Vested Capital
Vested Capital

Episode 2 · 4 months 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

ABOUT THIS EPISODE

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.

Yaro

Podcast: https://www.yaro.blog/pod/
Blog: https://www.yaro.blog/

Hello, this is Yaro and welcome tovested capital episode to featuring the founders of com, capital, David Hornand Marty. BALCOM O. I'm really excited to share this interview with you,because it features a investment model or maybe a business model. That is notvery common, but I think it's very exciting because it's a way to getinvolved with multiple businesses at once, without being the person who hasto run them on a day to day basis, so very exciting for any one who mightlike the idea of being involved in multiple industries having multipleincome streams that aren't necessarily co dependent in any kind of way havingcapital that grows without you, because, obviously, there's teams and leadershiprunning these companies and you're the leadership level. Above all of that,that's exactly what David and Mardy Do, and you may be familiar with thatbusiness model, because Berkshire Hathaway is one of the most famousholding companies in the world and, as you might know, Warren Buffet andCharlie Munger Warren being one of the most wealthy people in the planet. Formany many years now is the founder of that holding company broke yourhathaway, so it's that business model, except the team of David and Marty withcom capital, have applied it to the Internet business space, so they'reacquiring Internet businesses. In fact, I found out about them when I learnedabout the acquisition of wave, which is a SASS, a software platform for takingyour podcast and creating social media. Snippets and COM capital acquired themat the time of this recording. They have ten companies under management,making about eight million dollars a year in revenue that includes LoftCrepey, honestly, which is the company that David started wave Augustopatterns, proteus themes, creative farm catch commerce and life finder, andthese companies are in different industries with different businessmodels. There are some synergizes, but that's not the point. The point is, asthese guys explain on the interview is to find great companies very carefullyand calmly create a deal, bring them under the umbrella of COM capital, ifnecessary, 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 ora management team, whatever is needed to keep that company going and growing,and basically David and Marty look for deals, managed deals and put inleadership as their main role. Now I recommend you listen to this interview,especially because they talk about how they did their first deal, whichincluded a very unique financing methodology that didn't really requiremuch of their own money up front. I'll. Save that story for the interview somake 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 keepacquiring new companies. And, yes, you can use the cash flow from thosecompanies 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 oneven bigger acquisitions, which is something that the guys did with wave.That's, obviously a bigger company compared to some of the earlieracquisitions. So I love this story because it's a way to get involved withentrepreneurship, with startups be involved in different industrieswithout being the person who is running that company, you know focusing ahundred percent of your energy as the founder of a company. I love the story.I think you'll enjoy it too. Before I begin the interview, I just want toonce again mention my own company in box duncome. This episode is alsobrought to you. Bitonto, as was the first episode invested. Capital in box.Done is a service that will provide an email manager or, more often, than notone two or three dedicated email managers to handle your email to hand.Your a customer support which might include help as tickets and your socialmedia messaging if you're drowning and things like instar, twitter and linkedin messages, but usually email is the sticking point for most people. So ifyou're like some of our current clients who are venture capitalist AngelInvestors, we got a real estate of...

...people in real estate, accountants,lawyers, doctors, Online, coaching, Internet marketing, all these kind ofspaces. If you're getting too much email, we can help we step in. Wemanage remotely your email and so on. The company is called Inbox Duncome.You can check it out there if you want more information. Okay, that's enoughfrom my introduction. We're going to begin the interview right now, thanksfor joining me, guys is David and Marty from calm capital. We were talkingabout a few things before I hit the record button. I think probably thebest way to start, though, is actually to clarify what com capital is because,as I was just saying, it's not the most common business. I've come across a lotof big venture capital firms who do this sort of thing, but this is kind ofalmost like a home business version of it althought way to get them that. Butyou know it's a couple of guys coming together and with a strategy and I'dlove to talk about what it is, why you decided to do it. But let's start withthe obvious: What exactly is com capital we are realizing? This is we'vedone a couple interviews at this pointn, not many, and how rare it is to havetwo guests on you know for something, but we listen to a lot of these podcastwhere they have founders on to have co founders, and we were always like well,let's see if they will let us both beyond, because you marty and I we kindof joke like together, we almost make a full human. You know he thinks a Otnitwhen I think about things, but together we at least to this point- we've beenfairly effective and running the companies, because we both havedifferent strengths, and so I think it's beneficial to hear both both ofour answers. Since they tell was do it yeah a what is com capital from Davorsperspective, then, let's start oh yeah good so see. That was my. That was mysneaky way to just completely cover the conversation. So come capital is a holding companythat mostly grows through acquisition, but has a number of companies that areright now, mainly in creative services and software and technology, but arereally its goal is to just acquire really good, simple businesses, withgood people, from good people and kind of utilize. The the skills that we havelearned over years of helping other companies grow and develop and innovatefor companies that are kind of within our umbrella and to provide a anenvironment for people to work in and to be a part of that is hopefully alittle more aligned with the values and rhythms that they they are looking forin their life. Okay, already your turn yeah. So we started calm capital aftermany years of talking about it basically and David, and I have hadwe've been friends for twenty years, but we've had you know kind ofdifferent, different path to entrepreneurship and owning businesses,starting and owning businesses David's got more of a marketing a designbackground. I come from a computer science and software engineeringbackground, and you know a couple of years ago, we found ourselves havingstarted things with independently starting things with other co founders,but then also starting things together, and I think that those things that wehave started had a certain amount of value. We thought well what if we couldkind of see a holding company with the current value of those companies andthen also be able to leverage the cash flow from those and also raise a littlebit of capital in order to start growing through acquisition. That'swhat 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 manycompanies do you currently have n? Because it is like you said you, likeyou're, like a Berkshire, half away kind of business right, you own allthese 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 yousaid, the cash spins off into your holding company, and you can then usethat potentially to buy another company,...

