Episode 135: Tyler Newton of Catalyst on
Growth Investing and Creating Value from Entry to Exit

Episode Transcript   

 

Shiv Narayanan (00:10.774)

All right, Tyler, welcome to the show. How's it going?

Tyler Newton (00:13.134)

Yeah, it's going well. Good to be here. Thanks, Shiv.

Shiv Narayanan (00:14.954)

Yeah. Yeah, excited to have you on. So why don't we start with your background and Catalyst and then let's go from there.

Tyler Newton (00:21.314)

Yeah, sure. So yeah, my background is pretty simple. I've had two jobs since I graduated from college in nineteen ninety-five. I worked in leverage finance for five years at T D Bank doing media telecom, which is fun back in the late nineties. and then, you know, spun out after that. joined Catalyst, which was started by a couple of guys I knew from T D, and started as an associate.

Became a partner in, I think, 06, managing partner in 23. And loved it. It's been a lot of fun. do been doing growth investing this entire time. You know, followed the evolution from media telecom focus in the beginning to SaaS and tech enabled services. And now, you know, everything we touch, you know, is infused with AI, robotics, some combination of those and software and services. So it's been a lot of fun.

So even though I've been at the same job for twenty six years, it feels like twenty six different jobs. You know, 'cause always learning, meeting great people, it's been a lot of fun. Yeah.

Shiv Narayanan (01:24.449)

Yeah.

And and it's always changing, yeah. c can you expand on the types of companies you're investing in terms of size, like what types of checks you're writing, how where are they in their maturity?

Tyler Newton (01:36.864)

Yeah, so we're you know, someone might look at us and think we do venture capital, right? And you know, in some ways you could look at it that way. We're doing typically series B stage companies. So our job, right? So we're we're we're looking we're not looking to do a power lock type of strategy, right? So for us, we want companies that we are confident we can

know if we hit our plan, make three to five times our money over and over again. And we don't like losing money. So we also, you know, really want to keep our loss ratio very low if if if not non-existent. so and we've been able to do that for 26 years. just sort of goes to our nature, but we typically will build a fund of say 10 to 12 companies. And so it'll look more like a private equity fund, even though we're investing in these super high growth companies. in terms of

what we're looking for, we want to know the product market fit. So we're not taking risk on will people adopt the product? We want to understand the metrics. People are buying them. We know the CAC. We know the renewal rates. We know the margins. And our job is to help those companies scale. we also want to know they can scale capital efficiently, right? So we don't want to see a high, a big prep stack already in. And we want to know that the burn ratio is going to

be low going forward. But we do invest in cash flow negative companies, right? Like company, you know, companies are growing at least 50%, usually closer to 100. And we want to know, you know, we want that momentum and we want to be able to fund that momentum. Most of our money goes to primary capital. But it's it's you know important enough for for us to know that if the company needed to get to cash flow positive, it could. But if it's if it should keep investing in growth,

Tyler Newton (03:31.649)

And that depends on the ROI of the spend, then we wanna keep investing in the company and and and help it grow. So that's sort of that's our approach. yeah, and it and it and it works well.

Shiv Narayanan (03:44.406)

Yeah, this interesting. It's not exactly like a V C, but it's not exactly like a growth equity firm. Like t talk about how you look at the return on these investments and how that might be different from let's say a traditional growth equity business or an VC you mentioned the power law, but just can you expand on that a little bit more?

Tyler Newton (04:03.029)

Yeah, so you know, in venture capital, right, you want to be in you know, your fund, you want to have at least one or two companies that are massive winners, right? Again, we like massive winners, so we're not against it. We've had we've had some, but we don't want to rely on that and and we also don't like having a bunch of companies not succeed, right? So we we we like, you know, our style is we like our companies to succeed, we want to and we want to be able to spend time with each company, right? We wanna have it where

You know, my me and my two partners are not sitting on more than five or six boards at any given time. We want to be able to add value at at the companies we invest in. you know, I think where so that's where we're a little different than a VC, even though the companies are fast growth. We are driving our returns from revenue growth, right? So it's not it's not a multiple of EBITDA generally. It's it and it's not leveraged, right? And that's where I think

You know, we consider ourselves like lower middle market growth. I think there's a handful of firms that have our strategy. Then I think there are kind of the growth buyout folks. And you know, we sell a lot of our companies to those firms and we think they're great. It's just a different part of the market. And then there's also kind of the late stage VC, also considered growth investors that'll do series D's and E's like pre-public. and we've also raised money from those guys and taken companies public.

