00:00 Lincoln Right? Why would you take the person that's built something that you want to invest in out of the business or challenge their opinion? Welcome to Funds That Won, where we dive into some of the world's most renowned investment funds. We'll interview investment managers across the alternative landscape and learn how they built their million and even billion dollar asset management empires. We'll explore teams, structures, strategies and best practices in launching and running alternative investment funds.

00:27 Jake All right. So tell me about Maddix Capital. Done. Maddix. So we Jesse Silva is the founder of GP the Fund, spun up the thing in Q1 of last year, 2022. Inception story is a bit novel and unique and kind of the ethos and DNA, obviously slightly biased. I take this as a brand and salt, but we feel that it's a fairly novel concept and kind of our, again, our inception story is novel, which which translates to how we invest, why we invest, when we invest is fairly novel. So I'll give you the 30,000 foot, fluffy view if it's easy, helpful to go deeper, let me know.

01:07 Lincoln But Jesse is and I'm actually glad he's not here so I can talk shit. I can talk all the shit. I can pump him up. So he's a former operator, right?

01:17 Jake He built, bootstrapped, scaled, sold the business. The entrepreneurial hat is the hat that he was born to wear. It's a hat that he enjoys wearing. And he had a lot of success operating his business. It was a towing business, small things, very unsexy. But this is started the business a little over a decade ago, as you can imagine, it's a fairly technologically nascent and archaic space, a lot of paper, a lot of mom and pop type stuff. Where at? Local. Local here in Utah. Yep. Okay. Local to Utah. Grew up son of Portuguese immigrants, grew up in Southern California, but moved to Utah after his professional motocross career ended a bit early. So the guy's just an onion. It's like I could, if we want to go deep on the layers of Jesse Silva, that's a 90 minute, that's a 90 minute combo right there. Yep. But ended up in Utah, started the business in Utah, realized that there was a unique opportunity to use technology to help himself, what started as himself, better understand his business, right? Where were his trucks making money? Where were they losing money? Where did it make sense to be? Et cetera. So fairly created a fairly rudimentary CRM tech platform stack for him to understand his business. Some of his peers got wind, asked to get on the platform, ended up giving it away in kind of a freemium model, given he quickly realized the insights that he could glean on what his competitors were and weren't doing, what was working, what wasn't, what markets were worth entering and which weren't. That info was worth a lot more than any kind of subscription revenue that he could try and convince a tow truck owner. Yeah, seriously. Right. So the backend analytics that he got on peer base from the CRM catalyzed a fairly robust M&A algorithm and engine. So that's how he grew his business. As you can imagine, it's human capital and assets. Services turned tech. Yes. Yes. Yeah. Tech enabled services. Right. Services used M&A to grow his business, did 150 deals over the course of a decade. Eight states, 300 plus employees, had a nine figure exit to a private equity fund. Awesome. The story gets sour from there, right? He kind of experienced the firsthand of why investors are frequently referred to as sharks and kind of experienced the bad side of a leverage buyout and what debt can do to your business and what a fund can do to culture. Yeah. Right. So not the most positive experience. In fact, a fairly negative experience with his kind of sponsor that bought his business. And given the exit was big enough, he had enough liquidity. It kind of catalyzed this desire to create an alternative, create a solution that was a fund that was entrepreneurially friendly and was operationally minded and was more than just a bunch of white dudes in white shirts and ties thinking that they know more than you about your business that you founded and scaled for. Right. Yeah. So that started his first fund that was called Skylab Ventures began as effectively a family office where he was investing his own capital and in kind of private deals evolved over time to an institutional kind of venture slash growth fund. And I say venture slash growth, given he had a unique thesis that he wanted to kind of prove out by the fund. The thesis was, you know, can you generate outsized alpha in a more expedited timeline through shared services, through support, through operational being in the weeds, boots on the ground with your entrepreneurs? Right. Like a lot of his qualms were the fact that the money was green from the company, the fund that bought his company, but there was no support. There were a lot of promises made of, you know, life is going to be so much better. You shove all this money and and rubber hits the road. And when there's no operational expertise, there's roadblocks at every single step of the way.

05:05 Lincoln Yeah. No, I got you.

05:07 Jake Let's be actively involved. The opposite of passive, passive money, right? Let's actually help these businesses grow their business or these entrepreneurs scale their business. And if we do, that will idealistically turn to a more expedited timeline to liquidity, right? The typical fund life cycle, whether an early stage venture or late stage buyout revolves around a decade. Yeah. You're deploying money over five years, you harvest over five years, you may extend a couple of times, but it's typical 10, maybe 12, 13 year cycle. That's frequently in the best interest of the fund manager and typically at the expense of the entrepreneur. Yeah. Like forcing exits and forcing exits, forcing certain idealistic outcomes, right? Like an early stage venture, the model is kind of broken because it's your statistic, right? You're one of 30 to 40 portfolio companies in a fund. It's the power law. You're praying that you are one of the five that make it and not one of the 25 that don't, right? And again, that incentive structure is broken at the outset, right? It is to how the entrepreneurs interact or don't interact with the fund that's backing them, right? Late stage buyout, same concept, right? It's just as broken there given they're acquiring businesses through leverage, right? You buy a business with debt, only a portion of it's your money. The business then pays down the debt on your behalf and they're extracting value from your business that they bought for you with minimal cash paying off their debt that they used to buy your business on their behalf, right? Again, in favor of the GP in the fund and typically at the expense of the entrepreneur, right? So the idea was let's align these incentives and create something that is more operationally centric, A, and B, entrepreneurly friendly.

06:51 Lincoln So I assume there's less portfolio companies. Exponentially less. In your portfolio. Yes.

