with, it sounds trite, but I think as we go through our careers and Mike and I will share our journey, a big part of starting eGateway was this desire to be around people we wanted to build something with. I would say it's more wisdom with age, but you don't respect it probably early on, but it is a proctor is just having the opportunity to be around such quality human beings was something that I still take with me today.

8:03As you were trying to drive profitability of a brand, really curious how much of that is some form of science and how much of it is some form of art? It's a combination of two. I mean, Procter is really good on the machine of efficiencies of driving out costs out. You have just an incredible access to scaling operations, which is something also is a gift to be exposed to early in your career of just doing things on a big amount of scale. But really, the art comes in just having an appreciation for talking and engaging with consumers and really building a relationship. I shared that I spent most of my career on the baby care brands.

8:44And that's a unique dynamic. It's Procter's biggest brand. I jokingly say, Ted, there's probably a handful of brands that translate every language in the world called McDonald's and Budweiser and Coca -Cola and Pampers is one of them. So just to get a grasp to do that at such level across so many cultures and ethnicities, it's just remarkable that you have such a tight -knit understanding of what moms care about. And to see that across such massive scales of country and language barriers was quite remarkable. So to your question, it really is an art and a science. You're only as good of what you were yesterday.

9:20You have to build that relationship with every new mom on a day -to -day basis, and you can't rest on your laurels. When you're coming into work with a brand that's been around for as long as Pampers, how do you think about driving incremental value over what was already there at Procter for so many years? incremental is a word used often at Procter, whether it's measuring your media, what incrementality am I driving versus just talking to moms that are already buying Pampers. When I think incremental, I think it goes back to what I just mentioned. There's new moms coming into the category every day and you have to earn their trust.

10:02I just was blessed to have worked on such an unbelievable brand that carries such trust with moms. And to earn that trust has to be one each and every moment that they're putting a product on their most valuable thing that they've ever had, their new baby. I view it as incremental as just simply waking up every day, putting your boots on and saying, I have to do the work today because yesterday really didn't matter. So when you moved from the big conglomerate to the faster -paced digital ad tech business, what did you learn from being in that environment that was different from what you had seen at Procter?

10:44I think the biggest thing was I was wired for a little faster environment. I think Procter was wonderful. On my last assignment there, I was working on a North American brand where we got to restage it completely. Actually, I think my biggest fame at Procter was I put my daughter on pack. So she was on Every Size 2 Loves Diaper in America. She loves that, that we walked into Walmart and saw her on the wall. It was so fun. I think what I realized is I had an entrepreneurial appetite that I really didn't exercise much in the Navy and in my first chapter at Proctor. And I exercised in my last assignment.

11:19And just as we were taking the brand digital, got to see the environment of tech out in Silicon Valley that was working so closely with all of our brands. just how everything was changing, the speed of movement and the opportunity for growth, which attracted me. So I think that was the first inkling that I would really desire to be in a faster growth environment. And it proved to be true. Jumping into my next chapter, I couldn't have written it up. It was just such a fun hyper growth experience in the eight years that I was blessed to be part of it. We took the company public. We changed our name from coupons .com on the quotient technology.

11:55And we just kept on reinventing ourselves every six months. And it just gave me such an appreciation for speed and changing environments and just how fast you had to respond in the world of tech and digital. One last question, and then we'll turn it over to Mike's perspective, which is, how did you end up deciding to leave joining up with Mike and others and forming a gateway? it. The opportunity presented itself actually during COVID. You could call us COVID babies because that's when we decided to come together and build a firm. Really, it all came together somewhat providentially. Never having worked together, we formed a unique team, blending a wide range of both operator experience and investment experience.

12:42While all of our team brought super diverse expertise, it just was all in different arenas. We weren't your traditional emerging manager profile at all, meaning we didn't specifically have a track record of running past funds or the return profiles that accompany them. We did, though, however, share a common vision to build a firm and not simply a fund. We often say that in the words growth capital, too much emphasis has been put on capital. It's become somewhat of a commodity. Our interest, on the other hand, was to focus on the word growth. We thought there was a lack of operator expertise and true knowledge around growth.

13:22And our desire was to help these companies in an impactful way reach their revenue goals. So Mike and I, along with three other partners in early 21, formed eGateway Capital. And with Mike and I both being from Cincinnati, we shared a strong desire to raise the profile of our region. We were both united from the beginning in the belief that capital will play the most important role in seizing its future growth opportunities. Well, Mike, I'm guessing that in that blend of operating and investing that Chad's the operator. So why don't you bring me back in your path on the investing side? Sure, Ted.

