Transcript
from those who have gone through or are going through the process and top M&A and business minds to help you maximize the value of your MSP, whether you're buying, selling, or just trying to improve your business. Now make sure to subscribe to the Kaseya YouTube channel so that you know when the new episodes drop and you can even save that M&A Unpacked playlist for easy access today. I am joined by Jorge Naruse and George Lang from Apex Capital Growth Partners. Gentlemen, thanks for being here. Thank you, Mike. Thanks, Mike, for having us. Really excited to chat with you today. Yeah, this is going to be, we chatted last week and I'm very excited to hear more about what you're, what you guys are doing. It's very unique and I love the story and I'd love for you guys to just introduce yourselves. Where are you from? How did you guys meet? Who are, who is Jorge and George? Yeah, happy to. Do you want me to start, George? Yeah, kick us off, Jorge. Thanks. Yeah. So born and raised in Lima, Peru. I came here, it's going to be three years this August, actually, in a couple of days to go to business school. I came here with my entire family. I have a background in industrial engineering. I always like technology and I always like to find interactions. So I decided to have a sales experience early on in my career. So I started doing enterprise sales in the telco space. If you remember, for those who are on the Alderay side, McStell, so the walkie talkies, the push to talk, that was a huge company down in Peru back in the day. So I started working for them and then started enterprise sales and I started doing, building the portfolio from scratch, you know, from small, medium sized companies all the way to large corporations. And eventually I had a portfolio of the top 500 companies down in the country. And I learned so much from that experience, just, you know, inspiration from the business owners that I interact on a daily basis. And then the second half, I was managing high performing teams. And I really enjoyed that because I got to, you know, manage my P&L, manage my budget. But the most rewarding thing was helping the people that I was working with, my team, building the culture around them and helping them achieve, you know, new positions and achieving the KPIs over all of the entire team. And yeah, that's about my journey and then I'll hand it out to George. Yeah. Thanks, Jorge. Again, thanks, Mike, for having us. For a kid that was born in Arlington in Virginia and started his career in government technology consulting, this is a pretty cool thing to be able to do many lives later, which I'll fill in the blanks here in a second. But yeah, originally from Virginia, went to school there, high school all throughout, went to state undergrad in Virginia as well. So life was pretty linear. The first couple of decades of life ended up in government consulting, just kind of pushing paper around the first couple of years of my career, nothing too consequential, but kind of getting started in the corporate environment and work my way up. I started my career in implementation work, actually operations maintenance work, followed by implementation of ERP systems, and then decided that after about seven years, decided that that might not be the life for me and wanted to kind of change things up and take a chance and see what else was out there. And I got involved with a startup that had some presence overseas, so I went on a six-month contract overseas, and that six-month kicked off the past 10 years of my life. Five cities later, four countries later, a bunch of companies later, a couple of industry changes later as well, so super exciting ride. The next seven years of my career were largely in Asia, and out there I was building enterprise SaaS. So I kind of went from implementing and maintaining other people's software systems to actually building software systems with a cross-functional team of software engineers, so full-stack. The team was full-stack front-end, back-end, full-stack QA, QC, data analysts, product designers, UX, UI, et cetera. And then I was in Asia when COVID hit, I was in Korea specifically, which was the second epicenter after China, and decided to part ways with that company, and ended up back in North America. I ended up taking a sabbatical from work actually to kind of figure out what I wanted my life to look like, and maybe I didn't get all the answers to the questions that I had met, so I ended up in grad school, and that's where me and Jorge met. That's awesome. How did you guys decide to partner up, and who is Apex? Yeah, I think you can put some color on that. So like George said, we met during grad school, and the way our school works is they will randomly group us into core teams at the very beginning, and it's based on your experience, your background. So we spent a lot of time at the beginning of our program, both in and out of the classroom, and we developed a good relationship early on, good friendship. We clicked, and then every chance that we could, we took all the classes and partnered up on all those classes. So that's where our friendship really started, and then I was based in the Bay Area when I was coming back and forth from to LA, to the Bay, and George was kind enough to let me stay at his place, or crash at his place every time that I came to class. And by the time, the second year of the school, I took the Entrepreneurship through Acquisition class, George was TA for the class, and we spent a lot of time together after the class, and have a lot of conversations, profound