Vested Capital
Vested Capital

Episode 2 · 1 year ago

(EP2): Calm Capital Founders David Horne And Marty Balkema On How They Finance Acquisitions, Strategies For A Holding Company, Why This New Form Of Investing Is Just Getting Started


David Horne and Marty Balkema are founders of Calm Capital, a holding company with at the time of this recording, 10 companies under management with $8 Million in total annual revenue. 

The holding company model, popularized by Warren Buffet and Charlie Monger with Berkshire Hathaway, is becoming more and more common in the world of online business.

David and Marty help demystify what exactly a holding company investment strategy is and take us through an example acquisition, their first company purchase of Pttrns, in this podcast interview.

We also learn how the guys met, how they transitioned from being founders to investors and acquirers of other companies, and what financial structures they have used to finance their acquisitions.

I'm fascinated by this emerging trend of online holding companies for many reasons. It gives tech entrepreneurs an additional pathway for exiting their business, and it's an exciting way to compound your capital, increase cash flow and diversify your income as an owner of many companies. 

As an entrepreneur who enjoys having multiple projects, what Marty and David are doing really appeals to me. You get to enjoy owning companies in many different niches, but you're not stuck in the day-to-day trenches of running the companies.

Enjoy the interview, and please share it with anyone you think could benefit from hearing from these two trailblazing entrepreneurs.



Hello, this is Yarrow and welcome to vested capital episode two, featuring the founders of calm capital, David Horne and Marty balcoma. I'm really excited to share this interview with you because it features a investment model, or maybe a business model, that is not very common, but I think is very exciting because it's a way to get involved with multiple businesses at once without being the person who has to run them on a day to day basis. So very exciting for anyone who might like the idea of being involved in multiple industries, having multiple income streams that aren't necessarily codependent in any kind of way, having capital that grows without you, because obviously there's teams and leadership running these companies and you're the leadership level above all of that. That's exactly what David and Marty Do, and you may be familiar with that business model because Berkeshire hathaway is one of the most famous holding companies in the world and, as you might know, Warren Buffett and Charlie Munger, Warren being one of the most wealthy people in the planet for many, many years now, is the founder of that holding company. Brokeshire hathway. So it's that business model, except the team of David and Marty with calm capital have applied it to the Internet business space. So they're acquiring Internet businesses. In fact, I found out about them when I learned about the acquisition of wave, which is a SASS, a software platform for taking your podcast and creating social media snippets, and calm capital acquired them. At the time of this recording. They have ten companies under management making about eight million dollars a year in revenue. That includes loft crew pay, honestly, which is the company that David started, wave, Augusto, patterns, Proteus, themes, creative farm catch commerce and life finder. And these companies are in different industries with different business models. There are some synergies, but that's not the point. The point is, as these guys explain on the interview, just to find great companies very carefully and calmly create a deal, bring them under the umbrella of calm capital, if necessary, put in place a leadership team. In other words, if the founder, when they're acquired, once to leave, Marty and David will bring in a CEO or management team, whatever is needed to keep that company going. And growing and basically David and Marty look for deals, manage deals and put in leadership as their main role. Now I recommend you listen to this interview, especially because they talk about how they did their first deal, which included a very unique financing methodology that didn't really require much of their own money up front. I'll save that story for the interview, so make sure you listen to that. And they do talk about financing in general because obviously, if you're growing a holding company, you need to keep acquiring new companies and yes, you can use the cash flow from those companies to buy new ones, but if you're stepping up your game each time, there's a good chance you might need some sort of outside capital to take on even big your acquisitions, which is something that the guys did with wave. That's obviously a bigger company compared to some of the earlier acquisitions. So I love this story because it's a way to get involved with entrepreneurship, with startups, be involved in different industries without being the person who is running that company, you know, focusing a hundred percent of your energy as the founder of a company. I love this story. I think you'll enjoy it. Too. Before I begin the interview, I just want to at once again mention my own company, inbox DONECOM. This episode is also brought to you by inbox done, as was the first episode of vested capital. Inbox done is a service that will provide an email manager, or more often than not, one, two or three dedicated email managers to handle your email, to hand your customer support, which might include helped tickets and your social media messaging if you're drowning in things like instagram, twitter and linkedin messages. But usually email is the sticking point from most people. So if you're like some of our current clients who are venture capitalist Angel Investors, we got a real estate of people in real estate,..., lawyers, doctors, online coaching, Internet marketing, all these kind of spaces. If you're getting too much email, we can help. We step in, we manage your email or apply your email and so on. The company is called Inbox donecom. You can check it out there if you want more information. Okay, that's enough from my introduction. We're going to begin the interview right now. Thanks for joining you, guys. As David and Marty from calm capital, we were talking about a few things before hit the record button. I think probably the best way to start, though, is actually to clarify what calm capital is because, as I was just saying, it's not the most common business. I've come across a lot of big venture capital firms who do this sort of thing, but this is kind of almost like a home business version of it. Or that's way viget than that. But you know, it's a couple of guys coming together and with a strategy and I'd love to talk about what it is why you decide to do it, but let's start with the obvious. What exactly is calm capital? We are realizing this is we've done a couple interviews at this point, not many, and how rare it is to have two guests on, you know, for something. But we listen to a lot of these podcasts where they have founders on that have cofounders, and we were always like, well, let's see if they'll let us both beyond because you're Marty and I we kind of joke like together we almost make a full human you know, he thinks about things differently when I think about things, but together we, at least to this point, we've been fairly effective and run in the companies, because we both have different strengths, and so I think it's beneficial to hear both both of our answers, since they let's do it this name. Yeah, yeah, Conn. So what what is calm capital from Davis perspective? Then let's start. Oh Yeah, good. So see that that was my that was my sneaky way to just completely cover the conversation from so calm capital is a holding company that mostly grows through acquisition, but has a number of companies that are right now mainly in creative services and software and technology, but are really its goal is to just acquire really good, simple businesses with good people, from good people and kind of utilize the the skills that we have learned over years of helping other companies grow and develop and innovate for companies that are kind of within our umbrella and to provide an environment for people to work in and to be a part of that is hopefully a little more aligned with the values and rhythms that they they are looking for in their life. Okay, mighty, your turn. Yeah, so we started calm capital after many years of talking about it, basically, and David and I have had we've been friends for twenty years, but we've had, you know, kind of different, different path entrepreneurship and owning businesses, starting and earning businesses. David's got more of a marketing and design background. I come from a computer science and software engineering background and you know, couple of years ago we found ourselves having started things with independently, starting things with other cofounders, but then also starting things together, and I think that those things that we started had a certain amount of value. We thought, well, what if we could kind of seed a holding company with the current value of those companies and then also be able to leverage the cash flow from those and also raise a little bit of capital in order to start growing through acquisition? That's what David kind of described it, the same way I would describe it. Yeah, okay, yeah, and can we talk a little bit about, you know, numbers. How many companies do you currently have? Because it is, like you said, you like you're like a Brookshire hathaway kind of business, right. You own all these companies that operate separately. They all have their own CEO, could which could have been the founder of the company or maybe not. And, like you said, the cash spins off into your holding company. You can then use that potentially to buy another company and it is very brokes...

