308 Arthur Petropoulos

Jeffrey Feldberg: [00:00:00] Welcome to the Deep Wealth Podcast where you learn how to extract your business and personal Deep Wealth. 

I'm your host Jeffrey Feldberg. 

This podcast is brought to you by Deep Wealth and the 90-day Deep Wealth Experience. 

When it comes to your business deep wealth, your exit or liquidity event is the most important financial decision of your life. 

But unfortunately, up to 90% of liquidity events fail. Think about all that time and your hard earned money wasted. 

Of the quote unquote "successful" liquidity events, most business owners leave 50% to over 100% of the deal value in the buyer's pocket and don't even know it. 

I should know. I said "no" to a seven-figure offer. And "yes" to mastering the art and the science of a liquidity event. [00:01:00] Two years later, I said "yes" to a different buyer with a nine figure deal. 

Are you thinking about an exit or liquidity event? 

Don't become a statistic and make the fatal mistake of believing the skills that built your business are the same ones to sell it. 

After all, how can you master something you've never done before? 

Let the 90-day Deep Wealth Experience and the 9-step roadmap of preparation help you capture the best deal instead of any deal. 

At the end of this episode, take a moment and hear from business owners like you, who went through the Deep Wealth Experience. 

Arthur Patropoulos founded Hillview Partners in 2016 after a successful tenure on Wall Street as an investment banker, private equity investor, and head of mergers and acquisitions and corporate development for a high growth operating company. Of note, Arthur served as the co head of the Internal Private Equity Group at Cantor Fitzgerald BGC Partners and was the Director of Corporate Development for a diversified business [00:02:00] services company.

Arthur works hand in hand with all clients and has led numerous successful transactions in the sole focus area of selling, exiting, and securing capital financing for privately held family, entrepreneur, and small investment group owned businesses. 

Arthur is keenly aware of the challenges and potential pain in undertaking this sale or capitalization of a business, and is dedicated to serving as the go-to resource and subject matter expert for clients seeking to optimize their outcomes in an impactful and expedient manner.

Arthur is a Rhode Island native, having earned his undergraduate business degree from Providence College and is Juris Doctorate with a focus of Corporate Transactions and Finance from Roger Williams University School of Law. 

Welcome to the Deep Wealth Podcast. You heard it in the official introduction. We have that mythical creature, otherwise known as an investment banker here in the house today. So at Deep Wealth and all you listeners out there, hold on to your hats. We're going to have a terrific journey, but let me put a [00:03:00] stop in it right there because Arthur, you're with us.

Welcome to the Deep Wealth Podcast. And as I always love to ask every guest, there's always a story behind the story. Arthur, what's your story? What took you from where you were to where you are today?

Arthur Petropoulos: It's good to connect, Jeffrey. I appreciate the time here. I think you have a great, great podcast. I'm listening to a bunch of the episodes and happy to be here. So I would say from the very beginning, a deep fascination in how business and economies work. I think just from a historical curiosity of why the world is the way that it is, why do people do what they do.

And I think when you boil it down, The history of the world is, for better or worse, kind of the history of war and of business and largely one predicated on the other. But point being is, there's always been that interest of why were people exploring the world? What were they looking for? How did all of these things work?

How were they funded? And how does that gearbox of the economy work? And then I'd say, More relevant to our business now, I worked in Wall Street for about 10 years, both on the investment banking side of helping companies sell themselves, as well as the side of private equity, buying the [00:04:00] companies, and I think we saw some pretty glaring inefficiencies in the process and a very underserved swath of the market, and that was kind of the impetus of starting Hillview Partners to say, we can fill this Gap and provide, I think, the optimal services for this customer base.

And I think like the global economy always works create efficiencies where they have previously been lacking.

Jeffrey Feldberg: Terrific story. And I have to ask you because you're really sitting on both sides of the table. So back in the wall street days, you're buying companies, you're helping buyers. You're really sitting across from the table from us as business owners who are selling today. You're on the other side of things where you're helping business owners to.