conversations around what was going to be next for us, what was our future going to look like, what's next, a lot of those conversations. One thing led to another, and we ended up taking the next step together. So talk to me, how did Apex, what is Apex Capital Growth Partners? What's this company about? Yeah, great question. Jorge, you want me to take this one? Yeah, sure, go for it. Yeah, so Jorge touched on this a bit, on kind of the origin story, and I think that matters, and kind of how and who we are today as this company that you just mentioned, Mike. So the school that we went to happened to have a class called Entrepreneurship through Acquisition, put in parentheses, Search Fund. These two terms are largely interchangeable, I think, for when we speak about what we do, we can use them as synonyms. And the concept of buying or selling a business has been around maybe since humans have been around, and kind of once we got past the bartering part of our kind of evolution. So the concept itself isn't new. The model has been around officially, I'll put air quotes around officially since 1984. There's something out there called the Stanford Search Fund Primer, which does a pretty good write up on the history of it, the overall goals of the model, the investment model, how many people have done it, past success, etc. So that's what we do. We are known as a traditional partnered search fund. Partnered meaning there's two of us, and traditional meaning that we do have investors that have backed our investment thesis. And they support us as we spend this time of our lives and our careers looking for a company to acquire and then join as operators of that company. So the class that I mentioned teaches this model in grad school, and there's a few grad school programs around the nation that have this. So I got super fortunate, and I took this class in the first year of our two-year graduate program. And as Jorge mentioned, I went back to go be the teaching assistant for that professor in year two. So I really spent, I think, 15 months out of the 22-month grad program really thinking deeply about this investment model, this career path, as well as other options ahead of me too. So I come from a venture capital backed background. The companies that I used to work at in Asia were venture capital backed. So that was always an option for me, was to stay in that path and continue climbing up that career ladder, maybe staying in a quasi-technical role, maybe pivoting out into something else, but staying in tech in the VC world. I also considered launching my own company. There was an opportunity to partner up with somebody and do something from largely the ground up, zero to one, as they say. And then the third option was this path, which we ultimately chose and partnered up to do, which instead of building something from scratch, zero to one, it might be taking something from one to 10 or something from 10 to 100, really focusing on the growth of an organization, the transition, and then the growth of an organization. Interesting. I'd never heard of a search fund, so you said it's been around for a long, long time. Can you explain it a little bit more? Yeah, search funds. So since 1984, the interest has definitely grown exponentially the last decade or so. There's a pretty cool chart inside the Stanford Search Fund Primer that does lay this out. I would say, I'm trying to pluck numbers from my memory here, but maybe two decades ago, there was a dozen or so versions of what we're trying to achieve being launched every year. And I believe last year, please fact check me on this to the audience, I think 93 or 96 search funds were launched last year. So if you were to map these data points out on an XY chart, you would see up into the right hockey stick kind of exponential growth. And the gist of it is to back kind of hungry, youngish, entrepreneurially spirited or minded folks that don't want to start something from nothing to one, the zero to one concept. And they want to become an operator and they want to get into a business, get their hands dirty, roll their sleeves up, get their hands dirty and get in there side by side with the leadership team, the management team, with the workforce and continue somebody's, continue on with what somebody else has spent so many years of their lives and hard work building up, really protecting and continuing the good work that's been built there, the good foundation that's been built. Great. That's awesome. What, what, who's like, how are you targeting? What's the, what's the, you know, you guys don't have an MSP now. You're essentially searching for that perfect company. You're going to go in, acquire it. How does that, you know, talk about the perfect company for you guys as a target. Like what do they look like? Yeah. I mean, I can take that, George is in, like, we really like the space. We really like the industry. We, there's definitely sustainable tailwinds behind it. And that's something we really, really like in the industry, really fragmented industry as well. But in terms of the company, we're looking a company that is doing an EBITDA anywhere from two to $8 million in range. And especially one that has like really strong focus on the recurring revenue piece. And loyal customer base, like the, the, the churn retention rate that are in particularly in MSPs that have built a solid relationship with their clients and have established themselves as a critical partner in the client's operations. And then on, that's on the company. And then on the owner is based on what George