Ep 157: Adam Waglay, Butterfly Equity | Food-Focused Investing and the Transformation Team Model

0:00Hey, everybody. Before we get started with today's episode, I want to take an opportunity to tell you about my new book, AI Marketing Blueprint. It just hit number one bestseller status across multiple categories on Amazon, and it walks you through a proven framework that we are taking our clients through here at How to SaaS and how to stay relevant and visible in a world with AI platforms. One of the biggest problems that we have seen across clients and companies is that the traditional channels that they relied on, like paid search or SEO, have declined significantly or are getting more expensive and competitive.

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1:10Grab a bunch of copies so that you can kind of consume the content together and start to apply it to your business. And with that said, let's move on to the episode. Welcome to the Private Equity Value Creation Podcast, where we interview leading investors, operators, bankers, and advisors to help you answer one question. How do we increase the enterprise value of our companies? My name is Shiv Narayanan, and each episode, I will dive deep with a guest to help you become a better value creator and capital allocator.

1:41Adam Waglay: So with that said, let's jump right in and let's get started with today's episode. My guest today is Adam Wagley, and he is the co-founder and managing partner at Butterfly Equity. And what I really enjoyed about this episode is that Butterfly invests specifically in businesses in the food space. And they have multiple categories of companies that they invest in production type companies, consumer facing companies and even services companies in the space. And it's very different from having technology investors on the podcast because the value creation playbook for companies like this looks very different.

2:13how you actually look at margin expansion or where the actual levers are for building value inside these companies. It's just very different from other standard tech companies. And so Adam walks us through their framework and how they evaluate companies and how they actually staff these companies, how they staff their internal firm and also how they're leveraging AI and how they do a great job of participating in the communities where they're investing in. So it's a really great and I would say enlightening episode for a lot of investors and founders and I'm sure you'll take away from it as much as I do.

2:42So with that said, I'll leave you to it. Enjoy the episode.

2:51All right, Adam, welcome to the show. How's it going? Doing great. Thanks for setting this up. Yeah, excited to have you on. So why don't we start with your background and the firm and then let's go from there.

3:02Adam Waglay: Yeah, great. So Adam Waggut, I'm the founder and CEO of Butterfly. I was born and raised in Canada, actually. I grew up in the food business. So dad was a chef, grew up in restaurants. But more importantly, the last 20 years I've been investing in food in one form or another. I started on the investment banking side, so I was at Goldman Sachs for a while, and then ended up eventually going to KKR and largely focusing on consumer and food while I was there. So I spent about 10 years at KKR, more lucky than smart, got to work on some really good deals, got some great experience, got to know some underlying investors, and then got the courage to spit out and launch my own firm now about 10 years ago, which is called Butterfly.

3:40Adam Waglay: So that's my quick story in a nutshell. Yeah. And tell me a little bit more about Butterfly. What types of companies are you focused on? What stage of companies? And when do you guys come in and how much capital are you investing? Yes. So we're the largest food-focused investment firm in the world today with just over $8 billion in AUM. And when we say food, what we're focused on is the whole supply chain or ecosystem of food. And so really three business models. So industrials, which are production and input companies like ingredients, packaging, et cetera. Business services would be the second business model, which is largely distribution and logistics.

4:18Adam Waglay: And then finally, branded food and beverage. So kind of three verticals. And interestingly, food is the largest industry in the world at$28 trillion. It's also a high growth industry. Think about it, the demand for food far exceeds supply. And then for investors, it's actually a pretty safe place to invest. We eat three to five times a day. So it's actually performed really well for private equity. So those are some of the quick facts on us. We're really focused on investing in the middle market in food. So we're looking at midsize companies. And the reason for that is that's where all the growth is.

4:51Adam Waglay: And that's where we have the ability to really kind of transform these companies, which is maybe the last part of Butterfly is that as much as we're an investment firm first, almost half our team are transformational people, meaning food operators, food consultants. They help us underwrite deals when we buy companies, but more importantly, we'll deploy that team, two to three of those executives each time into the company's top drive transformation. So we like to say we're buying caterpillars that we're hoping to transform into butterflies. You're welcome to make fun of us. I'll pause there. Yeah, no, that's really interesting.