06:56 Jake So what's your target? Five to seven in this fund. Yeah. That's likely where we'll land. Skylab was the proof of concept vehicle, much smaller fund. They did four deals in that fund. Okay. Maddix is a much larger vehicle, much larger vehicle. We're cutting 10 to $15 million checks and structure were fairly flexible, right? Like it's a mix of minority preferred structured stuff and control buyout, right? And it's as far as vertical wise, fairly wide mandate there as well. It's anything from software to ecom, kind of digitally native consumer stuff to business services. So it's a fairly wide mandate that we have and that's kind of by design, given it allows us to be opportunistic on the deals that we back and to create solutions that help entrepreneurs solve for what they want to solve for as opposed to here's our box. I'm going to cram you, entrepreneur A, into this box. And if you don't want to fit in this box, then I'll find someone else. Right. Our model is, hey, what box do you want to be in and not really be in a box, but how can we expand your market, your opportunity, your business to really not even be confined to a box anymore? And what are we conjointly marching to in this idealistic two to three year period? So very different model and kind of mandate.

08:15 Lincoln Let me ask you this. Why the rebrand?

08:17 Jake Why change brands? Great question. Great question. Yeah. So for better or worse, the difference between venture versus growth versus private equity has blurred a lot in the recent years, especially the last half a decade, last three years when you had in the peak tippy top of market, nine figure series A rounds. I don't know that raising $100 million should ever be considered series A. But like the names have kind of blurred over the last in the lines in the overlap over the last half a decade. The design was to break from kind of the Skylab to Maddix brand was, hey, we're very much taking a big step in the later stage direction. So Skylab was kind of venture slash growth, but they were much smaller checks, one to three million dollar checks and kind of ventury stage businesses. We very much wanted to break free from that. We don't consider ourselves a venture investor. We're not looking to place venture bets. And given the incentive structure is a bit more broken, in my opinion, in the venture landscape, we felt that it made sense to transition the brand to more of a, you know, Skylab ventures, a venture shop to Maddix capital, more growth stage capital, later stage, more mature businesses than kind of nascent spray and pray statistical bets. It is kind of a common venture.

09:44 Lincoln Yeah, interesting. Well, it sounds like you play a lot of different roles in the balance sheet and different types of companies at different stages. Tell me about your experience communicating that for like a better, a little more broad, you know, thesis, you know, mandate. You know, how did you how was that?

10:05 Jake How did LP conversations go when you're communicating a broad mandate like that? Yeah, totally, totally fair question. The fundraiser was a slog. Fundraising sucks. Yeah, period. Right. Like, I'm not going to sugarcoat that. When we launched the fund in early 2022, it was times were so good that institutional capital was over allocated alternatives because their existing manager relationships times were so good that FOMO was driving deals and people were deploying capital left and right. And they were over allocated alts because their existing relationships were deploying faster than expected. And so tough to raise when times were too good, you know, progress through 2022 into 2023. We've got this wild, ever conflicting macro and micro economic environment where it's like no one really knows what to feel, what to believe, how the consumer's feeling or behaving, where inflation rates will land. It feels like we kind of have now have a light at the end of the tunnel on the back at the meeting yesterday, but no one really knows. Right. So it's it's been it's been a slog raising money. I think that's more a function of macro and micro economics than it is our fund mandate. And how we position it to LPs is look, we're different. Right. Like if you want a traditional vehicle, you want a traditional team, then we're probably not your best fit. But like our mandate is to create alternatives, options for entrepreneurs that align our incentives with their incentives and our incentives with our LPs.

11:32 Lincoln Hey, guys. So if you want to learn more about investment funds, how they work, how they're structured, if you want to become a fund manager, how I became a fund manager, visit our YouTube channel for more free value. The link is in the show notes. Thank you. All right. Back to the show.

11:49 Jake Right. Where again, all three parties, GP, LP, entrepreneur are marching towards the same outcome in lockstep at the same point in time. Right. So the the part of our thesis and model is really it revolves around us being opportunistic and us having a flexible mandate and being able to structure things, how we feel that they should be structured. Right. Like on the minority side, there's there's milestones that we have to play within. Right. Like we can't I mean, can or can't. That's that's a relative term there. But we our stated mandate is between three and 30 million of revenue, typically line of sight to our track record of profitability. Our floor, as far as ownership, is a third. Right. So even when we own a minority stake in the business, their sizeable, they're these are. Yeah. These are this isn't it's not an NVC, a form series deal like this is. So there there's structure and guidelines like side posts of our sandbox, our strike zone, where we can and can't play. But, you know, our LP basis is understands kind of who we are, why we are, what we are. And that hasn't really been a hurdle that we've had to overcome, like the flexibility of structure. Right. In fact, most folks actually prefer it and they like it that I can invest into a singular vehicle and I can get growth stage exposure. I can get service based exposure. Right. There's there's kind of the cash flowy inorganic growth model on this side of the house. And there's the growth capital fuel on the fire this side of the house. So to invest in a singular vehicle, get the blessings of both worlds exposure to both your your diversified across more than just VO, GEO and go to market motion. There's the structure dynamics as well. Right. So most folks actually honestly kind of prefer it. And it's core to kind of who we are and why we are. So it hasn't been a hurdle to date.

13:46 Lincoln So your floor is a third. Where is the ceiling? Are you will you do complete buyouts or?

13:52 Jake That's a good question. No. Yeah. Is the is the short of the long. Right. Like given we have a pretty short fuse to ownership and how we think about liquidity and the timeline to liquidity, like our whole thesis of, you know, we're going to be actively involved. It is designed to expedite that timeline to liquidity. So we only hold our assets for one to three years. Right. Like it's a specific asset profile and founder profile that they understand what we're solving for. They're aligned with what we're solving for and where we feel that we can actually add value and be a creative partners in that extremely short time. Yeah, that's really quick. It's really quick. Three years comes up fast.

14:31 Lincoln So, I mean, how does that play in where, you know, you were talking about earlier in the conversation with, you know, not forcing exits on these founders and working with them. You know, I'd expect that it'd be, you know, common for you guys to have to file frequent extensions plus ones on your fund.