...your hathaway ask on a kind of a Internet focused manner. So is that? Is that accurate? Yeah, I mean we obviously we love those, those comparisons, and someday they'll keep being more and more true. But yeah, I mean that's basically how it is. We really want the companies to operate independently and, you know, have their own value, their own management in themselves. So it's not like a PPE model or anything like that where there's a bunch of employees at calm capital. There's none. It's just David or not. But yeah, it's answer your question more directly, there's ten companies today and there are just under eighty employees across or you know, Eighty folks that work at the companies across the across all the companies, including David and I, and revenues are right around eight million dollars overall. So yeah, that's about where we're at right now. Eight million annually. I would as see to clarify. Yep, so I've got your list and your website. Loft Creupe. Honestly, wave Augusto patterns Proteus themes, creative farm catch commerce and life binder at. That's the current portfolio, if I got that correct. Obviously a range of companies there. So I'm so curious about the business model. I I love hearing that there's just two of you guys. I'm jealous in some ways. I feel like this is a way for an entrepreneur to be entrepreneurial without having to run the company. Plus you get to do multiple companies, which, let's face it, every entrepreneur kind of wants to deal. We always want to have more than one project right, so you kind of get to do that. Before we talk about today, though, I do feel it necessary, as I do in my show, to go back in time. You said you've known each other for twenty years. So was there a time before you knew each other? You guys meet in like high school or something, or I don't know. How would you are? I wish we were that young. We met a little bit after college. I was playing many tour golf. I was a professional golfer, not a very good one, but was trying to play and Martie and I met at a best buy of all places, and start talking about golf. I was on my way out of town. It's a say rain because it I just someone meet it the best place. I'ms does a better job before he does it. I just want you to anybody that knows us know is going to laugh at this because we would never talked to a stranger in a store unless they cornered us and started talking to us. So it is was completely a divine meat there. So David had golf shoes on and in best buy and I found that odd, you know, and you know back in back then, you know a lot of the golf shoes were the traditional kind of leather saddleback style golf shoes and I don't know, I made some comment about he's looking at CDs and wearing golf shoes and I struck up a conversation and he was on. He said it. He said all that, or dating ourselves the fact that he's we were buying CDs, right, but new music would come out on Tuesdays and he was headed out of town for another mini tour of that and I was looking at music or whatever. So anyway, that's how we met. Just had a lot in common, became friends, our wives or friends and yeah, I just to clarify. Saw, David, you were an inspiring professional golf player. Martie. What were you doing at that time? Yeah, so I was working for kind of one of my first jobs out of college. I was working for like an Internet start up. There a part like ICP, building websites things like that and building a little bit of web product. So I was a I was a programmer first job out of college. I had just moved from Michigan to North Carolina and and was new to the area. Yeah, okay. And, David, you wear golf shoes like every day, just normally, because that's just how you get better leap, you know days and now days the golf shoes look like tennis shoes. So when I'm not wearing vans, I am typically wearing true links, which are hybrid golf shoes that you could so yes,...

