Private Equity Spotlight: Crafting the Independent Sponsor Model with Grant Kornman of Align Collaborate

[00:00:00] Sean Mooney: Welcome to the Karma School of Business, a podcast about the private equity industry, business best practices, and real time trends. In this episode, we have a wonderful conversation with Grant Kornman, partner with Align Collaborate. This episode is brought to you today by BluWave. I'm Sean Mooney, BluWave's founder and CEO.
BluWave is the go to expert of those with expertise. BluWave connects proactive business builders, including hundreds of the world's leading private equity firms and thousands of top companies. To the very best BluWave credential, professional service providers, independent consultants, and interim executives for their critical variable on point and on time business needs.
Enjoy.
So I'm really excited to be here with. Grant Kornman. Grant, thanks for joining us today.

[00:01:00] Grant Kornman: Great to join the podcast, Sean. Thanks for inviting me to be here.

[00:01:04] Sean Mooney: So I'm really excited about this one because we've known Grant and his team for a long time and in a couple different capacities. And what we'll talk about a little bit later is how Grant's actually created.
A segment that hasn't existed. And to me, that is really interesting because we'll learn more about this in a few moments. But, I like to think I did the same thing. I create a segment to solve my own problem, but the only difference was that I am widely accused of having the worst midlife crisis in the history of PE and completely left to do a startup.
We're granted a startup. That's at least more in line with what he, his prior career. So I think there's a little more intellect and logic to grants kind of pivot to solving a problem. You're too kind, Sean. But we're going to dig into that in a little bit, before we get too deep into kind of the solve and the problem story, which is really interesting.
I want to first get into a little bit. More about the story of you, Grant. So I'd love to hear a little bit about you, how you came up, how do you got into the P industry in the first place, et cetera. Yeah.

[00:02:04] Grant Kornman: Have you got a memory lane with his shot as you and I both know we're Georgetown Hoyas and the story probably starts there and the business school and the finance program.
I met a great guy named Eric Becker, who's one of the founders of Sterling Partners. He came to speak in one of my classes and somehow I convinced him to let me intern my senior year. And that's where I got my first taste of lower middle market private equity. And frankly, I just fell in love with it.
I'd been pretty entrepreneurial growing up. And the idea of Helping these smaller businesses grow into bigger businesses. Just seemed like a really fun career and a really fun way to spend my time. And great. Did you

[00:02:41] Sean Mooney: start in, in jump into private equity right out of college or did you kind of have an intermittent step?

[00:02:48] Grant Kornman: Great question. I got very lucky that Eric and his partners at Sterling were nice enough to hire me straight out of undergrad. So I didn't do the typical first step investment banking. I had had some. Interesting experience in Silicon Valley. So I graduate Georgetown and four years start to finish. I found out my junior year that all my friends were going abroad.
And because of my APS, I was going to graduate a semester early. And that sounded like a terrible combination. Yeah, you know, my friends were gonna be gone and I was gonna leave schools too soon. And so I decided to take the spring semester. My junior year off and I drove out to Palo Alto and kind of called myself a sweat equity venture capitalist.
My pitch was. I'd go into startups that were kind of early seed funding type businesses and say, Hey, I got nine or 10 months to dedicate to this business. I'd love to work for free. I'd love to get some equity for doing it. And ended up joining a company called Asadra. That was ultimately bought by a very high flying stock in the nineties called vertical net.
And I was fortunate enough to make a little money from that. And I think that experience really spoke to the founders of Sterling. They had done something similar at a similar age and they took a risk on me.

[00:04:07] Sean Mooney: I mean, it's really rare to start into private equity right out of college and into your credit, right?
If someone trusts you, cause it's such an apprenticeship model and someone who grew up in Texas, I was daunted just starting in some analyst program in investment bank. I can't imagine what it was like really just to jump in with both feet, like right out of college into PE where I don't think I knew what to do in PE after three years of investment banking.

