How to Get Investors Onboard: What Founders Need to Know Part 2 with Stew Campbell

22:39And that's the greatest pleasure of this job is that you can be that mechanism to let them really go recognize the value from which they've bled and sweat into a company and then go chase something big together. Okay. Near term, I get it. That's not too hard, but the jet, I need to really preserve value to make sure the jet happens. And taking on a minority partner and then going building something great and taking it from the 20 of ARR to 50. I'm not a jet guy, but it sounds like that's the right level of scale. This podcast can be in the jet. Well, hopefully, maybe you'll invite me back on that jet with that podcast.

23:09It will be something to do. Yeah, we'd have the studio in there. Okay. Challenge me on the timing. I don't know if it's like more of an ego of just created this arbitrary milestone that we got to get to 25 million ARR before we do a minority cap. And then hopefully strong growth trajectory. And I can go make an argument for getting 10x revenue valuation. Let's create a package for 75 million that puts it around that 30 % Mark challenged me. So back to this personal professional lines, which I'm going to cross on video in terms of crossing, there's a presumed path. And at that level of ARR, I can find the right level of liquidity to make things work.

23:41And I would add, I think I can work with this next tier of investors that are like more of the gold standard investors. In starting to meet and work with those investors, hearing from their experiences on the path from 10 to 25, or in my world within consumer investing, in the path from D to C, getting into wholesale meaningfully opening your own retail units. There are big jumps in scale and organizational theory that happen for these companies to help them make it through these levels. The path from 10 to 25 is not as simple as just blocking and tackling. It'll come with organizational stress.

24:13It'll come with likely up-leveling certain levels and certain members of the team. Starting to understand what's going to come in that path and how quickly it's likely going to come can influence where that line sits for you in terms of the professional side. The other bit that we haven't talked about is what happens when there are just fundamental macro things that come and throw off your very notion of what the timing should be. You're a consumer brand or worse yet, a consumer services company that deals with stuff in real life. And you were thinking about doing something in 2019. So now I really want to go push for two more years.

24:49My in-person business model is really going to hit it in 2021. And that's what I'm going to sell and really make money. And I really like these investors, but I'm going to hold on for two more years. You're holding on for six more years. It's ironic. It was year five of COVID that just happened, but there are a number of founders that we worked with that were really holding on for that 2021, 2022 timeframe. And they're still holding on. If you find the right investors, challenge yourself to say, if something fundamentally shifted in the rest of 2025, wouldn't it be good if I had this investor along with me?

25:20And maybe that affects those two lines, that intersection point a little bit. So you got a little bit of how they would value it now, close to then as well. It doesn't mean the conversation's over. It just means that maybe there's a valuation gap. Maybe they want to see more proof points. They've gotten to know you. You've invested some time and gotten to know them. But the right investor that sees and hears and understands what you want to do will lean into your company, your asset at the right point. And hopefully that's three months before a pandemic, not after. Yeah, so let me complicate this a little more.

25:48I have firmly did 44 % year-over-year growth last year. And despite management restructuring and all these things that disrupted the business, I have strong confidence in the coming years. Of course, something surprised could happen. We operate right at breakeven. We push for the growth. We got strong cash reserves. I don't technically need the money. That's where I got this. Let me just wait till we're like 20, 25 million. I know it gets harder. People are going to message me. After 10 million, it gets harder. Economics change. I get it. But why not? That's the fun part. Look at that out. But now I want to go do an acquisition.

26:19And an acquisition could be the catalyst. Back to that poker chip example. If you're going to either scrape together friends and family money, you're going to take on debt. You're going to go have that founder role equity and dilute you down. And then you're going to have to go handle the acquisition itself, which is not always straightforward, both in the diligence and then the post-deal integration. Those are all challenging things. If you think that 10 to 25 could involve an acquisition, maybe that's the catalyst. and maybe you use the firms that have been reaching out to say, hey, M &A could be a very big stepping stone for us.

26:51We're ready for it. You four firms seem to have spent the most time in category. Let's just have a conversation about what you would see and have them bring you ideas because they're out talking to many other companies just like yours. They would love nothing more than to bring some acquisition ideas and perspective and maybe something you haven't thought of. They are the very firm that would then help you with that work. And if they can unlock liquidity, maybe that becomes your catalyst. I find this deal, I lock it up, maybe do the deal based on the post-combined company valuation. Yeah. Devil's in the details.