...okay, does always wear it? Yeah, stand out as much anymore. You never went around might pop out. I'm all always ready. I'm always ready. Yeah, David, I just want to clarify to when Marty started talking to you. You didn't think he was like hitting on you or anything like that. It's just a normal day, right. And now I was. I was probably so focused on the music that I was going to distract myself from, you know, six or eight hour car drive that I probably just didn't think about it. And and quite honestly, you know when you're in the golf bubble, you don't think about it being weird until someone calls you out on it and then right, oh, yeah, I guess this is kind of straight. Yeah, yeah, okay. So I can see Marty, you bring or brought some technical background to even view the Internet as an option. But can you guys connect the dots with so you meet, I'm assuming David, you drive off to your next golf tournament, Marty you go back to work. Can you put take us forward a few years. Did you guys not do anything together yet or what? You know, what just have a friendship? When? When did you start looking to work together in some tape or form? Yeah, I mean I would say the first decade or so it's just regular friendship, getting to know each other, playing golf, talking about business. We know we love to travel. We both had I'd say that the commonality there to was is we we weren't nine to five, working in office, working a cube, work for other people. Very well, that was probably the common bottom all things, you know, so the wander lust of wanting to travel, the ability to live in multiple locations. So obviously remote work wasn't super popular in the early S, but we were already kind of thinking down those lines. So it was mostly a first decade, I would say, is just a mostly a friendship and getting our own skills right and getting our own, you know, experiences in the world. And then, I think, what was it, David, probably two thousand and ten or eleven, we started working on a product which we never launched, called Golf Monocle, which was interesting. It was this is just some ideas around the golf industry and software and bringing together like golf directories and trying to help people find amateur golfers, trying to find tournaments they could play in and other golfers they could hang out with. So it's kind of funny. The first software thing we worked on was also related to golf, which we got it pretty far along and we just both got busy with other things and kind of never launched it. But that was a first time we really started working on software stuff together, as I recall. Yeah, I will know, Oh, my own in two thousand and eight after I quickly ran out of sponsors and talent. Had to get a real job, and it always kind of done side work. COPYWRITER and mark and ended up as a marketing director at a software QA and testing consultancy and they were one of the first companies to do agile test automation. So that kind of got me into product development and this was the world that Marty was already in. So we, you know, I would ask him ideas and we would talk about it a lot. And then in two thousand and eight they moved my job up to Connecticut. I was married, didn't want to move, and so then I found myself unemployed. A couple of side hustle, you know, freelance clients, and then that the company hired me back as a consultant for a while and I was like Huh, I'll kind of like this freelance work and through that just developed a couple, you know, several agencies. Mardi eventually kind of went into that world and you know, for us it's just very natural to work with multiple clients on the agency or consultancy side, right where the agency that honestly that we have that I had started. I mean there's you know, dozen twenty clients there that we were already siloing, compartmentalizing the way we thought about those and we were kind of like, well, we do all this work for our individual clients. What if we were our own clients? And we feel like, whereas a lot of people feel like,... know, if you're an entrepreneur, you got to dive into that one thing and that's the only thing that you can focus on, and we're not wired that way. Because of our experiences, we were always working with multiple clients at the same in time. So it didn't seem like a big deal to say, well, let's get some companies that are already cash flowing and already real businesses, because I do believe if you're going zero to one, it's way easier to do that when you're focused on one thing right, because it's so hard to overcome the inertia of getting validation and revenue, you know, coming in. But once you've achieved that, it's a lot easier to work on multiple things and you kind of learned this over here that you can then apply to this over here. So that was kind of the seeds and kernels of this idea of well, you know what, if we what if we had a service as company that was serving its own portfolio of companies? And that's that's kind of how the conversation started. Interesting. Interesting. Yeah, I hear so many people talk about having an agency at some point, you know, in their history. If you're an online entrepreneur working for one, you know, a web design, social media, something like that, and then eventually something happens and there's usually a start up or business that spins off from that, and that's why I'm talking to them on the podcast. Basically that's there, you know, current business. You guys are little different, though, because you saw, like you just said, David, the controlling and the supporting different companies and you thought, Huh, you know, we could potentially do that, but own the companies, which I guess is not that biggest tretch. Like I remember I got a friend who was doing add words for clients and I thought, well, why don't you just do that for yourself? But you could just acquire that company and it's, you know, the same sort of thing. But I love to just go back before we talk about calm, because I'm I do want to dive deep into calm. But what happened to the golf website. You know you. Why did it fail? What was was that first to you know, work together project? Ha Ha. I don't know if I have a great answer for that, other than life and busyness and and just deciding to stop. I'm sure it's my fault, right like I'm sure that I just stopped having the time to do the Dev on it. But yeah, so I think that that's pretty much it. We actually still own the domain. I just saw there revotal email not too long ago. The code is somewhere. It's funny. It's not necessarily a irrelevant idea either. Maybe we'll resurrect it one day. But yeah, I think we just got busy. Artis yea. Honestly, it was two thousand and ten. We were at starting to have kids and I'm not super technical. Understand it enough to communicate it, but I can't put hands on keyboard and build anything and when you're trying to do that with a full time job and starting families and stuff, it just wasn't a priority. And also, I think at the time it was somewhat I mean I think we were a little ahead of ourselves with what that we're the technology and the tools. It would taken a lot of work. We would have had to build the tools had we had that idea two years later, and they have been different because there were tools around some of the things we're trying to do. So but you know, I think it was good and your I think it is really important because this was the time where we were trying to start things. Like we had this idea we're doing agency and our jobs. You malready was managing team developers at his job and the zero two one just gets a lot different when you have a family and you have different priorities and you want to work at a different speed. You know, this kind of idea of calm and being patient's hard to be patient when you're launching something. And you know, we had golf monicle. I have a we have a page on our site and we started honestly, it was an agency, but it was also a little product studio and we have a site or a page on the site that's like like a rest in peace part of all the things that we try to launch and couldn't and didn't reach they know or whatever. We launched the subscription box service called fan pack. That grew up..., you know, decent size but then our realized we were in the fulfilment business, not in the software business anymore. And you know, so trying to do zero, two one without putting everything into it proved really hard for us and and I my hats off to folks that do that. And that's what we love, is there's all these people out there that love to build things. They build them, but then they don't necessarily grow and run them forever, and so we feel like, you know, there's a good symbiotic relationship with that, with kind of where our skills fit with where their skills fit. Okay, well, we'll take me for guys. So you're throwing a few ideas at the wall while maintaining it sounds like an agency, freelance were families starting to grow. Like in my mind, I'm thinking, how do you start a company where essentially you are going to need to have some upfront capital, potentially significant though front capital, to buy even the first company you're looking to purchase? Can you connect the dots, like was there me, and take us forward from all this experimenting so I can get to calm, because I feel like there's a bridge I have to climb before I can understand how you guys could start that. Yeah, so we were having these conversations and I'll be real short and then let Marty kind of finish it. A little bit bit time pass here, but we were having these conversations at the time. The cash flows from honestly enabled me to start looking for things to buy as like an experiment to see if we could do this. I've been building a relationship with an individual who had experience in buying and selling traditional businesses and I felt like there's a lot to learn from these businesses that have been around for hundreds, you know, fifty hundred years, that are being bought and sold that I could learn and apply to the software side, which, you know, it was fairly early when people were starting to buy sass products and so heat. This individual help me buy patterns, which is the first thing we purchase, which is a design content site, suscription site. We learned a lot through that process. Marty and I talked through it. This individual, name might, helped us and then after that and we were able to buy it keep honestly running grow patterns, you know, like twelve, sixteen percent the first year we had it. We said, Oh okay, well, maybe we can do this. And so we went back. I went back to Mike and said Hey, I told them the I told him the base camp story. You know, where Jason Freed and David had Jeff bezos kind of basically front them so that they could stop doing client work and focus on building base camp. I don't know if you've ever heard that, that story. So I got to mention that story to him. As if you think there's there a world or an opportunity where Marty and I could do something like this, I mean we have, honestly, and we have lost we have Augusto, we have these companies that are have some value and some cash. And he thought about it for a while. He said, well, let me talk to another friend of mine that has more experience in doing this, as guy named Steve, and they got together and they said, you know what, we like you guys, we like where this is going. We'd be interested in helping you put this together, and so they've been kind of mentoring us, helping us with some of the financing, and that's kind of how we how we got started. Okay, before we do pass the baton back to Marty, you said you were spinning off Capito cash from. Honestly, that's your agency, and then you made your first purchase patterns. Do you mind just talking about even the numbers like we use, saving five thousand a month from cash flow from a business? You save up to a hundred grand. Then you go on like to me it's like I go to FLIPPA or I go to micro require, yeah, or f the international and by a website. But maybe Marty Story. David, I want to give equal turn to both the guys. Yeah, explaining somewhere. The numbers were. Well, yeah, I'll try to. I'll try to talk to specifics about the patterns deal and then also added a little bit of detail around forming up the calm capital partner team and all that kind of stuff. Correct me if I get these numbers wrong, David, but you know, the patterns, the patterns deal was really interesting and it's a good it's... that it's actually an interesting like I'm really glad that David did the experiment and it was mostly him right, but he included me in it, even though I wasn't technically in it at that point because calm capital wasn't a thing. But we kind of talked through every step of the way and, if I recall, the owner of patterns tweeted and said I'm thinking about selling this. Anybody interested? David responded, I might be. They started talking. It was a very you know, we didn't, like I said, calm capital didn't exist then. But like the way that that transaction went down was very calm, if you will, and the way that we define that right. It was on twitter, casual conversation, no broker, short conversation and David was able to put a very small amount down. I might get these numbers wrong, but let's just say the whole deal was a hundred twenty five thousand dollars total purchase price. And there's seller financing over a couple of years, and it's a little more complicated than to seller financing, but like there's an earn out with some benefit fits to keep them involved and advocating for the patterns community over a couple of years. And David out of pocket is like a thousand dollars cash out of pocket. Because there was so much cash flow. They did a note directly to the new patterns, if you will, for a hundred K. Who did the though? The MIC guys. So Mike, our partner, was able to say hey, this is this is a simple note and a cash flowing business. That's pretty straightforward. And so that was the experiment. That was to say, can we finance this in this way? And and they did, and so there was enough free cash flow in patterns to be profitable and still still pay off the note. Okay, just to clarify I could I understand. Mike is a guys experienced in the world of buying and selling businesses. Sounds like more offline. He's like a bit of a mentor to you, David, at the time. Yeah, you guys come to him with this business patterns that you built up a relationship with and you're talking about acquiring. You need a hundred twenty five grandish up front to just get the the deal started. You get a note, which is essentially a form of a loan, from Mike. He gives you that cash. You do have to pay it back, but you can use the cash flow from the business to pay it back plus interest, and then you essentially do that deal and, like you said, David only have to put down a thousand dollars of his own money and then you now own a business. That about right? Yeah, I mean we you I through, honestly, the cash flows. I think I'd had about somewhere in the Sixty d eighty thousand dollars in the bank from honestly, he's overridge revenue, you know, above what I made and all that. So I've been pretty frugal. And you know, michaels like, well, yeah, you can put all your money in, but what if you could keep your you know, you don't have to, like there are a hundred ways to do this. And you know, between Mike and Thinking about we had heard the story from Jd Grafham, who be a great person to have on this this podcast, how he bought his first business, which was wasn't ballpark. I don't remember which one it was, but you know, and he had done something kind of similar, and Mike and I just got talking about it and he was saying, well, you know, what if you went back with this and we ended up doing like the Arnout kind of which was technically an earn out, but it was like a reb share, a guaranteed red share of this amount or this percentage of revenue so that the seller could get more for the asking price if the business grew and they were involved. And so we did that and they're a bit of benefit from that and that gave the seller a chunk of money to take some chips off the table and focus on the new startup heat he had as well, as you know, monthly revenue stream for...