Right. So what we're really doing is we want to know if we're investing in a company, there are multiple paths of success. Cause you don't know the future, right? You can you can think you're gonna get acquired by one of these five companies, but you might end up selling to a private equity firm. Or you might decide, hey, this company's doing great and has a big opportunity. Let's take it public. Right. And so we just want to know that our companies have options and you know, we make sure that we help them have those options.

Shiv Narayanan (06:00.289)

When when you said not leverage, basically you're saying you're not putting any debt on these businesses.

Tyler Newton (06:03.841)

We don't put it, we don't we very, very rarely use debt early in our investments. If if if it's anything, it's like a venture line. but yeah, no, we're not a leverage buyout firm. You know, and we're mostly minority investors, right? So we'll come in, there'll be other investors, usually kind of regional VCs or or family offices, but sometimes other venture capital funds. And then we're but we're kind of we kind of come in as somebody, you know, looking to be

Shiv Narayanan (06:12.278)

Yeah.

Tyler Newton (06:31.595)

Sort the first really institutional investor that, you know, spends that time on the board helping the helping the the management team create value.

Shiv Narayanan (06:40.481)

What percentage of the company are you normally like in what percentage are you taking a stake in in these businesses?

Tyler Newton (06:46.937)

Usually between 10 and 30 percent. you know, our we like companies, you know, typically we're getting involved with companies that have less than a hundred million of enterprise value. sometimes it's a little bigger than that, but generally we like that space because, you know, again, like, yeah, you don't need a to be a unicorn IPO to make your return. You can make three to five times your money at a 250 million dollar exit, five hundred million dollar exit. You know, there's lots of those.

Shiv Narayanan (07:08.437)

Yeah.

Yeah.

Shiv Narayanan (07:15.637)

Yeah. How how do you prevent this model from like behaving like a true VC firm? Because you are putting in equity checks. The company does need to grow. Like, are you coming in at more conservative multiples? because one of the issues in VC is that the multiples are aggressive. And so companies need to hit really high growth rates to actually return capital back to investors. So can you explain that a little bit more?

Tyler Newton (07:39.82)

Yeah, so this is the tricky part, right? Is that you know we we've found over the years that, you know, we've been doing it a long time, that the best thing to do is to invest in really good companies at fair prices. Right. So and that's the the defining what a fair price is is the hard part, right? It's you know, if a company is growing a hundred percent a year, you know, it's gonna get a pretty good revenue model.

Tyler Newton (08:09.141)

Right. And the key is, you know, at whatever multiple, you know, we determine the multiple we're willing to pay by really underwriting, you know, a five year plan. And again, it's really hard to underwrite a five year plan in, you know, in in a world where things are changing so fast. But we just use all that experience that we have to really think through

All right, what is a reasonable set of outcomes with this company relative to the market opportunity, relative to the metrics it's had in the past? Our experience of seeing, you know, how do the metrics evolve in a company as you get bigger? you know, typically that, you know, like what happens to the cost to acquire a customer as you spend more? What happens to the the margins as or growth rate as the company gets bigger?

Tyler Newton (09:00.343)

Just using those sort of that experience to really build a grounded plan. And then we always use a a kind of reasonable and and market average exit multiple that's fair for a company at the stage we're exiting. Right. So oftentimes if we're underwriting to a, you know, at a you know eight times or 12 times revenue entry point, we're still gonna look at a more reasonable exit multiple.