5:22I guess, you know, it's rare to meet a private equity firm focused on food as a sector. A lot of folks are chasing middle market deals in tech or tech-enabled services, SaaS, AI, etc. So tell me a little bit more about that decision and why focus on this industry. And I get that you have a personal background, but a little bit more about just the industry itself.

5:42Adam Waglay: Yeah, so definitely it starts with my experience over 20 years of kind of investing in the food space. So it's probably the place I know the best. But more important than that, I think it's some of these facts I was hitting on. So large industry. So there's a lot of ability to deploy capital in that space. And actually on the point of you don't hear it that often, we're the largest already. There's not many of us to begin with. It's actually less competition from a private equity perspective. So there's thousands of tech funds. There's thousands of health care funds. There's a very few or very small group of food focused funds.

6:14Adam Waglay: So huge industry, less competitive, again, high growth. So the demand for food far exceeds supply. People are premiumizing how they're eating. So they're eating better for you on the one hand. In some cases, they're eating more premium things that drives sort of a pricing growth and inflation sort of behind it. And then again, just, you know, good risk adjusted return. So because we eat three to five times a day, safer business models, harder to disrupt by things like AI, if you will, more recession resilient, generally speaking, less exposed to global trade dynamics because a lot of food is domestic.

6:50Adam Waglay: right so we're north america focused so most of what we manufacture is manufactured in the u.s and sold into the u.s so a lot of the trade dynamics you hear about so safer space too so it's big category high growth safe and less competitive that's kind of why we decided to focus on it and again we're the largest already yeah yeah i think the the fact that there's less competition that definitely resonates a lot of people are chasing similar types of deals and there's increased competition for certain types of assets. And I'm always loved to wonder why more companies or more firms and investors don't go after profitable businesses in other markets that are clearly good businesses.

7:30Like I get that tech is sexy and there's recurring revenue and you can kind of hang your hat on that and that revenue retention and some of these numbers that make it safer as an investment. But so many of these industries have these legacy companies that that have been around for decades. And there is an opportunity to grow them faster by either go through digital transformation or improving their go-to-market or finding efficiencies in supply chain. So why is that? Why doesn't more capital enter these kinds of markets?

8:01Adam Waglay: Yeah, it's a good point. I think people are starting to think a lot more about this, especially with the dawn of disruption of AI, looking at business models that are more old school, picks and shovel businesses, things that are harder to disrupt. And so we're seeing people start to focus more on it. Interestingly, that's been beneficial to us because it's some of the larger private equity funds have said, hey, why don't we spend more time thinking about food? And that actually, because we're in the middle market, we're pretty good at building companies to sell to the larger private equity funds.

8:34Adam Waglay: And generally speaking, too, what's interesting about our go-to-market strategy on food, as I mentioned, is yes, we look at branded food and beverage companies. That's about one third of what we do. But about two thirds of what we do are actually going after these B2B businesses. I call them enablers. So these are the businesses that actually enable the food industry. To give you some examples. So imagine ingredient companies. So instead of buying food brands themselves, why don't we go after the ingredients that those food companies are buying? The best example in our portfolio today is a business called Actis Nutrition.

9:07Adam Waglay: So we're the largest manufacturer of whey protein in the world, if you know what that is. So that's protein that goes into protein bars, protein shakes, protein chips, etc. And with all the demand for protein, it's an interesting way to play that trend without actually buying a brand. You're just buying the ingredient. Another example would be packaging. So we invested in a business called ePack, which is the largest manufacturer of digitally printed packaging for food and beverage products and focused on flexible packaging. So if you remember those, you go to the supermarket, you see those flexible packages that stand upright, kind of the future of packaging.

9:40Adam Waglay: that's an interesting enabler bet because we're not again picking a brand we're just picking the fact that it's going to be packaged and sort of it's a way to play the trend without actually playing the brand and it's sort of an interesting way to kind of go about it so and again having that ecosystem approach to food as we understand upstream midstream and downstream food it allows us to find really unique deal flow and really use of adding value yeah it's really interesting as you're describing these kinds of businesses one of the things that jumps out is that there's way more complexity that you have to manage almost as an investor, right?

