Episode 19: Narbe Alexandrian of Define Capital
on an Essential Guide to the Capital Stack and Choosing Investors

Episode Transcript

Shiv: Alright, Narbe, welcome to the show. How's it going?

Narbe: Good, yourselves? Happy to be here.

Shiv: Yeah, excited to have you on. A lot of people don't know this, but we actually went to school together. So it's kind of cool doing this now. So for the audience though, would love to hear you share your background and what you're up to at Define Capital.

Narbe: Yeah, absolutely. So I'm the CEO and founder of Define Capital. If I was to go backwards in time, maybe 15 years ago, by trade I'm a CPA or Chartered Accountant at the time, which means I'm good with financials, but never did accounting or tax or, sorry, audit or tax. My focus was on management consulting and M&A. Got the startup bug in the late 2000s and joined the local startup in Toronto, which ended up being a huge private equity success, fully bootstrapped, no venture funding. Ran corporate strategy there, then moved on to the largest government incubator in Canada, MaRS Innovation. Did some work there, did some work with the United Nations on their Clean Tech VC program, and ultimately went to a telco, being Telus, to run marketing for a certain division that also was an acquirer of companies and an investor in companies as well. So got to work with the ventures and corporate development team.

In 2013 or so, I left all of that and joined Omers Ventures. Omers is the Ontario Municipal Employee Retirement System. It's a pension fund similar to CalPERS in California. And it had a venture arm, which was the largest in Canada at the time, well known for its early investment into Shopify. So joined in as an associate there and within four years was promoted to partner, which was the first of its kind. Did a number of transactions throughout those four years, notable companies that ended up being worth over a billion dollars and everything from quantum computing to privacy, browsing, and a lot of SaaS as well. 

I left in the summer of 2018. I was getting headhunted to go to the cannabis space. So, cannabis at the time, if you go back to 2018 in Canada, it was legalized by the federal government but hadn't yet been put into effect. So In that term right between the two, legalization had been said it was going to happen but companies hadn't launched yet. I joined the private equity and venture arm of the largest cannabis producer, Canopy Growth, at the time. We ended up spinning off that entity, taking it public, and I became president and CEO of that company and was in that company for about four years.

I rode the wave of cannabis, the ups and downs of that roller coaster. And as a public entity, we really felt it. But we culminated at that very end of the day with three change of controls or three versions of selling the company between 2021 and 2022, which towards the end of the third one, I asked to do something different and leave the company. Since then, I thought of what I wanted to do, and through a number of conversations just came across the idea of Define Capital. So, Define Capital, we look to acquire profitable software businesses - software and SaaS businesses - in mission-critical B2B spaces. So we look for high user retention, low churn, and just the ability to continue on running the company without much effort into - without much churn of the company itself, of customers.

Our sweet spot is small, so it's between 5 to 15 million of enterprise value. And I can talk loads and loads about it, but I'll pause there.

Shiv: Yeah, that's great. And there's a lot of firms that are doing this now, right? Where SaaS is now the coolest, I would say, asset class to invest in because it's sticky by definition and there's good net revenue retention metrics and there's inbuilt growth and all of that. So what have you focused on to differentiate Define Capital amongst all the other investors that are looking at these kinds of companies?

Narbe: Yeah, I mean, admittedly, the barrier to entry is low. All you need to do is find a company that you can acquire and find the funding for it, and kind of pull it all together. To find the funding for it, that requires years and years of experience and network to do so. So where I think we differentiate relative to the bigger folks within the industry, the Constellation Softwares and so forth, is that we take much more of a humanized approach. So I like to tell potential companies or targets, when they get acquired by someone like Constellation, one of the big guys, the process works as follows. Someone calls them from the business development side, gets the narrative of the company. Once they like the company, they'll pass it over to the due diligence side. Those are ex-Big Four accountants that rip through the company and pick out what's good, what's bad, risks and opportunities that are out there. Once that's gone through that process, then it goes to another group that is typically ex-corporate finance at a Big Four. And they work to negotiate the deal, they build the model out, they look at returns and so forth and how to structure the deal and ultimately present the company with an LOI and negotiate through that as well. Then once that's completed and the deal is almost done, then the operating team kind of steps in and takes the company to that next step. And I like to tell the owner of the targets I talked to that maybe throughout that process, you get a chance to talk to the operator of that company, but the operator of the company also operates 30, 40 other companies of similar status to you and maybe get a coffee with them or dinner with them but ultimately this baby that you've developed for 20-30 years being your company where you know all the employees, they know you, know their life histories, you know the customers, you have some goodwill attached to it - like it or not there is personal goodwill with a lot of small businesses that are out there - and you're just giving that up and you don't even know who's gonna really run this company at that next stage, versus when you work with Define Capital, I'm the guy that called you, I'm the guy that does the diligence, I'm the guy that negotiates it and ultimately I'm going to be the guy that runs it. And I'll introduce you to the entire team that's behind this as well. So we like to take a much more of a personalized human approach because we do believe that for small businesses of the size that we're looking to capture, a lot of these businesses, this is everything to them. It's like their third kid. And to let it go is very difficult. It's the only transaction they'll ever do in their lifetime. So you have to really treat it, like, in a very personalized and humanized approach.