So we're actually usually underwriting, you know, exit compression, not ex I mean multiple compression, not expansion. And and then we just gotta see if we can make that work. So there's some years where the market's hot, like 2021, where we put out 17 offers and only did three deals. And then the next year we put out six offers and did three deals. You know, and our goal is to do three deals a year, right? Do the the three, you know, the three or four best deals we can find that fit our criteria.

Shiv Narayanan (09:47.989)

Yeah.

Mm-hmm. Right.

Tyler Newton (09:59.586)

And there's something we'll miss because we can't pay the price that it takes to win. But we also, you know, we're really trying to pay the right price and feel like we have an edge in some way where we see something that people don't. Because in the end, you know, you have to be competitive on price to win. I mean, people can peop we have a great argument and track record to say we're great partners and and I think management teams, you know, believe that.

But in the end, you still have to be competitive on price. And so to win a deal, you have to see something other people don't to say, we think we can get our return on this company by paying this this relatively what might seem like an aggressive price, but we see you know, we have a thesis in the space, we understand how this is going to play out, we have a theory about the how things are gonna play out competitively, and you know, we really try to help our company navigate that plan.

You know, over a three to five year old typically. Yeah.

Shiv Narayanan (10:54.643)

Yeah.

It I guess this this concept of a good company at a fair price, isn't that challenging, especially at the stage where you're operating? And you you alluded to it when you're like, hey, we put out a bunch of offers, we close three. But at the same time, like if there is a great company and it's priced fairly, you would I would imagine there'd be a ton of competition from other investors that are also trying to invest in those businesses and which obviously would drive the price up and kind of change

From a fairly priced asset to maybe not as optimal. So how how does that work, or how are you guys sourcing these deals or actually securing the deals at a price that still works within your models?

Tyler Newton (11:38.604)

Yeah, that's what I was getting at is like fair is in the pri eye of the beholder, right? So, you know, we're sourcing the deals the same, yeah, like we have mostly directly sourcing. Well, you know, we've always done a lot of research into different sectors that we think would be fruitful. And we put together a market map. That's all becoming easier because of AI, right? But then also we take it a step, you know, we c we do calls and we really kind of get to know certain sectors as we reach out to companies. And but in the end, while we're doing that.

While reaching out to companies, you're constantly learning about this subsector within SaaS or within, you know, AI and software or whatever, robotics, we've been doing things, is that you you really try to figure out who do we think is the best company, right? Or one of the best companies and which one, you know, and try to go after them. And then yeah, I mean, it's all about we underwrite the price we think we can pay that will win. And sometimes it doesn't win because someone else gets more aggressive.

And it is what it is, right? And and and sometimes you win. Like in the last we've you know, we've done four deals in the last call seven months. I feel like, you know, that's a pretty high, you know, high that at a really high hit rate, at least fifty percent win to offers, which is you know, I think I feel like the market is in a good spot right now, right? But I we usually think we're gonna win about a third of the companies that we put an offer.

Shiv Narayanan (13:00.563)

Yeah. In a lot of these cases are you encountering other potential investors or competition or do you find that your approach or the types of companies that you're tr looking to invest in, they actually don't have other potential suitors?

Tyler Newton (13:16.373)

Yeah, I wish I wish I could say that. No, I mean it nobody nobody nowadays has proprietary deal flow. Right. I mean, it it's it there's enough information out there to know which companies exist and there's enough firms that are aggressively looking after the you know, aft going after those companies that we don't we always expect there to be competition.

Shiv Narayanan (13:36.935)

Right. Right. So then help help us understand your your exit strategy on these businesses because you're coming in, fair enough, good company, you you have a decent valuation on it. What type of exit multiples or or what type of return are you aiming for for for your fund to be successful?

Tyler Newton (13:54.838)

Yeah. So we we look to try to make we underwrite to a three plus three X plus O I C. Really like it to be where you have three to five times over call it five years. Now again, like if it was so easy, everyone would do it, right? you know, so there's a lot of you know, yeah, you know, and there's a lot of different factors that can come in and, you know, determine what the ultimate underwriting case is. But as I said, we just we really try to model it out.

Shiv Narayanan (14:12.33)

Yeah.

