Expert: Brent Beshore – Only 14 investments in 16 years | Permanent Equity

Bryce: [00:00:13] Welcome back to another episode of Equity Mates, or should I say Welcome Brave Explorers to Investment Jungle Safari. The podcast that takes you on a wild adventure through the dense foliage of finance and investing with you. Our fearless tribe of listeners will hack through the underbrush of confusion and guide you to have become a master of the monetary wilderness. My name is Bryce and as always, I'm joined by my equity buddy, Ren. How are you? 

Alec: [00:00:42] Oh, I'm very good, Bryce. Good to be here. Yes. I think I only need one guess to guess what the theme was today. What's that? Jungle Explorer. 

Bryce: [00:00:53] Yes, Correct. It's a jungle theme where we're in a safari. If you have just joined us for the very first time and have confused as to the intro, we get, we're getting chat. To give us some ideas for thematic introductions on how it can present equity mates and welcome if you have just joined us two equity mates and the journey of Ren and I as we learn to invest and what an episode we have today. In an interview that I thoroughly enjoyed and took a lot of inspiration from. And yeah, one that helped us get a different perspective on private equity. 

Alec: [00:01:29] Yeah. Brent Beshore, the founder and chief executive officer of Permanent Equity, joined us today. He has a fascinating fund and he tells the story better than we will be able to hear. But essentially we talk about long term investing here at Equity Mates. All the books we read, a lot of the experts we spoke to, a real advocates for thinking long term. You know, markets move quickly, but companies change slowly was Emma Fisher's line. That's always stayed with us. But when most of the experts we spoke to think about the talk about long term investing, they're thinking 5 to 7 years. That's sort of the time frame. Yeah. Brent, he want he wanted to have a 50 year fund. He got talked into a 30 year fund. But still, for some people putting money into that fund, that could be half their lives. We really wanted to unpack how that changes that that different time horizon changes your thinking as an investor, what matters, what moats are truly sustainable, how that changes your return profile. And we were lucky that we got to unpack it with Brent today. 

Bryce: [00:02:32] Absolutely. Now reminder that we are licensed, but we're not aware of your personal circumstances. So any information on this show is for education and entertainment purposes. Any advice is general advice. But with that said, we hope you enjoy this conversation with Brent, because we certainly did. 

Alec: [00:02:47] And if you want to continue thinking about long term investing, pick up our book. Don't stress. Just invest all about long term investing and what is enough when it comes to setting yourself up for your financial future? What is enough today to set yourself up with enough for tomorrow? So pick that up. Don't stress. Just invest wherever you buy books. But with that, let's get to the. 

Bryce: [00:03:11] Well, Brent, welcome to Equity Mates. 

Brent: [00:03:14] Thanks for having me on. Appreciate it. 

Bryce: [00:03:16] Now, before we get stuck into the serious part of the interview, we always like to start with a bit of a would you rather. So would you rather have a pause or a rewind button in your life? 

Brent: [00:03:26] Pause, for sure. 

Alec: [00:03:28] Okay. Why is that? 

Brent: [00:03:31] Oh, you didn't say I had to answer the why. 

Bryce: [00:03:34] This is true. That's fair, sir.

Brent: [00:03:36] Well, hold on. Can I. Can I push? Pass? No. Yeah. I mean, I think most of my bad decisions that I've made are the result of in the moment, making the easy choice, not the right choice. And so I would love to be able to push, pause and say, Hmm, let me think about that for a second and get back to you. And fair. Hurt me. 

Bryce: [00:04:02] What about you? Right. 

Alec: [00:04:03] Ah, I like the idea of a pause pause button as well. 

Brent: [00:04:08] Why?

Alec: [00:04:09] Well, now that I'm thinking about it, though, like you could just continuously rewind and essentially it could. 

Bryce: [00:04:16] Have the same effect.

Alec: [00:04:17] Have the same effect. So maybe. Yeah, maybe rewind. I also love the. I mean, you could go mass rewind and you could go back to like 2008. Yeah. Just Bitcoin leverage up at five bitcoins. So, you know what? I'm going to change my answer. Rewind. And if I had a rewind button, I could just rewind and answer it the first time. 

Bryce: [00:04:36] Yes, true. Anyway, right. Let's get stuck into it. 

Alec: [00:04:39] Yeah. Well, Brent, I think your answer about a pause button is very on brand because, you know, we speak about long term investing here, but you are a true long term considered investor. And that's why we're really excited to speak to you. You are the founder and CEO of Permanent Equity and we'll get into the structure of your investing. But you truly think in decades and we're excited to unpack what that means and how that, I guess, leads to sort of different investments and different outcomes. But to start the conversation, we thought we really needed to sort of set the context and talk about traditional private equity and how that model works. So then we can sort of compare how permanent equity operates differently. So to start with today, can you just explain to us how your standard private equity fund works? 