14:47 Jake But are you trying to stay away from that and just turn capital super quick or? Extensions on the, unlike the our hold period. Is that what you mean? Yeah. Yeah, I mean, we're a year and a half into into existence of the vehicle. We did our first deal in September of last year. So we're at about a year into our first portfolio company. Gotcha. We already have line of sight to liquidity. For that one. Awesome. Right. So the business is it's business called Order Protection. They're absolutely killing it. I mean, like it growing like an absolute weed and there's been nonstop inbound from sponsors since we originally underwrote the business. But it's word has kind of gotten out that they're outperforming and they've got some great tailwinds kind of at the macro market level. And they're winning in a lot of in a lot of ways. So we've already gotten we plan on raising a fairly outsized series B later this year, early next, where there would be some secondary that the GP would sell on the back of that deal. So we'll probably take out some of our stake on the back of a B. That's typical and kind of the growth type stuff. Right. Like if we plan on continuing to let capital into the business, we will typically take secondary along the way until a full buyout. We won't ever hold these things to IPO because it's just out of our mandate. But yeah, I mean, the hold period us needing to extend hasn't been relevant to date. I don't expect it to be right. Like that is it's it's core to who we are. And we're very, very upfront with that with our investors. Right. Like if you want to build this thing over a decade, awesome, you can. But know that we will be out of the business in two to three years. Yeah. Right. That doesn't mean that they need to leave. Right. Like if independent of who we sell the business to in two to three years, whether it's a larger fund, it's a strategic, it's incremental growth capital to continue fueling the fire. They're happy to stay along in every step of the way. Right. But but we're given the timeline is unique. It's novel. It's it's very, very important to us. And how we position ourselves to our LPs and our entrepreneurs. We're upfront with that. And it's not a fit for most folks. Yeah. Period. Right. And that's by design. We're not we're not trying to kind of create a solution that fits everyone. I think it makes sense to stay in your niche and kind of our specific area where there's only certain founder types and asset types where it's possible. It's feasible. And there's an alignment of desire. Right. And that's where we like being.

17:20 Lincoln Cool. So is sorry. Is Fun One closed then?

17:25 Jake We'll be in the next in the immediate term. We're wrapping up the raise here in the next month or so.

17:32 Lincoln Do you have your next products planned out? They do. We do.

17:36 Jake Yeah. Fun. Similar fashion or fun stuff on the horizon, I guess suffice it suffice it to say. Yeah. So there'll be once we're 75 percent deployed on on kind of this first fund, we'll prep to to raise future vehicles. And yeah, there's some there's some fun stuff on the horizon. Cool. Fun Council will kill me if I say more than that.

17:57 Lincoln Gotcha. Well, I won't leave it right there. I won't I won't think. Well, Jake, man, you told me about the inception of your partner and how you know you guys started the firm. I'd love to hear about how you got your start. You know, well, yeah, I mean, people want to know, you know, how did you get to where you are right now running a growth equity firm?

18:16 Jake Yeah. Happy to happy to provide some color. So I'm the boring old vanilla former and recovering investment banker. Ah, classic. Yeah, that's me. The finance bro. And it's pure raw form. Now, so I did investment banking straight out of undergrad, started in the Bay for a couple of years, was on a leverage finance team. Which is simply put, we were underwriting debt to fund M&A. So I kind of I started my career in the leverage buyout world at the upper, upper tier of the market. Right. I was doing everything from we did a 20 billion dollar deal when when Refinitiv was acquired by Blackstone. It was Thompson Reuters is risk and analytics division. Twenty billion dollar deal. We underwrote four and a half billion dollars for the bonds for that deal, all the way down to, you know, Kroger bought a digital couponing business called Inmar for a couple of hundred million bucks. Right. So it was a great way to start my career as a great foundation. Debt is an insanely valuable tool if you know how to leverage it. And that was kind of by design. I wanted to start in the M&A landscape, but I wanted to make sure that I spent time in the disgusting weeds of the credit world and just the debt landscape. Right. Because it can can be a great tool if you know how to use it, but it can also completely hamper your business and your growth potential if you don't know how to use it or if you're over leveraged. Right. So started my career in the Bay doing that was an agnostic team. So we were product specialist. It was kind of execution heavy. A lot of deals, a lot of reps, which is great. And when I was debating on on leaving that first role, I wanted to find another place to kind of continue to challenge myself and stay agnostic. And as far as industry, right, I wanted to touch as many types of businesses, as many stages of businesses as I could. But I wanted to get more exposure to different products, right? Like where I started my career, it was specifically on the debt side of M&A. Yeah, that was it. That was all I did. And we did a lot of it and it was fun. But I had a unique opportunity to leave the Bay, grew up in Utah, went to BYU for undergrad. We had a unique opportunity to move back to Utah much earlier than we expected. We planned on being in the Bay for, you know, five, probably years or so. We lasted two. Yeah. Little over a couple of years. Most. Yeah. It's always shorter. It is always shorter. Love that city. It's kind of sad what's happened to San Francisco as of late. But move back to Utah, given we had a unique opportunity to help Bank of America build their middle market and regionally focused investment banking team and cadence and strategy. Right. So this was 2019. All the bulge bracket banks realized that middle market, the middle market landscape was an effort and an initiative. They should put time and attention and heads behind. JP Morgan was the first bulge bracket bank to start a middle market team. And what do you know, Goldman and B of A and everyone else started one weeks later. So I was part of that middle market focused investment banking team. We were boots on the ground in Utah, which was a blast. Right. I when I was at BYU, was involved in kind of the founding of a private equity venture capital club and was oversaw recruiting. And so knew a lot of the local of the local funds and teams and businesses as a part of that role during my undergraduate years. And so it was organic to kind of come back in and honestly, a great opportunity. It was it was B of A effectively gave us a blank sheet of paper and a license. Oh, man. Awesome. And they said, go do as many deals as you can as fast as you can. Wow. So it was very much a ground up build of a bulge brackets investment banking P&L of an amazing city. What an awesome opportunity. It was a blast, man. I loved it until I didn't. Right. Well, when it was in the build phase, it was so fun. Right. Because it was you had the blessing of this bulge bracket brand. But we were building something. Right. So there's the safety net of B of A. But we were very much scrappy in building a book and chasing deals and doing our best to kind of build this P&L out. After a couple of years, you know, my I work in a hundred hour weeks, takes a physical, mental, spiritual toll on you. Yeah. Finally snapped and left to a former client. So there was a local Utah based business when I was at B of A that we took public via D-SPAC merger and kind of the height of the SPAC frenzy. No, a billion close to billion dollars. Yeah. Very good timing. Knew the team, knew the story, knew the model. They were going to be pretty cash rich on the back of that deal. And M&A was going to be a source of of a use of proceeds. Yeah. So they brought me into is a pretty organic transition right away from the investment banking world to a client. Yeah. That I helped take public and kind of knew everything about the business or a lot about the business. So I ran kind of corporate development for for for that company. In-house M&A. Yeah. Kind of wanted to get my hands a bit more in the weeds and kind of refine the operational side of of me, as opposed to being always the pie in the sky advisor, which is kind of the role you fill as an investor, right? Yeah. Company had a tougher go in public markets than expected. So the role ended up shifting away from exclusively M&A to, you know, everything from strategic finance, biz, op strategy, innovation, consumer testing, consumer research. We took a product to market. So really cut my teeth on like, you know, being boots on the ground in the weeds, ops, what it takes to run, scale, launch, build a team of business, a new product, et cetera. Yeah. And that was when I met Jesse. So we met when we met a couple of years prior, but we reengaged late 2021. That was on the back of him successfully wrapping up his first fund. He kind of gave me the pitch for what he wanted to do at Maddix and absolutely fell in love with the vision of the thesis. Right. The guy is in all my years of investment banking, I'd never come across a GP of a fund who'd actually done everything that a fund is trying to do with his own business.

