Private Equity Spotlight: The Independent Sponsor Model with Doug Song and Erik Ginsberg

So I'm very excited. today. We have a really, really interesting conversation here with my friends, Doug and Eric. Doug and Eric, thanks for joining us.

So, Eric, can you tell us a little bit about kind of your backstory, how you got into private equity?

So I had planned to be an attorney when I came out of college because I didn't know anybody. And I started as an attorney at Kirkland and Ellis. But even before that, I had been a summer associate at a couple of firms and I started to do private equity work and started to learn about this industry and got interested. So I went to K&E and focused specifically on private equity work. But my long-term plan was maybe I'll meet a client and they'll like me and then I can go over to the business side, because I had spent time doing these deals and was fascinated by the work, fascinated by these business owners that had all these companies that not only had I never heard of companies, but I'd never even heard of the industry.

I didn't know these things existed. I just started to become fascinated with the whole ecosystem in the United States of all the different businesses. And I wanted to be a part of that. So that was my plan. Of course, it didn't work out that way.

I had a good experience, but I ended up through a friend who had a contact with somebody at a private equity firm, had nothing to do with my work, introduced me one day and started talking to me about, well, what do you want to do? And I started telling him about my interest in private equity. And, long story short, I ended up joining Sterling Capital, and that was in the mid nineties. in Chicago. Spent a couple of years learning deals and having no idea what I was doing on the business side.

And they had a very interesting model. back then. They were what is now called an independent sponsor, although nobody used that term. back then. They would do a deal a year and they would get very involved in the operations.

That was very attractive to me because I needed operations experience. So I spent two years in Chicago working on deals and then we bought a couple of companies in Baltimore and that was my turn to go help run a company. So I moved to Baltimore and helped run those companies for a couple of years. While I was in Baltimore, I met Bruns Grayson, who was running Alex Brown's Venture Capital Group. And since I was still in the skill building phase of my career, I thought, yeah, I'll give venture capital a try.

Small businesses would be interested. I ended up doing that for four years, software investing, and decided that was not a good fit for me with skills. I wanted to get back to what I was doing at Sterling, but I was in Baltimore at this point. There wasn't really a lot going on in private equity in Baltimore. So I ended up meeting Rick Corcoran, who was out of BCG and had done a number of other things entrepreneurial along the way.

We just started comparing notes and we decided to hang out a shingle. We called ourselves Slate Capital. This was back in 2004. And we were off to the races and we were. what was, it wasn't even called Fundless Sponsors back then.

I think it was just called Guys Looking for a Deal. But we were basically copying that old Sterling model. And the first deal we did actually was a food business that Rick and I ran ourselves for several years. So we started out almost, yeah, we have a private equity firm, but really we're small business owners. We did that for a few years.

Eventually I pulled out of that, Rick continued to run it. And we started to focus on what we want to do long-term, which was take majority stakes in business services companies. We did our first LBO in 2009,, majority LBO. And then our third partner, Parker Davis, joined us in 2010.. And we've been doing business services, investing ever since.

And you kind of found an entrepreneurial way to doing things that you all do so well at Slate and really operationalizing, and kind of being one of the early kind of successful investors from this independent model that we're going to talk more about today. So maybe, if we turn the page here, Doug, how about yourself? What's kind of your backstory? How did you get into this?

And so, as a young banker back then, we did not have much of a private equity and hedge fund industry, not like it is today, for sure. So at Chase, we're the lead creditor, typically, and the largest creditor, in all of these credits. And when we had problems, which we did, we ended up converting our debt to equity. And we ended up controlling these businesses because we had nobody to sell these businesses to. So as a young banker, I was sitting on the boards of directors of all of these companies and actively managing them.

And I loved that part of the business. And if I look at the M&A business versus restructuring, workouts, M&A, I view as a very macro business, and workouts and restructuring. And as an extension, being a principal, you have to be really detail oriented. You have to know everything about the industry, the management team, what makes the business work, the competition, etc. That was my first eureka moment when I really wanted to go into private equity.

And I had another stint at Smith Barney Investment Banking and another firm. But I also discovered something about myself. And this is going back to the origin story. I'm an immigrant from Korea, my family, they're all entrepreneurs. I was raised around that.