27:19But yeah, that's the approach is to go do something that you couldn't or wouldn't necessarily want to do solo. How do you weigh out all these? We talked about the firms, the growth capital, the private equity, VCs, but we didn't mention there's family offices, little independent sponsors out there. No offense to any independent sponsors, but I know I know with individuals, I could go ask you for a check personally, Stu. There's that. You got strategics that are doing stuff right off the balance sheet. And then you got these evergreen funds. And the evergreen sounds interesting. We don't have to get pushed for an exit timeline here.

27:51Absolutely. So there's one of the idioms is value add capital. And we want to bring the resources of our firm. So I can honestly say within TCG, the operating partners that we have, I was just with one at lunch, our talent partner in Margo, the Rolodex of folks, the authentic Rolodex that we have. because I'm the black sheep that actually wasn't a full-time operator. We're all operators, now turned investors. So the Rolodex and the perspectives that we have can fundamentally help you, which is different than an Evergreen fund, a family office that's just deploying. Those are sources of capital and they can be very effective for you if that's what you're solving for.

28:30Usually a founder, when they're ready and willing to take on growth equity, they want the resources as much or almost more than the capital because they probably have dividends. They're probably taking home a healthy salary. Liquidity is nice, but it's this moving target to your point. It's the resources that can really butress growth and help you augment that opportunity. When you can tap into a network of like-minded executives and portfolio companies and shared experiences that this is what we do and this is where we invest so much of our time and our investors' money to go create goodness, that becomes such a helpful function for you as a founder.

29:07It goes back to the network piece, how that company's going to approach value add, getting that real good sense. This is a partner that's going to allow you to run twice as fast, twice as far. Yeah, it absolutely is. That kind of oversees everything before you get into details of capital source structure and stuff like that. Absolutely. Because the very definition of us being invited into a business is that we're not just capital. And if we were just capital, you could find a different source for it. You could find bank financing. I agree. And that's a perfectly good way to do it until you want the resources and the network and the learned experiences, both good and bad, that we've had as investors to go support you.

29:46You're right. That's what it comes down to is a big picture, seeing how that's going to amplify everything, the relationships and forth. And then we'll keep a little competitive. That sort of terms is more of like the 10, 20 % difference. And really on a minority deal, if you're selling the business, there's the for sale sign and it's an auction. By definition, it's an auction. A minority deal, you're selling 30 % of the company. Whether you value your company at X or 105 % of X, 100 million or 105 million, the right partner is way more important than the relative value. Not to say you should always take the lower bid, just the relative delta in economics in the end shouldn't really matter against the ability of that partner to add value and truly be your partner in crime.

30:30That's way more important. I have not been good at getting the most value out of advisors. When I think about getting an investor in the company, I want to make sure that doesn't happen. Can you teach me how to get the most value out of it? Because I feel like, oh, we had good conversations. We got a lot like this, but then things sort of drift. What have you seen? The founders that are like the best of getting the most out of you and solving the business challenges. And I talked to other founders that feel like they are micromanaged by the board. How do I sort of get the best out of the relationship with a good investor?

31:00Absolutely. I mentioned the notion of board conversations and then one-off conversations. I love nothing more than when a founder says, oh, I'm just catching you up. I've had these three conversations with such and such advisor. Or you'd introduced me to this person. I've already had four or five conversations, one just to get you back up to speed. That's terrific. That means that there was a critical path and a well-connected set of relationships that led to those conversations. That's one part. Just making sure that any advisor has that one-on-one relationship with you and absolutely has the right and the need for you to call them or them to call you as they're thinking about things, independent of the board.

31:36The other part is setting expectations and leaning on your investor to set those expectations very clearly with the advisor. So often, investment firms, growth equity and private equity, find category or industry luminaries, put them on the site, tell them that they're operating advisors, introduce them to you early in the process, say, you should really call Jack or Jackie. And that may be the one and only call. Finding an advisor that has either specific economics in your company, equity typically, or has an operating executive role in which they're dedicated to a certain number of companies within the portfolio ensures just that much more focus.