Shiv: Yeah, I think, I think that's great insight, especially with the bigger acquirers like Constellation that, it's way more impersonal. So I get that differentiator. And once a company is bought by Define, is your plan to keep founders on board, to continue that, that process of building the relationship with those folks?

Narbe: It really depends on a case-by-case basis. So there is one company that we're really, we're working on right now and, and working to close where the founder is in his late sixties, and he's looking to retire. And that totally makes sense. There's nothing wrong with the company. The company can be, can run completely smoothly, but the, the founder wants to retire. So we'd be like those types of situations because they're not buying into a turnaround store or anything like that. There's another company in our pipeline where a couple of partners ran the company. One of them happened to suddenly pass away a couple of years ago, which triggered a clause in their partnership agreement that the company has to go up for sale so that nobody takes advantage of other persons' respective widow. They put this in place 30 years ago. In that situation, while the individual that's still remaining wants to continue running the company, the widow has to sell her shares as well as there's an opportunity to take some cash off the table and take control of the company.

There's other scenarios there where it's a younger individual. There's, they want some chips off the table. We want to give them the ability to grow the company and earn it and get an earn-out over a period of time. And those ones, the founder likes to stay or stick around. If it was up to me, my focus would be mostly on companies where the succession planning is because of a founder that's retiring. A lot of those times the business is fantastic. Books are clean, companies clean, and person’s just at of time in their life when they just want to do something different. In the case of the first example I gave - late 60s, he's a big baseball buff, so he wants to go and travel the US and go to all the stadiums and watch all the games before he can't do so, which would be probably like 20 years, but those are the kinds of stories I like to relate to.

Shiv: Yeah, that's great. And usually in those instances, the asset is better as well, right? Because it's been running for a longer period of time. There's a proven product market fit and there's a more sustainable business behind the transaction.

Narbe: Absolutely. It's a very clean company. Customers are sticking around because they like the company. And I guess how we look at the business would be more so of how much personal goodwill is attached to this person that's leaving the company. Because they're going to retire and it's going to be hard to get a hold of them when they're spending half the year in Costa Rica, another half in Toronto. How do we get them to help us work with current customers or bring them into the room when we want to talk to a prospective customer?

We do put into place consulting agreements with the founders in order to have an ability to bring them on board when we need to. But I mean, they wanna do something different and we wanna run the company without having two managers on site.

Shiv: In those kinds of situations and even other ones, there is this bit of a trade-off. Like I know that Constellation and companies like that in terms of the valuations that they pay to founders is lower than let's say a typical buyout firm. And so how do you compete with the increased valuations that have been in the marketplace over the last three, four, five years? I know it's tempered down a bit, but even now there's limited supply of deals and so much dry powder out there. So, how are you competing when valuations are sky-high and how are you trying to kind of bringing that down with your approach and your differentiation as a firm?

Narbe: Yeah, so folks at Constellation have a very disciplined approach to valuation. And lucky to be in Toronto where there's two dozen people that you can talk to about how they look at or how they value companies. I think the approach we like to take is to understand how this business will grow over a period of time. We have an IRR in mind of what we want to hit holding that business and whether that's levered or unlevered really depends on the business that's at hand. I think if I take a step back to your question, the number one driver of value for SaaS and software companies is growth. And we're not looking for those high growth VC capable companies that want venture capital funding to really continue the growth trajectory of the 100, 200, 300% year over year. We're looking for companies that are around 10 to 20% growth rate at an EBITDA of 30% or more. So they're more so on the profitable side and those businesses typically are bootstrapped in nature.