Tyler Newton (14:24.609)

we do different scenarios and it's all depending on you know how how the company's able to, you know, how much TAM and and market share it can grab and how much it costs to get there. And you kind of look at different scenarios and try to think there's a reasonable chance that we're gonna make our target return. The other thing we wanna make sure is that if things don't work out, we get our money back. Right. And that's where as opposed to losing money. And that's a little bit where, you know.

Shiv Narayanan (14:46.358)

Yeah.

Tyler Newton (14:51.755)

The types of companies we pick, like making sure they don't have too much money in them already, making sure that we either have seniority or or peripassue, that we don't take on a lot of balance sheet risk, that we make sure the companies have runway. There are all these ways that so you have these, like it's not a you know, the optionality of these companies is interesting in that, you know, as opposed to buying a s c a s common stock, you should, as long as you underwrite it right, you should have a you should have a bit of a floor.

and then with a with an option on the upside, effectively. Right. And so you know, and so sometimes you end up getting your money back, but other times, you know, like you you're really gunning for, you know, three plus. And we we, you know, like we have a lot of deals that end up somewhere between two five and four, or you know, two five and five, and and we wanna, you know, have a bunch of those and then have the ones that don't work out be one something or two, right? And and I think

Shiv Narayanan (15:45.769)

Yeah.

Tyler Newton (15:47.298)

You know, we can we can generally do that. and that's where it's just and that's where that's just the art of it, is just trying to figure out how do you underwrite these deals and get to that get to that outcome and play the play the probabilities.

Shiv Narayanan (16:02.803)

You you mentioned l roughly three, four deals in a year. How many are you guys trying to exit in a year to, you know, have a have certain amount of distributions to your LPs and and be able to return the fund at the rate that you'd like to be able to return it?

Tyler Newton (16:16.235)

Yeah, so it's it's we've actually figured so the way we do it, and I think this is so we always try to look at it like each of us, the three partners are gonna do at least one deal a year, right? And then our typical hold call it five to six years, wanna sit on five to six boards, right? And so that means that generally we want to do a deal a year and have a liquidity event a year. Now it's not that simple, but we do kind of think about an exit pipeline, and it's really

Not just because Catalyst wants to exit, but generally you're looking at your companies and thinking what inflection points are there that are coming up over the next couple of years with each company, if at all, right? And you know, how do we build towards that inflection point? And so what do I mean by inflection point? it could be that the company, you know, we've in it been in it for four or five years.

Tyler Newton (17:11.425)

You know, it's now, you know, the instead of growing a hundred percent a year or whatever, now it's thirty to forty percent a year in break even, right? You know, or it's getting to that point. And we're gonna say, Okay, that's actually pretty much a the right pace, you know, and maybe now it's time for that company to, you know, get a little bit cash flow positive and maybe recap with private equity so it could do some MA, right? And then we might even

Take some chips off the table and roll into that, or maybe we end up selling. It kind of depends on the scenario. Or you look ahead and you say, hey, this company's cranking, right? Like let's raise money from one of these late stage venture guys and go public, right? And then work towards that. Or, you know, all right, I the way this sector's evolving, this is probably time for us to be part of a bigger platform. So let's start talking to strategics and

maybe get some partnerships going and really tee ourselves up to be acquired by a strategic, but then you might have private equity as a backup option. Right. So it's really, but you have to think ahead for that because you have to align management and align the board around thinking like what we're building towards. And then when you get to that, you know, then then you're kind of you're able to build that consensus and and work towards it. and it's actually work it works. Right. So we've we've been able to kind of keep that

Shiv Narayanan (18:35.201)

Yeah.

Tyler Newton (18:37.463)

For the most part, keep that pace of, you know, three to four liquidity events a year in addition to doing three to four deals a year.

Shiv Narayanan (18:45.565)

And and so what's happening between when you're making the invest in investment to when you're exiting? Like help us understand the value creation plan and the support that you're bringing to these companies.