So I'm an entrepreneur. And so I really wanted to work with entrepreneurs and smaller businesses. In a place like Chase and Smith Barney, you're dealing with large fortune 1,000 companies. But I didn't feel like as a banker, I was adding value, right? So I really wanted to transition to being a principal and working with entrepreneurial smaller companies where we could have more impact.

And that's really how I transitioned to the principal side. Now, prior to founding, co-founding Protos Capital, I was with another merchant bank called Barris International. We had Citigroup as one of our partners as an example, we never had a fund, we had the balance sheet of Citibank. And we were doing deal by deal back then. And then, when I co-founded Protos Capital, I think I was maybe just one year earlier than you are in 2003..

I co-founded it, but I co-founded it with a gentleman named Arnold Dietrich. And Arnie had two 20 year careers. His first 20 years was management consulting for Booz Allen, Touche, places like that. So the second 20 years was as an independent sponsor. The first 10 years was in the 1980s.

He was Sam Zell's first corporate partner. And he went in as an operating partner for Sam, right? They did tremendously well together. But what was great about that is he also had a balance sheet, and that was Sam Zell's balance sheet. So he never had a fund.

And then, after that stint, he had his own, what we call now independent sponsor firm. So the reason I partnered with Arnie is I was more of a deal guy, and he was more of an operating strategic, hands-on guy. So it was a perfect complement. He was an older gentleman as well, far wealthier at the time. So he was there to help guide me.

He didn't want to run the firm. He let me do that, but he was there to guide me. So that's how I sort of started Protos Capital with Arnie as my partner. I love that. And one of the things.

The things that I was tasked with doing.

Just recharge the battery. So we'd been talking about what do we do either on a part-time or a permanent basis. And then COVID happened. And all of a sudden, we stopped going into the office, like many people. And after a while, we did a couple of deals, my partners and I, and they were going really well.

So we looked at each other and said, do we need to have an office anymore? This seems to be working. So we gave up our office. And once we did that, we started talking about, well, if we aren't going to the office every day, do we all need to be in the same city? We started thinking it might actually be useful for the business to have boots on the ground and other jurisdictions.

We had the Mid-Atlantic pretty well covered after 20 years. We were about 18 years as slate in Baltimore. So I ended up moving to Nashville. Now, another reason why we picked Nashville is my oldest son graduated from Vanderbilt about four years ago. So we'd been visiting Nashville for nine or so years and just loved the town.

Thought it was really fun, great weather, all these other exciting things to do. So we said that might make a good choice. So my wife and I decided, let's do it. The same time my co-founder, Rick, he, got divorced a couple of years ago and met his new partner who lived in Cincinnati. So he said, well, I'm going to go move to Cincinnati.

And we thought Parker is still holding down the fort in Baltimore. But we thought, well, maybe we'll get some more deal flow. So it turns out. the first deal we did after all this happened was in Cleveland. And what the management team told us is one of the reasons they picked us was because we were, quote, local to Ohio.

I mean, a plan doesn't always work out that well, but it was at least a nice start to our new lives.

But I said it really came down to these two things. I wanted to go somewhere where I felt like I could protect my family and my business and flourish. And I think, when you look at the landscape, when you look at North America, this is one of the states where I feel like we can accomplish that. All those other reasons boils down to that. That's why we moved here.

And so.

I was like, you can't start a company in New York. It's going to be twice as expensive. And I was like, every dollar I have to raise of capital is like more dilution. that's going to make this thing even crazier to do. And so I said, well, you got to change the equation.

And so I did this really, really pretty extensive market study. And I filtered my algorithm. My wife made me put fun as one column. And so she's like, this is double insane. Like now we're going to move to the famous.

And we had to give away our home in Darien, Connecticut. It wasn't a great time to sell, but we did okay with the one we bought here. So, so I think this is good. So let's round out a little bit more of kind of the human side of both of you. And then we'll jump into some of the meat of the conversation.

One of the things I'd love to ask on these podcasts is just to get more of the uncommon common knowledge out there about each of you. So, Eric, if there were one thing that we would benefit from knowing about you, that we wish we knew, but didn't, what would be one of?

as a child. I could have been a Yankees fan. I chose the Mets. I could have been a Giants fan. I chose the Jets.

I could have been an Islander fan. I chose the Rangers, and the Knicks were pretty much the only choice back then. So the first season I remember is 1974 as a child, and it's 24 now. So that's been about 50 sports seasons. And if you just take the three major sports, I'm sorry, it's 50 years.