[00:04:29] Grant Kornman: I don't think I knew either Sean, but I was willing to figure it out and figure it out quickly. When I talk to young folks starting out, I don't really recommend them go straight from undergrad into PE. Private equity firms are really not a great place to train people. They expect you to have a lot of the hard skills figured out through investment banking and other career paths.
And so I was kind of riding the bike as I built it. And I think that's probably a common theme throughout my whole career. It's something that I really thrive on. It probably
was

[00:04:58] Sean Mooney: great training because I think one of the, one of the key things that probably set me up for entrepreneurship was this whole notion in PE that we're all kind of building these planes as we're taking off.
And so you're like duct tape in the wing as you're gaining altitude and then you're fixing the engine, but in the meantime, you got to keep on gaining altitude. So it probably helped you out just jumping straight in. It's like being a quarterback in the NFL. Don't sit too long. Just get in there and you'll be terrified, but that's right.
So you started off at Sterling and I'd be curious, how did you make. The jump from Sterling into, your first chapter was jumping into or eventually getting into kind of this independent sponsor model, which maybe years and years ago is how all private equity started. Then it was less known and now it's has this Renaissance in its own right. But maybe before we go to that, I'd love to hear about kind of, how did you jump from Sterling into your previous fund? Sure.

[00:05:54] Grant Kornman: So I guess what old is new again, like many private equity funds, Sterling started out raising capital deal by deal. They didn't use the term independent sponsor or fundless sponsor.
I don't think that was a term of art back then, but they'd done, I don't know, going back 20 years, 30 plus platforms over about a 20 year period before they raised their first fund. And so that was a model that I'd kind of seen them Pioneer and they were mainly raising capital from high net worth and family offices back then.
And I left Sterling. I became a partner in a vertically integrated real estate business called the lane company. We were buying and building apartments and condos all throughout the Southeast. From there I started working shoulder to shoulder with my business partner, Michael, who's also my brother.
And we built a couple of lower middle market companies from scratch. And the way we became an independent sponsor was really by accident. I'd been out of the private equity industry for a bit of time at that moment. And we decided we wanted to add another portfolio company, but we had two businesses we'd built from scratch.
We wanted to add a third. We didn't want to start something from a blank piece of paper again. We felt like we had this really interesting skill set from our respective careers and being entrepreneurs that we could unlock a lot of value in a lower middle market business. So let's buy a company with a couple million dollars of EBITDA and take it from there.
We did, we definitely didn't have all the money you needed to do that. We just figured we were a couple business guys, we'd find a good business and if it took more money than we had, we'd raise it somehow. And we were running down that road and talking to different folks. And I think it was an investment banker said, Oh, you're a fundless sponsor, which is kind of the term for it back then.
And that sounded like a homeless person, if you were trying to go buy a business and we said, what's a fundless sponsor. And they explain what's someone who operates like a private equity firm, but raises capital deal by deal. And we, Michael and I kind of looked at each other and said, I guess we're a funnel sponsor, then that's exactly what we're doing.
And thankfully, Richard Baum at Consumer Growth Partners about that time had come up with the term independent sponsor, which is a way better term to use and has really taken hold since then.

[00:08:11] Sean Mooney: I love it. And you and your brother were you kind of starting off and building these companies, were you actually playing operating roles as well within those businesses?

[00:08:20] Grant Kornman: So we had full time jobs at our other two companies at the time. And so we were wanting to really function as the sponsor in these transactions. So chairman level board level roles, but we felt like our experience being C level executives in companies we had built gave us. An understanding of what these smaller, lower middle mark market companies really needed to scale and probably gave us an advantage over traditional trained finance, private equity type investors.
And so it allowed us to really see value where others may not have. I really like that

[00:08:58] Sean Mooney: background where you've also had the chance to operate and build companies where you're in the seat. And I give you credit that you're actually then also kind of. Bootstrapping new companies that you're investing in right behind that.
That's four full time jobs.

[00:09:13] Grant Kornman: If you're going to be a successful, independent sponsor, you learn to wear a lot of hats and be very efficient with your time. Yeah. And

[00:09:19] Sean Mooney: it's interesting, kind of the point you made about having that edge. And it's, I spent the first 20 years of my career kind of doing the conventional investment banking, the private equity.
And I was pretty good at what I did, but there are certainly others who are much better. And, but then kind of jumping off this cliff on BluWave, seven years ago to start something, I was talking to some of my friends, like, wow, if I were ever to go back into private equity, I'd be so much better at it.
I now appreciate you can't do 15 things at once. Like I used to like chirp at the board level. Yeah, just do it all. Right. So.