...a couple years. And then the cash flow, the note payment was like twenty five percent of the free cash flow, thirty percent of the free cash flow and, you know, eighty percent profit margins because it's a continent business and and it was a worked out. Yeah, okay, I appreciate the specificity. Guys. That's really interesting. You mentioned Augusto, I think, when you were just talking before about three entities. What was how was that involved? Yeah, so Augusto, what is a custom software development company, so a consultancy, and I helped co found that in two thousand and sixteen with three other co founders and we, yeah, we started building that up and you know, that's a successful company now that has some of the founders are still actively operating the business daily. I think all the other three were near full time in that business. I do not. And Yeah, so that's what that that's what that company is. So you were able to take your share of the profits of Augusto into calm capitals at right, Martie, yeah, really, really how we did it as we's kind of just transferred my equity into being owned by by calm capital stead of me as an individual. We had enough relationships with the partners that we could explain what we were doing and have those conversations and that that there is a vested interest for everyone involved. And you know, I was able to essentially not have to have a paycheck, if you will, and relieve that upperty expence back to Augusto so they could hire a replacement. So worked out for everybody. And and what's Nice to is we obviously have a lot of different software projects that come up in the mix of calm all across the calm capital companies, right, and we're able to bring that business to Augusto when we need a reliable deb shot. Yeah, the synergy is nice. I like that you mentioned salary there. That is a question I am curious about, especially going forward with your plan for calm. So I can imagine, David, obviously you had honestly, which was paying US salary. Marty, it sounds like you kind of transferred your salary from Augusto into calm capital, so you were able to kind of take it out there whenever there was profits. Was the plan, and I'm saying that at the point where you only own patterns Augusto and, honestly, as I guess, your three companies, I guess that's like foundation point for calm capital. Was the plan for you eventually, in your minds at that time to exit all your kind of operating roles from those companies? Two a hundred percent focus on calm, which that when you start thinking about that. Yeah, I would say we're still even in that process. Right. Calm has been around for almost eighteen months here right sixteen months, so we're we're still in that process a little bit right of could being completely out of the operating roles. We were just talking about that. David and I were last night about how you just have to be patient with that right to not, you know, basically get out too soon, but at the same time how we're starting to see it really pay off as far as just having really talented people who love kind of what we're doing at calm. They love the idea of working at a calm company and and being accountable and and incentivized to take leadership over the operations of the companies. And so, for example, Augusto we've got a new gentleman, Jason, who's new the director of operations, which is a role that I played for quite some time. He's just changing the business so fast, like he's making improvements. He's really has the rains. You Know Alison, who is the CEO of honestly, for example, she's amazing and she's got her own vision, her own plan, she's putting together her own leadership team and she's just got tons of momentum there with her own business right. And so when we bought Proteus themes last June,...