That's 150 sports seasons. I have one championship,

the 1986 Mets. That's it. Now, if you want to include hockey and you want to include the four sport, I have two out of 200 seasons. And so I actually started thinking about, I did the math maybe a couple of years ago, and that might be as pathetic as anybody that exists. I started thinking, well, Detroit, you know, they haven't done, well, wait a minute.

Now they have the Red Wings. They had their run in the Pistons. So they're way better. So Cleveland, right? That's everybody has Cle- no, now LeBron won his championship and they didn't really have, they had a hockey team, I think, for two years in the seventies.

So they haven't suffered like I have through the Rangers. So, and if you think about it, the Rangers won in 94.. So that's 30 years of bupkis, squaddush. I have zero championships in 30 years for all four sports.

The math team probably crushes it. Yeah, chess club. Yeah. Now, that's my grad school. Like, so let's be fair, my undergrad, oh, wait, this isn't any better.

Went to Brown. We don't win anything. Nevermind.

But I didn't join it because of politics. I joined it because they formed an Entrepreneur and Innovation Council consisting of 12 entrepreneurs across Tennessee from different disciplines. And our mission was to put together a set of proposals that were going to be presented to governor and state Congress. We presented, after 12 months of work and subcommittees, half a dozen proposals, and they range from tax, regulatory, and others to promote, again, entrepreneurship and innovation across Tennessee. And I'm proud to say that four, I think, are half passed or close to being passed, and the other two are under consideration.

So that, to me, is having real impact in a city and state. I'm very proud of that, and I'm going to continue to do that and continue to promote entrepreneurship and innovation.

There's all these other cities, and they just made it happen. And so we moved here. And I think it's the same reason why we're seeing so many private equity professionals also move here. I think we came early, so we probably are better.

The only thing that's the downside is occasionally you got a tornado.

Someone has an idea, they get capital, and then there's a sharing of the economics. Maybe as part of this, we'll talk about kind of the modern era of this world that's really finding, kind of this renaissance and the latest iterations. So, Doug, can you walk through kind of your thoughts on how this modern era of the independent sponsor world came to be?

In essence, that's what we are. When Eric and I started in the early 2000s, our firms, Eric is correct, there was no name for what we do today. We just called ourselves a merchant bank because we had nothing, not a better name. I think it was apropos at the time. And then there were probably a handful of us that were doing this at that time.

I don't think there are many. And then the term fundless sponsor came into being. I can't tell you exactly when. That was sort of the first official name for this subsegment or asset class, and currently as independent sponsor, as we all know. What I can tell you is, in the beginning, in terms of evolution, it was extremely difficult because we had to convince everybody in the deal ecosystem, whether it was capital providers, investment bankers, lenders, sellers, and advisors of all types, what we're trying to do.

And their question was, wait a minute, you're trying to be a private equity investor without a fund? How does that work? It was not easy to explain that in the beginning. But fast forward to today, the last sort of estimates that I've heard is there are 2,000 to 3,000 independent sponsor firms in North America alone. That's just amazing.

Think about that over 20 years. That's amazing. And what I see now is, I see that this asset class is accepted by all of the constituents I just mentioned before. And what I see now is institutional funds, investment banks, sellers, vendors, all now vying for a piece of this market. And if you go to any of the conferences, you'll see this in spades.

And so now I think it's a very accepted asset class. And it's obviously grown tremendously. I'll just say two more things, and I'll turn the mic back to you, Sean and Eric. But what I've also noticed is I've seen the quality of independent sponsors go up tremendously. I'm seeing a lot of former PE professionals, management consultants, operating executives, combination of all three looking to become emerging independent sponsors.

And so I see the quality really increasing. And the second thing is one of the things I've noticed also is a lot more collaboration. Because there's so many of us now that it's almost impossible to not run into an independent sponsor in any kind of process. What I see now is more collaboration. And I think that's here to stay.

And I think that's only going to increase. And we'll get into that. But I'll stop there and yield the mic back to Sean. Yeah, Eric, what are your thoughts on this?

How do I know you have the money or you can get the money? And really, that was a challenge for us five or six years. Until we really started doing deals and having a track record behind us, we stopped getting that question eventually. But early on, it was tough. These days, I don't think that's a problem, but not like it used to be.