[00:09:50] Grant Kornman: I think that was a big part of our success as an independent sponsor. And that firm we built was called NCK capital and. We, I think we were really good at partnering with management teams and helping them see when you're in that C level role, it's so hard to see the forest because the trees and you have so many things in these small companies coming at you, we've never showed up to a company and found teams just sitting around going, gosh, I have so little to do and too much time to do it.
They're always under resource. They're always trying to figure out what's going to drive the biggest result per unit of effort. And I think that's part of what made us successful was helping those teams focus on those key issues. To your point, Sean, you can't do everything every day. So what are we going to do today to drive the ball forward?
And I think because of our experience as executives, we really probably understood that maybe a little bit better than

[00:10:44] Sean Mooney: others. Yeah. And I think that's spot on. And so ultimately in business, it comes down to having a direction, but then it's an allocation of not only resource, but time. Where are you going to spend it?
How do you prioritize things? So maybe before we turn the page into kind of your next chapter that's evolving here, I'd love to maybe take a step back and talk a little bit about your story. So I'd be curious, one of the questions I really like to ask Grant is this idea of, we'd know you better if we knew this about you.
And so what is one of the things that we'd know you better if we knew this about you?

[00:11:14] Grant Kornman: Gosh, this is probably a little bit of a boring answer, but I'm kind of a romantic at heart. I think if you know my wife, you know me better. Valerie and I, we met almost 20 years ago, and she has just been such a great partner in life.
And hopefully I've been as good a partner to her as she has been to me. And I think we've had a ton of amazing adventures. Throughout those 20 years and those adventures is what kind of makes me who I am and I couldn't imagine enjoying them with a better ride or die. That's

[00:11:46] Sean Mooney: phenomenal. And where did you meet her?
What was the circumstance?

[00:11:50] Grant Kornman: Great question. So I met Valerie when I was living in Miami, Florida. And I live there from about 24 to 31. And if you live in Miami during that time period, you have about a hundred percent chance of falling in love with a wonderful Latina from South America. And my wife is her mom and dad are Colombian, but grew up in Ecuador and we met in Miami.

[00:12:13] Sean Mooney: Oh, that's great. And so you met her, you had your Miami Vice outfit on pastels, white suit, white suit, blue shirt. And I'm sure there was an existential crisis in her family when you were brought home the first time, and then you grew on him. I can see the

[00:12:30] Grant Kornman: movie playing out. I try my best to ask her dad permission to marry his daughter in Spanish.
And I think I accidentally said, I want to hunt your daughter instead of I want to marry your daughter. So you

[00:12:42] Sean Mooney: survived that.

[00:12:44] Grant Kornman: Thankfully, her dad is a very patient man and chuckled his way through it.

[00:12:48] Sean Mooney: I'm sure you've lived a life of really amazing food, great music, wonderful family kind of kinship.
And so it's probably in some ways I think about. that like I grew up in this big kind of Irish family. And so it's a similar story of great family, lots of laughter, but not the good food. And so my mother's a great cook, but the traditional shot, traditional yourself in trouble here. The old country food is not as

[00:13:17] Grant Kornman: good as you probably had one funny story about that.
So Ecuador is famous for its ceviche and specifically this shrimp ceviche. That's really, it's delicious. And. One of the first times I ever had dinner with my future in laws, they said, Oh, you can try this great ceviche and they bring out this big bowl of shrimp ceviche and it looks delicious. And there before they start handing out the ceviche, they start handing around a bowl of popcorn and I'm not a big popcorn guy.
So I just kind of Pass it along to the next person and they start kind of screaming at me in Spanish to take the popcorn. And so I take the popcorn, I put it in my bowl and then the ceviche comes and they start putting the ceviche over the popcorn. And for me, that was just, I couldn't put two and two together that.
Ecuadorian ceviche is served over popcorn. It just seemed possibility, but apparently that's a thing and it's delicious. And it was something I learned to really love. Oh,

[00:14:06] Sean Mooney: that's good. So you've made the leap. Now you have popcorn and you watch movies entirely differently. And so that's right. All right. So that's really, I love that backstory.
It's interesting things that I never knew about you. And so I appreciate you sharing kind of lens back into the Miami vice version of grant back in the day. And so

[00:14:25] Grant Kornman: I probably had more hair in the Miami Vice version.

[00:14:30] Sean Mooney: As we kind of maybe turn the page and come back to where we started in our conversation about you create the segment. And so I'd be curious to hear a little bit more about what. You're up to now and why it came to be I'll leave it as this open ended kind of question there.