Brent: [00:05:31] Well, as a disclaimer, I've never worked in private equity. And actually after I bought the first company, a friend of mine said, Hey, you did a private equity deal. And I said, What's that, really? And I literally Googled private equity. So all of this is hearsay since I've never worked at another private equity firm. But from what I hear and what I can research, the traditional model is what we like to call the buy lever strip and flip model. So you're levering up a deal using as little equity as you can, using as much debt as you can. You are typically a post close going to strip a lot of cost structure out of the business, at least in the traditional leveraged buyout model. And then you're going to try to sell it really as quickly as you can for as high of a rate of return as you can generate. So by doing that, not only does it ring the cash register and do you get paid when the carry accumulate, but it also it allows you to raise your next fund because you got to have kind of stakes in the ground that allowed you to do that. So, you know, most private equity firms are going to hold an investment for optimally three years, maybe four at the most, depending on when you catch them in the investment cycle. So you to think about a traditional ten year fund life, it's going to take it to three years, maybe even four years to fully invest the fund. So and then and then you got to exit in that ten year period. You may have some extensions built in, but you know, if you can do the math on it, three or four year holds about as long as you can hold it. And oftentimes, if the right opportunity presents itself, the private equity firm will exit prior to that as well. So, I mean, you know, I've got friends in traditional private equity and some of the best deals they've ever done. It was, hey, 18 months later we got this offer and there goes. So that's my understanding. If your understanding differs, though. 

Bryce: [00:07:16] No, that is very much our understanding of it as well. So I guess the follow on question then is what do you consider some of the major problems with that approach? 

Brent: [00:07:25] Well, it's impossible to make good long term decisions with short term capital and a short time horizon. You know, I could never figure out when I first started, you know, getting into this why in the world you only want to hold a great business for three or four years. And in fact, if you talk to most private equity people, it's not really the companies that got zeroed out that that they'll talk about as their worst investments or the biggest problem with the model. They'll talk about the winners that they couldn't hold. You know, every private equity person out there has a it's almost like an anti portfolio. And they're like, oh, man, if I could have just held that one and that one and that one. There's usually like maybe one or two a decade that they'll want to have held forever. There's incredible businesses. And sure enough, they sold them and they went to the moon after they sold them. Right. And they were made in the past. I mean, once you sold to private equity, usually you're either being bought out by a strategic or you're being resold every 2 to 4 years kind of in perpetuity. So, you know, it's a it's a stressful thing on the companies. We also like to think that it's really difficult to develop great relationships when you know you're only going to work together for a short period of time. So it's easy to treat people as objects and not as the sort of the end to treat people more as the means than the end. And we think that's just a really bad way to do life in general. So if you look at how most families made their money, obviously outside of private equity, very few of them were like, Oh yeah, we levered up our company and then we tried to flip it to somebody else, right? No, I mean, typically how you make real money as a family, how most of these businesses got built is by typically using no debt, holding for a long period of time, serving customers and employees and the communities that they're in, the industry they're in faithfully over decades. And so we look at it and say, if that's how you produce success over a long period of time, why in the world would you flip to a completely different model and, you know, interrupt that compounding, compounding not only of capital, but of relationships? Why in the world would you do that? And didn't make much sense to us. 

Alec: [00:09:28] Well, that leads to permanent equity, which you founded in 2007. Now, can you tell us how you set up permanent equity to be different? 