10:13Because if let's say I'm a vertical focused private equity firm where I'm only investing in fintech, a lot of those companies have similarities in terms of how they operate and the way that they're structured. And there's less risk in terms of operational complexity. But here, like you could have a packaging company that has its own supply chain issues, and then you have raw materials or resourcing that goes into a different type of product. And that has its own supply chain issues. So how do you manage that as a firm? Because each business that opens up CapEx issues or supply chain issues, and that's a lot to manage as a firm.

10:49Adam Waglay: Yeah, it's a great point. And it's definitely something we have to manage. You know, the way we go about it is we really think of us as investing in three business models. So there is the, you know, production inputs, industrials business, which is B2B in nature and kind of how it manages. So maybe it sells different products to those B2B customers, but the business model, you're dealing with a lot of the same issues. It's like, how do you kind of build your sales force and how do you go to market to kind of drive your sales force and manage those people, if you will. If you're manufacturing the product, there's an industrial side of the business and shop floor effectiveness.

11:27Adam Waglay: And how do you optimize your production? How do you deploy your assets kind of efficiently? So irrespective of what you're manufacturing on that B2B side, I think a lot of the playbooks, if you will, we call them cookbooks, are actually kind of quite similar. So that's business model number one. Business model number two is really in the business services place. You know, we talk about distribution and logistics. So while we look at different types of distributors, you know, whether it's fresh distributors, to frozen distributors, to fish distributors, to protein distributors, while the product changes, the business model is pretty similar, and the techniques for value creation are pretty similar.

11:59Adam Waglay: And then finally, the B2C stuff, whether it's beverages or food, the product can change, the brand can change, but the value creation playbook is kind of the same. So we look at it as having three sets of playbooks and three types of teams that are experts in one of those three business models. And we kind of go to market that way. Now, look, you always have to customize your approach a little bit, but the fundamental business model, the fundamental way we make create value in those three business models is often the same and often repeatable. Are you deploying your capital equivalently across those three segments?

12:33Adam Waglay: The goal over time is to be about one third each. So kind of two thirds B2B enablers, one third sort of B2C. And that's kind of where we're migrating to. So spending a lot more time on B2B these days. But what we like to say is best deal wins, right? So we're pretty concentrated bet strategy right out of one fund to do 10 to 12 deals out of a fund, pretty equal weighted. And we kind of say best deals win. That's what kind of gets in there. But we do think about the portfolio construction in the way that I just answered. Yeah, I think that's interesting. Yeah, I guess on the value creation side, you touched on like, hey, these three companies have three distinct playbooks, if you will.

13:09So can you talk about that? Like, what is the approach you're taking to each of these types of companies?

13:14Adam Waglay: Yeah, happy to. So maybe on the B2C side, because it's the most easy to think through it, most easy to relate to. You know, we've got some fascinating businesses we've invested behind. So Take Organe, which is a protein powder, protein shake business. That's a brand, obviously, one of the largest brands kind of in that space and a very successful transaction for us. We actually sold it in a two-part transaction to Nestle, which is the biggest food company in the world. So our playbook here was we met the founder. It's an incredible story, cancer survivor and a doctor who kind of created a product to basically get himself better.

13:54Adam Waglay: so if you know you've heard of ensure or boost these are products that are given to cancer patients when they're on chemo but if you look at what's in those products there's really a lot of things that aren't great for you so he formulated his own product called orgain organic gain was kind of the story behind the name but when we showed up and we met him while he had a lot of success there were a lot of things that he hadn't got around to doing yet and if you just kind of go throughout the business he had really focused on cost on amazon as the place to build a business, which was really smart because I got him to a very big scale very quickly and was efficient for him.

14:28Adam Waglay: But he hadn't spent as much time thinking about how do I build out the business and all these other retailers? And how do I get a whole lot more doors with those retailers? How do I get a whole lot more skew facings, right? And sort of really kind of fill a shelf. And we have a real science around how you kind of go about doing that. So we kind of work together with him to do that. I think the other thing that we have a playbook around CBG is building the team, right? So when we showed up, I think Andrew, Dr. Andrew Abraham had about 40 people on the team. And that was impressive. He kind of built it to a real significant scale, doing it with a very thin team.