[00:14:45] Grant Kornman: Sure. At first, I can't take full credit for coming up with this. I have three wonderful partners and we're all very excited about this business. We're building together, but I think the genesis of it for at least Michael and I start out. From being an independent sponsor for 10 years as an independent sponsor, you're raising capital deal by deal.
You're going out and finding the business to buy and then raising the capital to buy it. And there's a lot of advantages to that model. It's something that worked really, really well for us over the years. And we met lots of wonderful investors throughout that journey, but I used to joke being an event sponsor was like being a putting together a jigsaw puzzle where the pieces don't all fit together.
And so over the years, we've been comparing notes with other really good in event sponsors, looking for maybe the perfect mousetrap, but what is the perfect equity solution for great sponsors like ourselves and. If you haven't been able to find it, it sometimes begs the question, you should go build it.
If there's a big market need and not the right solution, that we find that to be a very compelling business opportunity. And in those conversations with other independent sponsors, we've all kind of kicked this around. Hey, one of us should go out and raise a fund that only invests equity. Into transactions led by really great independent sponsors in the lower middle market.
And I think when we sat around and thought about who should go do this. We all were kind of thinking, this is a great idea. There's a huge need, but we all spent 10 years building our firms. And so the idea of going a different direction was kind of a scary one. But for Michael and I, it really became such a compelling opportunity.
It was like, there's no way we can not do this. And so that was really the genesis of Align Collaborate. I think

[00:16:33] Sean Mooney: that it's filled such a void because BluWave, we are fortunate to work with a lot of independent sponsors, like your prior instance of NCK. And there was always a two part kind of story that's, well, we have this great company.
We have a strong hypothesis. We've got a plan to build this thing is something more than it is now and what it could or should be. But now we got to get the capital and you talked about as an independent sponsor, you're wearing 50 hats. That's another 10 hats. Now you got to go and talk to 50 family offices and blah, blah, blah, blah, blah, blah, blah.
So how does your new instance here kind of solve this and what is it involved?

[00:17:12] Grant Kornman: Sure. Maybe before I can get into what we do differently, maybe I can talk a little bit about the other options. Independent sponsors are typically raising capital from five buckets. That's control private equity funds, family offices, institutional investors.
Some folks go out and pass the hat with high net worth and then junior capital providers with which a lot of our SBI sees. And that's probably the biggest bucket. Each one of those pools of capital has some real advantages and some disadvantages. And so when we were creating a line, collaborate the, we sat down and we said, what's the best part of each of those models that we can pull together to have the best value proposition for independent sponsors out there.
And so we're a very flexible equity partner. We can write a check from 5 million to 30 million of equity. We can be 25 percent to a hundred percent of the equity needed in the transaction. A big part of what an independent sponsor needs is flexibility on when a capital partner gets involved. We're happy to work early.
Maybe even before you sign a letter of intent on a target. Or if you prefer to do your diligence and have your investment memo fully baked and then syndicate the equity more towards closing, we can work on that timeline as well or anywhere in between. We also work across a pretty broad set of sectors, so manufacturing, distribution, services, software.
We do want healthcare and consumer to be a part of our portfolio as well. And we have value added resources. One of the things we loved about BluWave, Sean is as an independent sponsor, you're out there competing with these bigger funds and firms, and you got to figure out how to compete against it.
It's a little bit of a David and Goliath approach. And one of the things we loved about BluWave is your model enabled us to have a lot of those same resources in a cost effective way to compete with those. In the same way at Align Collaborate, because we're part of the Align Capital family of funds, we too have a lot of resources that we could offer our independent sponsor partners.
It's on a more of a pool model. So if you'd like to work with our talent partner, he's available. Our CTO, he's available. We have debt capital markets capability, but if you also have those resources internally or have third party resources you prefer. You can choose to work with ours or yours. It's really about maximizing the return of the investment.
And so we're flexible investors working across a broad array of sectors, that's value added. And we're engaged in supportive capital. One of the questions I'd be

[00:19:51] Sean Mooney: curious, and you solve the capital challenge, go to one place, you solve the kind of the know how, the model, which I'm sure is just a big thing, you're from the independent sponsor world.
So you get the independent sponsor world. How do you think about solving the challenge of speed? Cause that's another thing. If you think about an independent. Sponsor versus maybe a committed fund sponsor where they can just move fast. How do you kind of bring that to bear for the independent sponsor world?