Brent: [00:09:39] Yeah, well, how I set it up was haphazardly at best. You know, there was not a straight line of success. And I think that's one of the things I want to I want to impress on anybody who's listening to this is, you know, it was not like I got into a room in 2007 and said, okay, here's this big master plan for how we're going to tackle and sort of rewrite the the rules for private equity. It's been emergent and I think all the really good things are emergent. They're very few of them are designed. They kind of come out of nowhere and they come out of nowhere in the sense of, you know, you follow a path and all of a sudden there's a fork in the road and you're like, Oh, man, that's an interesting path over there. I wonder if I went down that path, if things wouldn't be better. And, you know, I've always said just do more of what works and less of what doesn't. And so early on, I found that a series of companies was an entrepreneur myself. I met a guy and he said, Hey, you should meet this friend of mine. He just got left at the altar for the second time trying to sell his business. You talk to him, and I took that to mean I should try to go buy it, because why else would you tell me that? He had no idea. He thought he was just introducing people that were in the same industry and matchmaking from that perspective. And so as a snot nosed 24 or 25 year old, whatever it was at the time, I looked about 14 and I sat in front of this guy and said, Hey, I want to try to buy your business. And he literally laughed at me. Like, literally, it was like, Well, what are you talking about? And looking back, you know, I was kind of offended. I mean, my pride was wounded. I mean, I was like, look, I know, like, I know I look like I'm 14, but can you just, like, pretend for a second, you know? And he saw what we talked about and ultimately make a very long story short, bought the business seven months later, maybe eight months later, and bought it with the SBA loan. And so I had this really interesting problem, which is I just bought a business that was kind of roughly the same size as the business that I'd founded, very different than the business I had founded, but was sort of using similar skill sets in a very different tangent. And so it forced me immediately to be out of both of those businesses so that I could manage both of them. So I had no choice but to kind of start to build a separate organisation on top of those businesses. And so that's why I did very slowly started building the investment well, the other firms started producing cash as well. We actually ended up founding another business, the interim. You know, life's not a straight line. It kind of quickly, I'm really trying to impress upon your listeners that this is not a well-designed plan. You can't tell. It's even in its way. It's way. Career that I'm even telling you. So. So then it was a matter of, okay, well, that worked well. I wonder how many other businesses out there need to sell. It turns out there's a lot. I mean, if you go back to 2000, nine, 2010, which is kind of, you know, when all the stuff was happening, there really wasn't a lot of literature out there. There was a little bit of writing out there, but not much on the Internet. There was no entrepreneurship through acquisition community, you know, fintech. It wasn't a thing. It was just kind of like, you know, it's funny, that sounds like the good old days, but it wasn't that long ago. But it was you. There wasn't a lot of information out there. So I just remember thinking to myself, Well, gosh, there's a lot of people out there who need to sell their business and who else can buy them and started researching traditional private equity and especially at that time. Really traditional private equity based on the two and 20 model, especially based on the cost structure in the way it traditionally works, it's really difficult for them to buy platforms. So standalone independent investments, not kind of bolting them on to something else, but standalones for really under kind of 8 to $10 million of earnings. And I was like, man, there's a huge chunk of really great businesses that I bet are between 1,000,000,007 or $8 million of earnings. And so I started doing research. Who is doing this I wouldn't talk to? Well, really, anybody who would talk to me got a lot of no's, by the way. And, you know, most people I talked to were like, look, the way to do this is you buy one business at a time. You kind of dress it up and then you sell it and you do this again and again, again. And there's guys who are like country club deal, guys who have done this their whole careers and made really good livings to for their families. They provided like nice service. They did well that I was already past. Like I couldn't do that right. I couldn't just focus on one business. I already had multiple businesses that, you know, it started creating create the superstructure. So sort of asking about like, well, has anybody ever done this at scale? And they're like, Oh, yeah, Berkshire. I'm like, Well, that's not really helpful. Right. Let's let's, let's dial it back a little bit. And, you know, there's like, oh, there's Danaher. And like, it's very interesting. They like to administer the Danaher System. There's the Pritzker's out of Chicago that had had done, you know, sort of built, you know, bought a lot of businesses and built up to scale. So started studying a lot of those and then really just trying to research the best investors of all time. So I spent a kind of a period of time doing that, and it became clear that I think there was a path to it. I remember, you know, sort of the aha moment of of like I think this is really something that I want to dedicate my life to doing. I love family owned businesses. I love meeting people. I love the diversity that of people and companies. And I mean, there's so many different ways to make money. It's crazy. Literally every week we come across something. We're like, I never knew you could make money doing that. And so these businesses are big. So that was kind of how Permian equity was emerged that ended up executing on call it three more acquisitions after that, all with my own capital, my wife started getting very uncomfortable when I came to her and I was like, Hey, you know how we've been building up this cash and why don't we take like all of it and put it into the next investment? And she asked me the question. She's like, What happens if any of this go wrong? And I was like, Oh, it wouldn't be good. It'd be pretty bad. And so anyway, my poor wife. Yeah. So and then in 2017 ended up raising a really unusual round of funding. It was a, it's a, a fund was our first fund, an outside fund that we raised. But very unusual terms. I say unusual. Unique terms is what we realise now and then raised 300 million in 2019 and we're still investing out of that fund now. So, you know, as I joked in my 2017 annual letter, we went pro and it comes with a lot of benefits and it comes with a lot of struggles and that's been a whole nother story and chapter of how do you build and and all that, how big and anything you guys want to talk about though. 

Alec: [00:15:49] Well, that's probably a good segue way to to raising that fund, because part of the the reason for the traditional private equity model is that the people that are funding private equity, the limited partners, they want certain returns in certain timeframes and they've got obligations to the people that they're investing on behalf of. And most of them don't want to lock up their money for 30 years or they just can't lock up their money for 30 years. So tell us about raising the fund and I guess convincing some of those old pays that you were the right person to invest for what could be half their lives. 

