Episode 20 - Kevin Bibelhausen, Fruition Capital (and Heritage Fabrics)

Kevin Bibelhausen is an investor and business owner based in High Point, North Carolina. He frequently consults on digital strategy & operations, is a sought after conference speaker, frequent podcast guest and author. Kevin is passionate about professionalizing the "wild west" that was once SMB acquisitions. 

He has helped dozens of entrepreneurs find, finance and acquire small businesses and escape corporate America. Kevin received his MBA from the Fuqua School of Business at Duke University.

Link to his substack: https://bibelhausen.substack.com/

Interview starts at 9:08.

Transcript

00:00:00 NICK LALL
So the big question is this, how are entrepreneurs who aren't scaling tech startups or building lifestyle businesses from scratch doing it? How do acquisition entrepreneurs find businesses, buy them, and then create generational wealth while taking on less risk? Welcome to Search Funded, the entrepreneurship through acquisition podcast. I'm your host, Nick Lall, and today our episode is with Kevin Biebelhausen. Kevin is a self-funded searcher who acquired Heritage Fabrics, which is a fabric wholesaler based out of North Carolina. And on top of running Heritage, Kevin is also the founder of Fruition Capital, which invests in self-funded searchers. And Kevin's got to be one of the most fascinating guests that I've had on beyond his search story, which is very interesting and exciting itself. His personal journey is one of the most unique of anyone I've had on the podcast. Kevin was a music major in college. After

00:00:50 NICK LALL
graduating, he became a musician, did that for several years, but eventually realized that he wanted to find another way that he could utilize that same creative energy, but actually be able to build more wealth than musicians typically are. He came across ETA as an option. He considered it, but he first ended up going into healthcare IT, working in IT at a healthcare company. And unfortunately, at the height of the COVID pandemic, he got COVID, suffered myocarditis and was hospitalized. He came close to dying, basically had a near-death experience. And it was during that experience that he realized that what he wanted to do with his life was to buy and run a business. And that's what he wanted to focus the rest of his time on. That's what he did after And due to that laser he acquired that. Heritage very soon focus, And that's what he wanted to focus after. the rest of his time That's what he did after that. And on. due to that laser focus, he acquired Heritage very soon after. And he's a very purpose-driven guy. The reason behind his search and why he founded Fruition is because he really believes in the societal benefits as well as the individual wealth creation opportunity that comes with search. And so that's why he's been trying to spread this opportunity to as many people as possible and allow them to take the self-funded search route. So this episode is a little bit different from others. If you can't tell already, my audio did not go recorded for some reason when we were doing it live. And so I'm just going back and doing everything on my side myself right now. But the plus side of that is it does give me the opportunity to talk a little bit more about myself, which I haven't done a lot of yet on this podcast. And I just wanted to update everyone on my search journey and also ask for some of your feedback and maybe propose ways that we could potentially work together or collaborate or at least connect in a more meaningful way than we currently do. So the reason that I originally started Search Fund, it was mostly just to network, build some credibility and learn as much as I could and maybe get some investors as I prepared for my traditional search fund raise. And it definitely has been very helpful with all of that. I did get some investors. I learned a lot. And most importantly, I really benefited by how collaborative the search fund community is. And it really has amazed me how many people want to be on the podcast or just help out regardless of whether they are or not. But I ended up getting about halfway through my raise. And after that, it just kept dragging on and on. And at the same time, I was learning more and more about self-funded as an option. Conversations like this one with Kevin really kept reinforcing it to me that it was a much more realistic, achievable option than I'd initially realized it was. And so because of that, I have shifted my focus over the last month or two. I've been searching full-time as a self-funded searcher, and the reason why is that it really just fits what my long-term goals have always been. I've always wanted to be a business owner, not an employee. My why, my purpose in life is to be the best people manager I possibly can. I want to allow humans to live the most fulfilling, empowering lives that they possibly can, because I've had absolutely amazing bosses that have allowed me to level up really quickly, become a more self-actualized version of and more than just be a much more happy, myself, anything, productive And I really person. owe so much in my life to people who have been that for me. And at the same time, I've also had some really not great bosses that have really set me back in life and have just made me miserable while I was working for them and even in some cases afterwards. And so I've spent some time thinking about purpose and the impact I want to make in the world. And the thing is, is people spend most of their day at work. And, you know, I have my other passions like yoga, or I've also thought about becoming maybe a therapist or a shaman. And I think all those are super helpful for people who seek them out and for people's personal development, as I myself have experienced. But what a person is doing at work in their day-to-day life has such a huge impact on their identity and just their happiness in life and ultimately the world, because happy, productive people just make the world a better place. And so that's why I've realized that owning my own company is really the only way that I can do what I want to do. If I'm a people manager within someone else's company, there's always the chance that they could fire me, and then that creates the competing incentives of me wanting to be a good employee for my boss versus being a good manager for my employees. And even though it seems like those two goals should be aligned, and most of the time I think they are, there's always the chance that they may not be. And I'd rather just avoid that and be as good of a manager in my own business that I can be and be autonomous in doing that, which would allow me to fully focus on my purpose and my goal. That being said, though, there's definitely no doubt that there are absolutely amazing benefits of the traditional search, especially if you have investors who have aligned values with your own. You can buy a larger business, focus more on strategy, and there's the mentorship of the investors, a lot of whom have done this in the past and been really successful at it, and probably also easier access to growth capital if that's necessary. And I think that is really helpful for a lot of these businesses. So not knocking traditional search, I think it's great for a lot of people. But for me, I think this is what makes the most sense at this stage of my career. I believe that I have the background and skills to buy a business and run it well enough myself right now. That being