...and it is very berker hathaway ask on akind of Internet focused manner. So is that is that accurate yeah? I mean we.Obviously we love those those comparisons and some day they'll keepbeing more and more true. But yeah I mean that's basicallyhow it is. We really want the companies to operate independently and you knowhave their own value their own management in themselves. So it's notlike a P P e model or anything like that where there's a bunch of employeesat calm capital, there's none, it's just David and I but yeah to answeryour question more directly. There's time companies today and there are just under eighty employeesacross you- know eighty folks that work at the companies across the across allthe companies, including David and I and revenues, are right around eightmillion dollars overall, so yeah that's about where we're at right now, eightmillion annually, I would soon to clarify it yeh. So I've got your liston your website: Loft, Croupe, honestly, wave Augusto patterns, Proteus themes,creative farm catch commerce and life binder. That's the current portfolio.If I got that correct, obviously a range of companies there, so I'm socurious about the business model. I love hearing that there's just two ofyou guys, I'm jealous in some ways I feel like this is a way for anentrepreneur to be entrepreneurial without having to run the company plusyou get to do multiple companies which, let's face it every entrepreneur kindof wants to do. We always want to have more than one project right, so youkind of get to do that before we talk about. Today, though I do feel isnecessary, as I do in my show to go back in time. You said you've knowneach other for twenty years. So was there a time before you knew each other,you guys r meeting like high school or something or I don't know how old youare. I wish we were that young we met a little bit after college. I was playingmany to R golf. I was a professional golfer, not a very good one, but wastrying to play e and Marty, and I met at a best boy of all places and startedtalking about golf is on my way out of town. It's a his way. E Ran I pose. Ijust don't want me to devested. Does it? I just want you to anybody. That knowsus no is going to laugh at this, because we would never talk to astranger in a store unless they cornered us and started talking to us.So it is, was completely a divine need there. So David had golf shoes on inbest by, and I found that odd, you know and too back in back, then you know alot of the golf shoes were the traditional kind of leather saddle backstyle, golf shoes and I don't know I made some comment abouthe's. Looking at C ds and wearing golf shoes and a hat struck up aconversation and he was on he said he said all the ore dating ourselves. Thefact that we were buying ds right, but new musicwould come out on Tuesdays and he was headed out of town for another mini tor event, and I was looking at music or whatever so anyway, that's what we metjust had a lot in common became friends, our wives or friends and yeah just toClare. I I saw David, you were an aspiring professional golf player Marty.What were you doing at that time? Yeah? So I was working for kind of one of myfirst jobs out of college. I was working for like an Internet start up.There were part like if building website things like that and building alittle bit of web product. So I was, I was a programmer first job out ofcollege. I had just moved from Michigan to North Carolina and and was new tothe area. Yeah, Okay and David. You wear golf shoes like every day isnormally that's just how you get back late. You know nowadays, nowadays thegolf shoes look like tennis shoes. So when I'm not wearing vans, I amtypically wearing true links which are hybrid golf shots that you can so yes,okay, he does always wear yeah...

...end out as much anymore now round mypop I'm a I'm, always a yeah. I just want to clarify too, when Marty startedtalking to you, you didn't think he was like hitting on you or anything likethat. This is just a nor day right and I was I was probably so focused on themusic that I was going to distract myself from. You know a six or eighthour car drive that I probably just didn't. Think about it, and, and quitehonestly, you know when you're in the golf bubble, you don't think about itbeing weird until someone calls you out on it and then you like, Oh yeah, Iguess this is kind of stray yeah. Okay, so I can see Marty you bring or broughtsome technical background to even view the Internet as an option. But can youguys connect the dots with so you meet? I'm assuming David, you drive off toyour next go tournament. Marty! You go back to work. Can you take us forward afew years? If you guys not do anything together yet or what you know, what dishave a friendship? When did you start looking to work together in some shapeperform yeah I mean I would say the first decade or so it's just regularfriendship getting to know each other playing golf talking about business.You know we love to travel. We both had I'd say that the commonality there toowas, is we we weren't nine to five working in office were king, a cubework for other people very well. That was probably the common bottom of allthings you know, so the wander lost of wanting to travel, the ability to livein multiple locations. So obviously remote work wasn't super popular in theearly two sands, but we were already kind of thinking down those lines, soit was mostly a first decade, I would say, is just mostly a friendship andgetting our own skills right and getting our own. You know experiencesin the world and then I think what was it David, probably two thousand and tenor eleven. We started working on a product which we never launched calledGolf Monica, which was interesting. It was this just some ideas around thegolf industry and software and bringing together like golf directories andtrying to help people find amateur, golfers, trying to find tournamentsthey could play in and other golfers they could hang out with. So it's kindof 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 thingsand kind of never launched it. But that was the first time we really startedworking on software stuff together. Right, as I recall, yeah I went out onmy own in two thousand and eight after I quickly ran out of sponsors andtalent. I had to get a real job and then always kind of done side, work, acopywriter and marketer and ended up as a marketing director at a software QAand testing consultant, and they were one of the first companies to do agile,test automation. So that kind of got me INTOA product development, and this wasthe world that Marty was already in. So we now. I would ask him ideas and wewould talk about it a lot and then in two thousand and eight they moved myjob up to Connecticut and I was married, didn't want to move, and so then Ifound myself unemployed minus a couple of side hustle. You knowfreelance clients and then that the company hired me back and as aconsultant for a while- and I was like H, I kind of like this freelance workand through that just developed a couple o o several agencies alreadyeventually kind of went to that world, and you know for us, it's just verynatural- to work with multiple clients on the agency or consultant side rightwhere the agency that, honestly, that we have that I had started, I mean,there's, you know a dozen twenty clients there that we were already siloing compartmentalization the way wethought about those and we were kind of like well. We do all this work for ourindividual clients. What if we were our...