Brent: [00:16:22] It doesn't make much sense that we were able to raise it completely honest. And a lot of people that are seriously not being I'm not being falsely humble hear it like it. I look back on what happened and it it it was an act of God. I truly mean that. Yeah. So I met this guy named Patrick O'Shaughnessy, and at the time he wasn't well known. He was just some dude who worked at a, you know, a firm. And we connected on Twitter and had a few conversations. He was like, Hey, can I come visit you? Great, Fantastic. If you want a vacation in Missouri, I always welcome that. And so he flew out and we spent, gosh, like 12, 13 hours talking together. And it was wonderful. Like we just clicked. And at the end of it he was like, Great, I want my family to invest. And I was like, Hey, I'm sorry. I didn't mean to bring you out here under false pretences. Like, we don't have a way for you to invest, like we use our own capital and recycle it. And that's the way things are. And he said, Well, why don't you create a structure that you want and tell us what it would take for us to invest? I was like, That seems like a challenge. And so went to the whiteboard for a couple of days and came back with basically the structure we have now. I presented to him and I was like, There's zero chance, zero chance that he would say yes to this. Not because it was punitive by any means. It was just, you know, we asked for a really long time horizon. We wanted a completely different fee structure. We wanted to use no debt typically in the transactions. I mean, this is just like the opposite of traditional private equity. And he does. Dad talked about it. They were like, great, we're in. I was like, Well, crap. Like what now? And he was like, Well, we know a bunch of rich people will help you race. It was a great, you know, kind of like, you know, Forrest Gump, you know? You know, he said, like, we invested in that fruit company. And Lieutenant Dan told me not to worry about money no more. And that was good. That's one less thing to worry about. I felt like that, you know, I mean, it was like, okay, well, great, you can help us raise and fantastic. And so, you know, he and I actually hit the road together. And I mean, it's hard to describe how much he and his father, Jim, you know, changed my life and a lot of other people's lives. I never would have had the courage, the confidence, any of that to raise outside capital without them. And. Off to the races we went. We ended up raising 50 million in this weird structure, and a lot of people tell us we're morons. And look, I am a moron in many ways. So, like, I get it. I tell people all the time, I'm like, I know very little about a lot of things. I know a lot about this one specific thing, which is how to transition family owned businesses and try to keep them on the rails and grow them. And so, you know, when people would you know, these are professional investors that we were talking to in like Greenwich, Connecticut. You know, these are big family offices and they would ask me questions. I'd be like, I literally don't know what you're talking about. Like, I'm really sorry, but like, I don't understand. And they'd have to like, I think it was kind of disarming in some ways because I was like, Hey, I will tell you what I know and what I don't know. And I will always raise my hand and say, I just I don't know. Right? And so a lot of conversations and a lot of people said there's no way that our structure would work. Like they had a lot of problems with it. And we said, that's fine. Like no worries at all. Like, we're not we're not trying to to push anything on anyone and look enough people said yes, and we started investing our fund and it worked. The structure worked. The investors were thrilled and we blew through the capital way faster. It sounds like reckless and I say blew through it like we were shocked at how quickly the world opened up. Once you have capital, I mean, I guess a fool and his money are invited everywhere, right? But yeah, so we started investing that. We went through it pretty quickly and then we ended up raising this 300 million in 2019, which was just that was a wonderful process. We've actually never gone outbound to any investor, so it's always been inbound, it's always been relationships and referrals and so that helps as well. And we wanted to develop long term relationships with our investors in the same way we like to develop long term relationships with anybody in our system. And that certainly helped too. So yeah, I mean, like I said, looking back on it, it probably shouldn't have happened. But, you know, I think that we built something I'm really proud of. I think the incentives are way better than traditional private equity. We certainly love it. Our investors seem to love it. So pretty good. 

Bryce: [00:20:34] What a story. Wow. Well, so you mentioned the brand, some of the terms that you put in front of Patrick. And, you know, we're big fans of Patrick and the team at Colossus as well. So shout out to them. But you know, mentioning that you don't want to use leverage and longer time horizons, what are some of the other characteristics or philosophies that you sort of, you know, embody in the investing approach that is different to traditional pay to help us, our audience sort of really understand? And then the second part of that question is how does that then change the return profile compared to a traditional pay? 

Brent: [00:21:10] Yeah, there's a really big question. I could probably spend the next 20 minutes talking about that, so I'm going to try to give you a shortened version and double click on anything I say. So we asked for 50 years in the structure we got, we got whittled down to 30 years. So there's a 30 year lockup, which means there's no primary liquidity that can be demanded for 30 years. You know, a lot of people when we say that to them, they're like, You got to be kidding me. Like, how does that even how does that work? And it's like, well, you give us your money for 30 years, and then at the end of 30 years we can give it back to you. That's how it works. They still don't understand how that actually works because it's so foreign. So that was unusual, you know, our ability to not use debt. And I can talk about how the return profile is changed or maybe not changed, surprisingly, based on that. Yeah. And then our fee structure is completely different. So we take no fees of any kind, no reimbursements of any kind from the lpas to the GP outside of we split cash flow as it's generated out the portfolio and we can talk about, if you want to, how that works. And so it's a truly aligned structure. Everyone from our investors down through the portfolio company leaders and the leadership teams that we have are all incentivised on the same metric, which is to produce great cash on cash returns over long periods of time. And so if there's a great place to put cash, the worst possible thing we can do is distribute it out. If there's not great places to put cash, the worst possible thing we could do is leaving the companies. So we're always thinking about what is our hurdle rate, what is our opportunity cost, and should we send out cash or should we not? And so our investors are very flexible. They love it when we send them checks and they love it when we don't send them checks for good reasons. 

Alec: [00:23:01] Hopefully it feel it feels like your story is also a real story in, I guess, curating the right group of LPs and right group of partners and who are really aligned philosophically because I'm sure there are plenty of your peers who haven't had such a good experience with the space that they've got. But it sounds like you've been blessed in that way. But we wanted to turn to investing philosophy because, you know, we speak to a lot of investors on this podcast and everyone will talk. Being a long term investor. But, you know, people are sort of talking five, seven, ten years perhaps. And, you know, you sort of reset expectations or reset the timeframe when you talk about 30 years as an investing horizon. And we're interested in how that changes what you're looking for and how you think about a potential acquisition. So what is your investing philosophy? What are you looking for in a potential investment? 