As I mentioned, my co-founder, Rick and I, we always joke that the greatest trick we ever pulled was starting a private equity fund with no money. Right. And somehow this worked for 20 years. But on the topic that Doug brings up, collaboration, I think that's really... There's a lot going on there.

And one of the things I love about this industry is so many good people in it. And you meet another independent sponsor, you automatically like that person because you feel like you're in it together. There's not a sense of competition. Yeah. The US economy is huge.

There's a lot of businesses, plenty to go around. You always want to help each other. And I think there's that feeling throughout the industry, whether you're young or old in it, we all help each other out. I'll give you one example. We did a deal, I want to say three or four years ago, which turned out to be great.

It was actually a very small company. We bought only about 2 million of EBITDA when we bought it. And this year, it's going to do close to 20.. So it's been just a home run for us. But shortly after we did that deal, I got a call from an independent sponsor in New York who I didn't know.

He called and said, hey, I just want to introduce myself. Well, it turns out he had found that company before we had and had a deal to buy it, but it fell out of bed. He didn't get it done. And he said, I saw that you got it done, just want to congratulate you. And I just thought, hey, you know, we're independent sponsors, we should say hello.

And he was a very nice guy, enjoyed talking to him, said, well, let's keep in touch. He told me a little bit about his firm. Well, shortly thereafter, we found a GovCon business that we were very interested in. So we started raising money for it. But I remembered from the conversation that he had some very interesting contacts in the GovCon space.

And I called him up and I said, you know, one of the things that's great about being independent sponsors, you can put together your investors for each particular deal. So you can bring instead of just one fund, and it's the same investors every time. So we always try to do that. So when I threw the deal by him, he said, I would love to be a part of that. And yes, I can bring in person A, person B.

So we brought him into the deal. And he took a minority piece, he brought a couple of his contacts in, and they added a ton of value. And that ended up being a great success, that deal. So we ended up doing an HVAC deal. A year and a half ago, we called him up again and said, hey, if you want to participate, and he took a minority piece of that deal.

And that one looks like it's going great as well. So it's been great for him, because he's a one man shop, and much newer to the industry. Great for him. Now he's got two deals that look like they're going to be very successful. Great for his track record.

But also great for us, because he brought some value. He's been very pleasant to deal with. And now he's told us he is super motivated to find us a deal, right? He wants to pay us back. Now, whether that's ever going to happen or not, time will tell.

But I'm certain he wants it to happen, and he's trying. It's just an example of a collaboration, which I think has been good for everybody. Today's episode is brought to you by Blue Wave. Building a business is hard. Top third parties can help you create value with speed and certainty, but it's difficult to know who's best.

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There's just a machine and a momentum that you are beholden to versus the other way around. When I was in PE, because we were also competing so heavily with each other, I felt like I lived in the world of a zero-sum game, where it's just I win and 200 people lose, or one person wins and I'm part of the lose. And so I say the word yes with no. I'm like, no, you're right, or no, you're right. And so I think what you're suggesting is, one, you can be more agile.

You're not beholden to these constructs, but you can also collaborate with each other. And I think the other thing that I've seen in the model that I think you all referenced here is the quality of the independent sponsors out there has gone up much more than I think it ever has. I mean, knowing both of your firms and working with your firms, we know that you every bit, run your PE firm, just like any other PE firm we work with. What I used to see, though, much more so, is people, maybe, who are new to the market, and they thought any deal that you could get under LOI was a deal. And they just knew that they would come to you saying, we're buying it cheap.

And so, well, what are you going to do with it? And they say, we're buying it cheap. So maybe talk a little bit about that, because I think now, when we work with a lot of independent sponsors, they're coming in and they've got the value creation plan, and they know what they're going to do. And here's the strategic rationale. It's not.

we're buying it cheap. Maybe that's part of it, but that's not it.

It was way too efficient back then, inefficient. So I think the days of buying businesses, although it happens every now and then, maybe Eric might tell his story, but it does happen every now and then. But I think you have to face the fact that you have to add value. And I think, Sean, that's the gist of your question. So I think, unless you are able to bring value, unless you have an angle, unless you're able to bring value to a particular situation, you have no business being in that deal.