Tyler Newton (18:56.043)

Yeah, I think that's I mean AS the fun part. You know, it's like working with these companies and and you know really helping them succeed, right? So when we invest in a company, and by the way, I didn't even mention the typical ARR entry point, you know, is is five to fifteen million, right? You know, a company's proven its product market fit, and then we're coming in when they're still a relatively small company, and you know, they're gonna have a formed management team, but not fully formed and

Shiv Narayanan (18:58.763)

Yeah.

Tyler Newton (19:25.559)

They've had a lot of traction early, but you know, they have they need help thinking about how to scale, right? And scale the right way. And so our job is to just be their strategic advisor for the next three to five years and help them, you know, succeed. Right. And we don't profess to be operators. You know, I mean, I I think it's hard at our stage of company to have a, you know, a stable of operators that can help a company with.

Shiv Narayanan (19:52.47)

Yeah.

Tyler Newton (19:53.196)

Eight million of revenue, right? Like there's just different things they need. And so for us, we like, you know, to teach a person to fish, right? As opposed to give them the fish, right? It's okay, really at first, it's who are the key, how do you build your team? What are the key new hires you're gonna need to make? And you don't wanna be have a making, you know, the whole team hires, right? And that's not even the right thing to do. They've had they've had success, right? And so we're usually backing the founder to say,

Okay, now we're about to start stepping on the gas here. But you know, if you're gonna scale your sales team, you need the marketing support. I'm just using this as an example. Right. So the next key hire really has to be a head of marketing. And you really want someone who's, you know, in this in your business, someone great at lead gen, right? Not necessarily some fancy CMO, right? Or or you might need a chief revenue officer. Or by the way, yeah, you've got an engineering head, but you know, you really need a

Tyler Newton (20:49.613)

chief product officer to help you really execute on the product roadmap, right? Because our growth is going to be driven by. So it's really and then the next year it's a new group. Like the next year you might say you need a CFO, right? I mean it could and so you you really start helping them think about how to hire and then and sort of think about, you know, kind of teach them how or you know, help them see the kind of person that knows how to get a company from 10 to 50 or

From 20 to 75 versus z 0 to 10. Those are different people, right? And use layer in people as you grow to really, you know, really help the company continue to get to that next level and scale with purpose. so that's one thing. And the other thing is helping them to get navigate their growth strategy, right? So that could be just getting market share. That could be, you know, and how to do it, right? Is it, you know, it's sales and marketing and this sales strategy and all that.

It could be product strategy. We're gonna keep layering on products. It could be international expansion. Could you know, so they're all different ways to grow. And we'll have a thesis on that going in. But in this world, right, the everything changes so fast that you need to you need to be able to be adaptive. So whatever pl you know, three years in, things can be very different than what we underwrote. But you know, in the end, if the you you can still adhere kind of close to the growth.

Shiv Narayanan (22:18.155)

Yeah.

Tyler Newton (22:18.477)

It's just you might need to take different different strategies to get there.

Shiv Narayanan (22:22.912)

Are are there common themes that you see across the investments that you're making where you see three, four key areas that need the most help and like how do you go about addressing those?

Tyler Newton (22:34.251)

Yeah, so

Well, the the core levers to really succeeding are go to market and product, right? And so and that and that and that's not revolutionary, but that's just and there are four big parts of that. One is marketing, one is sales, one is engineering, and one is product management, right? And it really it it just it kind of depends on the company and you have to that's you do that work going in, like, you know.

There something could be working really well, right? But then each year, if you're gonna grow 100% a year, like the number of or even 75, whatever it is, the number of new ads you need to make keep growing at that pace. And those numbers get pretty big pretty fast. Right. And so how you know, like laying the groundwork to get big that fast is hard, right? Because you could say, okay, I'm just gonna double my sales team every year, but if you aren't supporting them with leads, that's not gonna work.

Shiv Narayanan (23:35.671)

Yes.