...own clients and we feel like, whereas a lot of people feel like youknow, if you're an entrepreneur, you got to dive into that one thing, andthat's the only thing that you can focus on and we're not wired. That waybecause of our experiences. We were always working with multiple clients atthe same time, so it didn't seem like a big deal to say. Well, let's get somecompanies that are already cash flowing and already real businesses, because Ido believe if you're going zero to one it's way easier to do that when you'refocused on one thing right, because it's so hard to overcome the inertia ofgetting validation and revenue you know coming in, but once you've achieve that,it's a lot easier to work on multiple things, and you kind of learn this overhere that you can then apply to this over here, so that was kind of theseeds and colonels of this idea of well. You know what, if we, what if we had aservice as company that was serving its own portfolio of companies and that'sthat's kind of how the conversation started. Interesting, interesting yeah!I hear so many people talk about havingan agency at some point. You know in their history if, if you're an onlineentrepreneur or working for one, you know a web design, social media orsomething like that, and then eventually something happens andthere's usually a start up or a business that spins off from that andthat's why I'm talking to them on the podcast? Basically, that's their nowcurrent business. You guys are a little different, though, because you saw,like you just said, David controlling and the supporting different companiesand you thought Huh. You know we could potentially do that, but own thecompanies, which I guess is not that big a stretch like I remember. I had afriend who was doing ad wards for clients and I thought well. Why don'tyou just do that for yourself, but you could just acquire that company andit's you know same sort of thing, but I love to just go back before we talkabout com because I do want to dive deep into calm. But what happened tothe golf website? You know you: Why did it fail? What was what was that firstgonna work together project? I don't know if I have a great answer for thatother than life and business and in just deciding to stop I'm sure it's myfault right, like I'm sure that I just stopped having the time to do the Devon it but yeah. So I I think that that's pretty much it weactually still own the domain. I just e saw the iner email not too long ago, Osomewhere. It's not necessarily a irrelevant idea either. Maybe we'llresurrect it one day but yeah. I think we just got busy. Yaroto be honest. Itwas two thousand and ten were at starting to have kids and I'm not supertechnical. I understand it enough to communicate it, but I can't put handson keyboard and build anything and when you're trying to do that with afull time, job and starting families and stuff it just wasn't a priority andalso, I think, at the time it was somewhat. I mean I think we were alittle ahead of ourselves with what the where the technology and the tools itwould take a lot of work. We would have had to build the tools had we had thatidea. Two years later, it may have been different because there were tools, aright of the things we were trying to do so, but you know, I think it wasgood and you're. I think it was really important, because this was the timewhere we were trying to start things like we had this idea when we're doingagency in our jobs, a alredy was managing a team to developers at hisjob and the zero to one just gets a lot different when you have a family andyou have different priorities and you want to work at a different speed. Youknow this. This kind of idea of calm and being patient. It's hard to bepatient when you're launching something- and you know we had golf monacle- Ihave 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 thesite. That's like, like a rest in peace, part of all thethings that we had tried to watch and couldn't and didn't reach the orwhatever we launched the subscription of Uker ice called Fan. Pack that grewup to you know decent size, but then I...

...realized we were in the fulfilmentbusiness, not in the software business anymore, and you know so trying to dozero to one without putting everything into it. Prof really hard for US- and Imy hat's off to folks that do that and that's what welove is there's all these people out there that love to build things theybuild them, but then they don't theer road and run them forever, and so wefeel, like you, know, there's a good symbiotic relationship with that, withkind of where our skills fit with, where their skills fit. Okay. Well,we'll take me for a guys so you're throwing a few ideas at the wall whilemaintaining it sounds like an agency freelance work family starting to growlike in my mind, I'm thinking. How do you start a company where, essentially,you are going to need to have some outfronts capital, potentiallysignificant out front capital to buy even the first company you're lookingto purchase? Can you connect the dots like? was there? I mean take us forwardfrom all this experimenting, so I can get to calm, because I feel likethere's a bridge I have to climb before. I can understand how you guys couldstart that yeah. So we were having these conversations and I'll be realshort and then let Marty kind of finish it a little bit the Teton pass here,but we were having these conversations at the time. The Cash Los from honestlyenabled me to start looking for things to buy as like an experiment to see. Ifwe could do this, I've been building a relationship with an individual who hadexperience in buying and selling traditional businesses, and I felt likethere was a lot to learn from these businesses that have been around for ahundred. You know fifty hundred years that are being bought and sold, that Icould learn and apply to the software side, which it was fairly early whenpeople were starting to buy SASS products, and so he this individualhelped me by patterns, which is the first thing we purchase, which is adesign content site subscription site. We learned a lot through that process.Martin and I talked through it, this individual, they might helped us andthen 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 dothis and so went. We went back. I went back to Mike said: Hey, I told them the.I told him the face camp story, you know where Jason Fried and David hadJeff Besos kind of basically front them so that they could stop doing clientwork and focus on building base camp. I don't know if you've ever heard thatthat story, so I got to mention that story to him. I said: Do you think? Isthere a world for an opportunity where Marty and I to do something like this?I mean we have honestly and we have loft and we have Augusta. We have thesecompanies that are have some value in some cash and he thought about it for a while hesaid. Well, let me talk to another friend of mine that has more experiencein doing this. This guy named Steve and they got together and they said youknow what we like you guys. We like, where this is going, we'd, beinterested in helping you put this together and so they've been kind ofmentoring, US helping us with some of the financing and that's kind of how wehow we got started. Okay before we do pass the baton back to Marty, you saidyou were spinning off capo cash from honestly, that's your agency, and thenyou made your first purchase patterns. Do you mind just talking about even thenumbers like? Were you saving five sand a month from cashbook a business yousave up to a hundred grand? Then you go on like to me. It's like I go toflippant or I go to Micracoustic T. Maybe Marty Story David. I want to getequal turn to both your eyes. Yes playing somewhere number O yeah I'll,try to I'll try to talk to specifics about the patterns deal and then alsoadding a little bit of detail around forming up the calm capital, partnerteam and all that kind of stuff. Correct me if I get these numbers wrongDavid, but you know the patterns, the patterns deal was really interestingand it's a good it's and that it's...