I think it was, we hired a CEO right away and he was part of actually he got put a little bit of capital in as well. So He's a partner and the CEO, which is Great. You know, our newest acquisition, we hired a CEO during due diligent or recruited dirt and identified during due diligence. So he so the transition from day one was directly to him. There's a new CEO at Loft, our software support company. So I could go on and on. These people are, you know, so many. We were talking last night they're better at that role than us. So it's not just about US freeing up our time so we can focus on calm capital, but it's also about where we want to spend our time and what kind of where our our skills and talents are as well. He's just getting alignment and getting the right people in those seats. To again back to the whole idea of like what's best for each company, m not, and collectively that's what's best for calm yeah, you'r. You remind me of what I've heard from both tiny capital and drew o Goolson and start Upcom, I think, Austin Reef matures, last name. Both of them have said you kind of transition away from being a founder to a hirer of CEOS. That sounds like as a you know you do your jobs, is basically that to put in place the right leader in these companies that you require, and it sounds like you're becoming very skilled at that. We just connect the dots of the story, though. So you've got the three companies. What I love about too, is you actually had a unique funding method from day one. It's not like you put a hundred percent of your own money and I did that with a couple of purchases I made early in my career. But once the money's gone, it's there's no more to spend, so I can't keep requiring businesses. Maybe a two years later when I save up some cash flow. So this kind of method of having a backer from day one is great. So can you take us today too? So what was the the fourth company that joined the calm brand and is that when you started calling it calm capital? Yes, when we started calm capital, the conversations really start in earnest. I mean we've been talking about this kind of idea for a long time, but calm capital itself, hey, let's really do this. It was spring of two thousand and eighteen. Is that right, Martie? Two Thousand and nineteen? I mean spring of two thousand and nineteen. At that point we had, honestly, which is they just see? I owned a Holy Augusta, which Marty was a founding member. We had loft that we had created with the partners at Augusto and another friend is an IT business that we were had interest in. We had a start up called crupe that we were working on. We had patterns, had a minority stake and lifefinder. I think that. I think that's it and with those we said, okay, they're worth this and that's what we're going to bring, you know, to the table, plus some of the some of the cash that was in those businesses to start calm and so those conversations kind of led us through that the rest of that year and then we launched calm capital in January two thousand and twenty and since then had acquired prettiest themes and wave and started catch commerce, which is a shop fi APP store. Okay, so the a lot of acquisitions there. I have you sort of add some companies you've created by kind of merging people from the current company. So it's it's a lot happening. Can take us to maybe one of the other deals, because it sounds like the numbers probably get bigger too. So you just borrow more money from Magic Mike and his team over there or funny in that. Well, yeah, I mean it is a combination of everything. I mean I think the Martie's better at articulating these things, but I think the the the bigger thing to think about. Ours are thinking is a lot of firms and and you know how again, we didn't even know, like tiny capital, like Andrew Wilkinson, Jad Grat, like a bunch of these folks we discovered as we were starting to come up, like really formulate this idea. So there was you're right, it's a pretty small community. But now you know by... and there's a himpful or a good good number of people that are doing this, bigger companies like sure, swift capital whatever that are doing this type of thing. But we don't have like this is the way we do a deal, right, we're gonna do this much cash and we're going to take it out right. We're going to own the whole thing or we're going to we're not going to put cash in, we're just going to do earnouts or we're just going to finance with the debt. Every deal is really a combination of what's best for the seller, the selling founder, like what do they want? What's their dream outcom how does that line up with what calm capital can have a really good business with? And that fits into the way we want to do business, which is patiently, purposefully and profitably. Right. So, that said, of the acquisitions, some have been more cash than debt, some have been earn out and we haven't done that many and then, like the most recent one was a look, it was the bigger, biggest one we had done. So it was a combination of we brought in another partner. Is that wave? David? Just to clarify, yeah, for wave, so calm capital owns a majority interest, but there's another partner, cal Wilmington Holdings, that is a partner in wave. Martie and I put our personal cash into that one. Calm capital. Well, we put our personal cash into calm capital. Mike and Steve put cash into con capital and the we put cat COM capital put cash into wave. WOMINGTON Holdings. You put some cash and then the the selling founders. This was their baby and they thought the best days were ahead of it, so they wanted to have some upside and so we kind of orchestrated. Again, it's technically in earn out, but it's not the framework of it's maybe more of a red share type model that they are getting like a guaranteed payment. So I'm not sure if that's answering your question. As much as every deal is, we approach as as its own thing and what's best for the company, what's best for calm and what's best for the selling founders. Those three things is that's what we're trying to line up. I think I maybe I'll talk a little bit of up with the Proteus themes deal we did last year to kind of just give another example. But I think the key thing that we decided. We might change our mind someday. We're reserved it right but right now we've decided that we don't need to go out and raise a fund in advance to have capital ready to deploy and go make purchases with, necessarily, obviously our calm capital. You know, partners Mike and Steve have influenced us in that to say hey, just take each deal as it comes and be patient and let's figure it out. Right. There's usually a several ways to get the deal done. There's more people that we can talk to and we really learned that lesson in the wave deal this past year. But let me go back to the Proteus one because it's actually more similar to the patterns deal structure in the sense of we just looked at we looked at the price. We negotiated an asking price, pretty good discount off of the asking price, and the way that we did. That was, as they were asking one price, but only a portion of it was recurring revenue, and so we kind of like split up the revenue and gave different valuations. And so that was not step number one, as we felt like we wanted to get it to the right price, at least the right price for us. And then step number two was we just looked at the math and, similar to patterns, we said we could do a no, I do a five year note on this directly. So calm capital puts money directly into or, you know, kind of calm capital homes owns the equity, but the note goes directly to the company, the Proteus themes, and that's how we did it. And so it's just a liability on the balance sheet of prote of themes and it's part of a cash flow that you have to manage and it's a small, important,...

