David Hellier, Bertram Capital | Harnessing Data to Innovate, Differentiate and Evolve

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So.

I'm really excited to have my friend David Hellyer on David. it's great to see you in real life.

One of the things that I think everyone would be really interested in is understanding more about your background. What brought you into private equity? And a lot of people have different paths, and that's the beauty of this industry. What was kind of your journey into PE?

I finished my master's in economics at the University of Florida Go Gators in 1988, which was right after the 87 stock market crash. For most of you out there, you might have to go research that on Wikipedia. Which meant there were no jobs in finance after that. So it was about being creative and pivoting. My resume was the last page of the MBA book because they didn't know where to put a master of arts in economics major. And there was a business in Gainesville, Florida, that was the first division of General Electric that Jack Welch spun out.

And they were a buyout by a privately held business out of Colorado, and they were looking for someone in product management to do competitive analysis. So my resume, I needed a job. I was in Gainesville, it wasn't expensive to live there.

So I took and I got seven years of training with GE guys, which was phenomenal and really learned a lot and got to check off a lot of boxes. But it wasn't in finance. I took a circuitous route, I did that, I was with a company called Iomega, it was called the ZipDrive.

It was unbelievable. We had one of the highest appreciations in a single year on Nasdaq ever. That was a lot of fun. Then I did a startup called Ask Jeeves, where I ran marketing, so I got involved with the internet.

Very, very early on we got to do a lot of innovative stuff. There tried another startup, which was kind of a precursor to YouTube, as a lot of startups didn't work out, moved back to Florida and started a little marketing consulting business.

And I got involved with a company that grew diamonds above the ground.

So I was running this business early stage. We grew diamonds above the ground. It was really cool technology incubated at the University of Florida and we needed to raise money. So I presented at a couple of conferences and there was a firm called Sierra Ventures out of Silicon Valley. And there was a guy named Jeff Drazen, and he was one of the partners I got introduced to, Jeff.

We hit it off right away and it was amazing. He understood what we needed to do. I said, I'm either winning with you or I'm out of a job. We had a 10 person board.

I got the money from a car dealer that was friends with the board members. Versus Jeff, and I was out of a job, so I stayed in touch with Jeff. And he said, Look, I like the way you work. He goes, I'm starting a private equity firm, and he said, You know, I'm going to need people to help run it.

My view is, I think I can, he basically said. I want to take ball bearings. Companies and tech enable them, and this was back in 2000 and I started there in 2008, so this was 2007. And Jeff's view from day one was value creation, which, as you know, no one was really thinking about value creation at that time. But he had a vision from day one, basically, to marry. Venture operating methodology.

So really focusing on growth with cashflow positive businesses, go imagine that. So, he said, Hey, why don't you come on board as an operating partner? So I started with Bertram as an operating partner. So I fulfilled, after 21 years, a full circle into finance and my original effort was going to be around finding a business for me to run.

But very quickly, what Jeff and the team realized was in Venture, all the deals come to you. They need the money in buyouts. You got to go find it. And this was kind of the early beginnings of business development. Jeff came to me after a few months and said, Hey, we don't have any deal flow.

I think we saw 125 deals our first year, he said. I need someone to go build a business around sourcing deals. you've built businesses, why don't you go do that? I'm like, great idea.

So that was my circuitous story.

And what I love about your background is ge you think about. I think a lot of people here that maybe weren't around back then, they think of Ge as like, Oh, it's this conglomerate that's really kind of not around anymore. But GE was the academy of getting a business tutorship at the highest level for so many years, and so what a great foundation to start off.

And it was just that focus on managing the business using data, I mean, I was part of. We were one of the first companies outside of Motorola to put in six sigma in our manufacturing process. So to get exposed to that as a 24, 25, 26 year old, when, really, you know, they didn't have a concept of lean manufacturing at that point. I think the other thing for me is just being involved in all those different businesses. You know, you and I have talked about the business development role.

You know, I know two people in business development that have an operating background, myself and Matt Jones, who I just hired to work with me. He came from Uber. But to me, that's been a huge advantage. Because the ability to sit down with an industry banker and talk about why gross margin is important. Talk about ERP systems, talk about how you. Or be able to sit down with the business owner like yourself and say, Hey, I've been on that side of the table. It really. It's really complimented and helped my partners and our team to be able to have that level of conversation. And we always talk about differentiation.