mentioned, the ideal owner for us is someone who is passionate about the legacy they've built and is thinking about the next phase in their business, of their business. And whether you're looking to, whether the owner is looking to stay involved and roll equity or gradually step, stepping back, we're here to offer a flexible transition for, for them. Just to add onto that, I think some other things around kind of this owner profile, if we were to describe an avatar of the company, which Jorge just did, and then of the owner, to add onto the owner avatar, I think a lot of times when, when an owner builds a business up, I think the, I would imagine I'm assuming here, but from people that we've talked to or seen businesses, usually the first kind of next wave of succession goes, the family, the business stays in the family. So for this to work, I think either children are not interested to take over the business, or there's no children in the business. And then my mind goes to the next, if I, if I had my own company that I built up and I was looking, you know, to retire, how would I think about it? The next in line in my head would probably be management in the company. Can I keep the business in the hands of the people in the company itself? And for various reasons, sometimes that doesn't work out. Maybe the biggest reason I've seen so far is probably financial. Can they actually raise the funds or get a loan to do the acquisition? So for those, when those two things aren't in place and the owner is getting to a position in life where they have to think about a transition, I think that's where we come in and our value proposition to those owners really starts to become, become apparent. Are you guys going to buy one MSP and then that's it? Are you looking to build a bigger, you know, bigger, become a platform or sell or like, what's the, what's the longer term play? Yeah, that's a great question, Mike. Initially we're targeting to acquire one company and that has to have the right foundation to serve as a platform, right? And our goal is to grow the business organically, but we also plan to pursue rollups. And one of the, why we want to do that is because one of our theses is you are so ingrained, so entrenched into your customers, operations, and you know, all the technology around it, it's a pretty mission critical service. It's pretty sticky, pretty sticky service, very high switching costs. So it's going to, it presents some challenges to grow organically, right? So that makes inorganic growth and roll up a lot more attractive to us. Interesting. What you guys have been, how long have, how long exactly have you been doing this? Like when did it launch? And then what kind of, you know, always curious to learn like lessons learned along the way, especially with, you know, you guys are very meticulous in how you've gone about setting this up. I find it very interesting. So I'm sure you guys have learned some things. Yeah, so we kind of mapping it to the timeline of grad school too. So we started grad school maybe three years ago. So I took the first class right three and a half years ago, chewed on that for about 15 months before we partnered up, me and Hori partnered up. So that was May of last year that we decided that we had a pretty solid personal relationship as friends. And we had pretty good alignment on kind of how we saw the world and what we wanted to achieve in this world and in this life. And maybe that's a good thing to touch on as well. It's kind of what motivates us to do this. And then we spent last summer fundraising. So again, we're backed by investors. We have 18 investors on our cap table. So 18 investors that are backing us. And we launched last fall. So that was October 3rd, 2023, which puts us at 10 months. I think I'm doing the calendar math right there. And typically traditional search funds have a two-year runway. So that's about 14 or so months left of runway ahead of us to get a deal done and ultimately become operators in that company that we both sides choose to partner with. And you said, maybe we could talk about what motivates you. That is a great question. What does motivate you to do this? Like, why did you choose this path? I think I can go first. There's mainly three reasons. And we've discussed this before we partnered up and just to see if our interests were aligned. And for me, it's just I grew up in entrepreneurial families. Both my grandparents from both my sides had successful businesses down in Peru. And also through my enterprise sales career, like I mentioned this before, learning and interacting with business owners across multiple years. It's always been a constant itch in the back of my head, just pursuing entrepreneurship. And then the idea of just rolling up my sleeves and managing a business and growing a business. And at the same time, making a positive impact on people's lives is something that really motivates me and having an impact on the thriving culture and the community around. And then also, I've been working in the corporate world for my entire career. So having taken control over my own destiny in a way was super motivating because I was part of, you know, no matter how well you're performing, if the company decides to take a shift on the strategy the next day, I had to let people go just because of that. So, you know, you're never 100% secure on a corporate job, regardless of how you're performing. And I think the last one is, you know, I always worked hard, but never had part of the upside. And if I have a daughter, like recently, a couple of