...small enough portion of the revenue that it works and makes sense. And so it's really simple, really straightforward, and calm's able to hold that equity and see the profits but but not have hold the debt. Yeah, so it's kind of real estate like right, like we it was. We wanted to get the we had money to put in, but we only put as much of our own money in this in our partner, who's a the CEO, David, put in enough his money. We only did that to the point where we could get the note to a to a our comfortable threshold of pain for the cash blows of the business. So very much like buying a house, right, you need to put enough down so your payments and everything fit and you do risk, you know, you don't overleverage yourself, but you're able to have an appreciating asset that you didn't have to put the amount, you know, the all in. Yeah, makes a lot of sense. Do you guys mind talking a little bit about how you decide what to acquire, because I understand the financing now it's obviously going to be different every time, but you must be looking for some typical characteristics in an acquisition target. Even just to pay off like a note, that ask to be enough, you know, positive cashlow there to do that. So what do you look for, you know, in a target? Yeah, definitely, I mean you know you're looking for all that kind of attributes, I'd say, of a good business. Right. And so is it? Is it in a market that's going to support the product or the or the community over the next five ten years. So we're definitely don't have like a quick, you know, milestone timeline that we're looking at right. So we want to be that's kind of part of our patient we want something that is going to, at worst case, die slowly and that's going to be around. So it's got to be in a market, it's got to have, you know, pretty high margins, right, so it's got to have really optimized cost structure, needs to be operated. There needs to be some bit of a I'd say a either a team that it comes with or it needs to be enough free cash flow that the team that we all need to hire is paid for right away. Right. We really do look for it's already established product market fit. That's why we're buying, not building. We look for validation through large customer bases over many years. So, you know, I don't think we would probably buy too many businesses that are younger than, you know, four years old. And when you look at some of these customer based in the lists, there's a lot of value in them in addition to the revenue. Right. So when you buy a business that has two hundred thousand customers or Fiftyzero customer list. We understand there's a lot of value there as well, potentially to cross market to or potentially just to increase our engagement with those people, right and reach out to them learn what they will weren't learned what they wanted it. Let's say they're not an engaged customer anymore. What was missing? What could we offer? There's so much there that with those larger lists of in communities or customer bases. So I think that's a huge thing that we look for as well. But yeah, I mean you can you can see that obviously it's in a good market or the total addressable market is larger than the current customer base, but the current customer base is substantial enough that there's a lot of value there. And then just the financials of it as well, looking for trends, right. So let's say it is growing. Do we think that we could take growth from two percent month over months to four percent month over month, for example? Or let's say that it was at a certain Mrr a year ago, but it was. It's now declined, but we think there's a good reason that it declined, that we could get it going back the other way. So I think that it's trying to make those bets right. So going to take in all those things into consideration, but I don't necessarily think it's one industry or one. You know,...

...we have both SASS and we have subscription. I don't think that we have a super strong opinion either way on that. So I could I could probably add more stuff, but that's kind of what color I was going to ask. I know I find you out about you guys from wave and now wave. For those who don't know, it's a tool for taking podcast content and making so social media video snippets type content very easily through assass. You've already mentioned. I know patterns. How look at that site before. It's a kind of like a pinterestyle content site. I'm not sure if I'm saying that right at a very brief look at it. Then you said Augusto is a software DEV kind of agency. That's correct. Or my room puteying that one. Proteus themes is themes or websites, and you've got your own agency. Honestly, obviously no style of business. They have that sort of you could say they all fit in the same basket, but I know even from my own experience operating some of those types of business. Is profit margins on a content site, as you mentioned before, eighty percent, huge, fantastic, amazing. Profit margins on an agency can be all the way down to ten, twenty percent, depending on how the agency runs. So it's obviously not a business model or there's not like a sweet spot and profit margin. It just overall the numbers have to work for what kind of deal you're trying to put through and that could be anything by the sounds of things. Yeah, I want to comment on agency thing. You know, part of it's just the origin story right of like, do I think calm capital would go out right now by agencies? Probably not the top of our list. But would we grow honestly through honestly making an acquisition of another agency? We would consider that right. So stining. So that's a way where calm capital could potentially help finance or fun that situation where we could which happens all the time with agencies, right. So I don't know is though calm capital would go buy another agency or another software Dev shop, but could we be in a position to potentially help those businesses, you know, grow there, grow within themselves, inside their own business model where they want to grow through a acquisition. So that that's a way that we would do that. To your point, I mean we love the dynamics assass and subscription businesses, obviously versus obviously fine work. Yeah, yeah, okay, the future here for calm. Like again, for me, tiny I've known about for a long time. Andrew Wilkinson's also Canadian, so I'm I was on the radar about the Canadians. There things and he's over in Victoria. was in Vancouver for a while. They just floated on the Canadian stock is change. The whole tiny capital group, you know, a hundred million dollars a year in revenues. I and I know even from me personally. I'm like, I kind of want to do what you guys are doing. It is a way to really get involved with multiple projects at once without being the one responsible for them, which I think is very smart. What do you plan, though, for the futures? Is there a specific goal you're after kind of just rolling with it and seeing how big this could get? That's a good question. We I think it's more around staying within the way we want to do business. So it doesn't really have a I mean, obviously there's a number and involved. We want to grow revenues, right, I mean that's but you know, our first revenue goals probably not our ultimate revenue goal. We don't have like hey, we want to have twenty companies or we won't have fifty companies or five companies. We it's really just like how can we create the most value in a calm way, you know, in that patient, purposeful and profitable way. What does that look like? I said, I think we're still learning. Where we'll get to, but I think will know, okay, Hey, we are getting we are not operating in the way we said we would want to operate. Let's get back to that. And what that looks like, I think, is where will where will land? So you know, we talk enough about the stuff that it's never kind of gets off the rails, at least so far me we're eighteen months and so you know, if you guys like Andrew The doing this for eight or ten years, have a lot more probably experience and think of through those things. But as someone...