Whether you're paying six times or eight times, you really need to bring that. Why? Because why would the investors, your LPs, pay you economics? otherwise? It can't be just about the deal, is my point, because it's too efficient to market, especially now with rates the way they are, right?

There's more pressure on returns. So you really need to come up with a game plan up front. If you don't have it, you have no business being in that deal. And why would the LPs pay you economics? That's one of the advices I give to emerging independent sponsors.

typically. You got to have that game plan or partner with somebody like Eric that's been there, done that, and he could bring that value added to the table. Don't worry about your economics right now. We'll talk more about this later. But that's really the key,

we can get something at a pretty good price. But when we go to the investor base and say, here, we have this price, the first question is, okay, what's wrong with the company, right? You almost don't get credit for the fact that you found something at a good price. So you have to point to something and something more than words, right? A track record helps.

Well, look, we've done several companies in this space. This is what we've done. We've taken them from here to there. You have to be able to prove to the sellers and to your financing sources that you know what you're doing and you're going to be a good steward of the asset, or you have a real uphill climb. I think those are both really good points.

So let's talk about, maybe as an extension of this, you're talking with a business owner, it's not such a new thing anymore. You're a known quantity as an independent sponsor, the model is a known quantity. But like anything, no matter what posture you're coming from, there are things that you have to share about yourselves to any business owner, but, I'm sure, also as an independent sponsor. So how do you think about communicating with business owners about the benefits of partnering with an independent sponsor? Maybe some of also like.

what are the things you should probably think about in terms of maybe why you wouldn't want to do that? And what are some of the unique opportunities and the like?

What we provide for these owners is what I call an elegant exit, where we're providing them liquidity, but in a partnership setting. I think the benefit of this independent sponsor model is we can say sincerely to the business owner and their representatives that we have a tremendous amount of flexibility. So if the business owner cares about the culture, the heritage, the people, community at large, many times that they've built and nurtured over multiple decades, sometimes generations, they really want somebody that has that flexibility. They want that flexibility and that kind of partnership approach. I think that's what we can bring, because we don't have any shackles.

We have a tremendous amount of flexibility in how we can structure the deal, the partnership dynamics, and, very importantly, the investment horizon. We don't have to go into a situation with an automatic three to five years and we have to exit like an institutional approach. We can do that if it makes sense, but we can go into a situation and literally hold it forever if that made more sense. The beauty of this model is we can mix and match the capital base to meet that goal, whatever that is. So what I mean by that is, if I know it's going to be a very quick build, a buy and build strategy, I'm going to put out a lot of capital in a short period of time, do a lot of acquisitions, let's just say, over three to five years and exit.

We may populate that deal with more of institutional capital base, but if I know going in that the strategy is great cash flow, let's pay down the debt over time, do some recaps, pay dividends and continue to grow the business, maybe this is a 10, 15, 20 year old. We may populate that deal with longer term investors, which I define as family offices, as an example. So an independent sponsor has that flexibility that many other investment funds don't have. So I think that's really one of the benefits. The other benefit is every deal stands on its own.

Every deal for an independent sponsor is very meaningful. Our mentality is we have to make every deal work. We have 10 deals and we have maybe two that don't work out, and that's still a good portfolio. It's not like that. Every deal has to work for us and every deal stands on its own.

So it's a very different model. And I think a lot of sellers want that kind of flexibility, and this is important to them. This is not just another number. This is not just another deal.

The truth is, though, we have a lot of friends who are private equity funds and who do a wonderful job. We have a lot of respect for and are good partners in the right situation. So I mean, I think if I were advising a friend who was looking to sell his or her business, I would say either can be good. And what I would recommend is do heavy reference, checking on whoever you might be dealing with. We've got a long list of CEOs and other folks we've worked with in the past.

We just open up our Rolodex and say, you can talk to anybody, just ask them anything you want about what we've been doing. And we just closed a deal and four of our ex-CEOs invested with us in that deal, which we take as a compliment. That's our biggest selling point. And I think, whether you're an independent sponsor fund, that's what you want to do. You want to say, how have these guys behaved in the past?

Talk to as many people as you can. And I think you'll figure out soon whether it's a good fit for what you're trying to do.

And to ask people to speak with those that you've worked with before is so important. I was always amazed how very few people would ever reference us. And I was like, thank God. Just kidding. We probably would reference.