Tyler Newton (23:35.862)

Right. Or I I think I can get more leads by doing more Google ad spend. And that's that eventually doesn't work either. Right. And so there's all you have to like think ahead about how do you keep scaling. Right. And the same thing goes with engineering and product. Like if you're gonna really grow through adding new products, like you need someone really good running product strategy because you know that because

engine you know, allocating engineering resources is a is a difficult task. And so there's just or it you know, you nowadays you need an engineering head that knows how to use AI to scale and, you know, get efficiencies out of the team. And you know, so there's there's also those are the generally the four, but it some cases it's customer support or onboarding or finance or what have you. So there's always like i every company has different challenges, but in terms of success, it's usually go to market or product that are the key things.

Shiv Narayanan (24:33.066)

Yeah. how are you ensuring that, you know, because those are broad areas, right? And oftentimes we find that what's happening in marketing and and what's happening in sales needs to often be intertwined with what product is releasing and how they're interacting with customers. And so how do you build like a holistic strategy for a company to enter into its new phase of growth? And how are you building that value creation plan where these different parts of the business need to kinda

go in the same direction. And like more recently, obviously AI is one of the things that companies are thinking about. And maybe that's an area that maybe you could touch on because that is something where all four areas of the business do need to collaborate.

Tyler Newton (24:33.175)

To make sure you get right.

Tyler Newton (25:12.299)

Yeah, no, mean that's that's why I mean that's why I think it's good to just do the same stage over and over again, is that the company, you know, they always they all face a different challenges, but they're all kind of within the same, you know, framework. Right. So, you know, and and it's very different for an enterprise company versus a company that sells to small and medium sized businesses. You know, some are product led growth, some are old school.

sales were you know so it j that depends and so for us it's really making sure we understand the growth model and as i said there's different ways to grow you know grow your revenue there's different what there's different ways your grow growth is gonna come right again because it could be just get more customers could be more more money per customer it could be more geographies whatever but then it's also

Enterprise SMB, are we moving up market? Are we moving down market? And and just just knowing the pitfalls just from experience. I mean, you know, I've been on 20 plus boards and you just sort of see a lot. And then we all collaborate amongst ourselves as a team at Catalyst to to get to know each other's companies and help each other, you know, think through the challenges. and you know, and and yeah, there's not a there's not a right answer for every company.

Shiv Narayanan (26:35.842)

Yeah.

Tyler Newton (26:35.957)

And that's that's that's the hard part, but also the fun part.

Shiv Narayanan (26:38.849)

Yeah. Yeah. and the other thing that jumped out as you were talking is just that at the stage where you're investing, it's so easy to get caught up in doing too many things at once, right? And focus is just so important. and and so how are you making sure you're picking the highest leverage areas? Because it you could theoretically work on marketing and sales and product, but like I'm sure the answer is different in in companies and how do you stay laser focused on

though that one thing or the one to two thrint things that really is gonna move the needle before you it's time to maybe exit the business or or sell it to a different set of investors.

Tyler Newton (27:11.979)

Yeah. No, it's a great it's a great question and super, super important. you know, at this stage company, like the you really have to be careful not to take on too much. Right. So and that's where, you know, and that's part of the lesson that you you kinda or what you've sort of talked to the founder about a lot is is is of is essentially capital allocation. You know, it may not be phrased exactly that way, but

How do you prioritize your time? Right. And your time is is capital, right? In terms of, and you know, there may be tons and tons of opportunities, but you know, and it's good if you your first thing might be let's just figure out how to get more customers. And then it's all right, let's move into this adjacent market and get more revenue per customer. And then it's okay, now it's time to span expand to Europe, you know, whatever it is, but you take it on as a progression.

Right, not all at once. Because if you do it all at once, it won't work. And so it's always you always want to have three to f you know, three to five big goals in any given year and and trying to keep them limited to that is is important. I mean, you know, and I and I think it's inherent and it a lot of founders kind of know that, but a lot of founders don't because they see so much opportunity. So yeah, yeah, it's a good it's a good point and it's some it's very, very important.

Shiv Narayanan (28:23.52)

Yeah.

Shiv Narayanan (28:30.145)

Yes.