That's differentiation in the marketplace.

As a person, finding those commonalities and that again, I think, in as competitive an environment we live in, just being a real person goes a long way.

So this thing took off.

Oh my goodness, we got half the game tickets, but one of the things was to get to throw out the first pitch, so I was on the field. Jim Abbott and Rod Drew and Jim Abbott had just got his Golden Glove award and we're on the field. I got to throw out the first pitch high strike.

So that was pretty cool.

So I'd be curious, David, what is maybe one of the kind of times of trials and tribulations that you've had personally? That was maybe a little tougher that you had to overcome?

And it's easy to kind of sink back in this role and go, Oh, I'm just going to go meet the same people. I have a rule with my team, which is I never want our managing partner, Jeff or my partners to ask a question that we haven't thought of already. And Jeff was pushing a few years ago. Hey, how do we get? His question was, how do we get out of sourcing deals, how do we get out of the auction process? and I'm like, we're never going to get out of the auction process.

And I still believe that. So I went back and took a challenge from him, which was great because it made me, pushed me to really think about. You know how I can make keep this role really relevant and super value added. Back to my partners, because that's where my responsibility lies, it's my team's responsibility is to my deal partners. And you know, at first I didn't have an answer. For Jeff. I'm like, Nah, we just can't get out of this, and then I'm like, there's gotta be a different way.

So we decided I met Grada, the guys at Grada through ACG. And I'm like, this is the first software solution I've seen in a long time. That actually is interesting to me. And so started playing around with it. Hired an analyst and he had a background at a family office where he basically put a technology stack together. And over the last year we've built, we've kind of figured out and built this technology stack. Along with getting some helpful with our Bertram Labs team, which we can talk more about.

And we've built a pretty interesting approach to really deep thematic sourcing with a very now. Is it absolutely differentiated? No, can someone else build it, maybe, but we built it for us and we've done three tests now and we're getting great results. I think the point is is that you can kind of sink back and go, okay, you know, this is working, just kind of doing the same old thing. Or you can push yourself to innovate and really stay on the cutting edge of your industry and your function.

I took that like, really personally, like, what are you talking about? Like, we're great at sourcing deals, we think we'll stack up against anyone. But to have someone push you on that and really kind of call you out in a good way, it's been a lot of fun doing that.

And I think most of them do now, yeah, they probably do.

And so I think where you're taking your business is really taking it to that next level and saying, Okay, this is what it was. The industry is maturing, let's think about this like a business, and so I really applaud what you're doing there.

We're operating partners, like Operating partners is differentiated. Now. Maybe find an angle around that, but we're in this period, like, you know, everyone's complaining about multiples. Okay, yeah.

It's interesting right now, but it's like prices are sticky. And I still remember 2008, 2009, 2010, like eight times, was a lot to pay for business, right? Ben Proctor If you don't know Ben from Watermill, you know they buy harrier stuff.

And I had this conversation with him, with one of my partners. I'm like, my partner's complaining like, man, this is like mid to, you know? 2012, 2013 14. He's like, man, six, seven times, that's crazy, and I'm like, Ben, tell him what you're paying for your Harry deals now versus five years, he goes. We used to be paying three, four times, maybe five, and now we're paying six, seven times. Like everything moved up.

So you got to figure out a way. And growth is a great way to do that. And if you can build a growthy model and you have growth on the backend for the next buyer, so they see a path. You know, you've got a pretty good chance.

And it's just this great parable about life and change, and it's like a 30 page book. But it's this whole idea that the world's changing. And you can kind of get upset and just kind of stew about it. Or you just go and find the cheese when they move it to a different part of the maze, agreed.

That's what you are doing, and maybe with that in mind, I'd love to hear about how you are approaching value creation. I'm doing some really innovative stuff with Bertram Labs.

And the only way we're going to control this and manage cost and time and focus is if we build it ourselves. And the first one we did that with was a company called Spirion, so Spirion was a business telematics business that tracked cars and fleets. So there was an automotive component. But then it was like, if you had a 200 plumbing truck fleet, you need to know where your drivers were. Idle time Are they at the right place?