[00:20:19] Grant Kornman: Sean, it's a great question. I think one of the best compliments we've given since we launched Align Collaborate is an independent sponsor. We're walking them through our model and we're talking about speed and responsiveness. And their response was, I'm so excited to have a capital partner that understands that days are precious to me.
If you're trying to close a deal in 60 or 90 days as an independent sponsor for the time you sell, you sign an LOI, sure you gotta go raise the debt, sure you gotta do diligence, sure you gotta get through all the legal documents, but raising the equity and negotiating those SPVs is a whole process in and upon itself.
And so we're, we try to be incredibly responsive. It's not unusual for our team to be talking to sponsors over the weekend. If they have an LOI signed and they're on the shot clock, we're going to move heaven and earth to be responsive. And we can't say yes to everyone, but we definitely are going to say no quickly.
And when we do, we want to be able to refer you to other capital partners that may be a good fit. I

[00:21:18] Sean Mooney: think that makes a lot of sense. Cause ultimately any kind of deals we both know, it comes down to not only valuation and certainty of close, but also speed of close. And it seems for of the three, you're kidding, hitting this for this right on the right tone for what is grown into a large market.
And so I'd be curious grant to get your perspective on why. Is and has the independent sponsor market grown

[00:21:45] Grant Kornman: so much shot? That's a great question. I think it's, there's a couple of big trends going on out there and I think the growth is kind of driven by the intersection of those trends. The first is 10 years ago when we started.
Buying a business as an independent sponsor was a little bit of a magic trick. Sellers will look at you and go, hold on, you want me to sell your business? You don't even have the money to pay for it. Connect the dots for me there. Today, independent sponsors represent a very large and growing segment of lower middle market private equity.
Intermediaries are getting smarter about how to sell to independent sponsors. Independent sponsors are sourcing a lot of very interesting proprietary transactions. It's no longer an unusual model. It's an accepted model today. So that's one trend. The other trend is it's very hard to raise a first time fund.
If you look at the stats, I think capital raised by emerging managers is down something like 80 percent this year. Institutional LPs are telling the next great generation Of GPs and sponsors go do two or three deals as an independent sponsor. And then we want to look at your fund. And so those two things are driving the growth in our industry.
As well as the quality in our industry. 10 years ago, independent sponsors were a little bit more financial entrepreneurs. Today, they are really the next great young generation of investors in private equity.

[00:23:16] Sean Mooney: It kind of goes back to talking about when you were kind of coming up, you were just figuring you had built some companies like we're going to do deals, but now there's so much more of an ecosystem and structure to do this.
Where you don't have to recreate the wheel for everything. Whereas I think both of us know, like earlier in the days of PE, there was a lot of recreating of wheels or just creating the first time

[00:23:35] Grant Kornman: I don't want us to turn into a BluWave infomercial, but between BluWave McGuire woods and a few other things out there, you can learn how to be a really good independent sponsor really quickly.
That maybe it took us a couple of years

[00:23:45] Sean Mooney: to figure out. You can learn from both of our, at least I'll talk to my plethora of mistakes. And I always say, if you haven't learned from something after doing it three times wrong, don't even try on the fourth. And so that's right. Okay. Five, five times. That's all I'll take that back.
So I'd be curious grant with that in mind, where we've kind of learned things over and over. And I think you probably learned them faster than I did, but eventually I kind of figured out a bit of a yardstick to help make the world a smaller place and make the world move just a little more slowly. And so I'd be curious, what are a couple or few of the most important traits that.
You look for when thinking about the operational excellence of a business and it's related potential. Sure. When

[00:24:32] Grant Kornman: we're thinking about investing in a business, we use what we call core attributes, and these are things you really can't change about a business. It's margins. Yeah, sure. You can make some incremental differences, but whether it's a 60 percent margin business or a 20 percent margin business, it's going to be in that neighborhood one way or the other efficient, the businesses with capital.
Whether there's recurring demand or persistent demand drivers of the business model, whether it's a leader in its niche or segment, and finally the growth potential, those five things we call core attributes and we can't change them. So we're looking for businesses that score well across those five attributes.
We then put things like people, process, systems, go to market strategy, and what we call the fixable flaws category. Those are things with time, money, effort, and experience you can improve in a company. And so if we're buying or investing in fundamentally good businesses with good core attributes, And we have a great sponsor that can improve people processing systems.
That usually is a great formula for strong outcomes. I