32:12To you as a founder, I'd kind of beg for forgiveness. Call them as much as you want and have that advisor push back on the firm and say, hey, you gave me X amount of equity in the company. I have this arrangement with you as an operating partner within your firm against these sort of time expectations. But we are really leaning into this company. And this founder is calling me and I'm loving the help. But we're pushing meaningful hours in a month more than I expected. I'd rather that conversation that you're finding great value from that advisor and I have to go up his or her equity or figure out a different way of compensation because you're finding such great, lean on them, right?

32:49Make it my issue that you're spending 10 hours or 15 hours or 20 hours a month with this advisor and you're hitting it off and solving real problems. It's leverage for me and it's a better person for that role. I can go figure out the economics on the backend. Yeah, best of time to get, use lemon with you, get the most out of it. Absolutely. And then on the inverse, you're calling an advisor, calling an operating executive, and it's not working. It's not in my vested interest to have somebody on my firm's behalf that's not delivering value to you or the company. Let it be known. And it's no different than another executive that's not working out.

33:23We'll figure out a different path for that person. You're going to change the board. Totally. Absolutely. What does break down the relationship where we get pissed off at each other? It's rarely happened. I've been quite fortunate. it. There are sometimes challenges with selling control, especially when the presumed path is for a CEO transition to happen. That can come from a couple of different ways. Sometimes a founder will say, if I'm selling 70 or 80%, I'm ceding control. I have less economics and equity in the business. Yes, a CEO transition, I want to not only recognize my success, but empower the next generation of leader.

33:55Bringing on a CEO to take over a founder-led business is tough. I found more success with COOs. I remember meeting with a founder and I could barely see the person because there's so many stacks of papers, which each represented a direct report. My comment was, we need a COO in here to just help divvy the responsibilities and help you see above the clouds, not be in the clouds. That COO can then much more easily turn into a CEO over time. That's one friction point, but that's really not on the founder. It's more on the stage of investment because we're investing in these founder-owned bootstrap companies that have just, I mentioned that glacial process.

34:32They've been through hell and back to build this amazing company. And yes, they sold control, but there may be a little bit of a cognitive dissonance with the fact that now someone else is going to run it. That process and the emotions that go with it are totally authentic and totally understandable. But that to me is the only real consistent friction point is trying to help a next generation relationship. We don't come in with a presumption of bringing in a CEO because we're backing founder on companies, but... But they don't see it that way. I've seen that. That was actually a big thing that came up when I brought RCO in.

35:06A lot of concerns about the founder letting go of operational responsibility. And you don't come in with a presumption. And even if the founder expects it to be coming, it can be emotional. They're having to let go of their baby within a five, seven-year timeframe frame of this new first investors investment horizon. And three years in, their trusted number twos are all reporting now to a new CEO. They are now still at the board table, but perhaps interacting with the board in a different way, not leading those meetings. There's a lot of emotions that go with it. And those are understandable because these are not private equity-owned businesses in which the CEO is the fifth CEO that's been running this 35-year-old platform and they're just coming in with his or her own network of executives.

35:52This is a founder that was founder CEO that's now just founder. That happens. I have plenty of CEOs that are still the founders and that's great. They're ones that have transitioned because they wanted to, and that's great. It's a natural part of the stage in which we invest that those emotions are perfectly fine and frankly, healthy for the relationship. You see a big difference between Bootstrap and VentureBacked? 100%. What's that like? 100%. Bootstrap companies, by definition, have watched competition come and go and have clawed and scratched their way to that level of success. They've been through their own scaling issues over time.

36:29The culture and the sort of ferocity of which the founders have built that business, you're stepping into just a prideful organization. And it should be. It's achieved that level of scale and profitability through that glacial process. I meant venture-backed companies are seizing an opportunity, which by definition is massive. It's evolving very quickly. And it's highly competitive with other very well-funded competitors. It's a race. It's the flag planting in the Wild West. There's an attitude of move very quickly and break things and go seize opportunity. and that the winner based on time will seize so much of the rewards.