Go and sell the company and do some great and wonderful things with that. But let's go back to the Wall Street days, back to when you're helping the buyers. Where as business owners, where are we dropping the ball, Arthur, that we're just making these cataclysmic mistakes that are low hanging fruit that we shouldn't be making in the first place?

What were you seeing back then? What are you seeing [00:05:00] today? Mm 

Arthur Petropoulos: I initially was on the side of helping companies sell and helping companies buy, but I was for a good time buying companies. I think the recurring themes that we saw, and this isn't to, you know, the joke about investment bankers is like asking a banker if you should do a deal is like asking a barber if you need a haircut or asking a bartender if you need a drink, right?

But in reality, I think the first thing, whether it's our firm or anybody else, is that you should be represented. You wouldn't sell your house yourself. You don't go into a courtroom yourself, and so if it's such an important decision as selling a business, you really should have a team put together inclusive of an advisor that can get to the end goal and have seen kind of how these things work.

And so I think one is just having the team together and having, I think, the ability to bring on someone that's done it before. And then I'd say also, In many ways, it's underestimating the business because, you know, we focus on companies that generate one to ten million dollars in pre tax profit.

And so in the grand scheme of the economy, that's the lower middle market, lower end of the regular middle market, and[00:06:00] not selling commodity products or services, you're not competing on cost, you're not competing on the cost of capital. And so the only real way a company can be profitable in that space is by doing something very special, right?

Whether it's a proprietary product that's... Patented, whether it's a service that you are a subject matter expert better than anybody else. And I think that companies sometimes have been doing it so long that they don't grasp how special it is that they're doing, and so when they go out to sell the company, they say, yeah, you know, we do this thing, we do it fairly well, and they ultimately sell for some kind of humdrum multiple of pre tax earnings, when in reality, the company probably is a missing puzzle piece for some bigger company that just can't crack the nut of what they do, and if you find that person, and if you Communicate the narrative in the right way.

And I think facilitate the process in the right way. Value can really be optimized. So I always say one, it's having the right team together and two, it's really grasping and crystallizing what makes the company different. Because if you are generating between one and 10 [00:07:00] million in profit, there is something special there.

And you really need to kind of harvest down what that is before you start having some of those dialogues.

Jeffrey Feldberg: Arthur, you are taking a page right out of the Deep Wealth playbook. We call this step two X Factors, and you're absolutely right, because as business owners, we make a fatal assumption, which is, well, my business is the same as the competition. Whatever they're doing, I'm doing, other than a different logo, a different name, we're one and the same.

Absolutely not. And to your other point, we're big proponents of, we don't want to be a comparable to the competition. And so when we find our X Factors, the ones that we likely know, but the ones that we didn't even know were there, but actually have been there all along. When we do it right, and we focus on this in our 90 Day Deep Wealth Mastery and our whole program.

Why not create your own blue ocean, be a category of your own? So you've nicely highlighted, Hey, business owners know that you're special. You're not like everyone else and tell the world why you're special. Certainly one low hanging fruit where we're making mistakes. And Arthur, tell me if you'd agree or [00:08:00] disagree with this, because I often share with business owners, how in the world do you master something you've never done before in that the skills that built a successful business are not the same ones to sell it.

Where are you on that? 

Arthur Petropoulos: I do agree that there's certain skill sets that are best for different phases in the company life cycle. You know, some people take the perception that it's impossible to run the company through all of those life cycles. And I've had friends that will say the founder of a company should not be the person running it once it hits a million in profit, should not be the, and that person shouldn't be at five million.

I slightly disagree with that. I do think that. As a business owner and entrepreneur, you can evolve, but it's a constant learning process, and I don't think you can ever say, okay, I've got this figured out. I agree it's different skill sets, but it is a learnable skill set. any skill set relative to a business is going to take iterations to be good at, right?

It'd be unreasonable to think that you'll naturally be good at any skill set. As long as someone's willing to undertake the iterations and be bad at something long enough, they will ultimately be good at something, right? And so, someone might say, [00:09:00] There's some God given gifts that separate the elite from the very good, but anyone can be very good at anything if they do something long enough.