years ago, so being able to secure a better future for my family as well was a huge motivator. Yeah, absolutely. And I know I was just gonna ask what motivates you. Yeah, pretty similar things. Maybe the same things if I'm about to regurgitate them. But yeah, I think ultimately ownership matters. That last point that Hori mentioned, and it's something that's become really apparent to me as a self-described financially illiterate person until probably my mid-30s. Once I kind of understood the financial world work, like really basic stuff, like interest rates and compounding and inflation, deflation, etc. Like I was pretty oblivious to this stuff as a techie. I'll put quotes around that, a techie most of my career. It just wasn't really kind of in my purview. And on the personal side of life, I wasn't really paying attention or kind of seeking out resources to learn about that as well. So as I started learning about this concept, this thought of, I need to own something in this world, just to provide at a minimum, some stability and like a safety net. So the first thing for me that I owned was actually a property. And I bought my first property, the primary home that I lived in about 10 years ago. And at the time of my life that I did that, that was a pretty big milestone achievement, given my personal background and my family's background and kind of how we ended up in this country as immigrants. My parents immigrated here. And it took me probably 10 years until I realized that I should probably buy another property. Like that's how long it took for the kind of light bulb to go off that. Investing in this concept of investing, turning your cash, your hard cash into an asset, an asset that can potentially grow. And how can you think about the risk of that potential? So how do you kind of de-risk your investment portfolio? So as I started to open up my mind or my mind started to open up in that part, I started thinking about like, what else does ownership look like? The only thing I know about so far is my 401k and my real estate property, my portfolio of one. How do I grow that portfolio? And then I started thinking about other things that you can own. And eventually we came across this idea of owning a business, which again is not something new. It's been around for centuries, if not millennia. But it was just something that I wasn't really exposed to. So ownership matters. And I think that applies not just to myself and to Hori that have chosen to partner up for this. I think ownership matters for everybody in the world. So what I just said, I think that applies to everybody and anybody, regardless of kind of your age, where you are in the world, where you are in life. You can start somewhere. You can start fractional. You can start with a small piece, go buy a stock, invest in your 401k and a Roth IRA. Partner up with friends or family to go buy a property, invest in a business. There's many ways to skin that cat to become an owner of something. And then to piggyback Hori's comments about the control, I think that was directly applicable to my career as well. Again, working in technology, big technology, big tech, but in Asia, not in the US. I was a part owner. A lot of people that work in venture-backed capital, venture capital-backed companies, they get awarded stock options. They get awarded RSUs. So that's another form of ownership as well. And I think given my life stage and our life stage, because me and Hori are just by chance the same age and five days apart, which is like a nice little side wrinkle to our relationship. As I've gotten older and into this, I say this with hesitation and reluctance, the middle ages of our life, my risk tolerance has started to change and it's naturally evolved, I think. And it took me a little bit mentally to recognize that. So by being in venture capital-backed companies, we're talking about companies that aspire to become unicorns. And in the venture capital world, that means a billion plus in valuation or in market cap. And as the company, as your pie grows, if you think about that as a pie growing, that means everybody's piece of that pie becomes smaller and smaller and smaller, especially as you continue to take on outside capital, outside investment to grow. That's usually what happens. People get diluted. So that means your piece of the pie gets smaller. And I think that's just what I realized was I was working in companies and these are very mission-driven companies. I bought into the mission. I do believe that we were helping out millions and millions of lives on a daily basis. But I think, again, just driven by the kind of shift in life stage and shift in risk tolerance and kind of what's motivating and what I care about. I think my preference of the scope of impact and also the size of the pie started to shift. So my reach has become smaller. The impact that I want to have on this world is no longer in the millions of lives where I may not know the lives, like the people that I'm actually impacting to wanting to see that impact more up close and personal. So this could be at a community level. It could be at a company level. It could be at a team level. It could be at an individual level. And then having that control to affect that change, to actually make that impact. And then seeing in simple algebra terms, if I input X, this is Y that comes out on the other side of my efforts. And then, like Ori mentioned, having the aligned economics that come along with that and that come along with ownership. Fantastic. Great advice for anybody to hear. All right, let's