...actually an interesting like I'm reallyglad that David did the experiment and it was mostly him right, but heincluded 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 talk through every stepof the way and if I recall the owner of patterns tweeted and said, I'm thinkingabout selling this anybody interested David responded, I might be theystarted talking. It was a very you know. We didn't like. I said. Con Capitaldidn't exist then, but like the way that that transaction went downwas very calm, if you will and the way that we define that right, it was ontwitter, casual conversation, no broker short conversation and David was ableto put a very small amount down. I might get these numbers wrong, but,let's just say the whole deal was a hundred a D. Twenty five Husan totalpurchase price andn, there's seller financing over a couple of years, andit's a little more complicated than to sell er financing, but like there's anearn out with some benefits to keep them involved and advocating for thepatterns community over a couple of years and David out of pocket is like athousand 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 Kwho didn't so the might guy so mike our partner was able to say hey. This isthis is a simple note and a cash flowing business. That's prettystraight forward, and so that was the experiment. That was to say. Can wefinance this? In this way, and and they did- and so there was enough free cashflow in patterns to be profitable and still still pay off. The note okay,just to clarify understand Mike, is a guy has experienced in the world ofbuying and selling businesses sounds like more off line. He's like a bit ofa mentor to you, save it at the time. Yeah. You guys come to him with thisbusiness patterns that you built up a relationship with and you're talkingabout acquiring you need a hundred and twenty five grandish up front to justget the deal started. You get a note which is essentially a form of a loanfrom Mike. He gives you that cash you do have to pay it back, but you can usethe cash loaf in the business to pay it back less interest, and then youessentially do that deal and, like you said David only had to put them athousand dollars of his own money, and then you now own a business that aboutright. Yeah I mean we, you know I threw honestly the cash flows. I think I hadabout somewhere in the sixty eight thousand dollars in the bank fromhonestly s overage revenue, you above what I made and all that so I've beenpretty frugal and you know Michs like well yeah. You can put all your moneyin, but what, if you could keep your you know, you don't have to like? Thereare a hundred ways to do this and you know between Mike and Thinking about.We had heard the story from J D Graffam, who be a great person to have on this.This podcast how he bought his first business, which was was a ball park. I don't remember whichone it was, but you know he had done something kind of similar and Mike, andI just got talking about it and he was saying well, you know what, if you wentback with this and we ended up doing like the earn out kind of which wastechnically an earn out that it was like a red share, a guaranteed redshare of this amount or this percentage of revenue, so that theseller could get more for the asking price. If you know the business grewand they were evolved, and so we did that, and you know there, but a benefitfrom that, and that gave the seller a chunk of money to take some chips offthe table and focus on the new start up. He had as well as you know, monthlyrevenue stream for a couple of years...

...and then the cash flow. The notepayment was, like I don't know, twenty five percent of the free cash flow,thirty percent of the free cash flow- and you know it S- eighty percentprofit margins, because it's a content, business and and I sort of worked out yeah. Okay, Iappreciate the specificity guys, that's really interesting. You mentioned aGusto, I think when you were just talking before about three entities,what was how was that involved? Yeah so Gusto? What is a custom software development company? Soa consultant- and I helped co- found that in twenty sixteen with three otherco founders and we yeah, we started building that up and you know that's a successful companynow that has some of the founders are still actively operating the businessdaily. I think all the other three work near full time in that business. I donot and yeah. So that's what that that's! What that company is, so youwere able to take your share of the profits of Augusto into calm capitalsthat right Marty yeah. I really really how we did. It is we's kind of justtransferred my equity into being owned by by calm capital. Instead of me as anindividual. We had enough relationships with the partners that we could explainwhat we were doing and have those conversations and that that there is avested interest for everyone involved, and you know I was able to essentiallynot have to have a pay check if you will and relieve that operating penseback to Augusta, so they could hire a replacement. So it worked out foreverybody and and what's Nice to is. We obviously have a lot of differentsoftware projects that come up in the mix of coma across the camp capitalcompanies right and were able to bring that business to Augusto when we need areliable Dev shot you this energy is nice. I like that you mentionedh salary.There, that is a question. I am curious about, especially going forward withyour plan for calm, so I can imagine David. Obviously you had honestly,which was paying you a salary Marty. It sounds like you kind of transferredyour salary from Augusto into com capital, so you were able to kind oftake it out there whenever there was profits, was the plan and I'm sayingthat at the point where you only own patterns Augusto and honestly, as Iguess, your three companies- I guess that's like foundation point for comcapital- was a plan for you eventually in your mind, at that time, to exit allyour kind of operating roles from those companies to a hundred percent focus oncom was that when you start thinking about that yeah, I would say we'restill even in that process. Right calm's been around for almost eighteenmonths here, right, seven, sixteen months, so we're still in that processa little bit right of being completely out of the operating roles. We werejust talking about that David and I were last night about how you just haveto 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. Asfar as just having really talented people who love kind of what we'redoing at calm, they love the idea of working at a calm company and beingaccountable and and incentive to take leadership over the operations of thecompanies and so, for example, at Augusto we've got a new gentleman Jason Who's, the directorof operations, which is a role that I played for quite some time, he's justchanging the business so fast, like he's making improvements. He's reallyhas the reins. You Know Allison, who is the CO of honestly, for example, she'samazing and she's got her own vision, her own plan she's, putting togetherher own leadership, team and she's just got tons of moment on there with herown business right, and so when we bought Proteus themes last June, Ithink it was. We hired a co right away...