37:09Not always the case. Facebook was the 56th social network or some remark to that degree. But so oftentimes it's the opportunities in front of us and we have to go spend against it and use capital as one of the tools to go get it. A bootstrap business uses the fundamental value prop and the winning over time and the people that sit behind it to then go deliver that success. Yeah, that's like a well-put point in terms of the difference. I never even thought about it that way, but that pretty much says it all. I wanted to just put all this stuff together and highlight one of the investments. And one of the ones that I noted that you have been a part of two times, I guess, at Norwest and at a current firm is Viore.

37:49I say Viore as I'm sitting across from you wearing a Viore shirt and I'm wearing Viore pants. I believe I'm wearing some Viore socks too, but I'd love to hear the story about what that journey was like. It kind of opens up too, since I know you're more focused on consumer brands, which I'm not. So I'd love to hear a little bit about what makes it unique investing in those consumer brands. Because I feel like a lot of them everywhere. How do you sort of put the dynamics together of creating the winners or identifying them? It's a fascinating story. Super privileged to be able to back Joe and his team twice.

38:17And it's a fun story to tell. Joe is an N of one. He is an absolute just mensch of a founder. He's a really good person that happens to have built a massive and very successful brand. It's been a pleasure of backing up twice. Met Joe at Outdoor Retailer, which is a conference. And we met in his booth and it was a 15 by 10 foot booth or so. And at that point, he had half dozen retail units, a burgeoning men's brand. It was born out of Encinitas. It was an Encinitas brand. And I fell in love with him. I could not stop thinking about what that brand could become. What was the brand called? It's called Viore at the time.

38:59Oh, it's called Viore, okay. It was early on and it was doing quite well. He was building it profitably. He was growing. It embraced the Southern California lifestyle, which was how at that time can you help put people in unbelievable product that works at the beach, the cafe, and the gym all on the same day? Because it's that Encinitas lifestyle. To my point earlier about backing founders and in the investment thesis, it being founders and team, founders and team, and then everything else, our belief was utmost in Joe. and what he could deliver along with his team. He had such a belief that product wins within apparel and that his focus was not only people, but product.

39:37His investment and belief in product, we knew that the transition from men's focused to adding women's was going to be very much on the back of really high quality product. We didn't know what that winning silhouette or category would be, but that he absolutely had a right to win women's. We did some work thinking, what happens when women's takes off? What happens when a Southern California brand expands meaningfully out of California? We'd had the benefit of investing in Kendra Scott, which expanded from Texas on out. We had a little bit of that concentric circle exercise. And if they achieved both genders and if they achieved outside of California, we saw nothing but runway.

40:14Was doing great, was doubling, was a very fast growing brand and doing so profitably. And he's a CPA by training, has an even more healthy respect for a P &L because he can build themself. And then COVID happened. And they seized on COVID in such a way that between product, content, they had a whole online fitness community, and then they delayed retail expansion, which they really seized on opportunity because so many others were so nervous about retail. That when we came out, we were growing obviously very quickly. It came out as an absolute American brand and continues to grow unbelievably well.

40:48Uptmost respect for him and what he's built. they have nothing but opportunity in front of them. It's just a really good company. To me, like the boardroom view, how did you interact with them? And I'm always curious with these kind of products because I feel like kind of bootstraps something like that. It'd be just so hard to figure out how do you scale nationally? I liked how you had that point thesis of can you go from being local to the regional brand? And that sort of builds you the runway to go everywhere. Yeah, absolutely. So we joined as a minority partner and at TCG, we took a minority stake as well.

41:18You know what I want to do? I took the murder recap. Absolutely. It was a competitive round and it should have been. And as a minority partner, it doubles down on that kitchen example of where you're doing something, we're joining you, and we really just want to focus on a certain few areas. Product, we're not going to be helpful with product. I look much better dressed now by wearing said product, but I don't have a firm view of silhouettes or how things should look. And so stay out of the way of that. Making sure you have the right resources for retail to make sure it's a thoughtful expansion with really good return so that flywheel can run well.