...that who build an agency with the model of never having any full time employees, the the fact that we have almost eight employees within the is very interesting to me because I never thought I'd have like hr kind of issues, her hr stuff to talk about. So but I think it's more around like where can calm go? How do we can continue to create value, continue to have an environment where people can work and succeed and thrive in this idea of not being being patient and being purposeful, and then where that shakes out is where it shakes out. Ok, yeahs. Would like to talk to on just the CEO hiring aspect, because I do feel like that is a skill set that isn't readily available. Like it is not. It's a unique position to need to continuously higher CEOS and a regular basis. Not many roles in our you know capitalistic culture have that kind of function. Maybe the boards of directors might, but you know, you guys are kind of doing it as your job in some ways now going forward. So how do you find a good CEO? And I say this a little bit because I'm potentially looking for one eventually for my own company in box done? I know my cofound and I have talked about putting someone in place there eventually, and it's hard because it is a very responsible leadership role, which you're kind of passing on your baby too, as well, and you guys do it in a way that's very disruptive, or maybe ideally not disruptive with your calm approach, but you're trying to take on a company potentially the current founder or founders are leaving and you're then putting in a new CEO and you don't necessarily know how well they're going to do. So it's a big part of your business model working. So you obviously have to be really good at that. So how have you found that role so far and how do you do it? We need to have a call in about two years or so and you can ask this that again and we'll all call have a better answer right about whether or not we're good at it. So just answer with where we're at, the the vulnerable and say you're exactly right. It's an important thing for us to be good at and we're not sure that we are necessarily good at it yet, but it's something that we're really trying to like focus on. I would say the biggest thing is is trying to find a good a good people fit, though when people hear the word CEO, they probably have some kind of image of what that means and I think for us it's ideally we would love to find someone who has andrew talks a lot about this on he said I would learned that. I want to hire somebody who's already done that and is currently interested in running this company or and then we align on their needs, incentives and compensation and all that kind of stuff. We will get there, but where we're at right now is we've cultivated twenty years of relationships, so either first degree relationships or second degree relationships, and we know people who are executive experience and capabilities, but they are also typically subject matter experts in whatever capacity they need to be. And then you're trying to just have lots of conversations with them about more of like in general, where they're at in their career and in their life, to make sure that that they are excited and ready to engage in this and then, of course, just really clear expectations about what it means, you know, the growth aspect of it, the general management aspect of it, the HR aspect of it, because these aren't huge companies right each one individual is going to manage a small team. So when we use to see the word CEO. I mean they have to obviously be able to know what needs to get done based on some kind of strategy, they have to have come up with a plan of how it needs to get done on and really they have to learn how to become good allocators of resources, right. So there's a certain amount of resource constraints and these businesses based on how big they are, people resources, capital resources, vendor resources, all...