Shiv Narayanan (28:34.241)

Yeah, yeah, exactly. And and I guess a big part of that is also having the right leader for the business, right? So you touched on people earlier, but how much of it is just getting the CEO hire right? I'm curious 'cause like the the right person needs to be navigating this. And given you're investing as a minority, you're kinda betting on the founder too. So I'm assuming that's a contingent part of like that that person is staying and seeing this business through the next stage of growth.

Tyler Newton (28:58.101)

Yeah, so we are typically backing a founder bac you know run business and backing the founder. And we are not coming in thinking we're going to replace the founder. Right. We're there to now we have replaced the founder and it's what n it's the least favorite part of my job, but one that I, you know, we all yeah, we have experience doing. and it's a challenge.

Tyler Newton (29:26.273)

And you know, again, we'd much rather have that not be how it plays out. But the most important decision a board can make is having the right person running the company. so going in, we wanna really vet it the founder and not just vet with, you know, references and background checks and all that's all important. But just look, I mean, we're gonna be involved with each other, we're gonna be working together for five years, right? At least. Right. So

Shiv Narayanan (29:35.426)

Mm-hmm.

Tyler Newton (29:56.184)

They've got to want to work with us and we've got to want to work with them. And they're and it shows it's just a lot of, you know, just experience that kind of tells you, is this somebody that I think will be a you you want someone who's got a vision and wants to execute on it. But you also want someone who likes to learn from other pe you know, from other people. So you don't want, you know, you want someone who can adapt to how things change. So it is getting that balance right is hard.

Shiv Narayanan (29:58.723)

Mm-hmm.

Tyler Newton (30:22.837)

Right, where you have somebody who's really thoughtful, really driven, really believes in what they're building, but can also see the facts in the ground and react to it. Right. And and that's really important in the companies where things don't go quite according to plan. Right. But aren't, you know, so bad that it's obvious. Right. It's just like can that person figure out how to get things onto track? And it may be a little different.

Shiv Narayanan (30:27.17)

Yeah.

Tyler Newton (30:51.487)

a different path than they thought they were gonna take. And and it's and it's just a little bit of experience you get over all these years and judging people. 'Cause it's really hard to tease that out with the Myers Briggs test or something, right? It's just you know.

Shiv Narayanan (30:53.976)

Mm-hmm.

Shiv Narayanan (31:03.923)

Right, right, right, right. Yeah, it's more more of a soft softer feel for it. Yeah. How much of it how much of the investments that you're making is coming down to the business and its fundamentals and growth potential versus the founder and how much they can grow this business or their mental capacity to kind of see through the the next stage of the business?

Tyler Newton (31:24.177)

Yeah, it's funny, there's like different ways people talk about this. It's like, would you rather invest in the jockey, the horse, or the track? Right. And so I think if you're a really early stage investor, it's all about the jockey, right? because you know they have to pivot and figure things out and all that stuff. And and for us it's important, right? Like it as I said, if we don't think the founder can grow the business, we're not gonna invest in the company.

Shiv Narayanan (31:31.926)

Yeah.

Shiv Narayanan (31:51.714)

Yeah.

Tyler Newton (31:53.196)

But the big lever on our success is gonna be the track, right? Is just is is this the right space? Right. And like is the wind at the back? Are there is there room for multiple winners? You know, so I think if you if you pay a fair price and are in the right sector, you can still make some mistakes and make money. Right. And and that's like it's really hard to invest in a bad sector and succeed, at least in growth investing.

Shiv Narayanan (32:22.285)

Yeah.

Tyler Newton (32:22.357)

so you know, and then in the in terms of the company, like helping get the company to the next stage is what our job is. Right. And so if we're selling to a strategic or a private equity company or going public, we will need to have built a great company, right? And you want to have the right leadership and all that, but that a lot of that outcome is determined by are we in the right sector? And I think that's that's probably the most important thing.

Shiv Narayanan (32:50.819)

Yeah.

Tyler Newton (32:50.859)

And then we can make the make sure the other things work out if we need to.

Shiv Narayanan (32:56.536)

Yeah, ha have you ever had to replace leaders in a particular investment because they weren't the right jockey for the business?