00:04:34 KEVIN BIBELHAUSEN
always the chance

00:05:20 NICK LALL
said, though, it is a very lonely journey. I was just talking to David Lovejoy over at Horizon Search. He's another podcast host who hosts a podcast that's kind of similar to this one, but a bit more broad in topic. If you haven't heard it yet, I would recommend checking it out. He's a great host, very funny guy. And he also has a lot of great guests on as well. But the two of us were talking and we were saying that there should be a solution to some of these weaker points of the self-funded search that traditional doesn't have. I mean, entrepreneurship is lonely no matter what, but at least in the traditional search fund format, or if you're doing a VC funded startup, you have your board of directors or at least more people guiding you along the way. And they have experience that you can learn from, but most of the time in the self-funded format, you are just totally on your own. So one idea that kept coming up was potentially doing monthly or weekly mastermind groups where we could pair people together who have similar interests, similar values, but at the same time, make it non-competitive people in different industries, different geographies, there would be a selection process. There might be someone leading each group who was a successful searcher in the past. And we would also batch it like people who are early in their search, people who are operating, people who are towards the exit stage, just to make sure that all the content was relevant for all the members. But more importantly than anything, it would just be a regular space for people to be able to share what they're seeing, support each other, hold each other accountable. Because I know that a lot of times our friends or family don't really get what's going on when we're doing a search, especially a self-funded search where we don't have that legitimacy of the salary for the two years. So they're kind of more accepting of it. So it's just a place for people doing this to get together regularly. And I know that a lot of people have Zoom fatigue at this point. So we were also thinking of at least starting out with one or two in-person retreats per year where we would bring in a lot of the guests that have been on the show and people could pick their brains and learn from them. So if any of this sounds interesting to you, please do feel free to reach out to me on LinkedIn, Nicholas Law. I don't think there are too many of us on there, but I'm the one in New York if that helps. And just give me any feedback you have on this idea. If it's something you'd be interested in, if there's something you think that's missing from it that could make it better. Also feedback on the podcast is always welcomed. Would love to know which episodes you've liked, which ones you haven't liked, what you'd like to see more of. Always just feels good to know people are listening and hear what is landing and what isn't. But without further ado, I will get to this podcast with Kevin. I hope that you enjoy it because I know that I really did.

00:07:37 KEVIN BIBELHAUSEN
Yeah. Well, Nick, happy to be with you. I've often looked back at this whole industry, if you want to call ETA or self-funded an industry. I really got interested in 2018. I think I heard a podcast first mentioned it. I think it was the HBR IdeaCast. And I fell in love with the idea, read the book, and just attached myself to the story of a guy who bought a port-a-potty business. And that's what I had to do. That was the coolest thing. I don't feel like I'm a tech entrepreneur. I didn't want to go out and raise VC money. I didn't know how to raise VC money. I didn't think I was qualified. I'm probably not qualified. And entrepreneurship in general just seemed very unattainable for me because we tend to think of entrepreneurship as, you know, the big sexy unicorn type companies. And, you know, you and a couple of developers creating some dating app. And then when I figured out that small businesses could be bought and sold, it was a game changer. I realize that's a silly statement to make, but I grew up in a neighborhood where there was a lot of small business owners. This guy owned an asphalt company, this guy owned a construction company. But I didn't know what an investment banker was until probably about 2016, 2017. I thought that businesses were either started or they were passed down generation to generation. It never really occurred to me that they could be bought and sold. And so once I figured out that that was possible, I kind of unlocked the whole part of my brain and a whole desire to kind of get into this game. So I found out about it in 2018. I tried to acquire a business, small business. It was probably about a $600,000 transaction, something like that. And I got through the whole process, was basically at the altar, ready to get married. And the deal fell apart at the last minute because the bank came back to me and said, actually, I'm going to need you to double your equity injection. And I said, well, I've already put every nickel I have into this. So I'm all tapped out. I don't have any more money. So knocked on a couple didn't really know what I was doing. doors, I found a couple investment banks but it just didn't pan out. locally, So I killed the deal, walked away, kind of licked my wounds and went back to my corporate job and did the whole career ladder thing. I tried to move up. I started in project management on the IT side, and then I eventually got into board of amounts to be the deputy CIO, chief information officer for a large public health system. So I was making steady career progress, but I wanted to do more. I couldn't go as fast as I wanted. You kind of hit that ceiling in your career, or you feel like you hit a ceiling in your career. And COVID happened. So like I