Now, how do we compete with the larger players? We know what their formulas are. They have a formulaic structure for valuation, which, quite frankly, I don't understand why. So they lowball so hard when they're valued at such a high multiple, but I'll leave that aside. And we know where they stop. So we can go a bit over that, knowing that there's still a lot of value to be captured and compete against them. That said, majority of our deals come from a proprietary network where we go in, we hunt down verticals that we like, and we talk to companies, and we show them the value that we can add and how much we understand about that industry versus waiting for a broker or a boutique banker to present you with a deal that's in an auction-style process, very competitive, and typically, it's the highest price that wins.

Shiv: And why does that happen? Like help me understand that because I've known this from the outside, but when there's such a big market of potential acquirers for software companies that are growing even 10 to 20% and have a positive cashflow, why do, why do companies like Constellation win with lower valuations or, or why do they take that approach in the first place?

Narbe: I think my perspective, and I could be wrong, and I've asked this question probably two dozen times, my perspective is that the time to close and how easy they make the whole transaction structure really resonates with sellers. That on top of the fact that they can roll over some of their equity and pick up some consolation stock, which allows them to get a bit of a growth trajectory, kind of, I call it schmuck insurance.

You can still continue to grow without even owning the business. That's another attribute they do. But I think that cancels the fact of the fact that they're actually paying, they're getting paid way less than what market rates are for their companies. But if you fit the formula, they're going to close on you. So that's a pretty simple proposition for a seller.

Shiv: And then your view is that by coming in and you know kind of how they're valuing these companies, if you value the business a little bit more than what those types of buyers would pay for, that kind of gives you a bit of an edge when founders are evaluating offers.

Narbe: Yeah, absolutely. And I remember talking to one of the heads of M&A for one of my larger competitors and I asked them, I said, well, I know where you stop. And I knew that already. You kind of confirmed it to me. What if I go half a turn or full turn of EBITDA over that, back it up with some seller financing or some debt so that my cost of capital is much lower than using all cash and I can beat you on the deal. And they kind of shrugged and said, yeah, you can.

So that to me is the arb opportunity within this market right now, where until they get to - and they'll kick in for them to say, oh, like we did 90 acquisitions last year, we did 50 this year, we're going to do 30 next year. Why? Because there's more competition for these companies and we're going to need to go a bit higher in valuation. And until that point in time happens, it's a bit of a catch-and-grab right now in the industry.

Shiv: That's great insight. Can you expand on that a little bit just for the audience because founders listen to the show and I wanna make sure they understand that. You mentioned this concept of the arbitrage opportunity there and then the seller financing and hitting these internal rate of returns that you'd like to expect. Explain the difference between a company that's maybe buying it in cash versus when you take some of these alternative approaches and what that opens up to you in terms of options.

Narbe: Yeah, I mean, I'll walk back there and say Warren Buffett has this quote - and I'm going to butcher it because that's what I do with quotes - but he says that everything in business is related to cost of capital. It's like, how do you allocate capital that you have? And I think in business that applies in a variety of senses. Capital isn't just money. Capital is human resources. Capital is assets. Capital is financial. All of these things, all of the above. And how you put all of these things into play determines how successful you might be.

So when you look at the different - the structures of deals and the different types of consideration that one can get, typically the closer you get to liquidation - as in, if something goes wrong, the first party to get their money out typically has the lowest cost of capital, and that's debt. So debt sits senior to everything else. So senior debt, the ones you get from your big banks or bulge bracket banks in the US, those ones typically have the lowest interest rates - high covenants, don't get me wrong - but they have lower interest rates because if anything ever goes wrong, they're the first ones to get their money out. Then you have the mezzanine debt, which is like the next level below, and they charge a higher interest rate. Right now we're seeing mezz levels of 12 to 14 to 16% for software deals of our size. On the senior debt side, we're seeing anywhere from seven to 9%, so still fairly low relative to the risk that's there.

But even on the mezz side, you're paying a high interest rate. But it's still lower than what your equity investors would look at. Then after you get below that mezz - and of course, there's like a bunch of exotic structures in between - you get to the equity stack and the equity stack typically has a much higher cost of capital because there is no way guaranteed they can get their money out. There's no principal payments. There's no interest payments They're kind of there for the long run with you and they typically require a 20% return. 