And so, I agree, there's different skill sets. I think skills necessary to get your first sales, to hire your first people, to implement processes are different than the skills that are necessary to, I think, buy your bandwidth back and make yourself more redundant, make the business more sellable. And so, I think you leave, right, you leave your day job to start a business because you want control.

But I think slowly as the business grows, you must relinquish some elements of that control and delegate it in order to make the business transferable in many ways. And so that's, yes, it's more evolution than revolution, but there are constantly new skills, but they're all learnable, I think.

Jeffrey Feldberg: And let me ask you this. And again, you can tell me if you're on base or off base, you've been on both sides of it. One of my favorite questions, the first time I meet a business owner and they're saying, Jeffrey, how do I grow my business? The profits, the revenues. Eventually I want to have a more valuable company.

You [00:10:00] want to have a liquidity event. And Arthur, perhaps they turn to you to help them with that. But one of the first questions I asked them. Does the business run without you? Yes or no. I don't want any hemming and hawing in betweens, anything else. And oftentimes after a lot of hemming and hawing, despite being told not to, it's ultimately no, Geoffrey, the business doesn't run without me.

So with that context in mind, Arthur, when you were buying companies on behalf of your clients, And now when you're going to market and you're selling companies, perhaps where it doesn't really run without the business owner, for the benefit of our listener, you know, the entrepreneurs, the founders, the movers and shapers out there, can you help them understand how this is so painful for the buyers, for the investment bankers, why it's hurting them, that they'll either get a lower enterprise value or maybe not even a deal because of that?

Arthur Petropoulos: Yeah, we think of bit as a continuum in the sense that it's not a binary outcome that someone, if someone's interested in buying a company, but there is kind of that key woman or man risk within the company,

Most of the times, but there's other implications. And so when someone sells a business, [00:11:00] I think the only headline anyone really sees is a dollar amount.

And that's a bit of a misnomer because I could say, Jeffrey, I'll buy your company for a billion dollars if you can jump over a skyscraper. And so that would be in the newspaper. Jeffrey sells business for a billion dollars. But you have to think about what is the structure of that? How much of it is guaranteed?

How much of it's over time? What are the contingencies? Is it just time? Is it some sort of... earnings, is it commitment? They're then, and I think, which starts to get into the idea of the key person is, what's the transition period look like? And then lastly, you know, you also have kind of what the implications are for stakeholders or employees, but those two key elements, structure and transition, will be heavily affected by how necessary the key person is, and so for a company that runs by itself that the owner is truly as passive as an owner as you can be in a situation, it may just be 100 percent cash at close or cash and equity depending on the mix, but there won't be any Thank you.

[00:12:00] Earn out, there won't be any structure, and there may not be any requirement for any ongoing activity for the seller. Now, to the other extent, if the person is an active CEO and running everything and is pivotal, you could see the other end of the spectrum where half the transaction is in cash, half of it's in earn out based on...

performance, and they want five years of ongoing involvement in the company. Now we will heavily negotiate that to bring it back as much as possible, but you have leverage for that negotiation to the extent you could substantiate that you are not pivotal to the business, that you're not the bottleneck within the company.

And so we think of it as that spectrum. We try to get it as best to all consideration at closing, no risk consideration. Optimal structure, no transition period, but that's only really attainable to the extent that the person has created themselves to be, quote, redundant or unnecessary in the optimal characterization of that phrase.

So yes, it's, it heavily impacts things. Things are not, by definition, [00:13:00] unsellable or unfinanceable, but it will have an impact, particularly around structure and transition.

Jeffrey Feldberg: And so let me ask you this. One of my favorite questions in this kind of scenario, Arthur, I lean on Pareto's law or the 80 20 rule, where as an investment banker, you're out there going to market, looking to get the best deal for your clients who are having liquidity events or selling their companies.

Where are the 20 percent of mistakes causing the 80 percent of issues that you're seeing time and time again? What would you share with our listeners of what they should know?

Arthur Petropoulos: I think it was Marcus Lomonas that had kind of the framework of people process and product or product service offering, whatever it may be. The process component of it is an element that can be a hamstring to trying to maximize value in the sense of, is there a Dependable, repeatable, resilient process of originating new business.