00:10:02 KEVIN BIBELHAUSEN
I said, I was working at a hospital system, the busiest emergency department in the country. And I was in the technology sector. So what happened during COVID was technology became critical. And COVID was the biggest driver of digital transformation in the healthcare industry that we've ever seen. And so we were very busy and very burnt out by the end of it. And through that whole thing, I also, I got COVID myself and it impacted my heart. The long story short on that is they basically told me I would need a transplant. Fortunately, I was able to get off the list and recover with, so like IV medication over a full year. I had an home health nurse and all that. And then I had oral medication, but eventually I was able to kind of get back to normal. And through that whole process, it was very clarifying experience to realize how fragile life is, how short life is and, and, you know, desire to take more risk to get to the things that I actually wanted to do. Like I had a renewed passion to like, yeah, I do want to work for myself. And I do want to go buy a business and I don't really care what industry it's in. I just want to be in the game. Like I will love anything that I buy. You know, that's, that's what I knew, you know, and I didn't matter. I just wanted to, I wanted to lead a team, manage a team, own the business and grow it. And so I kicked off, I both applied for the Duke MBA program from the hospital and started also looking at deals while I was in the hospital. And in January 22, I fully kicked off my search and by the next year or so, well, the goal that I laid out was I'm closing before the end of the year. I'm buying a business in 2022 and I missed it by two weeks. We ended up closing January 13th, Friday the 13th, actually, 2023. So I missed it by a little bit, but I guess I give myself an A minus there. But that's kind of the whole genesis of how I ended up talking to you as a passion to do this for the last five or six years, or finally getting something across the finish line in a way that I just didn't even know was possible. That's really

00:12:07 NICK LALL
incredible. Congrats on closing so quickly. And I think it's clear that you are doing what you're meant to be doing in life when you've had that life or death experience. And you just knew that that was what you wanted to focus your time on. And that's probably part of the reason that you were so successful. But I was curious if there is any one activity or thing that you did that you would attribute such a fast closing to if a self-funded searcher came to you today and said, hey, I have six months or every year and I really need to get this done as quickly as possible. What sort of advice would you give?

00:12:17 KEVIN BIBELHAUSEN
that that

00:12:38 KEVIN BIBELHAUSEN
Boy, that's a loaded question. And I'll give you a very honest answer about what I believe, because I've considered doing traditional search. I kind of kicked the tires. And here's the thing. I think any self-funded searcher or anybody that's interested in this path has to have almost an unhealthy passion, level of grit, level of determination, level of belief in themselves that they can do something that is incredibly difficult. It's very difficult to find a deal, very difficult to get it under LOI, and it's even more difficult to get it from LOI to close. So the reason I think it was shorter, number one, traditional searchers have a salary. You know, like there is no real pressure. I put the pressure on myself to say, I'm buying before the end of the year. That is what is going to happen. And I was funding myself. A lot of people, even for self-funded, they'll take savings. I know a couple of people who worked at big firms, they worked at McKinsey or they worked at investment banking, PE or whatever. And they've got a nest egg that they saved up and they can draw on those savings and search full time. I didn't have that. I had a pretty large mortgage and I needed to keep my bills paid. So I consulted. I worked while I was searching. I did a lot of search on the nights and weekends. And I worked remotely, which I definitely took advantage of. I was not the best employee while I was searching. I've said that multiple times. I'm not necessarily proud of the level of employee I was, but you know what? It worked. And so I can't really fault it. So there's the fact that there isn't a safety net and you really got to show up and grind if you want to get it done from being self-funded, not have the comfort of a funded salary. And also like the most simple solution is, are you looking at proprietary deals or are you looking at broker deals? Because most traditional searchers are only looking at proprietary deals, meaning they got to go through all the sourcing efforts of reaching out to business owners and getting business owners from cold to I'm ready to sell or I'm interested in selling. Whereas if you go brokered, they've already skipped that step or they're not skipped it, but they've already gone through that step. That's the broker's job, right, is to find these people, get them to the point where they're ready to sell, package up the materials and go out to the open market. So I was only looking at broker deals because I had a timeline and I knew I didn't have the ability to basically wait around for these relationships to develop naturally that need to happen if you do proprietary search. It just takes longer because of course it does. You have to build that relationship and get the seller to a point where the potential seller to the point where they're ready. And there's just a much higher risk of deals failing that way because you don't have an intermediary. You don't have somebody trying to talk them off the edge. So I think those are two really simple things like self-funded, you're on your own dime and time is not your friend. And so you better hustle. And also just where you source the deals from. If you want to move faster, look at broker deals. I know there's all kinds of, oh, everybody thinks the broker deals are picked over. Well, anything you buy is going to have hair on