So when you're doing senior debt at seven to nine percent versus the equity at 20 percent, 20, 25, 30 sometimes, of course you'd want to load up on debt. Now, you have to pay the debt back. That's the risk that you face. Versus on the equity side, they get paid back when you get paid back at a liquidation event. So there's tradeoffs within all of these, but the way you stack the deal actually the rate blends in and you get a better rate altogether when you mix debt and equity and mezz financing. And then to add a bit of complication to it there's seller financing as well. So for a lot of these small businesses, the seller themselves will provide you with a note so you don't have to pay all in cash. So we look for 20% vendor take back or seller financing within our deals and they'll take that they'll give us that as credit, we'll pay them back over a period of time typically, as a balloon payment after, call it five years, interest is accrued and that's a lower rate than what our investors would expect from an equity perspective. So you blend it all in and your weighted average cost of capital is much lower than if you went all straight cash, straight equity on deals. 

That said, it complicates deals because now you have multiple parties you have to deal with, multiple deal rooms, multiple diligence tracks. You have to get them all to agree to how it's stacked up, who gets first dibs, who gets second dibs. Your equity investors will come in and ask for liquidation preference so that as owners, as operators, we were kind of at the bottom because we're the ones running the ship, so if the ship sinks, we're the last ones to get off type of thing.

Shiv: And you're saying that other buyers have a less complex stack here, and, and whereas you're taking on more risk by adding more of these stakeholders. Is that the idea?

Narbe: Yeah, so there are larger buyers out there that have a large debt stack on the hold code and they would go and say, well, you don't care if it's debt or equity, we're just going to give you cash and we're going to close soon too. We don't need any approvals. We don't need to get the bank in or anything like that. We have this load of cash. We're going to go and close really quickly. And that's the value proposition that they have that the smaller players don't have.

Shiv: Got it. Yeah. And we work with a ton of like larger PE firms where they still put a ton of debt on the balance sheet when they're, when they're part of a transaction. But I'm imagining in those instances, the assets are so large that the stack looks a little bit different than when you're buying smaller companies. Is that fair?

Narbe: Correct, correct. For those large deals, you need to lever it up or otherwise you're kind of putting too many eggs in one basket. You got to stretch your dollar when you bring leverage in.

Shiv: Got it, got it. And so that's kind of the approach that you're taking. That's really great. Thank you, thank you for sharing that. In terms of as you're bringing in these companies and you're starting to invest in them, how are you then - because your risk profile, in some ways you're taking on more risk with these investments, right? Because so many other people have to be paid back first. How are you focused on generating a return there, at least operationally? How do you focus on growing these businesses once you've invested in them?

Narbe: Yeah, I mean, personally, at Define Capital and we look at debt - we like to shock the financial statement forecast that management gives us. So sometimes we get even in this line of work, we get management telling us that they're going to increase revenue by 20% next year and 20% the year after and it kind of dips down and we like to just shock them and say, okay, well, let's just say it's 5% per year. Let's just say it's 3% per year. Let's say we can just increase prices by inflation every single year and that's it. How would that affect our debt covenants that we have. And we have to be on-side for that. So we like to think that in the worst-case scenario of growth that we'd at least be covered. Now the worst case scenario - you might be thinking, well, 3% growth isn't the worst case. Negative growth should be that. But the companies we look for, again, to go back to it, are mission-critical companies where they have a very steady state of customers. Their customers have been around for 10, 15, 20 years. The business has been around since the early to mid 90s. It's a very stable set of customers. So we know the churn's not gonna be astronomically high. And so we like to look at growth as just being inflation and kind of stress testing the debt covenants on that. That said, I do wanna caveat it by saying we're in this specific point in time in technology history where we have a big major catalyst that has come into play over the last 12 months, maybe even less than that, which is generative AI.

With generative AI, a lot of these companies that have been around for 20, 30 years, have had steady state of customers, are starting to face some sort of a struggle where you're seeing generative AI kind of take away their lunch over a period of time. Now it's not going to happen overnight, but it's going to take some time. So one of the things we like to get from the non-financial perspective, the qualitative perspective, is, if we buy this business and we hope to hold on to it forever and take those cash flows and repurpose them for future acquisitions, will this company survive this current wave of generative AI that's coming? And in some cases they don't. In some cases, they're tied to media assets, like they have a large library of digital videos and pictures and stuff like that, which makes them differentiate. We're like, that's all going to go because of generative AI. So we had to think of it from a variety of different lenses.