14:59Adam Waglay: But we helped him kind of hire a head of sales, hire a CFO, really build that whole executive team. And again, leveraging our best network in food. All we do is food. We know a lot of people in food. We helped to kind of build incredible people and talent in each of those areas. And then really putting together processes and ways of kind of driving value, which are not just processes themselves, but bonus mechanisms and programs in each of the different departments to drive certain behavior that drives more revenue growth, number one, but also kind of more margin expansion, if you will. And then maybe lastly, we did help them think through a reformulation around something that, you know, really helped improve the kind of gross margins a lot around something called bitter maskers.

15:41Adam Waglay: So those are the kind of examples around Oregon or one kind of CPG business, if you will. Yeah. What about on the production side? I guess that's a very different playbook. How do you guys look at Valley Christian there? Yeah, happy to. So maybe on that side, I'll pick on Actis Nutrition, which has been another very successful deal for us. So we invested in that in 2023, so just over three years ago. it's been really a phenomenal success so far and it's really been on the back of how do we go and expand into new proteins and new products so basically when we showed up they were more focused on whey protein isolate whey protein concentrate milk protein isolate milk protein concentrate so when you make whey it's actually the byproduct of making cheese you produce a liquid whey and then And when you filtrate that in multiple different ways, you produce this high value product and ingredient.

16:34Adam Waglay: So the management team had this idea to maybe get into other products, which are like things like casein and caseinate, which are actually protein applications more to be fortified in foods versus beverages and powders. And if you now see protein chips, you know, protein and fortified cereals, things like that, we kind of got into those categories. That actually was very successful in expanding revenue and sort of profitability. So kind of getting into some new products, if you will. We also started to, you know, really expand as a food firm. We know a lot of the food strategics that buy these types of products and kind of help them really expand their sales network more into some of those sort of bigger accounts and really kind of grew the business in a significant way.

17:15Adam Waglay: So both new products and then kind of greater expansion of the products that they kind of have today. And then finally, I'd say we've been very helpful and led by the team, obviously, on giving them the capital to continue to consolidate and grow. At the end of the day, the supply side of being able to buy this stuff to turn into whey protein is the key. And this management team has been incredible at identifying additional facilities to buy at great multiples to continue to consolidate their scale. so they're already the number one player but the bigger and bigger they can get the more and more they kind of control supply and can ultimately use that scale to their advantage to invest in r &d and be more innovative and kind of be the one-stop shop for a lot of the brands that are buying the protein or frankly a lot of the producers of cheese that make the liquid way that they need to get rid of so we can be the one top buyer kind of on the supply side so this is really you know So as a specialist, getting very deep into what are the value creation levers in these different businesses and trying to work together with the management teams on how can we take this to the next level.

18:24Yeah, it feels like in food, the big lever is gross margin. And a lot of it is in figuring out the raw materials and all the different components that are going into what you're selling.

18:36Adam Waglay: Absolutely. Absolutely. So I'd say that's definitely one of the key stats. And I think for us too, we've had a lot of success driving revenue growth as well. So we tend to invest in businesses that are in categories that are growing, that are number one or two players that are growing in a growing market but can take share. I think that's a really important thing. And then we're also pretty good at developing playbooks to how do we accelerate revenue? How do we catapult revenue to take it kind of to the next level? More coming from an operational lens. So I think that plus the gross margin is the magic of kind of - How do you do that in food?

19:08I get on the consumer side, retail exposure and retail marketing, I get that. But how do you do that for the production side and on the services side where you're kind of selling into another market and you're kind of dependent on their growth to sell more?

19:26Adam Waglay: Yeah, definitely. So obviously, let's start with investing in markets that are growing. We like to say we don't want to be swimming against where the trends are. So it definitely needed to be in a growthy market. But what we've noticed is a lot of this comes down to Salesforce effectiveness, right? So how's the Salesforce set up? Does it have the right leadership? Do they have the right process? Do they have the right bonus incentives and mechanisms to drive the kind of best possible behavior? you know what is our go-to-market pitch can it be stronger can it be tighter who's our competition which which are the weakest players and how can we kind of go after them and take share um so look a lot of times the playbook is quite similar and it's good old-fashioned break down the problem what are the metrics behind all these things like what do you well you don't measure you can't improve um and and so it's interesting at these mid-sized companies a lot of these are family backed companies, founder backed companies, they've done a lot of incredible things, but maybe they didn't have all the resources or the capital to invest and really going and taking this to the next level.