Are they not at the right place? It also was with Buy here, pay here, you know, cars, so those guys have to manage their inventory so they want to know. Did the guy that I just made the loan to? is he at work? So we had two disparate SAS systems.

The teams were good engineering teams, but didn't have the capability to integrate them, make a bigger system. So we said, you guys just keep maintaining that. And we hired a guy named Brian Wheeler, very talented programmer, architect, who was friends with Jeff. And asked Brian to come on and help us with this. And Brian and the team, he hired a team. We built this complex SAS solution that so surpassed the two things we had.

It moved as much data in a day as Twitter moved, so super high volume. And we built this machine. We eventually exited to Greenbrier and it's a really interesting business. So we just said, we are going as management team management company invest in this.

So we've now built a 15 person team and our team members. They could work for Meta, they could work for Alphabet, they could work for Microsoft, they could work for anyone, the top programmers, but they're working on different projects all the time. And so about two thirds of the team work on software deployment, software development, so we'll create original programming or we'll modify programming. We do a lot around ERP deployment, which is always critical.

So, like, you might hire a big consulting firm, might take them five years and 10, or $15 million. We'll do it in 18 months, and $2 million in cost. We never it is. All of our portfolio companies opt into it, they don't have to use it, but they quickly see the value, and our team only works for our portfolio companies.

The other third of our team is run by a guy named Tom Long. And it's all around internet related services. So we'll build websites, we run literally over a hundred million dollars in marketing spend, and we'll help build out the team.

And Jeff said, As the CEO of our firm, he's like, we need to invest in this, we need to find it. And that meant some sacrifice. But at the end, we're building better businesses, we connect better with management teams, and we're selling a better product at the end of the day.

Internally, you've got your own kind of operational activities that add true value and measurable value.

So it's all one firm and it's exciting to see how they've grown again. It's a huge asset in sourcing opportunities because when we meet with management teams, we bring our leaders from Bertram Labs in. And they're basically doing ideation on the. And we thought about this, could you do? What problem are you trying to solve there? Like, literally, we had a business called Registrar, it was a F.D.A. compliance software business.

So some guys spun out of the FDA. When the Food Safety Enforcement Act went into place. What it said was anybody exporting food to the United States had to register with the FDA. So it was a very labor intensive effort. And so they created some software, some SAS software. When we met the management team, they're like, Wow, you can really help us.

Well, one problem they had was on renewals, you had to go. Basically, we would hire people that would go in and manually check boxes for each of the clients. And one of the guys on our team were, like, in the meeting, like said to the management team, Give me a week, I can fix this, literally in a week. He came up with a script that automated the entire process, so we didn't have to hire temporary people to do this work. We automated and created a much more seamless solution.

He did it in a week and it was game changing for this firm. And no one thought about that as a possibility. And that's the other thing, it helps us think about possibilities that you otherwise wouldn't have.

So maybe you're in a competitive process, maybe you need to stretch a turn or so. Well, guess what? If you have that visibility that says, I know I can fix this? With this, it gives you a lot more confidence to do it.

We're going to see a productivity bump, the likes of what we haven't seen since the late 90s with the internet.

It's push button once, and then everything else happens. It's using data, so you go around our office, we have dashboards everywhere that shows what matters.

I thank them, but like, you know, they were starting to really grow. But they had no way to kind of control the product environment and know where things are. So we did very comprehensive dashboarding for the product teams and for the customer acquisition teams. So we knew where everything was at any one time and more, and we knew where it was. Simultaneously. So we could have real conversations and kind, of course, correct in real time.

Like, you guys see, because again, I love the the G's. You know, if you can measure it, you can manage it, right. If you don't know what it's doing, how do you, you know, gut works? Only so far.

So I went back to our labs, guys, our data analytics guy, our P.h.D. in data analytics, and he integrated with Google, Google Analytics. But I forget the Google. We're like, we're getting so deep, we've got so much data. My big thing is, let's we have been very actionable on the data. I want to get really smart and even more actionable on the data.

And so that's a huge effort for us right now and my team is. You got 10, 15,000 deals in there. You know, you've got a lot of knowledge around that, you know? How do we keep leveraging that? how do we leverage understanding things that have moved deal flow over the past 15 years? So we're really digging into that and trying to use predictive analytics just to give us a better sense and a better read.