fast forward a bit. Let's say you did your first deal. What happens next when you buy that first MSP? What happens to the owner, the employees? Tell us what's going on the day the sale is done. Yeah, I think what happens to the owner is entirely up to them. We're very flexible in that regard. If they're interested in staying involved, we welcome a partnership where they can roll equity and continue to play a key role in the company. They can remain as involved as they want, whether that means staying on board to help drive the growth and keep the customer retention or gradually stepping back as they transition into the next stage of their life. Our approach is about finding the right fit and ensuring that the transition works for everyone involved, especially for the owner. In terms of the employees, we're committed to the employees. We're keeping everybody in place because we really believe that the company is where it is today because of the employees and staff. And we're just going to give them the right tools, the right support to help us build upon what it's already been built. Just to add on to Jorge's comments, yeah, to re-emphasize the flexible piece, I think there's no standard kind of template other than the end goal of eventually the owner will kind of sunset out of the business, regardless of who are in the picture or not, that's going to happen. So we work with each owner to figure out what that plan looks like to satisfy their goals and what they're looking to achieve and the timelines that they're looking to do that on. Very cool. Love it. What about the next five years, 10 years? What's the plan for growth? Yeah, great question. I think there's a few ways to look at this. So we're looking to get the first one done and given kind of the life stage again and the age of me and Jorge and our energy levels and motivation, et cetera, like we would love for this to be the next 10 plus years of our life. And I think that dovetails nicely with some of the things we discussed earlier around kind of continuation of legacy, protecting the owners, everything they've built, the brand, the people, the customers, the team, the company name, the office, et cetera. Like not even largely, everything stays in place. Like our goal is not to go in there and shake things up from day one. Our goal is to go in there and learn and to form relationships and figure out like how has the business gotten to where it is today? How do we not mess things up during that learning period? And then once we get comfortable, where can we start making little tweaks here and there to become more resilient? And I think we'll come back to lessons learned in a bit, but that's one of the big ones is resilience. And what does that look like? So a lot of low hanging fruit we imagine will be in whatever companies that we take over. Somewhere things may not have been prioritized, there may have been blind spots, et cetera, little things like is the phone being answered when the calls come in? If you're a heavy sales organization, are you tracking all of your leads and kind of managing the relationships and nurturing them and following up when you're supposed to be following up? If a contract is up for renewal, are you ahead of that renewal date so it doesn't catch you off guard? So more hygiene things are probably the things that we're gonna be looking at as we're looking to learn about the business before we ultimately, again, make those minor changes that I mentioned. So that's kind of the first call a handful of months, maybe up to a year, depending on the complexity of the business. And then we'll focus on organic growth. So those tweaks that I mentioned, how can we kind of enhance the sales process so that we can get a bit more sales out of it? How can we look at kind of how we're actually operating? Can we streamline any of the operations? I think of the Ford Model T and the assembly line to drive efficiency. So minor reorgs to drive that to increase profitability of the business. So that's all the organic growth parts of it. And I think where I touched on this earlier would be the inorganic growth. So our thesis, I think, still applies after we become operators of a business. There's still going to be other companies out there where the owner may be getting up there in years or another life event is forcing them to think about what's next. And maybe it makes sense for us to partner up together and we can explore what a merger looks like or an acquisition looks like. So that would be the inorganic piece of the business. And I think that also opens up opportunities to grow into other regions of the nation. If the business that we end up in is a more local or regional or statewide business, do the adjacent states make sense to push into? Are there other regions in the US that we should consider pushing into? Are there other service lines that are complementary to the ones that the company offers? Does it make sense for those two to partner up so that we can add more value to the customers that we're selling to and also benefit from a shared kind of operating model or shared back office to drive some of the efficiency as well? Yeah, and to add to what George just said is just highlighting the long-term hold piece of it. We're basically, we're trying to build a career out of this. And basically we're betting the next 15 years of our careers, until we retire into the first company that we end up acquiring. And we don't have any pressure just because when we were fundraising, we made sure that all of our investors were aligned on a long-term