20:35Adam Waglay: Sometimes there's a big role for technology, like implementing ERP, Salesforce tools, things that allow them to just track things they've never had before. So it's a combination of talent, process and systems, and then bonus mechanisms that honestly, we've seen transform how fast some companies can grow. It also feels like, you know, and I don't want to say more mature, but just modernized industries like software, a lot of playbooks are being deployed by a lot of competitors. But in some of these markets, it feels like companies are earlier in their maturity curve. And some of these playbooks have just not been deployed.

21:15Adam Waglay: Yeah, that's a great way of saying it. I think a lot of the, I can't speak as much for the enterprise software side. It's obviously not a place I spend time. But yeah, I would guess that they have a lot of tech expertise and savvy on an investment they've already made, just given it's kind of their core business and space. I think when we show up to a lot of these food companies, they just haven't had the time or the capital to go focus on it or the expertise. And so because we're food only, we get to see a lot of what best in class looks like. And then when we show up and make an investment, we can say, hey, we know two or three of your other competitors.

21:52Adam Waglay: Here's how they go do it. And here's our past experience. Here's the deal we worked on in the past. Here's a case study of what we did. We're not saying it's going to perfectly apply, but some of this will. Right. And so the whole reason we call it a playbook is sometimes the playbook is perfectly repeatable and we should be able to just rerun it. But what we always know is sometimes you have to kind of customize those things. I think, again, being a specialist really helps because we can have that pattern recognition around here. We've done X amount of ingredient deals or ingredient companies that we can look at and draw from.

22:21Adam Waglay: Or sometimes we haven't even maybe bought a company, but we've looked at it. We spent a lot of time on diligence. And so we're learning. We're kind of building this knowledge database now over the last 10 years and really becoming a food authority kind of around some of these things. We'll get back to the show in just a moment. But before we do, one of the most common and important value creation levers that we hear about on the show from private equity investors and our own PE partners is go to market. Yet when these same PE partners bring us into their portfolio companies or new target investments that they're exploring, we find that the marketing function is quite immature, underutilized and under optimized.

23:01And so that's a huge opportunity that we see inside these companies. And if you have a portfolio company that you feel like it's scaled a lot faster to drive more pipeline and revenue, or you're looking at a new investment where you feel like that could be core to your investment thesis, well, we'd love to explore that with you and figure out how we can partner with you to drive more enterprise value creation on the marketing side, similar to the way that we've done with major PE firms like TA, Updata, HG, SDG, and many more. At this point, we've done hundreds of engagements across hundreds of industries and verticals, and we have a ton of benchmarks and frameworks that we bring to these engagements to help you drive as much enterprise value as quickly as possible.

23:41So if that sounds like something that you might be interested in, you can just email me directly at shiv at howtosass.com or go to our website and schedule a demo, and we'd love to speak with you about it further. And now with that said, let's get back to the show.

23:55Adam Waglay: You mentioned earlier that a big chunk of your team is focused on the transformations. So talk a little bit about that. How have you structured the team? Yeah. So literally we have a 50 person team plus or minus. Roughly half of it are not investors. They are operational people. These are former food consultants and then also people who've operated and worked within food companies. They work alongside our investment teams. So when we're doing diligence and going to buy a company, we literally staff. part of that operations team. We call them the transformation team alongside the investment team.

24:28Adam Waglay: They do due diligence along the investment team, alongside the investment team. When we buy a company, we'll then deploy two to three of those transformation executives into the companies four days a week's shift. This is not turning up to board meetings to ask questions. These are people who are going to roll up their sleeves, do the work, work alongside the CEOs, the management teams to make it happen and go deliver against like what they signed up for in diligence. So it's a very powerful model. It's very hands-on. It's people that have had experience in the space. And honestly, with our mid-sized teams, a lot of these middle market teams, they don't have the time.

25:06Adam Waglay: They don't have the teams. They don't have the capacity. So they love this ability that we give them resources and people to go help them get stuff done that maybe they didn't have time to go to do with expertise kind of from before. And what's been interesting about this strategy is not only does it help us grow our companies and not only does it help us manage risk for investors, it actually now has become something that's leading us to new deal introductions. So our CEOs and founders that have worked with us now and they've worked with that transformation team, you know, they really talk about how well that team has done for them.