Like, I can survey all the investment bankers say, what do you think, what are you seeing? But we're also able to start using data to look at similar trends, so that's another thing that's pretty exciting.

I called last summer and they were like, Yes, and I said, What?

Of a finish of a first MVP product. And they're like, 25, right? January, one go to May, we're 75, right, and so, and we'll be 85 and 95 and 99, right?

It keeps you excited every single day, and that's the key is you got to be excited about what you do.

I've been saying, it's like, you know, you know, the banking crisis of 08 were black swans. And these kind of rip, you know, these huge like effects that came through, and this is more of, like, you know, butterfly effects that are rippling across. Yeah, exactly, we'll tell, we shall see very soon. But there's a lot going on in the world right now. And I'd be curious, like, how are you all thematically engaging with your portfolio companies to respect the time we're in, but also find pockets of opportunity?

So we started in the depths. So I have four deal lead partners. We were all VPS at the time, so it was really Jeff Drazen, our managing partner, that was really driving a lot.

And you know, the good news is Jeff had experience going through some cycles. And one of the thing, two things he imparted on the team, one was a relentless focus on growth. You have to grow businesses to be successful. The other one was Things are down. Let's put our foot on the accelerator and be ready to come out the other side.

So we've got very good, we started to learn about getting good at add-ons, you know, so, and that's not, you know. Again, a lot of us are focusing on that, but, you know, having the roadmap and going after that, investing in sales and marketing heavy. Because, you know, you're going to come out the other side and you want to be able to capture that. So I think the willingness to accept the level of risk to invest in a business that, you know, is going to come out the other side. If you did your homework, you feel good about the end market. You're serving the TAM. You know all the things that make a good investment, but you have a confidence that that market's going to be there. Having the guts to go after it is, you know, I think, is important and we've been really good at doing that.

I think just my partners after so many reps that they've had just the confidence that they've had. To bring the management teams together to give the management team confidence and support to work through it. Sometimes you've got to pull back a hair here and there, sometimes you've got to be pushing forward. But I think just having the trust, not pressing down, but having dialogue and trust between the two. So that you can make good decisions based on market intelligence, data and not fear of reciprocity or whatever. So those are qualitative, but I think those all go together to help you navigate some choppy waters.

The average return is going to be one and a half to three times your money, so you can't lose money on any deal. So when tough times come, private equity swoops in, and we see this in our data. It's really interesting.

One of the fascinating things, we have more than 500 PE firms feeding project needs into this machine that we've built. And we get to see the world as it unfolds in real time. And when we have this thing called the blue wave value creation index, you just see value creation activity spiking. When the economy gets soft, where the private equity industry just swarms their companies. And at first, it's about safety and security, and Maslow's hierarchy, the base level, but then you all write, All right, we've been down the hatches.

Now let's go find opportunity. And this whole data-centric approach that you all is exactly how it's done well.

So you're like the best of the best doing it in real life. And every day I kind of look at the data, I'm like, this is amazing, this is how it works. Exactly everyone would, you know? There's been a lot of research that shows, you know, that PE does best.

And they think it's all because they have they borrowed debt, and it's 100 not.

It takes time to find talent and add it and be able to pursue the opportunities. As soon as they start to kind of unveil themselves to you or to your business.

Yeah, and now we're dealing with it. But when you get into these, they also typically last, you know, six to 18 months. And so, you know, this too, shall pass. So start planning for the afterlife that's coming through this.

And it's, you know, we call it muscle memory. Our team will read a thousand books in a year, they want to. They're voracious readers and learners, and it's about understanding and finding those muscle memory. To repeat what you do well and try not to repeat what you didn't do as well.

I share my little gizmos and gadgets, and now it's been incredibly empowering for me. Because I tell my wife, well, I got to buy all this Amazon stuff because I got to write an email in a month.

I don't want it to, you know, percolate, and it's always there.

All right, David, Well, this has been incredibly generous of you to spend time with.

Special thanks to David for joining. If you'd like to learn more about David and Bertram Capital, please see the episode notes. That's all we have for today. For more information on this podcast and Blue Wave, go to Bluewave..net Forward Slash podcast. That's b-l-u-w-a-v-e.

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