hold. Because a lot of them actually believe in the compounding effect of a long-term hold. So we're not gonna have a pressure. And that's one of our differentiations as well from other groups is we're not looking to go in there and do changes, efficiencies and flip three, five years. We're looking at, George said, build a career out of this, hold for the long-term. And then to add on to what Hori's comment there about the compounding, it's not just the compounding effect of kind of the growth or the value of the business. I think one thing that doesn't get talked about very often is actually the compounding of knowledge and the compounding of relationships. So the longer we're in a business, the more we're gonna learn about that business, the more we're gonna learn about that space, about the customers in the space, about the competition in the space, which is only gonna make us stronger and only gonna sharpen us as individuals. And then also as a company, I think all of that trickles out throughout the company. Awesome, guys. Oh, I'm sorry. Go ahead, Hori. No, I was just gonna say, and then the growth of the people that like the first company that we end up acquiring, like we want to see that people grow inside the organization. And if we do acquisitions and to other parts of the country, empowering those people that were in the parent company to take higher and more responsibilities within their work. Cool. All right, this is great. This is great stuff. I didn't know what a search fund was coming in here. And now I know. I love doing this show because I feel like I'm in grad school, learning all these things from different MSPs, different business owners, different investors. It's really great. So thank you guys for sharing that. Before we go, I wanna give you guys, you're in front of the entire MSP community here with Kaseya's M&A Concierge Platform. Tell us again, you already talked about who is good for you. Opportunity to say, to just remind folks what kind of MSP, where are they located? Do you guys want them out in California where you are? Are you looking for somebody else somewhere else in the country? And then wanna dig into why you guys, why should they pick up the phone and call you guys today? Yeah, absolutely. I wanna add in a bonus answer to that. If you don't mind, Mike, if we're okay on time about the lessons learned, we didn't get to address that. And I think that's really important to include that, to then answer the question that you just asked. So I've got three in mind, which are relationships matter. Resilience is key, both on a business level and then also on a personal level. And then lastly is default optimism. Things are hard, everything's hard. I'm pretty sure that resonates with owners that everything that they do as the owner of the business is challenging. And then you throw the personal bits of life on top of that, it just kind of all adds up in a compound. So being a default optimist, having that resilience, having a good strong network and a team around you, I think makes life and owning an organization a little bit easier. So then to kind of put a button or a bow on all of that is, I hope it's become clear through this conversation. And if the audience has made it to the end, thank you for sticking with us. I hope it's become clear that we're not the typical private equity folks, like Hori mentioned, that are looking to get our hands onto a business, do a bunch of reorgs to drive, drop the cost down, drive sales, and then flip it on a short-term hold. Like we really do care about each other. We care about the team that we have around us. We have a pretty healthy internship program with us that we didn't get to mention. And we're going to care about the owner that we end up partnering with and the team that they've built up. And we're going to join and relocate our families or in Hori's case, his family, and then myself to the organization. And we're going to join the company day-to-day. We're going to join the communities that that company is based in and the customers are based in and really focus on the long-term relationship and long-term kind of benefit of both sides. So I hope our story resonates with the audience and those that are listening out there. And if we happen to match, we love to chat. Yeah. And I'll just add that with us, they're not just getting George and Jorge as a regular buyer. You're getting and gaining a partner who is ready to get into the trenches and work alongside your team, grow the business. But it's not just us. We have a whole team behind us and that's our investors are really hands-on, really active. And they bring decades of experience in both investing and scaling businesses. Awesome. And I think I just want to make sure I underscore this. It sounds like you guys are willing to pick up and move. If the ideal company is in Chicago, that's where you guys are moving. Yep. Nationwide. We're ready. Very cool. All right. To wrap up here, let everybody know how they can contact you. Yeah, our email address is simple. George at or Jorge at, so that's J-O-R-G-E at or G-E-O-R-G-E at apexcapitalgrowth.com. Awesome. This is great. I can't thank you guys enough for taking the time out of your busy day to share with the MSP community. And for everybody watching, we thank you and tune in every Monday on the Kaseya YouTube channel for another episode of M&A. And if you're not yet a member of that many concierge platform for MSPs, make sure to apply today. It's an amazing platform and is 100% free for both buyers and sellers. See you next time, everyone.