Brent: [00:24:00] Yeah, well, maybe we could go to first principles, like investing is merely just the assumption of risk, right? I mean, all investing, no matter what type of investing you're doing, is just the assumption of risk. And so the question is, what is the risk that you're taking on and exchange for taking on that risk? What is the potential return that might be generated? So the way we think about it is each company is going to have a different risk and return profile. And our job is to really think through what are those risks and can we as an organisation mitigate some of those risks that other people can't. And so there are some risks that we feel very comfortable mitigating. I mean, leadership risk is a huge one. You know, we feel comfortable that we can recruit and retain really good talent. Talent better than typically what a small business family could, could acquire and retain. We feel comfortable with risks associated with balance sheets. I mean, we have a big balance sheet. We can back up our balance sheet pretty well. So there's those two types of risks that we want to take on in terms of what we're looking for in the companies is to be in a durable industry. So we're not looking for fads. If we want to own these things for a long period of time, we need to do something that we think's going to be around for a long time. So that's kind of the first test we put it through. It is this company just naturally of the industry they're in, going to be around in, you know, call it ten or 15 years. And by the way, we're not committing to holding these things for 30 years. And by the way, we have an option to renew it towards the end of our fund life for a longer time so we can hold them longer than 30 years. And we're not forced to hold them that long either. I think this is an interesting split that we probably have with with Berkshire. Berkshire commits to never sell. We would we would happily sell under some very specific circumstances. We can again talk about that. But we want to have the ability to hold it in compound for a long period of time. What does that require? Requires getting into a situation where all the stakeholders are in a win-win situation. So if you think about the short term, you can have a lot of win-lose. There's a lot of zero sum game that you can play. That's a very finite game. I would say, you know, we want to get into infinite game territory. So the only way to have an infinite game is if all the stakeholders are winning for the long term because people figured out you're not going to win if they don't win. So you think about all the stakeholders. You know, we've got the employees, we've got the leadership teams, we've got permanent equity, we've got our investors, we have suppliers, we have customers, we have communities and probably regulators depending on the situation. That's a lot of stakeholders. So what we have to think about is, you know, if everyone's sitting around the table, you know, who's winning and who's losing it for what period of time, and can we create a situation or is the situation already the table set for us to all win together? And oftentimes the answer is no. You know, it's just very easy. You go into a lot of these situations and somebody is winning. Some of these losing, customers are fleeing or customers are only coming to you because you know, the power dynamics are temporarily in your favour. So, you know, that's a lot of pieces to be set up. And then, you know, look, the reality of buying a company is there's roughly 400 things you have to agree on between the buyer and the seller. So yeah, you can imagine trying to set the table for that many stakeholders combined with agreeing on 400 things, it is a brutally difficult process. We look at a lot, we engage with a lot and and closed very little. Luckily, over time we've gotten better at what we do. I think it's the nature of wisdom is you can accumulate it if you learn from your mistakes. And every deal is an opportunity for us to screw something up. So we learn a lot about what not to do and sort of continue to add questions to our due diligence checklist and try to refine our processes and line of thinking. 

Bryce: [00:27:51] So when we, you know, we often talk a lot about moats and you mentioned Burke Shire and they're massive, you know, proponents for finding companies with long term competitive advantages. But when you're thinking about, you know, that 30 year plus time horizon, there's so much uncertainty at not only company level but also at a macro level. Really interested to understand what you think the true moats are that really stand the test of time if at all, sort of the secret sauce. And how do you build conviction that a company really has it to withstand that period? 

Brent: [00:28:22] Well, so let's again go back to first principles on this. If if a company is producing above average rates of return consistently over time, they have a moat. So. We're only buying companies that have some sort of moat by default. The question is, how can it endure and where does it lie? And oftentimes, in the smaller end of the spectrum, the what we call founder moat is the most common. So there's some force of nature, high intelligence, high drive, high willingness to sacrifice other areas of their lives to create success, a successful outcome. Those are the worst businesses to buy, right? Because those people are basically irreplaceable. You know, in fact, we've turned down deals before where we meet the founder and we're like, You're incredible. Like, you haven't taken a vacation in 15 years. You're a machine. This thing is well-oiled. You know, everything's tight. There's nothing we can do to improve the business. And there's no way we can replace you. So, like, our returns are going to deteriorate over time, Like, no matter what. We come across other businesses where the founder's like, Look, I've been burned out for 15 years, and, like, I go to Tahiti five times a year and I don't know. I don't know what Bob does over there. You have to ask him, right? Those are businesses. We're like, great. If that business is successful, despite an owner that for whatever reason. That's how I'm not being judgemental at all. And people, people can pick and choose. I mean, that's nature. Being an owner. They can pick and choose the lifestyle they want and where they want Investor time and resources. Those are, you know, ironically better investment opportunities for us. And so we're trying to look for, you know, those sort of mismatches in what opportunities do we think can be pursued? What skill sets are already on staff? And then how do we kind of put all the puzzle pieces together to ultimately pursue them? 

Alec: [00:30:17] Well, Brent, we want to get from the theoretical to the practical and talk about some of the companies that you have invested in. But before then, we're going to take a quick break to hear from our sponsors. Well, welcome back to equity mates. We're talking to Brent Beshore, the founder and CEO of Permanent Equity, a really fascinating company out of the U.S. who are true long term investors is what we keep saying, who are looking at investing for decades, 30 years plus. And, Brent, we've talked about how you set up the fund and I guess some of the underlying principles are the investment philosophy. But we really want to turn to your portfolio. And so far, at least from what we could find so far, you've invested in 14 companies, a very varied group of companies, everything from amusement ride manufacturing to elite matchmaking. Bryce jumped on and tried to sign up for that after saying, That's not true. So I guess smart move. So I guess let's start with with such a varied portfolio, what do all these companies have in common? 