...those kind of things, and they have to be able to know how to make all the hard decisions that we all have to be as capital allocators, right, and so that's where we come into be kind of like background support to that, like helping them think through, prioritize and synthesize and just kind of be pointed in the right direction. But so far, I think the number the word that's coming to my mind as I'm talking through this in real time is we're learning a lot more about just having how to have candid conversations and just really, really clear expectations about outcomes, right, which is just people management in general and performance management in general, because when you put somebody in that role, even if I have been in it before, they're also just, you know, performing to those expectations, right, and so being really clear about what those are and what matters. So here's an example. David and I talk about like, Hey, we just need to be these businesses because we're patient. We just need these businesses moving forward. They just need to always be moving forward. One percent a month, girls two percent a month growth or more. We don't have to ten x these things. The way that we're financing, the way that the return that we're having. We truly are we want it. They need to be profitable and we truly are patient. And so that's a different request to a CEO, right. That's a different ask then probably other CEOS and in different situations that are in different kinds of companies. So I think, I think just really being clear about those expectations and having candid conversations. And but again, it is you. You hit the nail and the head like it is the number one thing. I wouldn't even say that about it's about the CEOS. It's also the the ops people and the CTEOS and the right like. It's it's overall. We are talent finders and talent matchers now, right like. That's what David and if we need to be graded anything, it's that it's finding great people. I can hear you, David, because Marty, great answer. But David, I know you said you never worked with employees before. I'm the same. I've always build businesses with contractors and and it kind of like what you just describe, Marty, is you two are both HR managers now for like ten different companies, which is which actually doesn't sound has exciting. So all right, exactly. Well, with the HR. They actual HR issues, Nash, really, Josies are real. We let the companies handle those, right, we just handle the film parks. Just. Yeah, okay, well, let's let's wrap it up. Guys. I really appreciate your time and I know you've got to get going to talking some of the team. I have one, I guess it's my kind of stock question to finish US off. Now for the version of my show I'm calling best the capital. This business model you guys are operating with is almost like a perfect example of a vesting capital model, where you're gaining leverage from building teams, acquiring companies letting them run themselves in many ways, so your capital Basi is growing without you being too actively involved, and then you're leveraging other people's capital to get the deal is done. So there's plenty of examples in your story. But, and I know it's early to so this might be you guessing about the future, and this is a sometime sounds like a bit of a cliche question. Do you expect what you're doing now with calm capital to be your personal greatest source of capital creation for you two as individuals going forward, or do you think maybe, like, you know, still running your own agency and just spinning off profits from that was actually the way you ended up making the most money? We mean you look back, maybe in in ten, twenty years? Yeah, I mean I hope, our hope. Is that right? We even though it's not. I mean we talk a lot about calm capital internally almost being like a family office, right, like we see the lion share of our of the capital that we create, going into calm capital to be able to do more things for our families and the other families of the company, you know that work in the companies and within calm capital. I didn't say calmed capital as a family, but there are families that... within, you know, can capital, right. So we do see that and I would say regardless of I mean, if this works right, then it will be to produced the most revenue and all those, those type things. But I think it's more around the how do you define success? And success is more than just the revenue that comes in. It's kind of the whole the whole picture, and we do seeklm capital as the vehicle that gives us the the successes we've defined it. Yeah, I agree, time will tell, but this is a dream. I mean this is a dream come true for for me and David, like we've talked about this for years. I mean I we love working, we love doing business, we love we love all the things we're learning. We have so much to learn. We feel like we're out of our element at all times and the just the fact that we get to do this is we're very grateful. The fact that we get to do this together is really amazing and I'm really enjoying seeing our teams grow and all of the, you know, opportunities that were creating in the world for people to make a living and that, you know, earn a living in an interesting, you know, remote, remote first culture in most cases, right. And it's fun. It's fun to create all these opportunities for for all the different people in the businesses, and so I hope so. It's great so far. Yeah, no, it is. I appreciate your answer. Guys, I know you're you know, a lot of what you're doing is so handson with people like I can imagine the personal satisfaction comes from seeing them grow and the companies grow and everyone getting something back from that. But on the flip side, I also think of Burtshure hath the way, like David and I were talking before we hit the Record Button, how Warren and Charlie, you know, putting together companies much like you did, and then a lot of those companies put off a lot of cash flow. This is so fresh in my mind because I was listening to the acquired podcast. Those guys, David and Ben, did a deep diamonds still doing it in there burkeser hathaway episodes. I was thinking from that. It's, you know, the float they get from an insurance company provide so much cash flow that they reach a point at some point where it's like, do we keep buying companies? You know, when do you take out capital for yourselves or you and your shareholders? Obviously you could float on the stock market as well. It's another way to create wealth from all this capital coming together. So it's an exciting future I think you guys certainly have, depending on how far you end up taking this from a gross perspective as well. But obviously you got to enjoy the Daytoday, which I think you two are definitely doing. So thanks for sharing the story. Website, is it calm? CAPITALCOM the best place to go, and I should actually ask you too, if there's a listener on this podcast you might thinking of selling their business. Should they just send you guys an email? Yeah, I think the the website. Yeah, I'm CAPITALCOM. The website is the best place and there's our contact. And before we drove off your I do want to say thank you for for doing this. I I really appreciate the change in focus of your podcast. I will to your podcast for a while off and all because I know you go through like seasons with with stuff, but I really appreciate the focus you're making towards this because I think this is somewhat as sort of wild west. But this is somewhat of a new idea, right. You've have these institutional investors, you have pe firms, you have venture, you have family offices and things, but there's more opportunities. We were talking to these two guys not too long ago, Darryl and Nick, that bought a company off micro require right and they're trying to figure this out to write as a small company. They want to kind of snowball at to use a warm buffet kind of term, and you know what you're doing with this podcast. I think it's going to be super helpful. I'm really excited about listening to future episodes. People could probably skip bars that they can listen to some of the others that you're going to have where I think it's just going to help us grow com capital more. So I really appreciate you being committed to this focus and making the the adjustment to your content. So thanks, thanks for that.

Appreciate David, and and it's totally selfish reason. It's just a topic I love to so you know it, and up topic I want to practice. I don't want to own just one company. I and own several. So it's, you know, go your capital and have more, more projects to play with. But I really kind of look to you guys as an example and some of the other few examples we have to, because I've struggled to have time to, frankly, you know, do more than one company and and break that rule where you're making one company suffer because you're off trying to start another one, and that's something I've done too many times, I think, over the years. So finding ways to grow, put people in place, know that the company still growing without you start another project and finding the synergies perhaps between those two, like you guys said, off and it's two relationships, or you can like, you know, bring in the CEO because you knew them from the other company that you made a connection. There's all that kind of synergistic stuff happening which opens up these opportunities. So I think it's important to kind of have that focus. So I was so glad when you guys said Yes to come on the show because, yeah, we're catching a maybe a little bit early, but hey, you guys have ten companies, eight million dollars and your revenue, diverse topics and business models within those companies you're ownly going to keep growing. Yes, there's not many of you, but I do feel like, because the idea of buying and selling businesses with microw re choir with ffie international, with flipp I mean I was buying on a flip a fifteen years ago and he just bought a website and you know, you made an extra couple of grand and you had to sit there. It wasn't like you were trying to build a holding company. But you know, nowadays people think bigger and that's the way they go. So this is only going to get bigger and I can't wait to see, like you said, David, where it hads. So but yeah, thanks for sharing the story. Appreciate your time. Let's let's keep in touch. Yeah, likewise, thank you so much. Pleasure was all our yeah, thanks, really appreciate it. I hope you enjoyed that episode with the founding team of calm capital. That was Marty Balkama and David Horne. If you are not yet subscribed to my vested capital Podcast, make sure you do so now. Just open up whatever podcast APP you're using, or maybe you're listening to it right now, and just hit that subscribe button. You can do so in all the main tools, whether it's spotify, Google, apple, Amazon or the independence out there. I currently have a couple on my phone, cast box and pocket casts, but it's all kinds of different players available to stream and download podcast doesn't matter which one you're using. You should be able to find my show just by using the search tool in the APP to look from my name, which is Yarrow, why a Er Oh, or the name of this show, vested capital. Do that search, hit the subscribe button and you'll get all the upcoming episodes I release, plus access to fifty plus of the back catalog of the best interviews I've done with start up founders. Some amazing people there that I interviewed early on in their careers to some great stories. If you're interested in more from me, okay, that's it, and I would also appreciate, by the way, before I go, since this is a brand new rebrand of this show, if you have any friends or colleagues you think would benefit from hearing from me and these interviews on vested capital, send an episode to them. Give them a chance to hear and decide for themselves. If they want more, they can then subscribe as well. If you love this calm capital one, send it to them using whatever to you like, social media, email, mention it in person. I'd really appreciate that more people I can reach the better guests I'll have, the more episodes I can produce for you. Okay, my name is yarrow and I will speak to you on the next episode of vested capital.

In-Stream Audio Search


Search across all episodes within this podcast

Episodes (86)