Is there the same thing for executing and fulfilling engagements? And is there the same thing for operations? Now, that's hiring, administration, finance. To the extent that the future... [00:14:00] Performance of a company is predictable because we can say, by the numbers, we have this many salespeople, they make this many calls, it creates this many meetings, it creates this many new clients, that creates this much revenue, ultimately funneling down to this much EBITDA.

If you can create that narrative to show that that process is repeatable, then there's a lot more confidence and a lot more ability to sell a company. And so, I think Challenge sometimes can be that things are not tracked, and so it could be that kind of an exercise, right, and so someone may have, most business owners that are successful have in their mind kind of how the gears of sales work, how the gears of fulfillment work, how the gears of operations work, but documenting that, making it crystal clear, again, going into the narrative, I think that's a part that makes it difficult, right?

When you hand someone a situation that's kind of, here's a bunch of stuff, then a prospective acquirer is going to look at it and say, what do I do with this? And I think that's exacerbated in the space that we function in. If we're selling companies for one to ten million [00:15:00] in EBITDA, you may have value range within that of five to a hundred and fifty million dollars, let's call it.

But the optimal buyers for many of these companies are large strategics, then, in terms of multi billion dollar corporations from their perspective, yes, these are good deals from a fundamentals perspective, but what they're really buying, oftentimes, is access to customer bases, they're buying that special sauce, that X Factor, but you have to communicate it in a way that makes it happen.

Thank you. Easily digestible to them because it's going to be smaller. It's not going to get all of their attention. And so I think one of the big mistakes is that people, we are out in the market quickly, but it still cannot be rushed. And it can't just be a pile of stuff that you throw at people because you could talk to the same person.

And if you say, Here's our specific breakdown on three pages of the company, what they do, why they're special, here are the catalysts of future growth, here's their financial performance, and here's why it makes sense for you to acquire them, but you just gave them a blueprint to acquire you, and so now they can actually follow that, and there's not as much brain [00:16:00] damage, and so I think that the biggest mistake that people Do is not think of it from the perspective of the acquirer, of the capital provider, like, make it easy for them.

They see deals every single day, and yes, qualitatively, the deal may be exceptional, but if it's not communicated in a fashion that's digestible, it still may get overlooked, because, again, we're, tend to be a smaller situation on a much larger, you know, radar screen. That's a big element of it.

Jeffrey Feldberg: Once again, Arthur, a page right out of our playbook. We call it step three, future buyer. How do you master both the art and the science of thinking like a buyer? And if we're being honest, most business owners, when it's time to sell their company, all they care about the buyer, will the check clear the bank, which is being selfish if you call it for what it is, and it doesn't get that win that we're all about here at Deep Wealth as I know you are as well.

So let's talk about that. You've given us, Hey, look out for this. Don't do that. But why don't you walk us through your secret sauce? So when a business owner shows up and says, okay, Arthur, you know what? We are ready to go to market. It's [00:17:00] time to move on to that next chapter. Where do you start? What does that look like?

How long does that take?

Arthur Petropoulos: Part of, I think, why we're exceptional at what we do is that we're able to get out to the market within three weeks of an engagement to start talking to people. And by, we're able to do that because we have a real crystal clear process of gathering and crafting that narrative. And so, initial conversations with business owners, Rotate around those three prongs again, the financial fundamentals, the access that they have to a particular end market, to user, client base, to industry verticals, and then what makes the business special from a product, service, or offering perspective, and if we're able to capture all of that, we then dig further into recasting the financials.

 Nobody wants to pay more taxes than they have to and, there's also extraneous things within a business that are non recurring that, hey, we tried this and it didn't work or this was a one off, whether it was a needed a lawyer to do something or, you know, Business unit or revamp the building, but there's a lot of non recurring stuff.

And so I think one of the key things is to show, again, from the [00:18:00] buyer's perspective, what would they actually be buying in terms of financial performance? What does the P& L look like? What is the cashflow generating power on a post transaction basis? And so we work with the company first to kind of craft what is the financial performance look like post transaction and then digging into all of the other elements, I think, relative to what differentiators on a competitive landscape.