00:15:36 KEVIN BIBELHAUSEN
to have hair on it. Just because somebody passed on it doesn't mean it's not a good deal for you. It doesn't fit their buy box. So I don't necessarily really all the negatives around brokered search. I think for the vast majority of people, that's the way to go. For

00:15:50 NICK LALL
sure. I think in the traditional search, it may make sense to do proprietary, but otherwise it's really way too time intensive. I mean, you got to first of all, convince someone to sell their business and they got to get all their ducks in a row, talk to their accountant and their ideas for valuation are probably going to be way too high. And so it's possible if you have two years, but otherwise, it's probably not worth wasting that much time. So as much as people discourage the broker searches, I think if you're doing self-funded, that is the way to go about it. That being said, though, I'd love to learn a little bit more about your search process. And if there's anything that you would have done differently, if you could go back in time, like when you invest in a self-funded search today, what would you tell them? How do you avoid broken deals? What are some of the mistakes that you made that you would tell people not to do if they were going to do a self-funded search today? Oh

00:16:11 KEVIN BIBELHAUSEN
as people discourage

00:16:36 KEVIN BIBELHAUSEN
yeah. Like I was completely green. Like I knew I wanted to do it, but I didn't really know what I was looking for or really how to look or how to qualify a deal quickly. I mean, I remember one of the first Sims I looked at, I sent to somebody that I thought I could get excited about it. And they're like, dude, this business has negative net income. This isn't going to fly. Oh yeah. Good point. You know, just cause I liked the business, you know, it's probably not going to be able to get an SBA loan on that, you know, bit of a different transaction. So, you know, it's, it's a, it's trial and error and you got to be comfortable making mistakes and looking like an idiot and getting out there. Yeah. I mean, as far as the lessons learned, I think some of the best searchers I see right now, and I mean, I didn't do this, but this is sort of best practices that I feel like have been developed over the last couple of years. It didn't have metrics. Like you should be targeting like, okay, so I want to submit one LOI a month. Is it going to be on the very best business that you can pop it? No. But it gets you in the habit of churning those LOIs and just getting at bats, just trying to take hits. And eventually one of them is going to connect. And it may be the deal you close on, it may not be, but guess what? You're going to learn something in that process. You're going to learn how to negotiate with the broker, go back and forth. You're going to know what you're going to understand more about the process. If you view it as kind of, for lack of a better word, academic, you can learn something through this whole process and just continually get better until you finally get the deal that you're actually going to close on, that all the stars kind of align and you're able to get through the whole process. I So, I mean, submitted two or three LOIs in 2022 before I was able to get Heritage really through the first couple of hurdles. And those hurdles are basically, can you get a loan on it? And then a quality of earnings study. So do the numbers flush out? Does this business actually make what they say it makes? And most of the deals that fell apart for me had something to do with the initial financing, had to do with the debt. Either it was one was just the economics didn't quite work out. I needed to raise more capital than I wanted to. And the other one, the ad backs were able to be documented. And so, and that was like the majority of the SDE. And it just didn't pencil without those ad backs. And there was a lot of personal expenses that were co-mingled.

00:18:54 KEVIN BIBELHAUSEN
Those are the two I remember, but I think there was a third one in there. But yeah, it usually falls apart in the beginning due to not being able to get debt.