24:15 Lincoln Yeah. Right. Like it's. Yeah. It's more common in venture. You don't see as much in private.

24:19 Jake It is. Yeah. Touche. Touche. Right. So fell in love with the thesis, the brand, the story, and we were off to the races. So it was kind of involved at day zero of Maddix.

24:31 Lincoln Love it. Love it. Yeah. You mentioned there just a little blip of your experience in private credit. You know, I think it's a I don't know, it's a sore spot for a lot of people right now or with, you know, one of the fastest rate hikes ever. You guys utilize credit right now in your acquisitions. How do you how does that affect you guys, you know, in your current portfolio? And, you know, what are your thoughts there? Great question.

24:56 Jake Yeah. As I as I mentioned earlier, debt can be a great tool if you know how to use it, when to use it and why to use it. But it can also you can get in a lot of trouble real fast. If you if you're over levered, don't appreciate the nuance of credit and the teeth that come with it. We pride ourselves in being kind of the opposite of a traditional private equity fund, right? Like even when we do a buyout control deal, we're not going to lever the business to the hilt and debt services, how we're extracting value like that's the opposite of our mandate, right? That's that's the opposite of our intent and desire. We plan on being a creative value added partners and we're going to help operationally improve the business or inorganically grow the business through M&A that we're kind of catalyzing and supporting and executing on the business's behalf. So we do use debt on our on our kind of buyout deals. But we're talking like an extremely conservative amount of debt. Like it's it's it's a tool when and if we see it can be helpful and relevant and applicable. But we would never want to put our businesses in a position where debt has any burden in any way, shape or form. And it's more of a strategic unlock. Right. So we just yesterday closed it. Our third business, a masonry concrete business called AK Masonry. I saw that. Congrats. Fun news. That one was a slog. Yeah. It was a wild few months getting that one across the finish line. But it feels good. We have a facility in place for that business. It's a delayed draw term load where we have a pre committed amount of capital that that one of our credit partners, our, you know, middle market banking partner is committed to a small portion of which will be used to fund a portion of purchase price. But the lion's share of that capital is used for M&A, future M&A efforts. Interesting. Right. It's inorganic strategic acquisitions for the portfolio for the portfolio company. Yep. They're a masonry concrete business. You think about the biggest growth constraint in that space. It's human capital. Yes. Finding folks to lay brick and and and, you know, skilled and non skilled labor. Right. We need masons on the skilled side and we need folks to be executing and doing the work for us. Right. So human capital always has been probably always will be the biggest growth constraint there. And M&A is a great way to acquire EBITDA subscale where we're paying its multiple expansion and kind of the purest rost form where you can buy something for X and it's instantly worth Y when it's part of a consolidated, much larger entity. And we're also buying heads. Right. It's kind of a bit of an aqua higher model where we're acquiring not only EBITDA contracts, GC's, you know, fixed assets, et cetera. But more importantly, human capital is a big kind of component to the strategy there. So we already have five targets lined up for the next kind of two-ish years.

27:43 Lincoln And OK, sorry, I got to stop you. So you're talking about human capital, acquiring human capital needs. Are these through, you know, just other shops that have a roll of decks of contractors on their list or other masons, other masons,

27:55 Jake other other concrete businesses, you know, so you got a concrete business and you're doing one, one and a half to five EBITDA. It's tough for you to win heads. Win guys to do your to work at your shop when you can only afford to pay so much as opposed to them working at a trillion other masons or GC's or or, you know, other opportunities that they that they may or may not have. Right. So, yeah, human capital, we mean laborers. Right. Biggest growth can straighten that business and we'll be buying competing regional players in that space.

28:31 Lincoln Yeah. Do you do you think about that with a geographic emphasis or, you know, as your core services or maybe, you know, state restricted or does that come into play at all? Or are you?

28:42 Jake Yeah, we're we're pretty overweight. Utah. Right. I if we're bullish on the state, there's a lot of macroeconomic tailwinds locally, right, like at a at a municipal level and at kind of a commercial level. We feel that on the commercial side, we're a bit better insulated here than, you know, California, Texas. Some of the bigger metro areas and beyond. Yeah. So very bullish on Utah. There's a lot of additional runway and money to be made just locally. Yeah. So we'll be overweight Utah, but but flexible and kind of the broader Intermountain West region and area. Great place to be. Great place to be.

29:23 Lincoln Are you from you said you're from Utah? Yeah. Grubbett Sugarhouse. Oh, there we go. Cool. That's awesome. So you talk about, you know, utilization of debt in these acquisitions. Do you have specific mandates, you know, when you're looking at these portfolio companies from a from a use of funds perspective? Are there areas where, you know, an entrepreneur or a business says, I'd love to do X with dollars and you run the other way? Like you talk about maybe kind of some of your criteria or if you do have strict criteria on, you know, use of funds in an acquisition.