Shiv: Yeah. And so the point of bringing that up is to say that when you're forecasting out, looking at managers projections and then thinking about worst case scenarios, even if it's 3 to 5%, you still have to think about like more of a diametric way of in which revenue’s at risk that's outside the industry or scope of the business where it's operating.

Narbe: Absolutely, absolutely.

Shiv: Gotcha. Okay, no, that's great. And what about, you know, just with the current state of markets with the rate at which interest rates have gone up, we've heard from PE investors that just the amount of debt service has just gone up significantly, which is affecting the cashflow of their companies. Have you seen that and how has that affected your approach and how you're evaluating these investments?

Narbe: There's a lot of public companies out there that are just getting crushed by debt. And I think the public markets are discounting them even harder because they're holding, they have debt on their books, and what they think will happen to the business. There's a lot of opportunity there. It's not our lay of the land just yet. I think that's something we'd love to take a look at. But to go answer your question, rates are high. And when rates are high, multiples drop. And when multiples drop, sellers aren't as looking to sell their company as much as they would when rates were lower. Same thing with if you buy a house in your neighborhood, you notice there's much more velocity of sales when rates are low versus rates are higher. Now, to some that's like, ‘oh, that's a big negative on the industry’ and so forth, but it's always a double-edged sword. So when rates were low, you had a lot of competition because everyone could get free capital basically at 2% interest rate from the bank and buy a business. A lot of these were variable rates, so they're getting crushed from it now. But because the rates were so low, there's much more competition in the industry, which meant the multiples were higher. There were more strategics in the market looking to buy companies and feed into the growth that the public markets or private markets had given them. There's a lot of private equity in the industry trying to deploy capital because credit was so cheap and multiples went up high. Now the reverse has happened where rates are higher now. It's the highest in decades.And what we're seeing is multiples have dropped, and there's not that much competition in the industry as there was a few years ago. 

The private equity funds, they're kind of holding on to their capital, trying to service the companies that they currently have at hand, and maybe not have thought of the type of scenario that we're in right now with rates, and they're trying to look organically to see how they can fix those companies. And the strategics, by and large, have kind of stepped away from M&A. 

I know a lot of folks, went to school with us as well, that were head of corporate development at these tech companies and all of a sudden they kind of stopped doing acquisitions because some of the acquisitions they did at higher multiples in 2021, now we're coming back to bite them in the butt and they're saying, all right, we're going to have to hold off on that, freeze acquisitions, let's focus on the organic business. And that's the positive of having high rates right now is lower competition. So it kind of goes both ways. To go back to your initial question, which is like, how do we look at companies that have high debt components. I like to go in on these deals on an asset purchase perspective of saying we'll give you the capital and then you can pay off the debt yourself. And then they typically negotiate you into a share purchase, which means you take on the liabilities and step in their shoes. And there's a bunch of myriad of tax consequences for that. And so we like to look at it from, okay, well, rates are this much. What can we refinance it at? What's going to happen to rates in the future? There’s an inverted yield curve, so expectations are it's going to drop and are there options or derivatives out there that can kind of lock us in at a certain rate so we know that regardless of how much higher it might go, we're protected. So these are all things that we keep in mind.

Shiv: Is it changing how much debt you're using when you're looking at companies? Because you also know in the back of your head that interest rates can stay at this level, they could even potentially go up, although it seems unlikely, but it's possible. So you have this high debt service commitment, the more debt you take on as you're buying companies, right?

Narbe: Yeah, we look for buffers, right? When you look at free cash flow to the firm versus free cash flow to equity, there's the debt component of principal payments and interest payments, which differentiates those two metrics. And so we like to make sure there's enough of a buffer there that we're still earning cash. We're not giving every dollar of it or most of the dollars away to the lenders. And we're holding onto something for a rainy day or to grow the business or to reinvest into certain parts of the current structure. So you can't really overextend yourself on the leverage. You've seen companies large and small die because of the fact that they rely too heavily on leverage. But that said, it is your friend if you can structure in a way that you're comfortable with it.

Shiv: Yeah. And the other thing I think separates what you're up to is that it's a longer investment horizon, right? So how do you look at hold periods, and the return on capital over a period of time, and what does that look like for you?