41:50At the time of our investment, way back when, he had no CFO. He was his own CFO. We leaned into some really helpful support to say, build that layer of infrastructure to make 2021 and 2022 that much easier. Having a CFO as COVID hit was perfect for him. He was able to focus on such different and bigger problems because Dez, who is still the CFO, was absolutely terrific, was a perfect right-hand person for him. Figuring out where you can help and where to stay out of the way is often one of the more important attributes, especially with a brand or any platform that is growing that quickly. It's a do no harm type of a DNA.

42:26It goes back to supporting them with more of those introductions and... Absolutely. And just being supportive on the edges and making sure that nothing inhibits his growth because the company was doing just so well. Curious about that too, because the brand came out really well and it's a highly competitive holding in general. Is there some fundamentals for founders operating those kind of competitive environments that you sort of noted? To my point, Joe is focused on product and rightly so. And the brand has run on product-led growth because people talk about it. People just are effusive with how good it is, how nice it feels, how effective it is, how long-lasting it is, how good it looks, all the attributes of a really good apparel brand.

43:08And more broadly speaking, when you dive into a consumer brand, you can get trapped with easy to talk about, but relatively shallow in my point of view metrics. In the same way that people talk software rule of 40, that tells a story, but not the whole story. LTV to CAC is just one of the very measures of a company's success. How you define LTV and what you put into CAC, which is a, it's a numerate denominator and a ratio can have wild impacts as to what the health of your business actually is. especially when you start adding retail wholesale dynamics where there's other channels to go get your product and go find the brand.

43:45It makes all those numbers really messy. Seeing the forest and seeing the trees when you're valuing something in terms of repeat rate, unaided brand awareness, aided brand awareness, return rates within different categories of apparel and accessories, and then reviews all point to how much a brand is beloved and how naturally it will spread. At TCG, we love brands and experiences and consumer platforms that when you sit around a dining room table for a Sunday dinner, you can't stop talking about that product or service. So there's plenty of great consumer investments that no one really talks about.

44:20They just move and they work fine. But when you sit and you are a surfer and you're talking about Surfline, or you have really improved your health because you track everything with your aura ring and you pass around said ring. You have gotten into gardening and now you're talking about Epic Gardening and how much it's educated you. Those brands cause a natural NPS where you just want to talk about things and you really want to share. The number of people that talk about Viore, independent of influencers or performance marketing or anything else that just sit around and just say like, that's a really good looking pair of whatever.

44:51That's the best form of marketing because it's authentic. It leads to quick conversion. It's free. It's a really good way to build a brand. I like that you put the whole spectrum together of looking at some clear metrics. The CAC is really important. But then you get to more of the soft of like how much these customers really love the product. It's interesting you put that together for your diligence. What about the market outlook? Do you all this research? Do you see that when you kind of hear Joe's story about like building something for each cafe gym? How do you sort of put that against? Oh, what's our market outlook for that as a category?

45:24Or do you not? Do you just look at what you just described? Absolutely. It's reflecting back on that. We're at the five-year mark of COVID. Think about what we've been through just five years. If you were trying to make an investment in the fall of 19, when you were in the fall, you couldn't have predicted COVID. And the boom and the bust, especially within consumer, that happened from that in terms of pulling forward demand and cheap money, and then the slough that came off of that. We emerged from that. We're now in a tariffed environment, which is causing all sorts of supply chain disruptions for brands.

45:54And now we're heading into a point of more economic uncertainty that's a lot within five years. When you take an investment perspective, of course, the short term needs to be acknowledged to make sure your company gets off to the right foot. But for a growth equity investor, you're likely investing for 10 to 15 years. And what I mean by that is you're investing for the likely five years that you hold something. But as you sell something to another sponsor or to a strategic, they're going to be looking forward not only their five years, but likely the next five years. But there's an end cap because it's a fad where they'll naturally be a drawdown.

46:28There's an end cap in terms of the number of retail doors, number of retail units that you can go find. If there's an end point to any of those within the next 10 to 15 years, someone will find it and it will compress multiple and compress value. And so it's not that you can ignore what's coming in the next year or two, but you have to find enduring products and brands and founders that will navigate whatever happens and succeed. So you don't have this big calculation of TAM and this and that. You want to make sure that the market's big enough. Big enough. And that the tailwinds are there so that you're not completely sailing into the wind for the first three, four, five years.