29:55 Jake Great. Yeah. Another fantastic question. Short of the long is no. Right. Like if at the end of the day, we don't ever want to be in a position where at the outset you think about kind of how the marriage starts with funding a business. Hey, we're going to cut you 10 million dollar check. There's obviously notable amount of discussion and strategy sessions before the deal even closes on where that capital will be allocated. But in large part, we honestly kind of defer to the entrepreneurs. There's a there that the the jockey is a critical piece of what we're backing. Right. Like the horse. You can swap out the horse. You can throw blinders on the horse. You can hawk some adrenaline in the horse. Like you can do a lot to the horse. But the jockey is an extremely critical piece of that puzzle. And that's core to how we invest and why we invest. Right. Like is the people that are behind the businesses that were bullish on girls potential. Right. Why would you take the person that's built something that you want to invest in out of the business or challenge their opinion? So. No. Right. Like like at the end of the day, we like to be involved. We like to have a say. If you think about the stage that these businesses are at in company life cycle, dollars are almost always going to sales marketing or R&D. Period. Period. Right. Like that is that's the stage that the businesses are at. They're typically bootstrapped to date. They know their GTM incredibly well. They know who they are. They know where they want to be. They have the proper heads in place to some extent, but more heads would help. And it's a matter of pouring fuel in the fire. Right. So we're not comfortable assuming GTM risk. Yeah. Or underwriting that we are comfortable assuming sales marketing risk. And that's that's that's where we like to be. That's where we're comfortable playing. That is always has been probably always will be use of proceeds. Right. And part of our model of how we invest and how we're helpful post-close are in those two buckets. Right. Three buckets. Candidly, there's the finance side, FP&A, where we, you know, business is doing three, five, seven, sometimes even up to 10 million in ARR doesn't make sense in a lot of forms and fashions and business models for them to pay a CFO, you know, to 250 a year. Yeah. At that stage, when you're high growth and there's other more efficient uses of capital. And so we a lot of times function as outsourced CFO outsourced kind of finance and support on all things. FP&A and back end accounting, analytics, KPI tracking, et cetera. So that's easy for us to do internal on the sales and marketing and the R&D side. We have partnerships that we've pre-negotiated with several service providers. Right. On the marketing, it's like whether you want content creative, whether you want a full social funnel, whether whether it's SEO and web, web, web, dev and kind of UX UI refinement on your landing page. Right. We have teams that are specialists in each of those facets and specific industries that we pre-negotiated contracts with. So we can we have leverage on the front end to say, hey, you're one of three, five portfolio companies that are using this service provider. And therefore we're getting you a notably discounted rate, given you're going through us as opposed to direct to the source. So there's pre-negotiated relationships with service providers on the sales and marketing and the R&D side. Yeah. But yeah, that's almost always use of proceeds.

33:17 Lincoln So do you have specific human capital on your end to fulfill some of these target objectives and teams that you work with? Operating partners. I'd love to shift, maybe talk about the human capital side of your business as a fund and where you fit in. If they're all internal employees, you bring on operating partners. Like, you know, what is what does that kind of look like when you're working with these portfolio companies?

33:42 Jake Fair question. Totally fair question. We have, you know, as far as headcount, I'd say we're not overly unique in terms of our W2 core base. Right. We have our our GP, we have our investment team, we have our operating partners. We have a deep bench of advisors that help on both the pre-deal diligence and the post-closed support. On the advisor side, it's a bench of fairly well-renowned and extremely successful former technologists and operators and founders. And we have Daryl Pinkle as an advisor, one of the early and fairly founding engineers of Qualtrics. You know, he was in the garage days in the Smith basement, Smith garage. Helping build Qualtrics. He helps us vet the tech stack and help folks think through database architecture and on versus offshore talent and what it makes sense to hire as a W2 dev head versus outsource to an agency. So critical to pre and post-closed.

34:36 Lincoln Let me stop right there on advisor. So a lot of people use advisors in different ways. You know, sometimes it's a guy you have a quarterly call with that touches base. You know, it sounds like you're utilizing them a lot more. You know, in the grounds working with your port coast. Yeah. You know, if you don't want to disclose, it's fine. You know, but how do you think about compensating them? Do you is it typically through Cary that you're just allotting them with maybe a base wage or what do those structures look like for you guys?

35:05 Jake Yeah, Cary is the secret sauce. And that's it. It's an incredible way to align incentives. Like I mentioned, the service providers, we actually center on service providers with Cary as well on the deal flow side. Right. So if you want a marketing agency, have an asset, that, you know, if they just had capital, they could go from X to Y and they refer business to us. We ultimately cut the check. They're cut into Cary pool. And we're going to give them a portion of our equity in that business for referring a good business to us and then align incentives post-closed. Same concept on the advisor side. Right. We we want to make sure that we're all marching towards the same objective, the same goal. And Jesse has done an incredible job and is overly generous in that regard as it relates to sharing the Maddix capital cap table. Yeah. Right. Like you think about the fun world, it's pretty typical that you have one, two, maybe three GPs that own the vast majority of that carry. That's the secret sauce. Yeah. That's where all the sex appeal lifts. Right. Yeah. It Maddix. Jesse's incredibly generous with how that's allocated to internal W2 1099 support folks, whether it's an operating partner, an advisor, an analyst. Right. Ultimately, everyone's incented to the same mechanism. We're all marching towards that same goal. Love it. That's awesome. It's good. Yeah. I think needed, honestly.

36:22 Lincoln I work with hundreds of fund managers and, you know, the successful ones always seem to have that sort of mindset, you know, of of, you know, sharing the wealth, sharing the pie and, you know, even your your initial analysts, right, by getting them bought in and thinking with the long term with the team and getting involved in deals.

36:42 Jake So that's incredible. Bias, but I couldn't agree more.

36:46 Lincoln Yeah. And so your role at the firm is director. Director. OK. You probably wear a lot of hats then and a little bit of anything and everything. I mean, what is your what would you say the majority of your time is?