Brent: [00:31:30] Yeah, the thing that's in common is we believe that the thing they're doing is enduring in the need and we love the leadership teams and the families that we were able to work with. So, I mean, everyone's a little bit different. Yeah, we have there's actually 15 in the portfolio, but I think we're only 14 on the website. But but yeah, every one of them has a unique story. I mean, it may look like the island of Misfit toys, but there's actually a thread that runs through through all. 

Bryce: [00:32:00] Just for those budding private equity guys sitting at home or who are very inspired by your story, sort of, you know, thinking through the challenges of what it takes to improve a business to the point of it being able to be sold for more than you bought or just generate incredible cash flow over a long period of time. What's the like the hardest part from your experience of fixing a business or what's generally like the most difficult component to a business that is, is, is? Yeah, the part that is the most difficult to fix. 

Brent: [00:32:30] Well, if we do our job right, we're not buying anything that needs to be fixed necessarily. So we're buying. We don't buy turnarounds. We're not buying things that are in distress. So we're buying healthy companies. Now, the healthy companies can have a lot that are maybe off or a lot of opportunities, low hanging fruit to improve them. I mean, we literally had one company that we couldn't figure out why we weren't getting sales. And it turned out that the number that was posted to a lot of these places where sales were generated was going to a fax machine. It was unplugged and literally walked over and plugged in the fax machine and orders started coming out. So, you know, easy job. There are low hanging. There is some low hanging fruit. We had we had another company where we couldn't figure out what was going on. The the Internet would would go out and like destroy, you know, a chunk of sales for the day. And it would take time to get the system rebooted and all the stuff. And we couldn't figure it out. And the head of I.T. said, Oh, yeah, I'm so sorry. We dug in. I couldn't get the extension cord long enough twice. So I duct taped the spike bar to the filing cabinet. And sometimes the duct tape comes loose and the spike bar falls and knocks out the Internet. Oh, my God. We said, could we get a longer extension cord? And he's like, Yeah, I could probably get that. That's. Yeah, sure, no problem. So, like, there are opportunities, but those companies are profitable, growing, successful, successful businesses. I would say to slightly alter the question, which is what's the hardest part anyway? It's always going to be the people, right? People are messy. You're messy. I'm messy. Our messiness when it interacts is pretty volatile. And when you get a whole group of messy people together to serve another group of messy people and are being served by another group of messy people and, you know, customers and suppliers, you know, there's a lot of mess. And so I would say, you know, with the size that we've grown to, that's definitely been one of the things is how do you spend the time to develop meaningful relationships? Because truly you can't go faster than the speed of trust. You have to have trust, and you have to know that you can rely on people to get jobs done. And are they able to rely on us developing relationships, dealing with really challenging situations pretty frequently and just trying to be fair and honest and kind. And there's always lots of opportunities to get upset and try to not do so and trying to be levelheaded and bring down the temperature I think is probably the hardest thing.

Alec: [00:35:04] On that point, you mentioned earlier that a lot of your acquisitions have been family owned businesses that are looking to sell and the succession planning when it comes to family owned businesses is always a real challenge. And then, you know, when if the family is is selling the business rather than passing it down, I'm sure that that times that can get messy. How do you sort of deal with coming in as an external party and becoming in the middle of like these family relationships? Succession challenges.

Brent: [00:35:37] Carefully. Yeah. Yeah, you're correct. It is. It can be delicate at times. There's always dynamics at play. We just try to get to know people and over time you get to know these situations that can that can be delicate. And we try to be good partners and try to bring again, bring down the temperature, try to create relationships, try to help foster relationships and maybe relieve some of the strain and stress. So, you know, quite often we are in a position to either exacerbate or help those situations and we really just try to be a force for good in the families work. We truly want these families to be successful. We care about them. And as you all know, you have families. Families can be hard. And then you add in a lot of money and a lot of pressure and a lot of stress and strain and things can get volatile at times. So, you know, I've had moments in my career where I've had a seller get very, very, very angry and call me bad words that late at night. And I've had to say, hey, it sounds like maybe you've been drinking. Perhaps we could pick up this call the next morning and let the dust settle and. See where we go from there. And, you know, the next morning is usually, hey, I'm kind of sorry for calling you at 11:00 last night, an F-bomb. And you. Yeah, that's okay. There's a lot of stress going on. So let's move past it and let's talk about the thing, the thing itself. So, you know, again, this was not me. Early in my career, I had to learn the hard way. And I think the you know, what I would say is I see a lot of highly educated, very driven people that want to get into buying and owning small to medium sized businesses. And like I did, I see what's lacking a lot is a humility and an ability to defuse situations, the emotional intelligence that I think it really requires. And so I tell our team all the time, we've got a great group of people who have all been operators. That's makes us pretty different than traditional private equity. We actually won't hire somebody usually unless they've been an operator, just because there's no way to understand the stress and the strain and the pressure then, then wait till you get into it. And, you know, I kind of laugh it. It's every week that a, you know, some Harvard or Yale or Stanford person contacts me and says, I want to buy a plumbing business in Bemidji or wherever. And they're amazing. They're incredible people. But then trying to connect and relate and and develop relationships is going to be really tough. And so some hear that and some don't and some are successful despite it. I mean, look, I life's weird like that. But yeah, I would say humility. Humility is a key that unlocks a lot of doors. 