25:39Adam Waglay: And you can't really express how powerful that is, that referral mechanism kind of for other deals, right? Now that we have a track record of working with these folks. I guess the interesting thing there is like, how does that work as a firm? Because in a lot of PE firms, like there's this battle, right? Like you obviously want to source more deals, but then people that are working with the companies themselves and the operating team, And like that's extra overhead for the PE firm. So are you guys staffing this out as part of your firm? Is the portco paying for it? Like how does that work financially?

26:15Adam Waglay: Yeah, generally speaking, this is something we, Butterfly, have decided to build out. And we think it's part of our differentiation, both for our investors and then also for working with our portfolio companies. So we see this as something that is on us to go and build out on our own. and so it's part of our model and what you're seeing in private aggregates i think there's two different versions of it right i think there's folks that build it on in-house and it's part of uh you know their p &l and part of how they've built the business and then there are other models where they do charge for it um and as they scale you kind of see that happen sometimes as well but we've chosen to build it internally first yeah that's that's honestly it's a great decision i think the thing with deploying capital is that the deploying capital part is almost i don't want to say easy but it's like it's like table stakes and then actually growing the business requires operational chops and a lot of p firms kind of just like invest and then let the company be and that's good in some ways but in other ways it's like there's a lot of value left on the table especially if you don't have a good management team or you're a good management team they need define more expertise and bandwidth to actually scale.

27:25Adam Waglay: Yeah, no, I'm glad you said that. You know, I think the, you know, investing is important, but we kind of see this transformation. I mean, it's in our name, right? We call our firm Butterfly for that reason. We think being really good operators, being really good people that know how businesses work and making them better, like that's the X factor. That's what creates the alpha. You can only really do it, by the way, if you're a specialist, right? To go say you're going to learn how to operate and be better in many different types of businesses, I think is hard. But if you're a specialist, I do think you can really do it.

27:56Adam Waglay: And I think that's the difference maker today. And it's only going to get more and more competitive. Definitely. And I think I'm sure that helps you also win deals because you're kind of making this promise to future portfolio companies that not only are you going to be providing capital, but you're bringing these resources to help them kind of scale to the next level. Yeah, we like to use this line that, you know, we're a quasi strategic. So now when we look at that portfolio, think about all the things we can bring to that new potential investment, right? And that's been, you're really smart to point that out.

28:30Adam Waglay: It's come up in a lot of deals where we've been competing, where we say, hey, look, we're more of a quasi strategic. And we just bought a flavor company recently called Custom Flavors and Target Flavors. And we told them, hey, we, Butterfly, spend$100 million on flavor per year across our portfolio. Here's some insight we can talk about. Here's some angles we've got. Here's some ways you think we can grow your business that other people can't. And we feel like that was a difference maker in that transaction. Yeah, definitely. Yeah. I think that that's such a interesting value add for these companies that are looking for not just money and capital, they're looking for a strategic partner.

29:05What about, what about on the AI front? I'm curious, like in the industries that you're investing in, like how is that showing up and how are you guys using it to either make investment decisions or make these companies more efficient or effective?

29:18Adam Waglay: Yeah, so obviously everyone is super, super focused on this. I think what's interesting in the food sector, maybe just to start, is I do feel like we're safer than a lot of other spaces. Anthropic came out with a recent piece of research, just talked about the effect of AI on sectors. And as you'd expect, food and ag are kind of close towards the bottom. So the nice thing is it's not going to fully disrupt our business model. On the flip side is I think there are many opportunities to both grow faster, quicker, deploy resources more efficiently and things like that. And that's really where we're spending our time.

29:54Adam Waglay: So if I think about the food complex, our operational team is very focused on AI and kind of implementing different strategies across the different portfolio companies. So we kind of start with almost a diagnostic, which is what is the opportunity for AI in this business? what are the three to five biggest levers that maybe AI could be helpful with if it's a custom answer for each one. And then we go to work on, well, what are the right tools to go after that problem in this business? And what are the right people that we're going to need? And so just to summarize it in food, I think the two major areas where AI is a huge alpha maker, if you will, are sales and marketing or marketing and branding in particular.