36:59 Jake What does it spell? Depends on the day. It depends on the week, depends on the hour within a day. Right. Like it's it's a mix of fundraising. Now that we're kind of prepping to wrap up the raise, there's been kind of a final push to get the last few dollars in a mix of sourcing. Right. Obviously, a business, a fund is only as good as their next deal. Yeah. Right. We're we're we're no different than anyone else there. And I will say if the sourcing side, we're incredibly blessed in deal flow and proprietary kind of off market deal flow via our partnerships. Right. We have I mentioned the partnerships with the service providers on the marketing side, the advisors. We have a fairly robust partnership with Pattern, local Utah business. One of the if not the I believe they're the largest Amazon reseller in the world. They know the marketplace game and dynamic better than just about anyone else. Maybe even better than Amazon, dare I say it. And they've got an incredible lake of data, as well as access to incredible businesses that are on the up and up and kind of the ecom landscape. Right. So deal flow, we've been blessed with as it relates to our mandates. Pretty novel. Pretty novel. So. They're novel assets and they're different founders. Right. These aren't guys that are looking guys and gals that are looking to raise series a venture from a million different venture shops. It's our models different. And so they're typically off market proprietary deals. And we've been blessed on the deal flow side. So sourcing is an overly relevant piece of the puzzle, but still is at the end of the day, whether sourcing or preliminary diligence, as well as, you know, post L.O.I. confirmatory diligence, prepping towards close, right. Execution type stuff that's been extremely top of mind and very relevant, given where we're at in the fun life cycle. Yeah. Again, first two quarters, three quarters of last year was kind of heads down on the raise. First deal was done in Q3. Second deal done in Q1. Third deal we just wrapped yesterday. So we've been execution heavy and that's, I'd say, the biggest. Right. Suck of my time and kind of where I spend the majority of of my efforts is dotting T's, crossing eyes, ensuring that we're prepped to support our assets and our portfolio companies, our entrepreneurs in the best way possible that we're going in eyes wide open to two partnerships and businesses. And that's all kind of properly taken care of. But yeah, I'd say sourcing or fundraising, preliminary diligence, sourcing and execution on the deal side of the three big buckets.

39:30 Lincoln Cool. What services do you outsource? Do you fractionalize your CFO? Do you fractionalize your bookkeeping, your accounting, your compliance, especially compliance? You know, what sort of services are you at?

39:44 Jake At like the fund level. Yeah. Yeah, that's it. That's an interesting question. So we outsource compliance for sure. Right. That's just an easy emotional hedge there. That's yeah. Who do you guys use? So we have a compliance consultant, just we have we have a compliance consultant that that helps us with kind of foe SEC audits. Yeah. As well as a consultant that's kind of more of a 1099 in-house always there in an if and when we need her. Yeah. We have Cornerstone's our fund admin and kind of foe outsource CFO. Yeah. At the fun side, Cornerstone has a partnership with a tech enabled platform called Flow. And that's kind of they run our portal. Great. Great outcome. It's card on steroids effectively. Right. Tanner does audit. They're kind of service provider on that side of thing, audit and tax. So it's you know, we we time is the biggest constraint. Always has been probably always will be and how much we're able to get done. And so what and if and when we're able to offload some of the more back end tasks to folks that are better at it than we are. We we are like to do so. Yeah, we like to do so.

40:53 Lincoln Yeah. No, it's you know, it's a lot of it's typically top of mind as people are building out new firms, they, you know, constantly ask themselves, well, should I do this in the house or do our outsources? You know, what makes the most sense there? No, that's awesome. So tell me you, you know, long term vision. Maddix capital, right? You're you're you anticipate yourself having multiple product lines in the future, like just to buy out fun, just to, you know, growth equity. Do you plan on expending, you know, getting into other businesses? I mean, large. I mean, some people like to stay a boutique, you know, private equity firm. Yeah, that would be nice. And some people like to take on the world. You know, where is, you know, where are you guys headed?

41:36 Jake And how are you guys thinking about that? Bit of both. World domination is top of the list. Obviously, Lucadia was cute, but, you know, we have plan is to make Lucadia look like smoke. OK, all right. All right. Multi product for sure, multi strategy for sure. But also we want to ensure that we take an extremely strategic approach to how we scale, why we scale, when we scale. As I think about kind of the future and kind of as Jesse and I have kind of strategized on how things look on a go forward basis, we plan on staying extremely diligent on fun size in particular. Right. So we will always maintain smaller fun sizes that ensure that we can flex down into the low, the specific lower middle market where we feel there's a unique opportunity to create alpha. Right. Last thing we want to do is go raise a half a billion dollar fund. We price ourselves out of the deals that made us who we are. That is our opposite goal. So we will always be raising smaller vehicles at a much more frequent cadence. I don't think we ever get over two to two hundred fifty million dollars of fund. Yeah. By design. Right. Because we don't need to. We're we like where we play. We want to continue always playing there and have no desire or intent to be the fund that, you know, first couple of integers do really well because you're hungry. You're playing in the lower middle market, but you continue to grow into from lower middle to middle to upper middle. And you, you know, you lose alpha generation and identity along the way. No desire for that. But as we think about the future, as far as strategy goes, whether it's separating funds into growth specific kind of minority preferred stuff and buyout into separate vehicles, there may be, you know, a feeder fund opportunistic venture vehicle that kind of precedes that and seeds the growth. Fund there may be a credit arm. There may be I mean, there's there's a million things that we're always kind of thinking through. At the end of the day, our two customers are our LPs and our entrepreneurs. So we want to make sure that they are served. Extremely well, right, that we're creating unique opportunities, outsized opportunities for alpha for the LPs and creating unique outsized opportunities for company growth for the entrepreneurs. And if there's tools that we can create strategies that we can kind of spin up

44:06 Lincoln to facilitate that, then, you know, we're we're there. Yeah, love it. You alluded there to one thing that I think a lot of people don't spend enough time thinking about, which is fund economics, right? This the size of your raise, you know, so tell me, how did you land on your target race and, you know, what are the what are the factors or variables that lead to determining, you know, that that target raise amount?