...and he was part of actually he got putup a little bit of capital in as well, so he's a partner and the Co, which isGreat. You know our newest acquisition. We hired a CO during De diligit or andrecruited and identified during due diligence, so he so the transition fromday one was directly to him. There's a new co at loft or software supportcompanies. So I Congo on and not these people are you know so many we weretalking last night, they're better at that role than us. So it's not justabout US freeing up our time, so we can focus on calm capital, but it's alsoabout where we want to spend our time and what kind of wear our skills andtalents are as well he's just getting a minden and getting re the right peoplein those seats it to again back to the whole idea of like, what's best foreach company, not and collectively, that's what's best for calm yeah. Youyou remind me of what I've heard from both tiny capital, Andro, Godson andstart up com. I think Austin Reef from Usuris last name, both of them havesaid you kind of transition away from being a founder to a hirer of CEOS.That sounds like as a you know. You have. Your jobs is basically that toput in place the right leader in these companies that you acquire and itsounds like you're becoming very skilled at that que us connect the dotsof the story, though so you've got the three companies and what I love aboutto is you actually had a unique funding method from day once I, like you, put ahundred percent of your own money, and I did that with a couple of purchases Imade early in my career, but once the money's gone, it's there's no more tospend, 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 fromday one is great. So can you take us today too? So what was the the fourthcompany that joined the Cambrano and is that when you started calling it concapital? Yes, when we started com capital, the conversations reallystarted in earnest. I mean we've been talking about this kind of idea for along time, but com capital itself- hey. Let's really do this. It was you knowspring of two thousand, and eighteen is that right morning, two thousand andnineteen I mean spring of two thousand and nineteen. At that point, we hadhonestly, which was the c owned, a Holy Augusta, which Marty was a foundingmember. We have loft that we had created with the partners at Augusto,and another friend is an IT business that we were. You know had interest in.We had to start up called Croupe that we were working on. We had patterns,beat a minority stake and life finder. I think that I think that's it and withthose we said, okay they're worth this in that's what we're going to bring.You know to the table plus some of the some of the cash that was in thosebusinesses to start calm and so those conversations kind of let us throughthat the rest of that year in the WWE launched com capital in January tothousand and twenty and since then had acquired, prettiest themes and way andstarted catch commerce, which is a shop fire as store okay. So there a lot ofacquisitions. There have have you sort of, and some companies you've createdby kind of merging people from the current companies. So it's nothappening. I can take us too, maybe one of the other deals because it soundslike the numbers probably get bigger to. So you just borrow more money fromMagic Mike and his team. Over there, no yeah, I mean it is a combination ofeverything I mean. I think the Martis better articulating these things, but Ithink the bigger thing to think about- or s are thinking is a lot of firms,and you know 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, certainlycome up like really formulate this idea. So there was you're right, it's apretty small community, but now you...

...know by now an there's, a handful or agood good number of people that are doing this. Bigger companies likeshirts capital, whatever that are doing this type of thing, but we don't havelike this is the way we do the deal right. We're going to do this much cashand we're going to take it out right, we're going to own the whole thing orwe're going to we're not going to put cash in we're just going to do earn out.So we're just going to finance with the DAT. Every deal is really a combinationof what's best for the seller, the selling founder like what do they want?What's their dream outcome, how does that line up with what calm capital canhave a really good business with, and that fits into the way we want to dobusiness, which is patiently purposefully and profitably right. Sothat said of the acquisitions, some have been more cash than debt. Somehave been earn out and we haven't done that manyand then like the most recent one is a look. It was the bigger biggest one wehad done so is a combination of we brought in another partner. Is thatWave David just to clarify yeah for waves? So Com capital owns a majorityinterest but there's another part: Er Co, Wilmington Holdings, that is apartner in wave Marty, and I put our personal cash into that one calledcapital. Well, we put our personal cash into Cong capital Mike and Steve putcash in the COM capital. In the we put cat com, capital put cash in to waveWilmington Holdings, you put some cash and then the the selling founders. Thiswas their baby and they thought the best days were ahead of it. So theywanted to have some upside, and so we kind of orchestrated again it'stechnically an earn out, but it's not the framework of it may be more of ared share type model that they are getting like a guaranteed you a payment,and so I'm not sure. If that's answering your question as much asevery deal, is we approach as as its own thing and what's best for thecompany? What's best for common? What's dust for the selling founders? Thosethree things is that's what we're trying to line up. I think maybe I'lltalk a little bit about that. The proteus themes deal we did last year tokind of just give another example, but I think the key thing that we decidedwe might change our minds some day. We reserve the right, but right now we'vedecided that we don't need to go out and raise afund in advance to have capital ready to deploy and go make purchases withnecessarily, obviously our calm capital. You know, Partners Mike and Steve, haveinfluenced us in that to say: Hey just take each deal as it comes and bepatient and let's figure it out right, there's usually several ways to get thedeal done, there's more people that we can talk to, and we really learned thatlesson in the wave deal this past year. But let me go back to the Proteus one,because it's actually more similar to the the patterns deal structure in thesense of we just looked at. We looked at the price. We negotiated an askingprice, 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 wasrecurring revenue, and so we kind of like split up the revenue and gavedifferent valuations, and so that was not step number one as we felt like wewanted to get it to the right price, at least the right price for us and thenstep number two was we just looked at the math and similar to patterns? Wesaid we could do a note or do a five year note on this directly. So calm capital puts moneydirectly into you, know, kind of calm capital homes owns the equity, but thethe note goes directly to the company, the proteuses and that's how we did it,and so it's just a liability on on the balance sheet of Proteus themes andit's part of the cash flow that you...