Bryce: [00:38:19] So we want to chat about the pace of investing because it's it's quite notable given that you've made 14 investments across a time frame of 16 years since founding in 2007. Can you talk to us about the pace that you work at? Like that feels like a very pleasurable pace to to work out. And but we're also interested in how you maintain a level of discipline when many of I think, you know, your pay sort of peers are moving at what seems to be an incredible pace.

Brent: [00:38:49] Yeah, that's a great question. Maybe we're just lazy. I don't know. I it does seem very full and decades have seemed pretty full to No. I mean, this is a question that we've gotten actually from potential investors. And, you know, the best way I can describe it is, you know, buying one company is really, really difficult. Like it's almost well, it's easy to buy a company. Anybody can buy anything. It's really difficult to successfully buy a company and to transition it and have it cash flow and have some sort of either hold or exit in which you can generate, you know, sustained returns over time. Doing that with two or three companies is ten. It's harder than it is to buy one company. And then, you know, I would say, you know, it takes one pretty driven person to buy one. It takes a handful of people to really give it everything they got to buy two, three, four. Building a system that can consistently acquire diligence, document and appropriate post-closing new companies every year is. It's the hardest problem I've ever seen. And I know from the outside looking in, it's like, Oh, this guy's got the tiniest violin in the world and he's just making it sound harder than it is. Like, That's fine. Just wait till you try to do it. And so to be honest, like, we were going as fast as we could. We were going at a pace that seems like often breakneck pace. We just couldn't handle any more because we were building our systems and we were building our team and we were trying to create something that was long term sustainable. I mean, I would say if we're successful in 20 years, it was because we made choices, you know, five, seven years ago that were good about how to build this. I mean, if I would have been given $50 Million at the start of my career and said, go buy a bunch of businesses, like I would have lost all the money, all of it. I just don't understand how there are people who do that and they're incredibly successful. They're just way more intelligent than I am and probably more driven. I just think that we were going at the pace that seemed correct to us. And in the end, things compound like our pace of acquisition is also compounded. I mean, we'll probably put out the door over $100 million this year. You know, that's a pretty good pace and it's accelerating from here. And so, you know, I think Jeff Bezos, who said, you know, if you see what we're doing today, really good decisions were made five years ago. And I feel like that's kind of where we are. Is we on the way up? You're always lacking and on the way down, you're always lagging. And so it's always good to remember that if you look at careers, if you look at organisations, like any snapshot in time is going to be of you a false read on where the company's really going. Because if it's going down like it's going to look a heck of a lot better than it's going to be in a short period time. If they're on the way up, you're going to look a heck of a lot less impressive than they will in the future. And so thankfully, I think we're on the way up. But it's nice. I mean, I got to be honest, like we in 2020 was a great example that we just raised this $3 million fund. We were pumped. We're excited. We're ready to get out there and tackle the world. Then this thing happened in 2020. People probably don't remember. We didn't, you know, we didn't, we didn't make an investment in 2020 and we felt great about it. And our investors loved it because they weren't paying any fees either. I mean, we get paid nothing for all the work we did in 2020 on the investment side, zero. And we were great with that. And so, you know, that's the nice thing about our model. You know, when investors have asked us, you know, what's your rate of deployment, we're like, we don't have a rate of deployment. We tell you what we've done historically. We can tell you what's coming down the pipe. Like we may invest all our capital in the first year. And they're like, What? You mean there's all your capital in the first year? Yeah. If the right deals come along, like we may blow it all. We may not invest any of it over a five year period if the right deals don't come along. Like we're not a vintage of fund model, we, you know, we just try to do good deals every single time and don't do bad deals. We've learned that, you know, if you don't do bad deals and you do good deals like it turns out okay. And so we're relaxed about it. I would say 20, 20, 20, 21, early 2022 felt hard. Interest rates were really low. There was a ton of money from the government sloshing around in the system here in the United States. Everyone we were getting out bid for a period of time by like 50% on everything. Oh, wow. And these were not like highly competitive bid situations. These are like three bidders. You know, we're invited in, we're one of three. And the sellers are like, We love you. Will you please work with us? We're like, Absolutely. Here's our offer. And they're like, Ah, that's half of what the other guy is. We're like, You should take the other guy's offer. So, you know, look, all we can do, we never changed our underwriting to be more accommodating. We just said, Hey, this is the only thing we know how to do is do good deals. And we haven't moved our common we haven't moved our bar back down since then. We've just always kept it the same. So that's a long winded way of saying, I don't know if we have patience or not. We just try to, you know, again do good deals and not do bad deals. 

Alec: [00:44:02] Have you really seen the competitors valuations come back in in the last sort of six or 12 months? 