00:19:03 NICK LALL
So I was wondering if you could talk a little bit about how you financed your acquisition, how you got the investors. And then secondly, what do you look for when you invest in search now? Because you are not only a search fund entrepreneur running a business, you're also investing in searchers. Oh, actually the second

00:19:19 KEVIN BIBELHAUSEN
question first, because it's, it really is just like, I it sounds cliche but it's it's great man it's how bad do you want this how many phone calls are you gonna make how many emails are you gonna send the capital is out there and i and i as somebody coming into this i don't come from money like i don't i don't have a high net worth network i mean i do more now but i've been doing this for a couple years right but like all the people in my cap table i didn't have relationships with they're all they were all investors first. They're friends now, but they weren't then. And so I got a couple of referrals from people that sort of mentors in this space. I was DMing people on Twitter. I built most of my cap table through connections I made off of Twitter and I had like 300 followers. The

00:20:06 KEVIN BIBELHAUSEN
money is out there. You just kind of have to keep being diligent and looking for it. At one point, I remember posting like, I will crawl over broken glass to get this deal done and return capital for investors. That's how strongly I felt about it. So persistence is really, it's really the thing. It's the really secret ingredient. And as to, as when did I start the process? I started the process too late. Why? Because I, I initially partnered with one of these firms that promises like, oh, well, this is the raise done for you. And we're going to do, you know, what, basically you give us equity and we'll do the whole raise and it'll be great. And I, you know, as somebody who didn't, I came from operations, right. And I said before, you know, I came into healthcare and technology and IT and I didn't know how to raise money. And so I thought that was a great idea. And so I signed, you know, contracts to work with them. And three days before I signed my heritage LOI, which they knew about, cause we had been talking about it. They called me and said, yeah, you know what? We're just super busy. So anyway, good luck to you. So we're going to tear up these contracts. And so where most people, like the advice that I give and the most successful searchers have is to start building those investor relationships early. I didn't do that because I didn't want to quote have to, I thought it was done, you know? So I was starting basically right before the LOI and like, when do I start reaching out to these people? Okay. So basically a few conversations and they're like, get your quality of earnings and then just hit it hard. Okay. So I got to that point, get you the quality of earnings. I had a couple of names that I was working with. And then I just had to go start recruiting my own investors and putting my name out get you the quality of there. I had a point, couple of names that I was working earnings. with. And then I just had to go start recruiting my own investors and putting my name out there. And that's why I've been so bullish on social media because of the power that that, I mean, just the limited reach that I had with 300 followers, and just talking about what I was doing and talking about the deal led me to be able to raise $800,000. In five weeks,

00:22:06 KEVIN BIBELHAUSEN
talking about the deal led me to be able to raise $800,000 in five weeks. I raised $800,000 and no experience. And I did it between Thanksgiving and Christmas of 2022, which is freaking insane. Like it's just like all the things that, you know, I made it incredibly difficult on myself and you don't have to, you don't have to make it that difficult. You don't get like extra points for difficulty. There's no such thing as style points. So that was one of the reasons that we can talk about fruition capital here in a minute. But the experience that I had in going out to my minimum check size was $50,000 and I had to raise 800. So back of the envelope math, my cap table is pretty large. My cap table is over 10 people. It's a lot of people for a search deal. I love them all. They're great, but it'd be really nice if you were able to have a tighter cap table. And so for fruition, we thought it was me and a couple partners. And we were like, this fund model works better for an equity raise. We can pool capital for investors. And then for my deal specifically, instead of me raising 50 at a time and, oh, by the way, closing my first SBA loan and preparing to be a first-time CEO and dealing with all the legal due diligence. And there's a lot of firsts for searchers in all of this. And do you really want to add capital raise to that? You know, a lot of people, you could do it. do it. I'm not telling you you can't do it. I did it. If I can do it, most of you listening can probably do it. But it is an additional level of stress and something that you could be able to partner with a fund like ours and say, we're going to take out the majority of your raise. So our model and fruition is to say, okay, you're going to raise 800. We're going to write you a six, $700,000 check. And then we want you to have other investors on the cap table that will be what's called an anchor investor. And we can refer you to people who kind of want to do co-invest. But oftentimes people bring either their own equity or friends and family equity, or just develop a relationship with investors. So you're not totally dependent on our firm, on our fund. But I mean, I can't tell you the amount of stress that it would relieve for me. And I know some of our searchers, we funded about eight searchers now. How incredible that is to just get a massive check and then know you only have to get another 100, 200,000. That is a substantial difference between saying, okay, well, now I got to climb Mount Everest and raise $800,000 million, whatever I got to raise. Well, now I only got to raise 10% of it. That's pretty nice if you're able to do that. So anyway, that's my capital raise story and the do's and don'ts and the lessons learned. And that's why we started the fund.

00:24:45 NICK LALL
Yeah, I'm sure that's so helpful for searchers to be able to have that huge chunk of their raise done so quickly. And I'm sure the follow-on investments are probably easier also once you have a large investment like that. I was curious if you could talk a little bit more about your motivations for launching Fruition. What made you decide to be a search fund investor on top of being a search fund entrepreneur? What was the opportunity you saw and why did you decide to do it now?