...have to manage, and it's a small importand small enough portion of the revenue that it works and makes sense. And soit's really simple, really straightforward and calms, able to hold that equity and seethe profits but but not have hold the debt yeah. So it's kind of real estate likeright like we it was. We wanted to get the we had money to put in, but we onlyput as much of our own money and this in our partner who's the Co Day thatput in enough his money. We only did that to the point where we could getthe note to a to a our comfortable resold of payment for the Casals of thebusiness, so very much like buying a house rightyou to put enough down to your payments and everything fit and you do risk. Youknow you don't over lever. It yourself that you're able to have anappreciating asset that you didn't have to put the amount. You know the all inyeah makes a lot of sense. Do you guys mind talking a little bit about how youdecide what to acquire, because I understand the financing now it'sobviously going to be different every time, but you must be looking for sometypical characteristics in an acquisition target, even just to payoff. Like a note, ask me enough. You know positive cash lo there to do that.So what do you look for? You know in a target. Yeah. Definitely I mean youknow you're. Looking for all the kind of the attributes, I'd say of a goodbusiness right, and so is it? Is it in a market that's going to support theproduct or the or the community over the next five ten years? So we'redefinitely don't have like a quick. You know milestone timeline that we'relooking at right. So we want to be that's kind of part of our patient. Wewant something that is going to at worst case die slowly and that's goingto be around. So it's got to be in a market. It's got to have you knowpretty high margins right, so it's got to have a really optimize. Coststructure needs to be operated. There needs to be some bit of a I'd, say a either a team that it comes with or itnere needs to be enough. Free cash flow that the team that we'll need to hireis paid for right away right. We really do look for it's already establishedproduct market fit that's why we're buying that building. We look forvalidation through large customer bases over many years, so you know, I don'tthink we would probably buy too many busy. This is that are younger than youknow, four years old and when you look at some of these customer base in thelist, there's a lot of value in them in addition to the revenue right. So whenyou buy a business that has two hundred send customers or fifty sand customerlist, we understand there's a lot of value there, as well, potentially tocross market to or potentially just to increase our engagement with thosepeople right and reach out to them learn what they learn, what they wanted, it, let's say:they're, not an engaged customer anymore. What was missing, what couldwe offer? There's so much there that I, with those larger lists of incommunities or customer bases, so I think that's a huge thing that we lookfor as well, but yeah I mean you. Can you can see that? Obviously it's in agood market where the total addresse market is larger than the currentcustomer base, but the current custom a base is substantial enough that there'sa lot of value there and then just the financials of it as well. Looking fortrends right, so let's say it is growing: Do we think that we could takegrowth from two percent month over months to four percent month over month,for example, or let's say that it was at a certain Mro a year ago, but it wasit's now declined, but we think there's a good reason that it declined that wecould get it going back the other way. So I think that it's trying to makethose bets right so ere 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 bothSass and we have subscription. I don't...

...think that we have a super strongopinion either way on that. So I could, I could probably add more stuff, butthat's kind of what color was going to ask, because I know I find you outabout you guys from wave and now way for those who don't know it's a toolfor taking podcast content and making social media video snippets typecontent very easily through a Sass you've already mentioned. I knowpatterns. How look at that like before? It's kind of like a pinters contentside, I'm not sure if I'm saying that right out a very brief look at it, thenyou said Augusto is a software dev kind of agency. If that's correct or myinsuring buttering, that one protiasis is themes or website and you've gotyour own agency, honestly, obviously no style of business. They have that sortof. You could say they all fit in the same basket, but I know even from myown experience operating some of those types of businesses, prroit marges, ona content it, as you mentioned before. Eighty percent, huge, fantastic amazingprofit margins on an agency- can be all the way down to ten twenty percentdepending on how the agency runs. So it's obviously not a business model orthere's not like a sweet spot and profit margin it just overall, thenumbers have to work for what kind of deal you're trying to put through, andthat could be anything by the sounds of things yeah. I want to comment onagency 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 topof our list, but would we grow honestly through honestly making an acquisitionof another agency? We would consider that right, so I so that's a way wherecom capital could potentially helped finance or fun that situation where wecould, which happens all the time with agencies right. So I don't know asthough calm capital would go by another agency or another software Dev shop.But could we be in a position to potentially help those businesses? Youknow grow their grow within themselves inside their own business model, wherethey want to grow through a acquisition, so that that's a way that we would dothat. To your point I mean we love the dynamics of CASS and subscriptionbusinesses, obviously versus roves in work. Yeah, yeah, okay, the future herefor calm like again from me, tiny I've known about for a long time, AndrewRocinante as Canadian. So I'm a was on the radar about the Canadians. There, athing and he's over in Victoria was in Vancouver for a while. They justfloated on the Canadian. The stock is change the whole tiny capital group.You know a hundred million dollars a year in revenues. I and I know, evenfor me personally, I'm like I kind of want to do what you guys are doing. Itis a way to really get involved with multi projects at once, without beingthe 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 you kind ofjust rolling with it, and seeing how big this could get? That's a goodquestion. We, I think it's more around staying within the way we want to dobusiness, so it doesn't really have A. I mean, obviously, there's a number ininvolved. We want to grow revenues right, I mean that's, but you know ourfirst revenue goals, probably not our ultimate revenue goal. We don't havelike hey, we want to have twenty companies or we want have fiftycompanies or five companies we it's really just like. How can we create themost value in a calm way? You know in that patient, purposeful and profitableway. What does that look? Like I said, I think we're still learning wherewe'll get to, but I think we'll know: okay, Hey, we are getting. We are notoperating in the way we said we would want to operate. Let's get back to that and what thatlooks like, I think, is where will where we'll land? So you know we talkenough about the stuff that it's never kind of gets off the rails, at least sofar, man we're eighteen months it, and so you know guys like Andrew Than The'edoing this for eight or ten years, have...