[00:25:37] Sean Mooney: think you really succinctly kind of shared what's important in a company much more efficiently than I've probably ever done. And so I think that's spot on does the business. Make money that, that is profitable and that shows you if people value it, can you do so without pounding oodles and oodles and oodles of cash to force this thing to grow?
Is there customers, are there customers that come back to you? Is there, are they valued in the industry? And at the end of the day, does the business grow? That's right. Skip your MBA folks. Just do that.
So I'd be curious, Grant, you think about this, I think a very elegant yardstick that you described. How has this mindset informed how you look at incoming deals, opportunities that are going to be, that are being brought to you from independent sponsors and thus what should they be thinking about before they even bring you a deal so that it aligns?

[00:26:29] Grant Kornman: Yeah, great question. We look at everything through that core attribute lens. So margins, capital efficiency, demand drivers, leadership, and growth potential. And not every company scores four out of four on all those different attributes. I'd say the one thing I got to offer any advice to independent sponsors out there raising capital at deal by deal basis.
I think the really good independent sponsors. Are very focused on what happens post transaction. I think the mistake, a lot of first time independent sponsors make is you're so focused on buying or investing in your first company. You get kind of target blindness. You're just focused on the deal. I need to find a company.
I need to buy it. Well, that's really getting you to the starting line. What you do after that is what's going to drive wealth creation for yourself and for your investors. And so I think the independent sponsors who are very successful in this business and very successful in attracting capital, they spend more time talking about what they're going to do post close to grow the business and generate a return on equity than they do about, Hey, I'm just buying it at five times or whatever the answer may be on the valuation.
And so when you think about that value creation strategy or plan, when you compare it to the deal you've negotiated, those two should really fit hand in glove. I think

[00:27:47] Sean Mooney: that's a thousand percent spot on advice, and it really fits with what I've seen, I think, too often. And I would see an independent sponsor would come to us, either through BluWave or for me personally, and say, I've got this deal, and it's cheap.
And I go, A. Low price does not equal cheap. . .

[00:28:08] Grant Kornman: Yeah. You can be paying, yeah. Five times for four times business.

[00:28:11] Sean Mooney: Exactly. And then B, what's your perspective on it? It's one, why do you like it? And two, what are you gonna do with this thing? And so I would always encourage them to say, you've gotta act.
You're in a competitive market. You need to come to me or come to other sponsors or to family offices, whoever your capital sources, or go to grant and you gotta have. A really buttoned up assessment, why this company is really good and how you're going to make it even better. And if you're calling to someone like Grant and his partners with it's cheap, that's going to be a really quick conversation.
And so, and I think, and this is by no means even a meaningful minority of the industry, but it's big enough to where you notice that a lot of it's like, Hey, I got this cheap company.

[00:28:55] Grant Kornman: I think it's one of the biggest surprises as we've kind of flipped the capital. Partner side of this equation is the really good independent sponsors focus on the value creation.
And we get, if we get involved early, we understand that not all of the answers have been figured out. We're a part of the sausage making process and that's great. We're happy to get involved early, but we all have to be focused on how do we grow this business, not just get a deal done. And I think the really great sponsors, whether funded or independent.
That is, they have a maniacal focus on what we're doing post close to drive. This to be a winning investment and not all of it's going to work. So you've got to have a few tools in the toolbox to use in your value creation plan. If it's kind of based on one thing, maybe that's not a great

[00:29:43] Sean Mooney: risk reward.
And I think that's once again, spot on. And by the way, this is not exclusive to independent sponsors. This is also committed fund sponsors. The reality is in private equity and we've all seen this and not many people want to say this out loud, but the reality is that. Economics 101 supply and demand is had a large impact on this industry where there's more and more capital chasing the same supply of deals purchase prices go up and if you don't do something different returns go down and we've seen that and we feel that and I lived it when I was in PE and but the way that I think that the industry has beautifully responded is.
It's this idea of value creation, and we see that every single quarter goes up, whether it's an independent sponsor or a committed fund sponsor, the notion of value creation and the number of levers they're pulling and the lens going into the deal is not, it's a good company. And period, it's a good company and it's going to be even better.
And here's why. And so I think you hit the, hit it right on the nail there. And maybe to