Narbe: Yeah, we plan to hold on to our companies forever. We plan not to ever sell any of our companies. And the reason is that we find gems that are mission-critical, customers don't leave. So why would we want to part with that company? There's a lot of inefficiencies that we can capture, which I can talk about separately. But the idea there is to see this thing forever. And once you get to a certain number of acquisitions, the free cash flow to equity that comes out after you service your debt is enough where after four acquisitions, you break into this exit velocity where your future deals will be funded internally by your own cash that you're generating from your portfolio. And that's the whole Constellation method that was created. And we give a lot of credit to Constellation, but Constellation will give credit to Berkshire Hathaway and Warren Buffett because it's based off of the system that they created years and years ago, which is, let's compound growth over a period of time instead of trying to aim for the moon on the first like three, four years like venture capital does.

Shiv: Understood. Yeah. And in terms of holding these companies long term, like then there needs to be enough free cashflow for you to return whatever you've initially invested into the business. Right? So how do you kind of look at that? Are you, are you taking it out in the form of dividends? Are you looking at it just as reinvesting that in buying more companies and growing the fund? Like, how do you look at ROI on a longer term scale there?

Narbe: Yeah, it's the latter. As you keep reinvesting the assets and you get more assets and you build a book or portfolio of EBITDA generating software and SaaS companies, you tend to get a higher multiple for it as a platform than you do as individual companies. So there's a bit of an increase there. And then when you look at liquidity or exit, that typically comes in the form of a secondary opportunity where larger private equity player comes in, takes out your initial investors, take some of the founder money out as well, and kind of puts in more and says, hey, you did four, now can you do 10 for us? Here's 50, 80, 100 million to go do it. And that's typically what you see in this industry. There are some of my peers who have chosen the path of going public. I think a lot of them chose that path in 2021 when the markets were frothy. They've since been trading at a discount to where they were before. So, and as a former public company CEO, it's a very scary time to be a public company right now, as you can see in the markets. I think the privates haven't really met that mark yet. And then some of them end up selling to competitors. So we know exactly what our large competitors will pay for a portfolio of companies. So we can value that and say, you know what, instead of going out and finding 10 of these companies, here's 10 of them that we think are great. You can buy them and we know exactly how much you'll pay for them and how it'll be accretive to you.

Shiv: And when you, when you're talking about building a platform like this, are you trying to make acquisitions around a central theme so that the platforms value - there's some synergies between the different assets that you're looking at?

Narbe: We do, we have a list of verticals that we like to attack, but that said, unlike larger private equity where the verticals are big, we tend to look for niche industries. And these niche industries are typically ones that large private equity - they're too small for large private equity, they're too fragmented maybe. So sometimes we bump into an industry which we didn't even know even existed. Example would be church technology. So there was a company that we saw maybe six, seven months ago that their whole premise was the average age of a churchgoer had broken 60 in 2022, which is kind of crazy because for every baby that comes in, you need like two 90 year olds to offset it. And they had created a digital marketing platform where priests and pastors and so forth could use digital media to market to younger generation because gone were the times where someone would come and tap you on the shoulder and the in the grocery store and say, ‘son, I haven't seen you in church, temple, mosque, or whatever it is for a period of time’. Those days are all gone, right? So nobody really knows what people's religions are. It's kind of not the right thing to ask. So they created a platform for that. Business was great. It was seven million of revenue, four million of EBITDA. Three people had been running it. Never had expected that to be an industry. Another example is death tech, I call it, which is similar to when you go into a restaurant. They have a POS system that tells you where all the tables are. Cemeteries have that for plots of grapes. So if someone passes away and their significant other passes away 10 years later, and you want to move them into a certain location where they're together, and the family wants to pay for that, the software allows you to do that, allows you to move stuff around, allows you to see who's been paying, who hasn't been paying for that plot of land. So there's software for that as well. There's software for creating the labels on prescription medicine. There’s software for a CRM system for professional scouts of NHL teams. So there's a lot of riches in the niches, I like to call it. They're small companies. They have a lot of EBITDA. They're very sticky and they're good investments to make.