...a lot more, probably experience andthinking through those things, but as someone who built an agency with themodel of never having any full time employees, the the fact that we havealmost eighty employees within the is very interesting to me, because I neverthought I'd have like hr kind of issues or they to our stuff to talk about so,but I think it's more around like. WHERE CAN COM go? How do we continue tocreate value continue to have an environment where people can work andsucceed and thrive in this idea of not being of being patient and beingpurposeful, and then, where that shakes out is where it shakes out yeah. Iwould like to touch on just to see you hiring aspect, because I do feel likethat is a skill set that isn't readily available like it is not it's a uniqueposition to need to continuously hire CEOS on a regular basis, not many rolesin o o R. I know capitalist culture have that kind of function. Maybe theboards of directors might, but you know you guys, are kind of doing it as yourjob in some ways now going forward. So how do you find a good CEO- and I saythis a little bit because I'm potentially looking for one eventuallyfor my own company and Boxton? I know my cofined. I have talked about puttingsomeone in place there eventually and it's hard, because it is a very responsible leadership role whichyou're kind of passing on your baby to as well, and you guys do it in a way.That's very disruptive or maybe ideally not disruptive, with your calm approachbut you're trying to take on a company, potentially the current founder orfounders are leaving and you're, then putting in a new CEO and you don'tnecessarily know how well they're going to do so. It's a big part of yourbusiness model working, so you obviously have to be really good atthat. So how have you found that role so far? And how do you do it? We needto have a call in about two years or so, and you can ask us that again and well.Acle have a better answer right about whether or not we're good at it. So Ijust answer with where we're at be be vulnerable and say: You're exactlyright, it's an important thing for us to be good at and we're not sure thatwe are necessarily good at it yet. But it's something that we're really tryingto like focus on, I would say the biggest thing is, is trying to find agood good people fit though, when people hear the word CEO, they probablyhave some kind of image of what that means, and I think for us it's ideallywe would love to find someone who has. You Know Andrew Talks, a lot aboutthis on. He said I learn that I want to hire somebody who's already done that and is currently interested in runningthis company, and then we align on their needs, incentives andcompensation and all that kind of stuff we will get there. But where we're atright now is we've cultivated twenty years of relationships so either firstdegree relationships or second degree relationships, and we know people whoare executive experience and capabilities, but they are alsotypically subject matter experts, in whatever capacity they need to be andthen you're trying to just have lots of conversations with them about more of like in general, where they'reat in their career and in their life, to make sure that that they are excited and ready to engage in this andthen, of course, just really clear expectations about what it means. Youknow the growth aspect of it, the general management aspect of it, the HRaspect of it, because these aren't huge companies right each one individual isgoing to manage a small team. So when we use the see the word co, I mean theyhave to obviously be able to know what needs to get done based on some kind ofstrategy. They have to have come up with a plan of how it needs to get doneand really they have to learn how to become good allocaturs of resourcesright. So, there's a certain amount of resource constraints in thesebusinesses, based on how big they are, people, resources, capital resources,vendor resources, all those kind of...

...things, and they have to be able toknow how to make all the hard decisions that we all have to be as capitalallocaturs right, and so that's where we come in to be kind of likebackground support to that like helping them think through prioritize andsymphathize and just kind of be pointed in the right direction, but so far, Ithink that the word that's coming to my mind, as I'm talking through this inreal time, is we're learning a lot more about just having how to have candidconversations and just really really clear expectations about outcomes right,which is just peeple management in general and performance management ingeneral, because when you put somebody in that role, even if I had been in itbefore they're, also just you know performing to those expectations rightand so being really clear about what those are and what matter. So. Here'san example David and I talk about like Hey. We just need to be thesebusinesses because we're patient. We just need these businesses movingforward. They just need to always do moving forward one percent a month,girls, two percent a month, girth or more. We don't have to tex these things.The way that we're financing the way that the return that we're having wetruly are. We want it, they need to be profitable and we truly are patient,and so that's a different request to a co right. That's a different ask thanprobably other cos and in different situations that are in different kindsof companies. So I think I think, just really being clear about thoseexpectations and having candid conversations and but again it is youyou hit the nail and the head like. It is the number one thing I wouldn't evensay that about it's about the CEOS. It's also the the ops people and theCOS and the right like it's it's overall, we are talent, finders andtalent matches. Now right, like that's what David and if we need to be greatat anything, it's that it's finding great people. I can hear you Davidbecause Marty great answer, but David. I know you said you never worked withemployees before I'm the same. I've always deal businesses with contractorsand- and I kind of like what do you just describe Marty? Is You two? areboth HR managers now, for you know ten different companies Wich, whichactually doesn't sound like it, has exciting. So all right exactly well you with the HR,the actual HR issues, Nashvill as are really we let the companies handlethose right. We just handle the fum parks, yeah, okay! Well, let's, let'swrap it up guys. I really appreciate your time and I know you've got to getgoing to talking to some of the team. I have one. I guess is my kind of stockquestion to finish US off now, for that the version of my show I'm callingvested capital this Business Mama you guys are operating with is almost likea perfect example of a vesting capital model where you're gaining leveragefrom building teams acquiring companies, letting them run themselves in manyways, so our capital basis growing without you being too actively involvedand then you're leveraging other people's capital to get the deal isdone so there's plenty of examples in your story, but- and I know it's earlytoo so this might be you guessing about the future, and this is a somethingsounds like a bit of a cliche question. Do you expect what you're doing nowwith com capital, to be your personal, greatest source of capital creation,for you to as individuals going forward? Or do you think, maybe, like you know,still running your own agency and just spinning off profits from that wasactually the way you ended up, making the most money? We, when you look back,maybe in ten twenty years yeah I mean, I hope our hope is that right. We eventhough it's not I mean we talk a lot about, come capital. U K, O internally,almost being like a family office right like we see the lion share of our ofthe capital that we create going into com capital to be able to do morethings for our families and the other families of the company. You know thatwork in the companies and within COM...