Again, people, what does everybody do in the company in an org chart? Is it definable? Are they cross trained? Do they have upward trajectory? Is there customer concentration? What does the customer breakdown look like? Are there tiers of service or product? And so we break down each of these categories in a way that gets us, again, to your Pareto's principle, right?

Gets us the 80 percent of the impact we're going to have in the discussion with people you get from the first kind of 20 percent of the information. I think the challenge or the mistake some advisors make is they just try to get all of the information day one and it's like I don't need to see bank reconciliations from five years ago to market a company today.

Yes, when someone wants to buy the company [00:19:00] and we're in formal diligence then sure there's going to be some things that have to be ticked and tied There's a critical mass of information. So you get that critical mass of information, simultaneously, you do the research. And so another big differentiator for our firm is other investment banks that we compete against, M& A advisors in this space, will just take all, they'll do that mental root canal of taking all the information, and then they'll just kind of puke it to 20, 000 people on a mailing list.

Right. And I'm on those, we're on those mailing lists. I get them because I want to see what everybody's doing, but it's like, and then they pray for the phone to ring. And it's kind of comparable to like... You want to sell a building, just put a sign on it and maybe, you know, I guess, suppose it works to a degree, but I think being proactive, not reactive, is the intelligent way to do this.

Find the hundred to two hundred people that this fits precisely with and reach out to them directly. So, We're crafting the narrative, we're doing our research around the proactive, you know, who we're going to talk to, and then we get out there and we talk to those people within the Three weeks or so from engagement, we are speaking to people, and then it kind of rolls into the rest of the [00:20:00] time of the engagement.

But, I'll pause there, but that's the general kind of starting line of an engagement. Get the narrative, isolate, define, and clarify all of the variables that we've talked about, do the research about where this is the missing puzzle piece, and then get the horses out of the gate and start the conversations.

Jeffrey Feldberg: Really interesting. I like some of the terminology you use for due diligence with that mental root canal that goes right to the point of where things are. It can be painful. And what I love your thought on, Arthur, I mean, I've had. We've had valuators come on and all the cast of characters in M& A and one theme that's come across and I'd love for you to say, Hey, Jeffrey, I agree or don't agree that the narrative, the right narrative, a compelling and powerful narrative about the company.

Can be as much as 80 percent of the enterprise value of the company. Valuators have said, Jeffrey, I don't even look at the financials. I look at that narrative first. If I like what I see on the narrative, that's forming 80 percent of the value I'll put on the company. Yes. Okay. I get it. The financials have got to be there.

The data, the [00:21:00] facts have to support that, but I start with a narrative first. So what is that? Is that truth? Is that fiction? Where are you on that, Arthur?

Arthur Petropoulos: It's difficult to quantify precisely, you know, how much of the value it impacts, but we can just say meaningfully. And so we think of it as frameworks or lenses by which the company is being viewed. And if you can pivot from lens A to lens B, and we'll define each of those, that's where value upticks. And so, again, we, companies sell on fundamentals, access, abilities.

And we say, That from a buyer's perspective, I think traditional private equity would look at a company and say, okay, it makes 3 million in EBITDA or pre tax earnings. We're going to buy it for six times that. And then we are going to aggregate 30 million of EBITDA and sell it for 12 times. Right? That's the idea of multiples expansion.

That is historically private equities. I think what you have to do, though, is try to pivot the narrative from, yes, the fundamentals, but we call it buy versus build, right? And let's say [00:22:00] you have a distribution company we sold a distribution company that sold clean room supplies into the Boston pharmaceutical market, for instance, right?

And so, a very difficult market to penetrate, they're long standing, they've been around for 40 years and have been doing this exceptionally well. And you have these national companies that are aggregating regional distributors, saying, we want to get into different geographies. And the big, if you're interested in biotech and pharma and whatnot, you want to be in Boston.

And I think this national company was looking to get better penetration into Boston, and so we could pivot the conversation to them, to not just say, Yes, it's value to X on the fundamentals, but we could say if you went from the ground up to try to just build a force to just through brute force penetrate the same market, how much time would it take?