13:59Yeah, so I used to wear a uniform too, not in the military service, but eGateway is populated with a lot of former athletes, as well as seasoned folks from the private equity space. My background after playing basketball at a small division two school in Florida was I always wanted to be an investor, but I wanted to live in Cincinnati. And there weren't many investment firms in Cincinnati in the early 2000s. We talked about brands earlier. I turned to a big brand at the time, Merrill Lynch, thinking it was an investment job and quickly found out it was the ultimate entrepreneurial experience. But I learned a lot about investing there.

14:35I learned a lot about how to build a business and build a firm and what a good partnership is and what a not so good partnership is. So I learned a lot that's helped shape what we're trying to build here at eGateway through that process. Along the way, 08 -09 happened. I really had a chance to pick my head up, look around and see what clients, the private client world deserved, what they were asking for, listening to the customer. And they were asking for things that I couldn't provide at Maryland. So I ended up leaving to go to the fiduciary model, spent time at an independent firm, and then launched a multifamily office platform with some partners.

15:12And we did a lot of very unique investing into bonds and direct investments. And so I, like you, have seen a lot of investment firms over time, the good, the bad, the other. So I think I'm trying to learn from my past and from all the people that I've met to build a special type of firm, as Chad mentioned. And a lot of those elements come into being thesis -driven as opposed to a generalist firm, staying focused, being the right size for the team in terms of the size of the fund, and being very much focused on, to Chad's point, a true partner that's on the field, in the arena with our portfolio companies helping them grow.

15:51We just believe it's more fun and impactful that way. So anyway, hopefully that brings to life my investment background, but also have spent time building firms as well. Mike, you said two things at the onset, that I want to double click in a little bit. One is that you knew you wanted to be involved in investing. Where did that passion come from? I can't think of a job that would be more fun and really aligned with how I'm wired. As a naturally curious person, I get to spend time with and learn from some very interesting and incredible entrepreneurs and leaders, as well as go deep on themes and trends that are shaping the future of the economy to identify patterns.

16:24It's also fun to be different and take a stand, which is a natural part of being a successful investor. I also have a passion to serve and partner with others, and we get to do that every day with our companies. Lastly, I'm not sure if it's the athlete or the middle child in me, but I do love to compete, and investing to me is the ultimate form of competition. As much as I do have a passion for investing, I'm even more passionate about building an investment business and all that comes with starting, growing, and nurturing a culture and a firm here at eGateway. Mike, the other one is you said you wanted to be in Cincinnati.

16:57Now, Now, that isn't always something that pops the top of people's heads in the investment world. So where'd that come about? I'm a middle child from a large middle -class Catholic family in Cincinnati that was raised in the Jesuit education system where the motto was meant for others. And there's just this community component, the Midwest values, however you want to say it, that as I always take the long view, this is where I wanted to raise my kids and build a career. And so it's just a special place. And I think all the people that we engage with, a lot of our investors today are from the region.

17:29But those that aren't, I think they're getting appreciation for all that we have to offer here in the greater Cincinnati area. It's very important to us. And I think through our efforts, we're trying to raise the profile of what's going on here in this corridor of commerce. How did you guys come together? We've been friends for a long time. Cincinnati is often called the smallest, biggest town. We both came from big families all by different sides of the river. Mike from Cincinnati. I'm from Kentucky. It's funny. If you knew us, we're both wired quite differently. But over the years, it became evident as our relationship grew that we shared a lot of similar values and beliefs, specifically things like gratitude, service, thinking big, always with a purpose to positively impact those around us.

18:13Our firm intentionally signs off all of our correspondence and emails to this day with the words with gratitude. And we do this, Ted, because it captures our commitment to serve, and it's really authentically who we are. So you both mentioned this idea of forming a firm and not a fund. What does that mean to you? I'll take a stab at that. That was one of the big onsets is we had an idea around a platform to build something to bring back these elements that we thought were missing in a lot of private capital and harkens back to its roots, which was to be a partner to our companies and to all of our stakeholders and be beyond the check.

18:50We also thought we'd form a firm of lasting significance around bringing a combination of operator -led with investors, because we thought there's just been some expertise that's been missing in a lot of firms if they've scaled. And I think we have purposely, Ted, built a product outside the bell curve intentionally. And we've done it through positive diversification around our portfolio and our thesis that we're investing in. And we believe it has a lot of tailwinds for the next couple of decades with regards to our thesis. So to capsulate another commonality is we often talk to be of service.

19:31Mike mentioned the Jesuit background. I was the youngest of a big family as well. But to be of service is something we put front and center to our entire stakeholder community. It's the how we do things. And I think when we think of a firm and not just a fund, it all starts with the same thing first on our scorecard when we look at companies to invest in, that is with people, our team. And so we have brought together a group with diverse backgrounds and experience to serve this higher order calling of how can we serve our stakeholder community in a unique way, our companies in an impactful way post -investment with their growth, but also our community of investors.