Shiv: Totally. Speaking of the hockey side, I know a company that only sells software to manage ice hockey rinks - not any other type of venue, only ice hockey rinks. So little things like that. There's a ton of software companies like that out there. I guess within that, the more niche you get and the more hyper-focused an offering is, then optimizing that investment is a little trickier, right? Because some of the standardized playbooks that you can work with a company with a larger total addressable market or just a more horizontal offering, you can't really deploy in an instance where it's so targeted. And so when you're buying these companies, are you just letting them operate as is or as they have been? Or are you also bringing in operational expertise to actually help them scale? And how are you doing that the smaller these niches are?

Narbe: Yeah, big question. So hopefully I can answer it all. So to keep me honest, if I missed anything, a lot of times with these small businesses, unlike larger traditional private equity, they're founder-owned. And once you get to a certain level of EBITDA or free cash flow, the founder starts taking out capital. And when they start taking out seven figures of capital, low seven figures, like one to 2 million per year, they kind of stop the growth train because they're happy. They're making good income, they're shielded by tax because it's a small business, they can probably dump a bunch of expenses in there, and they still take out enough to make more of a living than anybody else has. So they don't have much expectation for growth. So a lot of times when the company hits that mark - which is why we play between the five to 15 million EV - they just stop the sales process and marketing process. So you go into this company and you find out that nobody has touched any new customers, nobody has tried to reach anybody new in 10 years. And the last salesperson that was there has passed away because they were old and now it's 10 years from now. So those are the ones that I salivate at because I say, okay, well, let's go talk to customers. Let's go talk to your current set of customers. Let's get a lay of the land of how the business is run and how you process things. And let's go and target new customers that look like our old customers and start applying the traditional methods of drip campaigns and going out and meeting the larger ones in a mix of dialling for dollars and calling companies up and going to visit companies, depending on what the ticket prices and complexity of the software is. And there's a lot of low-hanging fruit. I like to say the fruit is so low that you're just picking it up off the ground because they haven't done anything in that sense. And I do find a lot of the stuff - and I'm going to plug your book in, I know you don't like it but I do find a lot of the stuff in here we like.

Shiv: Hahaha

Narbe: The concepts that you put in the book, we actually use in our LOI to explain to perspective sellers that we want to run the business like you have, we're gonna let the business run like you have, and we're gonna do a bunch of things on the side to create more revenue, decrease costs, particularly without firing anybody, and without changing the logo or the name. So your legacy remains, and we're gonna grow this business by doing a bunch of things that you haven't done over the years.

Shiv: Yeah, I think that that's such a good message is that a lot of companies just stopped doing even the very basic playbook items or things that got them to a certain level of success. And if you just do that and create a process around it, around that and make it repeatable and, and scalable, you can create a ton of value without necessarily like creating an entirely new channel or campaign or, or a new set of activities that requires a ton of investment. So I think, I think that's a, that's a great point as well. Okay. And so with that said, like what's next? Like how can we help? Is there, is there something that we can plug just on this episode if founders are looking to exit their business? How can they get in touch with you?

Narbe: Yeah, I mean, you can look us up on our website, www.definecapital.ca. You can email me at narbe, N-A-R-B-E, at definecapital.ca. We're always open to talk to anybody. So there's a - we have about 5,000 companies in our database right now that we've captured since May of 2023. So we have a very methodological approach to finding companies on the proprietary side. Many of these companies probably aren't ready to be sold yet. They haven't hit the EBITDA threshold we're looking for, but they are either EBITDA positive or cash flow breakeven. That said, I don't care if you want to sell your business now or in 10 years from now, I'd love to have a conversation with you right now. So not about buying your business, but about how we can help you. So there's, we have a lot of contacts, we have great relationships, we understand where you need to get your business to, to get to the outcome that you're looking for, and we're happy to share that with you, even if it's a detriment to us.

And I like to say that we have zero ego and zero expectation of anything. No strings attached. So if you come and talk to us and we have six conversations and three years from now you decide to sell your business and I'm not one of those people that you call, I won't feel bad about it because we truly believe in giving and by giving you'll get back in the future.

Shiv: That's awesome. So we'll be sure to link all of that in the show notes just so that anybody in the audience who wants to learn more can go to your website or email you just to learn more. And with that said, Narbe, thanks for doing this. Really insightful conversation on how you're thinking about looking at these companies. And I think especially the founders that are listening to this will get a ton of value from that. So thanks for doing that.

Narbe: Thanks, Shiv, appreciate it.