Tyler Newton (33:04.973)

I mean, not not something I wanna brag about on a podcast, but yeah, you do what you need to do right in the right circumstances, yeah.

Shiv Narayanan (33:07.928)

Yeah.

Right, right. But I would assume like a big part of it is just like before you make the investment, just vetting to make sure that that is the right person so that you never have to get to that.

Tyler Newton (33:21.301)

Well, you try, right? But I mean again, if a company gets to be seventy-five million in revenue and you invested when it was six, it's a different company, right? And so you just don't know. And so lot of times founders realize that. I mean, they may not openly realize it, but they realize it. And sometimes they don't. But and sometimes they scale and it's great. Right. And so it's it's not really a knock on the founder if

Shiv Narayanan (33:30.362)

Mm. Very difficult.

Shiv Narayanan (33:39.95)

Sure.

Shiv Narayanan (33:46.627)

Yes, but

Tyler Newton (33:51.116)

Like by the time it gets to 75 million, you may have outgrown them a little bit. Like, heck. I mean, how many people you know have founded or like build companies that get to 50 or 75 million revenue is a great achievement. Right. And so, you know, it shouldn't be it shouldn't like I don't look at it as a failure if if the person doesn't make it past that. But yeah, no, I I at least want to know if have a really good feeling the person can scale. And they usually do.

Shiv Narayanan (33:51.299)

Yes.

Shiv Narayanan (33:56.078)

Yeah.

Shiv Narayanan (34:04.545)

It's a huge achievement.

Shiv Narayanan (34:11.918)

Total.

Shiv Narayanan (34:18.678)

Yeah. Yeah. Yeah. And also like the type person that takes to run like a ten million dollar business is different than a hundred million or a five hundred million dollar company. So totally totally good.

Tyler Newton (34:28.267)

Yeah, and and by the way, I mean yeah, I mean if you're gonna be taking a company public and all that. I mean, people think about these big o owner operator businesses and all that. But that's you know, like in the bell curve, those are the ones way out on the right. Right, that are you know, that are, you know, where you're Larry Ellison. Right. It's just it's just not you know, like those there aren't that many of those companies. And so there's no shame in you get a company to a hundred million revenue and you know, someone else takes ch you know, takes it to the next level. I mean that's

Shiv Narayanan (34:43.224)

Yeah.

Tyler Newton (34:58.423)

Nothing wrong with that. but you know, I mean founders have just like investors, people have egos. But I think overall, like it's we can navigate it. But again, like I'd much it's much easier, obviously, if everything you know, the founder sees it all the way through. And and I would say, you know, that's tends to be what happens.

Shiv Narayanan (34:59.5)

Yeah.

Shiv Narayanan (35:19.82)

Yes. Yeah. No, that's that's great. we're coming up on time here, Tyler, but before we close up, if there's a founder listening or people that want to get in touch and learn more about what you guys do at Catalyst, what's the best way for them to get in touch?

Tyler Newton (35:31.787)

Yeah, I mean we're you our website's catalyst.com, easy to remember. email address Tyler at Catalyst. this is the advantage of being there from the beginning. so yeah, yeah. And I mean so we we as we said, we invest in fast growing companies, five to twenty million of ARR, you know, and and usually in some combination of AI, SaaS, robotics, services and healthcare. We do a fair amount in healthcare services.

and yeah, I'd love to hear from you. Yeah, we'll we'll give you a quick answer either way. we're we're we have very we see a lot of companies in a year, know how to analyze them quickly and give you we'll give you honest feedback.

Shiv Narayanan (36:13.046)

Awesome. Yeah, we'll be sure to include all of that on the links in the show notes. And Tyler, with that said, thanks for coming on and sharing your wisdom. I think a lot of firms, especially in the earlier stage, would benefit from this conversation in terms of your approach and how you've vet companies and how you're actually creating creating enterprise value for them. So appreciate you coming on and sharing all that with us.

Tyler Newton (36:30.786)

Yeah, no, happy to do Thanks, Shiv. This is great. Great questions, thank you.