30:40Adam Waglay: So, you know, content creation, you know, now you can just do a whole lot more of that a lot more quickly. You know, back in the day, you used to hire an agency and then create a brief and then go to multiple firms and they kind of come back to you. You can kind of create content now, you know, at light speed. And what that allows you to do is create a bunch of content. You can now test it to in social media much faster than you used to be able to with the kind of older form. So I'd say all of our companies are spending a lot of time here taking this to the next level, not only being faster, but being able to test it all better and implement it sort of at a lot cheaper kind of cost.

31:15Adam Waglay: That's the number one area. I think the second area is data analytics of all kinds. So, you know, sales and operating plans, for example, there's just a lot of data coming into food companies where you're selling a lot. There's a lot of transactions per day that you have coming in and a lot of inventory you need to be ordering and managing and lining those things up. A lot of this stuff has historically been done in Excel spreadsheets, believe it or not, or maybe an ERP system if you're lucky. And a lot of the numbers have had to be crunched by smart analytical folks. We can now do a lot of that math a lot quicker just with AI and test and learn math around these different things.

31:53Adam Waglay: So those are the two areas to me that have been the highest impact so far. And I would say, look, to me, all of us collectively around the world are early days on this, Shiv. While I think we're doing a good job in the two areas I kind of highlighted, I think this is so dynamic and it's moving all the time. So we just need to really stay on top of it, basically. Has it changed how you source deals at all? Yeah. So I guess I talk more in the portfolio where the big opportunities are at the butterfly levels at the private equity firm level here, too, where we're deploying different tools. And how can we automate the work of the diligence team?

32:26Adam Waglay: So I'd say on sourcing, we're early days there on trying to figure out how to basically get more ideas into the top of the funnel. And I think there's some exciting things that we're working on there, like to unearth companies maybe we didn't know about or talk about before. And the kind of examples there would be there's a lot of information digitally now, right, across things like social media and Amazon in particular that can maybe help us guess how big companies are. It's amazing how many private companies are in the US and how big they are, but you would never really know. And there's no way to really kind of get it.

33:00Adam Waglay: So what we're curious about is, hey, is there a way to use this digital information to somehow take guesses at which companies are the biggest to go after or the most relevant relative to our size? So that's kind of what I'm most excited about on the sourcing side. I'd say where the bigger use of AI today is more on the investment team diligence side. There's so much work we do when we're going to make a bet around a specific investment. and there's so much data to go crunch. You know, they open up a data room and our mid-level folks and junior folks have to go crunch all these numbers, pull all these, you know, PDF files out and spreadsheets.

33:34Adam Waglay: And we're trying to invest in all the best tools to automate to make that work way faster so that we can deploy those teams to do a higher value, really important analytical work as opposed to stuff that's kind of almost number crunching, which should all be able to be automated. So I'd say that's the second area. we're seeing a lot of different tools. On the side where you are diligencing and you're kind of analyzing these companies, has AI presented any threats or places where you're like, oh, actually, that's an area we don't want to invest in or actually here's an area we do want to double down because we see it potentially being an accelerant or it can actually help a particular investment thesis?

34:14Adam Waglay: Yeah, I think in terms of where we think, So a place we haven't focused on just given our focus more investing in actual food companies is we haven't really spent a lot of time looking at, hey, are there AI tools we could invest in that are enablers that support the food industry? Part of the issue we have with those types of companies is because the technology is changing so fast and we're not technology investors, we worry about that, right? So maybe there's a tool that works really well. It's helping, you know, different food companies right now from a AI marketing branding kind of strategy as a service company right now.

34:58Adam Waglay: But when we look at those, they're, you know, dependent on a platform or dependent on a certain kind of group of people. And so when we look at trying to make a bet on that, it feels very risky to us, both because I think the platforms keep changing and it's not our expertise. So I think that's an example of something you could find really interesting, but it actually has scared us away. And we said, you know what, we'll look at these things, but we're probably not going to play behind it. So that's an example of maybe something that we've been less excited about. in terms of something where we get more excited with an AI opportunity I can't say there's been a whole lot of that yet and I think that's because we're still sort of in the early days with our AI playbook I think over time as we get better and better at that and we know we can bet on our AI playbook and strategy driving 30 % increase in value creation or something that's specific then maybe we'd be like hey we're excited about this company because the AI opportunity is so big.