00:25:07 KEVIN BIBELHAUSEN
Yeah, it's funny because, I mean, we certainly knew there was opportunity because all of us were kind of in this space. I'm the only one that, of the partners, I'm the only one that's done it and currently operating a business. But they were real estate investors, private wealth managers, real estate guys, all that kind of stuff. And we knew that there was a ton of activity going on. And some of my friends who your audience may know, but the guys at SMB Logger did almost a billion dollars in transaction volume in their first year. I mean, that's crazy. And that's like lower middle market type deals. Those are the deals that we're talking about. So you're not talking, you know, $500 million deals. You're talking $8 million deals, $5 million deals, $15 million deals. Like all of that adds up to a billion dollars. It's wild. So we knew that there's plenty of demand. There's plenty of people looking to do this. And my whole thesis in this whole thing was like the lower middle market, it's our end of the low, the low, low middle market is the wild west. And it needs a little bit of professionalization. And so that's kind of what we've tried to bring with the fund, a little more structure, a little bit more professionalization, making sure that people don't get taken advantage of. We don't charge our searchers anything. To me, that's insane. Our capital is, I mean, we take an investor terms, but we don't take a fee for raising equity for you. That's literally our job. We charge investors, you know, on a typical fund structure, like a two and 20 structure. So it's, you know, straight down the middle of the fairway. Shout out to master's week. And, uh, I don't know, man, like we, what we look for in searchers, like I look for people who people kind of going back to the traditional and self-funded people self-select into what kind of searcher they are. Are you, do you want to be a CEO or do you want to be an owner? You want to be a CEO, go traditional, you know, because you're, it's basically what PE Portco CEO would be. You know, you, you get a reasonable carry, you own a piece, but you can't really identify as a business owner, in my opinion. Maybe people will hate that. Whatever. You're not the majority owner no matter what. As a self-funded search, you're the majority owner. So you are an owner first and the CEO second, I guess. And that's what my focus

00:27:22 KEVIN BIBELHAUSEN
was. I wanted to be an owner. I didn't want to just be a CEO. And so the people that self-select and self-funded search, they want to be owners. Okay. How bad do they want it? Why do they want to be owners? This space is getting more and more popular. I'm sure you've talked to plenty of people who try to just look at businesses on a spreadsheet and think that they can run circles around these retiring boomers. And then they get in and fall flat on their face. I prefer to look for people who truly want to be entrenched in the community, who understand what small business is about. One of our guys bought a towing company and told us he wanted to drive the tow truck in the local parade. To me, that's a good sign. That's somebody that actually wants to be in the community and invest in the community and knows what it means to be a small business owner. You really do get to be a pillar of the community and you're providing livelihoods for your employees who live in that community. And it's kind of this virtuous cycle that you as an entrepreneur get to participate in. Those are the people that I care about. Everybody can figure out their modeling.

00:28:24 KEVIN BIBELHAUSEN
figure out their modeling. Everybody can source a decent deal. But when you're looking personality-wise, what attracts you to this? Is it the potential financial returns or is it the fact that you get to actually own an asset? You get to grow the asset. You get to improve lives of people in the community. Yeah, you get to improve your own financial situation. But to it's truthfully, secondary because me, I would do this for a hell of a lot less money. I really would.

00:28:51 NICK LALL
Sure. I there definitely mean, is a huge financial upside to search. But I think the reason a lot of people are attracted to it and why it is such a collaborative, helpful community is that it is one of the only options for MBAs where you are clearly adding value to the communities you're living It's in. not extractive in any way. And you can have a real impact on people's lives, whether they're employees that are working for you or the communities you're working with. And so we've talked about that a lot on this podcast, but love that that is what drives you. Of course, you wouldn't do it if there weren't an

00:29:09 KEVIN BIBELHAUSEN
can have a

00:29:20 KEVIN BIBELHAUSEN
do it if there weren't an upside. This is capitalism. We understand. And that's totally fine. Yeah, this was the best option for me to get outsized returns on my time. Great. If that's your only motivator, I don't think you're going to be successful. I think you really got to understand what this lifestyle is like and understand that it's not something that you can just go out and get an SBA loan and quote unquote, put an operator in place. Like you see online, it's just, that stuff just drives me crazy. I can't tell you how many times people have asked me like, so if I get the SBA loan and then I can go source an operator. I'm like, I just don't think you know what you're talking about. I don't think you understand that this is more of a grind. And by the way, you're going to PG $5 million and just put another random person in there. Like, what are you doing but you might be surprised there's people out there that think that when it comes to fruition who

00:30:09 NICK LALL
to fruition who are your investors were they also the same ones who invested in your acquisition over these different people no no in fact that was the