...capital- I didn't say, com capital wasa family, but there are families that work within. You know con capital right,so we do see that, and I would say regardless of I mean if this worksright, then it will produce the most revenue and all those those type things,but I think it's more around the. How do you define success and successis more than just the revenue that comes in it's kind of the whole, thewhole picture and we do see con capital as the vehicle that gives us the thesuccess as we've defined it yeah. I agree time will tell, but this is adream. I mean this is a dream. Come true for me and David, like we've,talked about this. For years I mean we love working, we love doing business,we love, we love all the things, we're learning we have so much to learn. Wefeel like we're out of our element at all times in the just. The fact that weget to do this is we're very grateful. The fact that we get to do thistogether is really amazing and I'm really enjoying seeing our teams growand all of the you know, opportunities that were creating in the world forpeople to make the living- and you know- are a living- an interesting now,remote, remote, first culture in most cases right and it's fun, it's fun tocreate all these opportunities for for all the different people in thebusinesses, and so I hope so, it's great so far yeah. I know it is. Iappreciate your answer guys. I know you're, you know a lot of what you'redoing is so hands on with people like I can imagine, the personal satisfactioncomes from seeing them grow and the companies grow and everyone you knowgetting something back from that, but on the flip side, I also think ofBerkshire half the way like David, and I were talking before we hit the recordbutton, how Lauren and Charlie you know s putting together companies much likeyou 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 Davin abandoned a deep time and still doing it in there. burks arehalf way episodes. I was thinking from that. It's you know the float they getfrom an insurance company provides so much cash flow that they reach a pointat some point where it's like. Do we keep buying companies? You know, whendo you take out capital for yourselves or you and your shareholders? Obviouslyyou could float on the stock market as well. That's another way to createwealth from all these capitals coming together. So it's an exciting futureand I think you guys certainly have, depending on how far you end up takingthis from a gross perspective as well, but obviously you got to enjoy the dayto day, which I think you two are definitely doing. So, thanks forsharing the story website. Is it COM Capitolo the best place to go, and Ishould actually ask it to if there's a listener on this podcast, we might bethinking of selling their business. Should they just send you guys an emailyeah. I think the the website yeah Um capital Com, the website is the bestplace and there's a contact and before we jove off your. I do want to saythank you for for doing this. I I really appreciate the change and focusof your podcast. I've listed your podcast for a while off and all becauseyou know you go through like seasons with with stuff, but I reallyappreciate the focus for making towards this, because I think this is somewhatnot necessarily wild west, but this is somewhat of a new idea. Right you'vehave these institutional investors. You have K firms, you have venture, youhave family offices and things, but there's more opportunities. We weretalking to these two guys, not too long ago, Darrel and Nick that bought acompany off microresolver trying to figure this out to right as a smallcompany. They want to kind of snow ballet to use a warm buffet kind ofterm and you what you're doing with his podcast, I think, is going to be superhealthful. I'm really excited about listening to future episodes. Peoplecan only skip ours that they can listen to some of the others that you're goingto have where I think it's just going to help us grow com capital more. So Ireally appreciate you being committed to this focus and making the adjustmentto your content. So thanks thanks for...

...that. I appreciate David and it'stotally selfish reason. It's just a topic I love to so you know and a topicI want to practice. I don't want to own just one company, I won't know inseveral, so it's you know, go your capital and have more more projects toplay with, but I really kind of look to you guys as an example and some of theother few examples we have to because I've struggled to have time to frankly,you know do more than one company and break that rule where you're making onecompany suffer because you're off trying to start another one and that'ssomething I've done too many times. I think over the years, so finding waysto grow put people in place know that the company is still growing. Withoutyou start another project and finding the synergizes, perhaps between thosetwo, like you guys said often it's the relationships or you can like you know,bring in the CEO because you knew them from the other company that you made aconnection. Is All that kind of synergistic stuff happening which opensup 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'recatching it maybe a little bit early but hey you guys, have ten companies,eight million dollars, annual revenue, diverse topics and business modelswithin those companies you're only going to keep growing. Yes, there's notmany of you, but I do feel like because the idea of buying and sellingbusinesses with micro choir with F international with flipper I mean I wasbuying on flip fifteen years ago when he just bought a website, and you knowit made an extra couple of grand and you had to sit there. It wasn't likeyou were trying to build a holding company, but you know nowadays peoplethink bigger and and that's the way they go. So this is only going to getbigger and I can't wait to see, like you said David, where we're at head sobut yeah. Thanks for sharing the story appreciate your time, let's, let's keepin touch yeah. Likewise. Thank you. So much pleasure was all our yeah. Thanksreally appreciate it. I hope you enjoyed that episode with the foundingteam of COM capital that was Marty, balcom and David Horn. If you are notyet subscribed to my vested capital, podcast make sure you do so now, justopen up whatever podcast APP you're using or maybe you're listening to itright now and just hit that subscribe button, you can do so in all the maintools, whether it's POTII, Google, Apple Amazon or the independence outthere. I currently have a couple on my phone cast box and pocket casts, butthere's all kinds of different players available to stream and downloadpodcast doesn't matter which one you're using you should be able to find myshow just by using the search tool in the APP to look for my name, which isYaro Y, a r o or the name of this show vested capital. Do that search hit thesubscribe button and you'll get all the upcoming episodes. I release plusaccess to fifty plus of the back catalogue of the best interviews. I'vedone with start up founders. Some amazing people there that interviewedearly on in their careers to some great stories. If you're interested in morefrom me, okay, that's it, and I would also appreciate, by the way before I gosince this is a brand new rebrand of this show. If you have any friends orcolleagues, you think would benefit from hearing from me, and theseinterviews invested capital send an episode to them, give them a chance tohear and decide for themselves if they want more, they can then subscribe aswell. If you love this calm capital, one send it to them using whatever toolyou like social media email mention it in person. I'd really appreciate thatmore people I can reach the better guests I'll have the more episodes Ican produce for you, okay, my name is Yaro and I will speak to you on thenext episode of Vested Capital.

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