Brent: [00:44:08] Yeah, it's amazing. Is a friend of mine who works in traditional private equity told me somewhat desperately. I talked to him five months ago and he was really in the dumps. He was like, this is hard for me. He said basically no private equity deal that's been done in the last three or four years. Pencils out right now like none of them pencil up. And so there's a whole lot of people sitting on marks that are unrealistic right now. And there's a lot of people that are still kind of doing deals under the old model, and they're hoping that interest rates come back down and, you know, causing the asset values to inflate back up. Because if you buy a business right now and you're, you know, where debt is and everything works, I mean, you've got a lot of work to do to pay traditional prices. And so, yeah, we're doing fine. We're not using debt in our transactions typically. So like it doesn't matter to us. And so we've just stayed the same and everyone else got a lot more excited about paying up for businesses 2020 to 2022. And now they're a heck of a lot less excited. And so we've gotten more competitive by not doing really anything differently.

Alec: [00:45:14] Yeah, well, Brent, we have run out of time, unfortunately, because there's so much more that we'd love to ask you about. But we do always like to end with the same or similar final question. Every year we hold an expert of the year or Guest of the Year award, and it's really just our chance to celebrate all the experts that have come on the podcast and given us their time and share their knowledge. So as a guest of equity makes you automatically in the running for the Equity Mates community who we get to nominate and vote at the end of the year. You know, we're not big private equity investors. Most of us, most of us are small dollar everyday investors looking to build wealth over the long term. Most of us have the opportunity to invest in public markets, not private businesses. So, you know, to close out as your final pitch for the expert of the year award, what can we as everyday investors learn from your approach and what advice do you have for us that we can take and adopt in our investing lives? 

Brent: [00:46:14] Yeah, I'd say you're just screwed and I would index if I were you, because that would me, in a word, nice. No, no, no, no, no, no, no, no. I'm just. I'm just talking. You actually, my. My friend Ian Castle and I, he's he's a great friend. And obviously, Ian does a lot of small cap investing in the United States. He and I have had a lot of conversations about how public and private investors in the in the lower end of the market are very similar to one another. And he and I have great conversations. He's a way better analyst than I am in terms of analysing opportunity. You know, he obviously only has really kind of two ways to interact with the market, which is to poke the buy button and poke the sell button. You know, I have a tremendous amount of levers now. Believe me, he's suited to that. I would never be suited to that. If I could buy and sell, I would have bought and sold each one of our companies a thousand times since we bought since we originally bought them. Right. I don't have the fortitude. It's quite a roller coaster if you really know what's going on. I mean, I joke that, you know, all businesses are loosely functioning disasters and some happen to make money. And if you really understand the inside of these businesses, it is really true. If you don't think that they're messy, then you really don't have a good view. And so I guess my encouragement to if you want to be a professional investor, if you if you don't want to index, which by the way, I think indexing is is a really great thing for a lot of people to do. You know, we the money that we've set aside for for my three daughters like we haven't been index like because I don't want to be in the public markets. That's not my expertise. So, you know, if you if you do want to be active and not index, I would encourage you to buy fewer companies and really know them inside and out. That's one of the things that I love about how Ian runs things. You know, it's a very concentrated portfolio and, you know, I remember if it was Munger or Buffett, one of those guys was like, look like, you know, buying a basket of highly diversified of a lot of these things is not going to generate outsized returns. And in fact, it's going to generate, you know, very little returns, maybe even poorer returns than an index. And you going to spend all your time doing it. I mean, if you actually calculate the amount of hours you put into it, like maybe you're making minimum wage, but probably not much more. Right. So the only way that you have a shot at really, you know, getting paid for the time that you're putting in and I know a lot of people do it for the love of the game as well, which is great, by the way. I love the game, right? But I would say it's just really getting to know the companies call people up like you'd be surprised at who will pick up the phone, like reach out, try to understand the competitors, try to understand how they're making decisions, how are they hiring, What's the culture? I mean, these are all the things you with this 26 page, single spaced checklist that we go through on every one of our companies. You know, I encourage you to develop a checklist like that that you're really trying to understand, understand these companies inside and out and get nitty gritty. Of course, read everything, listen to everything that the leadership saying, read all the press releases, read the marketing emails, like, you know, sign up for everything. That's when you really get to know the companies. Because at least in my world, you can see when things start to crack, it's not hard to see. You've got to pay attention. And so if you get an investment, the nice thing about the public markets is you get an investment. You don't like it unless it's obviously very thinly traded. You should be able to poke a poker sell button and get the heck out of there. Right. If you can see it coming. So I feel like that just paying attention, being up to date, taking it seriously, which it sounds like to me your audience does. Right. Doing the right things. 

Bryce: [00:49:42] Well, great way to end there, Brent. 26 page, single launch, single spaced checklist. Would love to say that, but we'll leave that for another time. We do certainly appreciate you coming on the show and sharing your time with the equity rights community. If you'd like to follow more of what Brent does or probably one of the best places is actually his ex feed from Twitter. Brent Beshore, he has a lot of great stuff on there and you can join the conversation with him if you're interested. Brent, thank you so much. We do really appreciate it. Found that interview truly fascinating. So thank you. 

Brent: [00:50:12] Yeah, Thanks, guys. I really appreciate you having me on. And if I can ever be helpful to anybody having reach out, feel free.