00:30:17 KEVIN BIBELHAUSEN
frustrating part is that you know of course all the lps in my deal are direct investors right so they wrote me a check for Heritage. The people that have access to these deals that have access to that deal flow, why would they invest through a fund? Because they have access to direct and so they don't pay the fees. They don't just like... So it makes perfect sense. Even though I tried to go back to the investors and like, what do you think about this? We're like, well, we found you. So why would we need the fund? Because we can just get other direct deals. That makes sense. Now, not everybody has access to the main street, lower middle market deal flow. And just because I have one big law attorney partner who just likes looking at deals in his downtime and wants to be a direct investor, that's certainly not the case for most big law attorneys or physicians or whatever. So those are the people we're bringing into fruition. So people who, this isn't their hobby. They don't enjoy looking at Sims every night. They don't enjoy doing due diligence and talking to searchers, doing all this stuff. They just want to put their money to work. They want to earn a return on their capital. So yeah, no, not the same people at all, which was challenging because that was my investor base. And so I had to, now we found for fruition, at least for me, I've had to go out and it's more about educating people that this is an asset class. It's a growing asset class, newish, but in growing, growing rapidly. And comparing it to other investments, they may be in venture capital, real estate, whatever, and saying like, okay, here are the pros and cons of investing in small businesses. Here's the difference in investing in venture capital, right? You write a check, you maybe see that money again in seven to 10 years after a big exit, hopefully you get one of the unicorns. Well, with fruition, we buy cash flowing, boring businesses. So we kick off cash every year. So in that way, it can be like a real estate investment where you're just collecting mailbox money. That's really nice, especially for people who don't want to be involved in the day-to-day. They just want to put their money in a fund that can earn them 25% IRR. Great. So yeah, it's been more about educating alternative asset investors that this is a legitimate alternative asset. Here's how the economics work. Here's why we think you'd be interested. Here's how it is similar and dissimilar from other assets you may be in. And then also we get the pitch part of the story as you really are helping middle America. This money isn't going to Silicon Valley or New York or whatever. It's going to like Toledo, It't Ohio. going to Silicon Valley or New York or whatever.

00:32:50 KEVIN BIBELHAUSEN
It's going to like Toledo, Ohio. It's going to buy an old auto repair shop in Toledo, or a towing company in Virginia, or a specialty manufacturer in California, or just areas where capital wouldn't necessarily flow through the traditional channels. So that is kind of a compelling story to tell investors. And I mean, something I absolutely believe in is that you are building the middle class, you are investing in the middle class, which I find to be very rewarding.

00:33:15 NICK LALL
So we need to talk a little bit more about your plans for fruition in terms of the types of companies that you'd like to invest in and how actively involved in those companies you might be.

00:33:25 KEVIN BIBELHAUSEN
With fruition? Yeah, I mean, we've certainly got some ideas and where we think the firm could go, but we were talking the other day with, as it's no secret that a lot of the funds are friends with each other. They're all connections that I've made. And most of us are pretty friendly with each other. There's only a couple that kind of stay away from. But we were talking with another group and we said, well, maybe we'll go upmarket a little bit, but we really don't want to lose our identity, which is in the self-funded $1 to $2 million EBITDA range. I quite like this range because it's sort of a Goldilocks zone. It's too big for mom and pop and too small for private equity. Not always, but usually too small for private equity. As soon as you get above 3 million or 2 million in EBITDA, competition is insane. So whereas you might be dealing with maybe three to four other bidders in the sub $2 million range, you're looking at double, triple that in higher EBITDA deals. So it's kind of a nice area to play it. And it's difficult to finance. It's really hard to finance these deals without the SBA. And the SBA has that pesky PG, which means only a certain number of people are going to be able to want to or able to take that PG and buy the company. So it's got enough. There's a lot of opportunity, but there's also some constraints that reduce some of the supply. So it's interesting. I like where we are. So even if we go up market a little bit, as we look to raise our next fund beginning in August, fortunately, we actually just closed our first fund of 5 million last month. That fund was oversubscribed as well, which is awesome. For fund one to be oversubscribed is a really nice blessing. And then we'll look to do a larger fund in August. We're looking at about 20 million for that fund. So it'll be obviously playing in this same one to $2 million range and then maybe peaking up at independent sponsor deals. But yeah, that's kind of our plan moving forward.

00:35:25 NICK LALL
That's great. Congrats on the quick progress. Seems to be a bit of a theme today, but I was curious if you could talk a little bit more about the support that you might offer the entrepreneurs you work with, how much advice you give them, how involved in the company or the acquisition are you in terms of support?