44:32 Jake Great. Loving the question. It's just yeah, it's it's. Striking the balance of we need to ensure that our LPs are properly diversified. So you need enough assets in the fund that they can reap the reward of a committed vehicle and the blessing of a committed vehicle is, you know, I can cut a check and I know that they're going to run everything for me. And I'm going to be adequately diversified across geo, across GTM, across business model, across everything else. Right. So you're investing in a private ETF in a way. Right. Like that has to be a piece of the puzzle for us to kind of cross that adequate diversification. Level thresholds we view it as kind of five, six deals. So that is our that is our floor, given our check size is anywhere from five to 15 million bucks. We like being in that 10 to 15 million dollar range. You can kind of back into, OK, five to six is the floor. Seven to 10 is probably where we strive to be. But again, six to eight is a fantastic outcome. You can back into fund size. Right. So it's it's that's that's how we went about it. Again, ensuring that we're creating a solution that's unique to for entrepreneurs. Right. Hey, you are you are one of five. You are one of seven. You are one of Max 10, which means we can do more than the 10 to quarterly board meeting. You want to think through, you know, this leaky section of your funnel and how we can refine GTM to fully capture the full funnel. You want to think through this implementation problem that you have post contract signed, but before revenue goes live, like we're in the weeds. We're there. Yeah. Right. We need enough time to to focus on that stuff. But again, other customer, the LPs, we need to be able to diversify them as well.

46:22 Lincoln Does sometimes deal flow has, you know, a factor contributing factor there? Did it for you guys? I know as a new fund, it's kind of I don't know. Sometimes your your deal flow is so volatile. But you know, how did you how did that come into the equation?

46:37 Jake If at all, deal flow has been is never really been our problem. We've been pretty blessed with with kind of the deal flow side of things. And again, we're very picky with kind of who we back and why we back and when we back. But deal flow, I wouldn't say was it overly relevant KPI or metric or factor in determining fund size for us. Right. Like if you think about what catalyzed Jesse's success in his business, it was the CRM back into analytics on what was working among his peers at Skylab Ventures. I didn't hit on this, but they bought a GP. They bought a marketing agency at the GP to create something similar back into analytics on what the market is doing across several different verticals and GTMs. Right. What are folks doing? And when you own a marketing agency, you can see the difference in social. What's working in socials within, you know, disposable consumer versus vertical sass versus horizontal sass, horizontal sass, et cetera. That thesis, that strategy continues to hold it at Maddix. Right. But instead of continuing to buy marketing agencies at the GP, we went the partnership route. And that gets us back into analytics on what's working, what isn't, and gets us deal flow. Right. So deal flow really has never been an issue, a constraint, or I'd say like an overly relevant factor in fund size.

48:02 Lincoln Yeah. For better or worse. So do you talk to me about your deal flow then? So does it just magically show up on your doorstep? Are you guys head hunting these businesses? You know, where where's your primary sources coming from?

48:14 Jake Everywhere. Yeah. We've yet to close a deal that we I mean, we have the traditional sourcing stuff that everyone does. You know, we have an email drip. We have email campaigns where, you know, we have interns and analysts time for dollars. That's all par for the course. There's so much you can do there. Right. And that it's well proven. Right. At the end of the day, yeah, we probably will. You dial enough, you're going to find a diamond in the rough. The needle is somewhere in the haystack. You just have to find it. But it's a much more volume based, less efficient sourcing model. Every deal we've done to date has come in referred incredibly warm by a partner. And I'd expect that to continue. Like at the end of the day, that's how you get favorable economics. That's how you find unique alignment on incentive structure. That's that's how we that's where we like to play. Right. So they come in from several different sources, service providers, advisors, influencer partners. RIA partners, right. Right. Like at the end of the day, everything has come in referred from a either a consultant, an advisor, a service provider of of Maddix.

49:21 Lincoln Cool. So, you know, I think a question a lot of managers ask themselves is, you know, the different like phases of due diligence when they, you know, when they have deals come across their table. It's like, OK, do I go full fledged due diligence on this company? Building a, you know, full fledged investment memo before I even have interest from the, you know, partner that this is even feasible. So, I mean, just high level, you know, walk me through a little bit. Do you have multiple phases of due diligence? You know, just what does that what does that look like a little bit?

49:57 Jake Three phases, how we think about it. And again, I think every fund's fairly typical in a lot of this regard, right. Where we give our our junior investment team staff a lot of leeway. Yeah. Right. Like ultimately, they're here because we trust them. We trust their input and we want their input. Right. Like if you want to just be a cog in a wheel, Maddix is not your shop. We expect, crave thoughtful insights and feedback and opinions on, on, you know, verticals, subverticals, industries where we should be bullish on. What are some tailwinds that could catalyze a good opportunity for Alpha, et cetera? So at the end of the day, we have three stages of diligence. We have a scorecard or RACI to kind of highlight how everything flows, who is responsible for which stage, et cetera. But the analysts ultimately utilize judgment, their understanding of strike zone and our mandate and where we're at as far as capital deployment, business model fit and a scorecard to decide if it's relevant to make it to the first stage zero phase. Right. Stage zero is where and most things, it's an intro call with, with a junior member of the investment team. And it's not a fit for a trillion reasons. And 99.9% of stuff that comes across our desk isn't a fit for one of a trillion reasons. And that's not unique to us. Right. Especially given we're a unique model. So they're raising traditional venture. They don't want to sell. Enough of our business to for us to justify our intimate portfolio in the amount of work that we plan to provide, you know, not enough TAM, whatever it may be, if they feel that it is enough to justify raising it to the next step, it'd be a stage zero quick and dirty kind of investment memo on on the business, the opportunity, key considerations and questions to continue asking. Stage one is it is a click deeper, and that's where typically we get involved. I will get involved. Still pre-LOI, still early days, but we're kind of inching closer towards making an indication, an IOI or an LOI. As we there's usually multiple iterations of kind of the stage one. It's a stage one is very preliminary diligence after we've bought in all the way up to an LOI and it just iterates and evolves and is a fluid document. Ultimately, that gets us to stage two. Is prep for an indication in LOI structure, models built, underwriting opinion is fairly well baked at that point in time. That's when LOI goes out. Stage three is confirmatory diligence post-LOI, but pre-definitive. So again, we give a lot of leeway to analysts on the front end. That's where the vast, vast, vast majority falls. Stuff, stuff falls off is post intro call pre stage zero.