But it was enough. people didn't do that. And I don't think that's exclusive by any means to the independent sponsor model, but it's great universal advice as well for any business owner. When you're thinking of getting into a relationship, talk to those who have kind of worked with them before. Because when you get that kind of right partnership right, it's magic.

But they are also 100% committed to having us win. We found these CEOs we've been lucky to partner with in the past, we'll get months after the deal and they'll look at us at one point and say, I'm going to make sure you guys do well here, because I care about that. And we found that it's just no coincidence that when that relationship is established, the deal, not only does it tend.

when it doesn't. It's like you've wasted five to 10 years of sleepless nights and many, many hours of work. That's what's so great about getting it all going in the right direction. Maybe turning the page a little bit here, Eric, I'm curious, the next time your phone rings and it's an emerging independent sponsor, what's one of the top pieces of advice that you would give?

But at the end of the day, this is a people business. And I think you succeed because you are convincing entrepreneurs who have, maybe they've founded their business or run it for 20 years, they're not just looking for a payday. They care very much who gets their baby. And things just go a lot better if they trust you and they like you. And that just has to do with treating them with respect and trying to earn their respect with what you're bringing to the table.

So I'd say it's number one, never forget every business is a people business and private equity is no exception. So, all right, here's the other thing I was thinking about. This goes way beyond private equity. This is sort of one of my things, especially in recent years. Every problem in this world can be solved and improved if we all show a little bit more respect and a little bit more humility.

We certainly see that in our political dialogue right now, which gets more depressing by the day. And we can see that in all aspects of our life. But it's true of private equity. And usually that's not a problem for independent sponsors. We come with natural humility because we don't have funds and we're trying to earn our way in the door.

But it's something to keep in mind. It's easy to feel confident and strong when you've got a half a billion dollar fund behind you. But I think it's important to realize that every single entrepreneur that we've met, where we've been interested in investing in their business, they have made miracles happen. They have taken something that didn't exist. They've created a business and brought it all the way to the point where we're interested in buying it.

That is an extraordinary act, almost an act against nature, and way more interesting, impressive, and profound than anything we're going to do. So I talked earlier about a business that we were fortunate to buy 2 million of EBITDA, and now it's going to do 20.. And that sounds great. But I promise you what we've done. there is nothing compared to what the original entrepreneur accomplished to get that off the ground.

And I think we all have to keep that in mind. And I think my partners, we're all of the same mind here. We show up when we meet with a company, just profound respect for what's happened here, and a feeling of obligation. If they're going to invite us into this, we have to be worthy of that. So I think if you have that mindset, as a private equity investor, you will do better in the long run.

And with that in mind, just like that appreciation of humanity, but also the appreciation of a founder. It was so easy for me when I started off my career, just to say, oh, we're going to show this person our sophisticated ways. And then, as you would peel back the onion more and more, you're like, this was really hard what they did. There was a reason, in most cases, for things they haven't done. Not the least of which was really smart allocation of finite resources that can then be unleashed a little bit when you're able to kind of take the burden off their shoulders and bring extra resources to the building and growing.

But even as I reflect back when I started, I thought it was like, oh, I got this. This is going to be great. And it was pure terror. for at least two years. It was a heart attack, a day.

I was like, what have I gotten myself into? It was the most stress-filled period of my life in a career filled with stress. And so what you're talking about is not only, I think, spot on, but I personally and viscerally feel when you were saying that it's like, oh, when you get something going, it's really hard. And so I think that's great advice really for anyone, particularly those coming up in private equity, where the people who had founded these things, like there's usually a reason for the way they do stuff. So don't discount that.

And then use that as the basis to supercharge what's.

I get introduced, they find me on the web, et cetera. But, as we talked about, this is a very collaborative industry and I am happy to help. And when I say help in any way, currently I have half a dozen emerging independent sponsors that I'm mentoring in one way or another, and in some cases partnering on deals. But my general advice for emerging independent sponsors, and just going back to my earlier statement, the quality is higher, right? So these are real professionals.

They have real capabilities. But my general advice is give yourself at least a two-year runway. Unless you get extremely lucky, get a deal done in your first six months, it could take up to two years. And I can say that from experience. Make sure you have the balance sheet and the understanding spouse that understands what that means.