How much money would it cost? And what's the probability that it even works

Versus you can just buy this thing that gives you all of these things guaranteed now at a certain price. And so that is a, what we like to think [00:23:00] of is the access and the capabilities are enhancing factors to the fundamentals.

And so you can't sell a business you know, there's a lot of VC darlings that could argue otherwise, but in our space of kind of the Buffett, Munger, Graham type of businesses you can't sell a business that does not have sound fundamentals. But the Access and the capabilities can pivot the conversation to a buy versus build versus purely just a multiple of the fundamentals, and that allows for material enhancement of value.

And could it be a doubling of value? It very well may be, because it depends on how much value that then creates for the acquiring company. And you know, difficult to put a precise percentage or accretion of it, but we can just say... If you can make the conversation move in the direction of Buy vs.

Build, supported by sound fundamentals it's powerful. And it gets, the results are... Materially better.

Jeffrey Feldberg: As we like to say here at Deep Wealth, [00:24:00] whether it's a gazillion dollar deal or it's a small purchase, we buy on emotions first, we justify with logic later. The better the narrative, the more excited you can get people and you know, when you're in a competitive bid. An auction where you have multiple buyers there, nothing like creating a little bit of excitement.

Hey, you know what? This is exciting. Let me get on this before the other ones do. But let me ask you this, Arthur, you've mentioned private equity a number of times. I know a lot of business owners in their mind, they create their own narratives. Oh yeah, private equity is going to come in and they're going to retire me.

I'm going to be really wealthy and it's going to be a whole Kumbaya story and it's all terrific. Give us the real picture of private equity because we're doing this all day. Every day, they're seasoned professionals. They're smart and they have the experience. What should we know as business owners, entrepreneurs, founders, thinking about selling our company when it comes to private equity?

Arthur Petropoulos: I think there's a very broad spectrum because everybody can define themselves as anything these days, right, and we always joke, we say, what's a family office? It's a family that has an office, and private [00:25:00] equity can be very much the same way, where it can be that there's committed capital, that they're looking to do things, that they have the ability, it could be people define themselves as private equity if they're going to try to lasso the deal and then go find the capital.

There's private equity that is buying something as a platform, so as a First entrance into an industry, there's private equity that already has a platform and wants to add, they call bolt on or tuck in acquisitions to help build that platform and so what I would say is that the world of private equity, it's not just the Thank you.

You know, Michael Douglas in 1980 of like, let's buy this big thing and slash and burn and chop it into pieces. That may exist for some of the larger stuff. In the middle market, lower middle market, private equity is usually buying for something beyond purely the numbers, that they want the people, that they want the capabilities, and so they're not buying any of these things for the most part to, chisel them.

But I would say is you really have to know who you're dealing with, both from a, It's a capability, right? Do they have the actual capital available to do the thing? Can they do what they say they want to do [00:26:00] from a track record? Have they bought companies in this industry? And if not, that can still be okay, but you say, what's your experience in it?

And what's your interest in the space? And if someone just says, yeah, you know, we might want to buy it because it throws off some money and it's good. I don't know, because that's when you're going to get chiseled, because they're not seeing a broader picture. Whereas if someone says, we love this space, we could see how, if we buy one company, we can utilize the back office to aggregate other businesses and, you know, have a lot of operating leverage.

Like, when you start to hear the thesis, and that's why having a lot of conversations is important, then you know, they're more of a bona fide prospect. And then I think lastly is desire, right? So we say capability, track record, experience, desire. If someone can define all of those things, well, you know they're the right party.

So I'd say private equity is very broad, they're not going to be, I've seen situations where they've been tremendous to work with, I've seen situations where they've been awful to work with, I would almost define them as, As in any, the spectrum of private equity is kind of comparable to the spectrum of almost any acquirer, but I would say [00:27:00] the difference to keep in mind, I think one of the historical differences that does carry some weight still is that they are transactionally driven in the sense that, let's say, Jeffrey runs a big widget manufacturing company.

If we bring a widget manufacturing company to you and say you'd like to buy it, it's interesting, but it's not your main business, right? Your main business is running your business. So, historically have not worked as fast, but they've been able to see sometimes a broader picture, whereas private equity can move quicker, however, will sometimes be more financially driven and not see...