[00:30:42] Grant Kornman: add a little to that, so much of building these lower middle market businesses is bringing talent to them. There's one lesson we've learned people build businesses as a sponsor. You need to be able to clearly articulate why this is an amazing opportunity both for capital as well as for talent, because at some point in that, the growth of that business, you're going to hire a rockstar CFO, maybe a rockstar CEO, maybe a rockstar chief revenue officer, whatever it is, you're going to go convince someone to probably leave a really good job to come to a smaller, more entrepreneurial organization, um, And if you can't articulate why that business is going to be a big success and what your plan is for its growth, you're not going to be able to recruit that talent or the capital needed.
And so it's just, it's core to what we do and what independent sponsors

[00:31:35] Sean Mooney: do. Once again, a hundred percent. As I look back and reflect is if we looked at our business, the business of BluWave, With hundreds of PE firms funneling in project needs, five years ago, one in five projects had to do with people, particularly on the value creation phase.
If we looked at this last quarter, one in two.
As much as people think the robots are taking over, the people seem to matter more and more

[00:32:00] Grant Kornman: every day. Everyone seems to think the hardest thing about this business is finding good companies to buy. I'd probably make the argument the hardest thing about lower middle market private equity is getting the right butts in the right seats.
Once you have the right talent and the right roles. It tends to make the board and all the investors and the sponsors look very smart.

[00:32:16] Sean Mooney: Absolutely. I think that's spot on. So I'd be curious, Grant, you've created this new segment. How are you managing the interplay between your firm at Align Collaborate, the independent sponsor that you're partnering with and the Porcos and their leadership team?

[00:32:30] Grant Kornman: That's a great question. I think our experience as an independent sponsor really helps us understand what makes a great partner when it comes to picking a capital partner. And the biggest concern an infant sponsor should have is if I have a, an equity partner, is that equity partner going to. make the seller or the management team feel like there's too many cooks in the kitchen?
Who is really the sponsor of these transactions? And that can be one of the biggest challenges of going to family offices and control equity funds is who does what here from an ownership perspective. I think we really get the joke on how to be great partners. We do not want to be the first chair here.
That's really the sponsor's job. We want to be supportive capital, which means being an engaged partner. So if you have a challenge that you're trying to solve, you have a problem you have to figure out, you're not calling people who have just been reading quarterly board decks for the last few years.
You're calling someone who knows what's going on in the business and can hopefully help you. Figure out a solution to those challenges or frankly be a great sounding board for your solution, whatever it may be So I think we're really good at playing that role Of supportive capital partner.

[00:33:51] Sean Mooney: That's great And I think that is something that makes a lot of sense and for those of you who are considering the independent Sponsor world, you've kind of described the easy button.
And so I think that makes a lot of sense. I'd be curious as you look at right now, this kind of lens that you're coming through, what are some of the opportunities that you're thematically looking at as you're ramping up your firm

[00:34:13] Grant Kornman: right now? Great question. Obviously everyone's very worried about where the economy is going.
I think there's a lot of. Businesses out there that have some cyclicality to them that make it hard to invest in those businesses today, just from maybe the look stupid perspective. If you invested in a business that is tied to construction, given where interest rates are and given what's going on commercial real estate, that may be a tough place to be.
If you look in the crystal ball, 12 to 18 months out. So we're really focused on that recurring or demand driver segment of our portion of our core attributes. We really want to invest in businesses that have very consistent demand drivers, regardless of economic cycles. And so we, that's a very important part of our investment these days.
I do think in 12 to 18 months. The cyclical businesses could be a very attractive place to be investing. It just depends on what happens over the next 12 to 18 months. No,

[00:35:08] Sean Mooney: that's once again, great advice is we bring it home here at grant. This has been a wonderful conversation. I've learned a lot. And one of the things that I like learning most is.
What I call these things that I wish I knew. So I write an email to the industry. What I wish I knew because every day working with people like you, I'm like, it's humbling. You're like, how did I not know that? And so there's all sorts of things that I would have told my 22 year old self had I discovered a way back machine.
And so, Grant, if you could go back and meet your 22 year old self, what would be one of the things that you would share that you wish you knew that? That's

[00:35:44] Grant Kornman: such a great question. So I think when I was 22, I think I felt like business was having a great plan, working the plan, not deviating from the plan.
And there is a lot of truth in that. I mean, you gotta have a plan. You gotta work your plan and you gotta stay true to it. But I think when you talk, we talked to folks and people think about key moments in their life where they either found an opportunity or met the right person or got the right break, there feels like there's a little luck or serendipity involved.
And so I think if I was 22 and I told myself, Hey, in the next 20 years, there's going to be these moments of luck or serendipity. They're going to make a big difference in your life. I probably would have had a little bit of a meltdown back then. But what I would tell myself is. The harder you work, the more you get out there and talk to people, the more you kind of bounce around and interact with the, with industry or executives and relationships you build, what maybe feels like luck actually become somewhat predictable and somewhat reliable.