And I think that's extremely important. Just make sure you have the runway. The second thing I say to emerging independent sponsors is make sure you get the right first deal done. Don't worry about the economics. Make sure you get the right first deal done, because that's going to pave the way for everything else.

If you have a bad first deal, your career as an independent sponsor is extremely impaired. And in many cases, I suggest you may want to think about partnering with somebody like Eric, because he's experienced, he's got credibility, he's got the network of capital providers. Don't worry about splitting the economics right now. Worry about getting the first deal done right. And in many cases, that means partnering with another, maybe perhaps a more seasoned independent sponsor.

Obviously, the people have to all match, etc. I always say also, be clear what your goals are. What do you want to be in 10-20 years? Be clear now. Just don't do this because it's the latest thing to do.

What do you want to become in 10-20 years? In many cases, these emerging independent sponsors, they want to build a track record and raise a fund. I hear that often. In some cases, they just want to have a great portfolio and build businesses in whatever setting, whether that's a holding company setting or some other type of setting. So it really depends on what you want to do.

Do you want to create your own family office at some point after you have success and be more of the principal? Instead of putting up 5-10% of the equities check, maybe you're putting up 50% of the equity check. That is a very different model compared to most independent sponsors. So I ask them to be very clear on what they are trying to achieve. This model is extremely difficult to start.

It's extremely difficult because you don't have a track record. Typically, you don't have cash flow coming in. You don't have credibility, all the things. I think there's an inflection point. Once you get to two to three portfolio companies, I think there's an inflection point where you now have a track record.

You have credibility. You have cash flow coming in. It's a totally different model. And it's a superior model once you get to that stage and beyond. So that's my advice typically to emerging.

Go into this with eyes wide open, though. Prepare for success. I certainly felt that. I remember when I started this thing, I got that two-year advice. And I was like, no way.

No way I might have to wait two years before I can pay myself. Sure enough, it was two years. I was just like, I think my wife was just watching our cash go down, down, down, down. I'm like, well, things are going great, honey, I swear. She was like, don't look at the bank account.

But then also not only go into it tactically, not only like, have this mindset that we've talked about, this really people-first mindset, but then also think strategically. What do you want to be five years from now, 10 years from now? What's your long-term vision of your business going to be? I think those are all super, super spot on. Yeah.

And I'll just say one last thing,

And so if you want to do more than what you're capable of, given that infrastructure, you have to partner. That's why I think collaboration is going to be extremely important. If Eric brought to me a $300 million transaction, he said, listen, great transaction. I want to have a partner because I need X, Y, and Z. I'll gladly work with and partner with him on that deal.

It's this concept of expected value. It's outcome times, probability of success. And you can move both those levers to get the.

Because you never have any cash. So it's just another thing to keep in mind.

I would always say, well, see, honey,

And it's actually quite an interesting read. But the self-deception in the title is basically when we know what the right thing to do is, but we don't do it, we then deceive ourselves and in fact betray ourselves. And then, to justify that, we end up telling stories to ourselves that we heighten our virtue and we make other people, the bad guy, to sort of feel better about the situation. And I read this book, I want to say it must have been 15, 20 years ago, really, when my kids were young. And it's a business book, but it's also a personal book.

And it's, you know, an example would be you're sitting on a plane and you put a bag next to you to try to save the seat, right? And you know, you shouldn't be doing that, because the mistake you're making is you're overestimating the importance of what you need and you're not seeing other people as human beings, worthy of the same kind of consideration. And the way to stop behaving this way is to stop doing that, is to see everybody. I'll stop there, but it goes into applications and implications for organizations, and organizations often break down when people behave that way. It's a very quick read, but I found it pretty profound, something I applied in my life in addition to in business.

So I would recommend that to anybody.

So that was one of the best things I ever did. And I think every year or every other year, I ask them, hey, what's the difference between basic and compound interest, right? What would you get if you put in $10 today, if you do compound interest in 30 years,

and there's a spreadsheet and all the rest of it. But that was one of the best things I ever did.

Thanks. This has been fun.

That's all we have for today. Special thanks to my friends, Doug Song and Eric Ginsberg for joining. If you'd like to learn more about them, Protos Capital and or Slate Capital, please see the episode notes for links. Please continue to look for the Karma School of Business podcast anywhere you find your favorite podcasts. We truly appreciate your support.

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