52:51 Lincoln So from that inception to LOI time length.

52:56 Jake Very, very asset dependent. Anywhere from three weeks, two weeks, if we're super bullish on something, to a month and a half. Yeah. Right. Like it also depends again, a lot on the business model and how well we know the space. Right. If it's vertical SAS, that is so beyond easy for us to do and get up to speed on, understand exactly monetization, develop a pretty robust thesis on the business very, very quickly. So we can get zero to LOI on a vertical or candidly horizontal too, but vertical is a bit easier to really refine an opinion on within two weeks. Right. Will we? Not always, but can we? Yes. Have we? Yes. So it depends on how bullish we are, business model, other workflows going on. Right. Like at the end of the day, if we're wrapping up, closing a deal, we have a bunch of fundraising initiatives and organic sourcing plus marching towards an LOI. Yeah. That's a lot to get an LOI out in two weeks if there's a trillion other balls we're juggling at the same time.

54:07 Lincoln Yeah. Love it. Love it, man. Well, thanks for letting me pick apart your firm and how you guys do business. Happy to do it. That's great. I got a couple last rapid fire questions before we wrap up today. A little more, I guess, on the personal side of things. Any habits you have that you feel like have just attributed to your success? Or a lot about your partner, habits he has that

54:32 Jake you feel like attribute to your firm's success? Passion. I'd say that's the first and foremost. If you're going to do something, go all in. No such thing as dipping your toes in. Yeah. So if you're going to do something, do it right. The first time and do it with every ounce of who you are. So that's very, very important to who we are and why we are. What's another good one? That's the first one that comes to mind. Piggybacking off of passion, I think emotion gets, especially in the investor world, stripping emotion where and how relevant, but also it needs to be relevant still. At the end of the day, it's our job to create alpha, but create alpha not at the expense of humans. So it's the mix of the balance, the symphony of walking the qual v quant line, where it's like you need to have, ignore emotion in a lot of ways, but also be emotional in a lot of ways and walk that qual versus quant line on like, hey, I crave the quant, but we need the squish and the squish is where magic happens. So I'd say those

55:44 Lincoln are the big two. Love it. We talked about the good. What about the bad? What about business investment pet peeves that just drive you freaking crazy?

55:54 Jake Time wasters maybe. I'd say it isn't as atypical as it should be to have someone reach out to you saying, I'm raising money, and then you ask them details on how much they're raising or why they're raising or when they're raising and there's no answer. So I think that's a big one. It's like if and when you go to market, go to market. And if and when you're raising, raise. So I guess the whole uncertainty is to what they want or need. And it's one thing if it's a, hey, let me pick your brain type of a conversation versus, hey, you guys could be an awesome fit for me. I'm raising money. And then you spend 45 minutes on the phone with them and they don't know what they're raising or why they're raising. That's a bit of a pet peeve. Hopefully that doesn't come

56:42 Lincoln off as me being a huge asshole in this. No, that's great. One of the times that you will find me the most pissed off in my life is if I miss a turn and I waste my own freaking time and I just add on five minutes of my life, I'm never going to get back. I agree. Semi trucks passing each other on the freeway. Oh, yeah. That's another one. That's a good one. What's something you wish you knew when you were just starting out? Like fresh out of first day in finance. Yeah. In your career, what's something you know now that you're just like, come on, I wish somebody just like grabbed me by the shoulders and told me this when I

57:23 Jake was just starting out. You only control what you control. Right? Like I was coming out of undergrad, I was as A type of, as an A type little dude is there could have been hyper stressed about the first gig turns into the second gig. If that first gig isn't perfect and I don't make the perfect transition from job one to job two, that'll hurt job three and my trajectory is broken and I'm going to be poor and never be able to provide for my family. And again, it was very stressful. Right? Thinking about career and provider and success. And I've realized you control only what you control and it is not worth the emotional damage worrying about anything else other than exactly what you can control. That's it. That's it. And success, I'd say that's one. Two is I've found that success is the marriage of preparation and luck. So you control one of those things. So control what you control and be prepared. Right? And the rest is a lot of right place, right time. And it's kind of as simple as that. Control what you control, be prepared, study, continue to learn, challenge yourself. That's a big one. But yeah, I tell myself everything's going to be okay. You can sleep. You can spend time hanging out with family and friends and chill is what I tell myself and, you know, focus on what matters. Love it.

58:45 Lincoln And there's a lot that matters outside of work as well. That's the other one. Yeah. We talked before we hopped on here that fishing wasn't one of your leisurely activities that you like participating in. But what are some

58:57 Jake things that you like to do? Anything outdoors with the fam. We're big on getting on the lake in the summers. Anything in or around a body of water makes my happy place. Typically on a, you know, gas propelled boat of some sort. It's a preference usually. And, you know, getting to the mountains in the winter. So snowboarding in winter and being in and around water in the summer with fam.

59:23 Lincoln I'd say those are the two. Love it. And then last question, just any other life advice or advice just, you know, you want to throw out in the universe before we

59:32 Jake wrap up today. Control what you can control, successes, prep meets luck. And have passion about it. Have passion about it. Yeah, relationships are everything. I'd say that's another big one. Right. That never underestimate the importance of who you know, a and relationships with who you know, both good and bad. Love it. Cool. Thanks, Jake. You're the man. Thanks, Lincoln. Appreciate your brother.

01:00:01 Lincoln All information shared are the sole thoughts and opinions of the author. Do not take any information as legal or financial advice. You should seek a certified accountant and a professional legal team for taking any further action. We are not selling or soliciting a security in any way, shape or form. This content is for educational purposes only and is not to be construed as financial or legal advice. clients of fund launch or black card capital partners may maintain positions and securities discussed on this podcast.