35:54Adam Waglay: I can't say that we've seen that yet today, but I think it'll happen. What about on the community side? I think one of the interesting things about your business is that there's a supply chain aspect to it. And then that means like you're involved in local communities. Like how involved you get on the local side with the communities that you have investments in? Yeah, that's a great question. Obviously, you know, food is the biggest industry in the world, high growth, but also one of the biggest employers in the country. and then tends to be employers, the local community, right. And very active.

36:27Adam Waglay: So you actually find that these companies are very local care, a lot about their communities need to, and think that's kind of the right thing. So it's interesting you brought this up. We've built this in since the beginning of butterfly, but we care a lot about communities and contributing in general. So actually 10 % of everything we make at the GP level, we actually donate to something called the butterfly equity foundation. and that's a 501c3. It also raises its own money and the intent of that organization is to actually feed people that can't afford to eat and get people access to healthy food through making grants to organizations that are very disruptive around kind of doing that.

37:08Adam Waglay: So we've had that commitment since day one. It's been very material to us. But what we find is it actually is very important as we talk to founders and family-run food companies in the food industry. A lot of these folks care about their communities. They're spending a lot of time thinking about how can they help? How can they do things better kind of locally to kind of improve their own community? So it's actually something that's very much aligned us with these founders in the food space. So interesting you brought it up. That's one of our biggest commitments is at the foundation level and all of our people on our team get involved in community work and in kind of doing all that.

37:43Adam Waglay: But then at the business level, you know, we really have to think about, you know, what community are we operating in? Are we doing the right things by the people in those communities and the employees? Are we doing the right things, you know, from an environmental perspective in those areas? And then again, you have to really think about this. I mean, ultimately, the end consumer, the end product that we sell goes to consumers. And consumers really care today about what's the story behind the company that I'm buying this product from? Are they doing the right thing by their communities, by their employees?

38:14Adam Waglay: And then who's the ultimate owner? Who is Butterfly? And do I like that private equity from what they stand for? So it's interesting that you're asking this question. This is built into how we think about things and definitely something that we spend a lot of time on. Yeah, I mean, I love that you guys are doing that. And one of the reasons I asked is because I think, you know, I'm a really big fan of entrepreneurship and what it stands for in whatever communities or markets it operates in. And the type of businesses that you're investing in requires a local presence. And there's always like institutional capital comes in.

38:46It can easily want to transform how a business operates. And you try to go for margin expansion. But meanwhile, there are like actual families and lives and communities that are connected to that business wherever it's kind of operating. So in this type of a business, I would say it's more important than, let's say, a tech company because things are often centralized in those kinds of businesses. So really interesting to kind of hear you talk about that.

39:08Adam Waglay: Yeah, no, great question. Yeah, I know we're coming up on time here, Adam, but before we wrap up, just if people want to get in touch and they want to potentially work with you guys, what's the best way for them to do that? Yeah, I'm happy to give out my emails pretty easy. If it were the easiest, I can direct it. So my email is adam at bfly.com, b-f-l-y.com. And you can also go to our website. There's a ton of information on the website, which is just bfly.com. I've got a lot of information there and other ways to contact us as well so I'd suggest doing it that way and I really appreciate the time here yeah thanks for coming on and I appreciate you sharing all your wisdom it's very different from some of the episodes that we've had that are more focused on the tech space so appreciate you coming on and talking about your investment philosophy and how you guys look at building these companies and I'm sure a lot of people in the audience will learn from it so thanks for doing this all right thanks so much thanks for listening to today's episode before you take off just a few requests from our side number one if you haven't done so already please subscribe to the podcast on itunes or spotify or youtube or wherever you go to listen to your podcasts number two if you are in the market for due diligence services strategy consulting or fractional cmo services please get in touch with us at www.howtosass.com and third please buy a copy of my new book, Exit Ready Marketing.

40:31It covers a ton of concepts that we take our customers through, private equity investors, B2B companies, CEOs, operating partners, and marketers. And there's a ton of great value in there that expands on my previous book, Post Acquisition Marketing, as well. So with that said, I hope you enjoyed today's content and we'll see you on the next episode.