[00:36:50] Sean Mooney: I think that's really good advice. Cause I think on one end, particularly as you're a young, hard charging pup, I was back in the early days, you're like, there's no such thing as luck. I make my own luck kind of a thing.
But then as I learned more perspective over time, you kind of learned that. Yeah, you make your own luck, but you have to be open to it. You have to be looking around. You have, it takes a lot of hard work to put yourself in front of it. And so it's this interrelated, it's an and not, or, and there's a lot of reasons why we came up with the name BluWave, but that was one of the things that always resonated with me is there's a lot of hard work you're paddling out.
You're, you've got a series of waves that are coming in and you're not going to catch everyone. But if you, and when you first start, it's going to be really, really hard. But as you get up enough and you put yourself in front of that wave, you're going to start catching them. And then still, it's not going to be easy.
You're going to, half the time, you're still going to get tumbled underwater, but eventually you're going to learn. And if the idea that I had for our company is like, we can give you things that are going to make the odds of you riding that wave right into the beach, a lot seamless, more seamless. And so what you said kind of resonated and that was kind of how I intuited the name that we chose after going through literally probably 500 names that were either taken in Delaware or the URL is gone.

[00:38:06] Grant Kornman: Try naming a private equity for it. It's like the world's worst

[00:38:09] Sean Mooney: exercise. Oh, I was joking and I've told this story before, but I love it because I realized that I thought it was so clever. And then I realized it's a scorpion in the toad and I was just like every private equity firm or like 80 percent of them.
It's a Greek God. It's a color and a geological feature. And that's the only two names you can go with or an acronym. And then I realized, as I've said, after that conversation that I named a company after a geological feature in a color, BluWave. So I was like, all right, I haven't not, I'm not straight.
I'm not straight from my upbringing

[00:38:43] Grant Kornman: at all. I thought it'd be funny to build a website where you can pick like wood, stone, color, Greek God, whatever it is, or Latin word. You check it and you hit like a, you hit like a generate name and it like picks variations of those things. It comes together blue granite Taurus

[00:38:59] Sean Mooney: or something.
I think that could be a value added service for Align Collaborate where you go on chat GPT and create the widget. It's the private equity naming widget. And then, yeah, exactly. That's part of our, you have a branding side to it. All right. So Grant, this has been a wonderful conversation. I've learned a ton.
I've taken reams of notes here that I'm going to add to the stuff I wish I knew before. So thank you so much for sharing the time, wisdom, insights here with us today.

[00:39:28] Grant Kornman: Well, thank you for having me on your podcast and for your wonderful partnership over the years. We've really enjoyed working with you and your firm and your talented team there.
And it was really fun to chat. Today. Thanks

[00:39:40] Sean Mooney: so much. Likewise. Special thanks to Grant for joining. If you'd like to learn more about Grant and Align Collaborate, please see the episode notes for links. Please continue to look for us anywhere you find your favorite podcasts, including Apple, Google, and Spotify.
We truly appreciate your support. If you like what you hear, please follow, rate, review, and share. It really helps us when you do this, so thank you in advance. In the meantime, if you need to be connected with the world's best in class private equity grade. professional service providers, independent consultants, interim executives, or anything else, give us a call or visit our website at BluWave.
net. That's B L U W A V E. net and we'll support your success. Onward.

Private equity insights for and with top business builders, including investors, operators, executives and industry thought leaders. The Karma School of Business Podcast goes behind the scenes of PE, talking about business best practices and real-time industry trends. You'll learn from leading professionals and visionary business executives who will help you take action and enhance your life, whether you’re at a PE firm, a portco or a private or public company.

BluWave Founder & CEO Sean Mooney hosts the Private Equity Karma School of Business Podcast. BluWave is the business builders’ network for private equity grade due diligence and value creation needs.