47:02You want to be on the right side of history, another idiom. Acknowledging where health and wellness trends are going, where general apparel trends are going. Those are all obvious areas of focus. But no one could have predicted that post-COVID, I would sit here in New York without a sports coat. But now it's perfectly fine. At least I think it's perfectly fine because we've brought down the level of what Viore calls commuter wear. but is just perfectly good fitting looking stuff, but it's a new norm. And no one could have predicted that. Absolutely. I got the knitted sweater. There you go. Blazer on.

47:34That's awesome to just hear that as an example. One that we're familiar with. Absolutely. I'm lucky though. I got in early. One of the startups I was mentoring out of was Chicago. And they were building a startup of helping you pair with brands based on what social causes, things you believed in, being green, recycling, whatever. And they paired me with Yori. Yeah. It was really early. I'm so happy because the stuff has gone up in price so much. Absolutely. Absolutely. And hopefully it lasted. So you got it, gotten early and it maintained. Yeah. I got tons of stuff. I just started drawing on like, this is great.

48:06It's just like easy. It kind of fits in and it's great how they've matured it too with stuff that you can wear to the office. Yeah. I got to ask, what's the craziest thing you've seen in M &A? Oh, after 15 years, you've seen a lot. Yeah. Maybe I split this. You know, the transactions themselves and then the founders and with that sort of a seller that you're going to say. So now on the founder side, I have been part of prayer circles at lunch, unexpected. I'm a big guy. I've been physically intimidated at a company event. That was something. I chased a founder to a rooftop of a Vegas party at a conference in order to get time at two in the morning, actually led to an investment opportunity.

48:43So you end up in some interesting situations. Not every meeting with a founder is in an office face-to-face. You're out and experiencing quite a bit. On the transaction side, I've been CC'd on emails that I shouldn't have been and peeked under the hood and been asked to delete said emails relatively quickly. That's happened. You see some bad behavior in that regard. The most formative and I consider crazy experience is I was working at Spectrum with just terrific now MD Ben Spiro on the Ancestry transaction. It was my first real transaction. Sorry, Ben, I didn't really know what I was doing and I was working nights and weekends trying to figure it all out.

49:18And I remember sitting, unfortunately with my feet up, I was so tired on his desk. And there was a capital group that committed to the financing to help us with the acquisition. And on a Wednesday, Thursday, they were in for 40 million. At Friday, I remember talking to them again with my feet up and they're in for like 20 or 30 million. And by Monday, the group had been disbanded and they were gone. And the GFC had swallowed them up. And I was witnessing my little segment of history, but a really well-known financing group had gone out of business and taken our 40 million to zero of a commitment within three days.

49:52It's those sort of like formative periods where I knew that he, as a very strong partner, was going to have to go navigate through this GFC. And we were seeing it in real time. I was just an associate. I was just helping and working. And I didn't realize until COVID, that was going to be my time to go navigate some really tough challenges that kind of kept getting thrown at us. That one just sticks out because it was one of my first memories from M &A and it was, I didn't appreciate the gravity of it at the time, but it was meaningful. It really was. That's crazy. Yeah. Yeah. Stu, this has been an awesome conversation.

50:24I had a lot of fun. I got my money's worth. I feel so much more. I appreciate you having me. Working with all these investors that reach out. It's been extremely helpful. Those of you still listening, you got this far. I appreciate you. I would love to hear what you think about this interview. It's not pure typical M &A focus. We sort of hit more of an investment perspective. Reach out to me, LinkedIn, share your thoughts, give me some topic ideas and criticism. I'll take it. I'll learn to get better. Until next time, here's to the deal.

51:06Thank you for taking the time to explore the world of M &A with our podcast. We love hearing feedback. Tag us on a LinkedIn post, add a review on Apple Podcasts. We'd love to hear from you. If you need help standing up an M &A function or optimizing one that you already have, we're here to help. And if we can't help you, we probably know someone that can. You can reach out to me by email, Kisan, K-I-S-O-N, at mascience.com. Or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit mascience.com for a lot more content and resources. That's where you can also subscribe to our newsletter.

51:51Again, that's mascience.com. Here's to the deal.

52:04views and opinions expressed on M &A science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual this podcast is purely educational and is not