00:35:41 KEVIN BIBELHAUSEN
Yeah, I think, you know, I was talking to the other fund about this too, that part of our value is we can be as involved as really they want us to be. And so when we invest, we usually, you know, we take a board seat. We don't have like, we don't have any major powers, but it's more of an advisory. And we want to, because of our network, you know, collectively as a firm, you know, collectively as a firm, you know, we can source just about any specialists that you're looking for, answer any question through our network that you could possibly have. So it's nice to have a fund like us that has those resources. And that's what I would say we end up doing most of the time is we kind of stay out of the way and we make sure that we review financials quarterly. We're pretty involved that way, but we just kind of hang around and we're there if they need us. And if they basically just want the cash and they don't necessarily want us to offer support, that hasn't been the case yet. Most people, if they partner with us, want to leverage our network and see the value in having an anchor investor. So I haven't quite run across that yet, but it'll happen. Or somebody will talk a collaborative game in the beginning and then not so much. That'll happen. It hasn't happened yet. Most of our people are very interested in the resources we can provide. And obviously, there's no charge for any of that. You know, we were, and we're invested with you. We're your anchor investor. So everything that we do is in support of our sponsors and, you know, their success is literally our success. So it's very important for us to offer, here's a marketing consultant. Here's, you know, here's who you should use for bookkeeping. Here's a few fractional CFOs you can Here's use. a marketing consultant. Here's who you should use for bookkeeping. Here's a few fractional CFOs you can use. Here's all this kind of stuff we can kind of open up our Rolodex and help people. At what point should searchers start reaching

00:37:31 NICK LALL
searchers start reaching out to you? Should they just start building a relationship now before they've even found a business? Or is it more once they've got the company under LOI and they need to get the raise done? At what point would it make the best impression on you for a searcher to reach out to you?

00:37:47 KEVIN BIBELHAUSEN
you? Yeah. I mean, typically what we say is post LOI. That doesn't mean you can't send an email and be introduced and kind of get on our radar. I don't think there's anything wrong with that. I get those emails all the time, but obviously you're going to get the most attention when you have a deal. And whether or not that's the deal that closes, I've been working with some people, see, since August of last year. So it's April now, August, who have been hanging around the hoop looking for deals. And I just went back, we're about to fund this guy. And our first connection was in August. So he's kind of been at this for a while. He's had some things fall apart, but he's kept us in the loop. That's really what you need to be doing. Because I know that a deal you bring me may fall apart. Believe me, I get it. But it's not necessarily ever too early to start making these connections. And if I were to do my search again, I had the commitment letter and everything that ended up not happening. But I would just recommend keeping an investor list, have intro calls. Most of the people in this space are incredibly friendly and incredibly giving of their time. And we'll spend 30 minutes on the phone with you and answer questions and kind of point you to other people. I think that's time well spent. It's basic networking. And I think you could get out from behind your email and get on the phone with people, get on these Zoom calls with people, have those conversations, meet people in person. God forbid, you can do that too, depending on where you are in the world. So that's what I would be doing. Obviously, you're the most attractive when you've got an LOI, but certainly before that, we're happy to hear from you. when you've got an LOI. But certainly before that, we're happy to hear from you.

00:39:32 NICK LALL
And when it comes to potential investors in fruition, I was wondering if you have any thoughts on who those should be or who they might be and how should they get in touch with you if they are interested in investing? No, look, what's interesting is that when I go on these podcasts and I talk to

00:39:40 KEVIN BIBELHAUSEN
interesting is that when I go on these podcasts and I talk to anybody, we've got a number of people who will end up reaching out who are interested in both being investors and then also have an inkling of doing their own search. So it's been interesting in our fund and actually some of the other funds confirmed this as well, that what they see is they see people, certainly from certain industries, tech has been a big one where there's some cash on the sidelines, consulting, investment banking, and they want to put some capital to work. And then they also want to have the fund as a potential equity source for a deal that they may do. So we kind of pride ourselves on that flexibility. So if you're listening and you are interested in potentially kind of getting both, kind of being playing in both sandboxes. You can definitely do that. But yeah, we're happy to hear from anybody who's interested in acquiring a company, who has questions about a capital raise, who is interested in investing as an LP. A lot of people I've brought on as LPs who just kind of want to see how the sausage is made because they want to do their own search in X number of years and they just kind of want to see what the deal process is like. So typically we don't share all that with LPs, but for certain ones that come in who have that specific purpose, happy to take you behind the curtain and show you what the process is like. So yeah, I mean, we're easy to work with, pretty flexible. So happy to hear from anybody. My email is pretty easy. It's just kevin at biebelhausen.com. I'm pretty easy to get a hold of.

00:41:03 NICK LALL
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