20:12Where do we meet them where they're at? We've built a really strategic community, LPs that have a ton of expertise in and around the areas that we're investing. So think CPG and retail and supply chain executives. And then last but not least, when we think of firm and not a fund is to reiterate some of the stuff around our location, around the Midwest. We think the Midwest is undercapitalized. We believe in that. We think there's an arbitrage opportunity as a lot of US industry sits here with not a lot of the capital. And we think most importantly, our region adds value to our companies as a nexus of industry that happens to overlay with what we're investing behind.

20:54So you have Procter & Gamble, the world's largest consumer products good company here. You have Kroger, one of the countries and probably soon to be largest standalone grocer. If the Albertsons merger were to go through. And then you have maybe a third leg, which is a center of supply chain. So it is a geographic superiority of reaching a vast majority of the US population within two days. So you've always had our history rooted from the Ohio River and the movement of goods. And it's no different today. I happen to have been on our airport board. Many may not know that our airport sits in the Northern Kentucky side of the river.

21:29So you fly into Northern Kentucky and it serves the Cincinnati region. But our airport, CPG, have been on their board for the last decade. And it's been such an honor to watch our transformation into one of the country's fastest growing cargo airports with the Amazon mega hub for all their air operations, putting their home there over four years ago. And then us being the North American hub for DHL, their second largest operation in the world. Then 100 miles south, Ted, you have UPS's air operations in Louisville. So what we like to say is within 100 miles of Cincinnati region, you have three of the top four physical assets around the country around the movement of goods.

22:07So when we think of firm and not a fund, there's some adjacent stories of why we get up every morning with a level of commitment that we do believe is higher order, why this team's come together to serve. We do believe there's a communal aspect to what we're doing, and we're excited about it. So, Mike, if you bring what Chad said together to build a firm that can partner with companies serving this community and their certain sectors, CPG, supply chain, how do you turn that into an investment strategy? Yeah, Ted, our investment strategy centers around our belief that the economy looks much more digital in the decades to come.

22:44We often say here at the firm that the opportunity is big, it's early, and it's urgent. To be clear, we're more focused on the B2B components of this digital transformation and the growth stage technologies that are enabling this future of commerce. We define commerce across four distinct investment pillars. The first is how things are made. The second is how things are marketed. The third is how things are sold. And the fourth, ultimately, how things are distributed. When we think of how things are made, we think the technologies driving advanced manufacturing or the sourcing and procurement processes inside of large companies.

23:18When we think marketed, we think how new mediums like video commerce platforms are driving consumer engagement and how data is driving measurable outcomes for brands and retailers. When we think sold, we think social commerce, B2B marketplaces, fintech, brand and price protection online, and several more. And when we think distributed, we think first, middle, and last mile supply chain and logistics technologies. What's the target company that you're looking for? We really, for all the reasons we've talked about, we want to engage differently. We want to be operator -led and bring this expertise.

23:54That's all let us down, Ted, to go beyond venture. We call it growth capital. So what's that mean? Growth capital to us is finding a company that has a validated product, that has an established commercial market fit. that's going upstream of, call it, north of 10 million in reoccurring revenue and has demonstrated an enormous TAM around solving a problem of our thesis is the future of commerce, technology that's enabling that future of commerce. So we think everything from early supply chain, how things are sourced and produced. We think how things are marketed, where I've spent most of my career, how things are sold and transacted.

24:33So much is happening with omni -channel commerce. And we're very interested in all the fixes and axes that have to be true to make that world effective and efficient. And then last, our pillar, how things are distributed and delivered. So I've just described to you this value chain of commerce. It's pretty linear, pretty intuitive. Let's turn to the investment process. Why don't you take me through it? Any great investment process starts with a great sourcing engine. We're excited about both the quantity and the quality of our deal flow. As it relates to our diligence process. Of course, it includes all the standard legal, technical, commercial, and general deal diligence items.

25:10But the core of our diligence process starts and ends with, can we be the most impactful investment partner to the company? We go deep on getting to know the management teams and their leadership styles, along with the company cultures. We always look for talent magnets in our companies. Ensuring alignment on the cap table and good governance at the board level is also very important, along with understanding the competitive landscape and talking to a lot of customers and potential customers about the companies. Ultimately, the purpose of our diligence process is to determine if we truly have an edge that can deliver the outcomes that our investors are expecting.

25:44We spend a lot of time as a research -driven firm going down on each of those pillars into the sector, into the subsector, identifying when companies are emerging at the stage we are best a fit to align ourselves with them. In our first three years, most of them have all been sourced from companies we built relationships with over a year in certain circumstances. And our perfect scenario is doing exactly that. We're a relationship led. We try every day not to be transactional. We think about what we're calling this e -gateway edge. Pre -investment, we try to get to the 10 -yard line as much faster than generalists can.