The broader picture as much, but I think in today's environment, again, it's becoming more of a continuum. So you have, I think some of the optimal scenarios we've worked with have been private equity backed strategic so that they can see the broader picture and run the transaction like a private equity firm.

So there's no specific conclusion to draw, but these are at least some things to contemplate, 

Jeffrey Feldberg: Thank you Let me ask you this, Arthur, let's do a very quick thought experiment. And by the way, we'll have another [00:28:00] thought experiment, a fun one at the end. But for this thought experiment, imagine that someone who's starting up, they haven't gotten into business yet. They're going to be starting up next month. And they come to you and they say, Arthur, listen, go back to your days as a Wall Street investment banker.

Fast forward to today. What advice would you give me? They're asking you that when I do show up and you're going to take me to market and you're going to have a liquidity event for me, what would you be telling me that I should be doing from day one all the way until I see you? What would you say to that person?

Arthur Petropoulos: I would say thoughtful growth and thoughtful crafting of the business. And so what I mean by that is, if you had a company that made a million dollars in profit a year, and it did one thing for one kind of avatar, it would be very sellable because the client base is vertically focused and the offering is very definable.

If you had that same company that made a million dollars in profit, but it did 10 things for 10 different people.

It's really ten 100, 000 businesses under one umbrella, and there's not enough meat on the bone necessarily. So [00:29:00] we always say, it's funny, I have friends that run three different businesses, and they'll say, ah, you know, it's so difficult doing three different businesses.

And I say, yeah, I can understand. It's like having three different spouses. I mean, it's like, you know, Not for the crude example, but it's like, how do you keep track of anything? And I said, how good do you think your first business would be? And I think this was an Alex Ramosi story too, and I heard it, I said, I've heard this, but how good would you be at your first business if that's all you did?

And they'd say, I'd be exceptional at it. I was like, why don't you just do that, right? And so. I think when you're running a business, there's the most difficult thing to look beyond is other good opportunities, right? So there's always the expression like if the devil can't make you do bad things, he can distract you.

So as you're growing a business, there's always going to be, you know, as we grew this business of advising companies on selling, advising companies on finding capital, there's always this interesting opportunity of like, hey, a friend of yours wants to go halfs on a, Real Estate Portfolio, or, hey, someone wants to go buy this, [00:30:00] you know, company and do this thing.

And so, you can see a business that's sellable because it's concise and comprehensive. Other businesses that

Are susceptible to that shiny new thing is that they grow these little appendages along the way and say, oh, we do a little of this, oh, we do a little of that. What we say is, If you want to grow a business that's ultimately going to be sellable or even financeable along the way, define what you do, who you do it for, why is it special, and But be aware that the greatest risks are not going to be all the dumb things you can do when you make money.

It's going to be the other good ideas that you could do along the way that will distract you. And I say, make it laser focused, and then as the business grows, you can move incrementally. And so, If you have a services company that services distribution firms in the pharmaceutical space, well, maybe then you could expand it into industrial distribution companies and then just broad distribution in general, then maybe you can move up market, but it has to connect, right?

Like, it has to grow. This way, instead of having this kind of like [00:31:00] dot chart of all these different things, so that's the advice that we give to people who are starting things is to make it sellable, it has to be clearly definable, and it has to be exceptional at one, it can be exceptional at a few things, but it needs to be exceptional at one thing for one customer base, and have enough size at that.

Jeffrey Feldberg: It's terrific advice. Do one thing, do it really well, be world class in it. And yes, there's going to be shiny new toys and objects that come along the way. Ignore them and focus on what you do. And once you do that really well, maybe there's other lateral expansions or other things that you can be doing.

Terrific advice for our listeners. But let me ask you this, Arthur. We've been talking a lot about liquidity events. Let's talk about a different kind of liquidity event where it's not selling a business in full, but it's raising capital. So broadly speaking, what's going on as you're seeing it, as we speak today, when it comes to raising capital for companies, what should we know in terms of the latest trends or what's happening in the marketplace?

Arthur Petropoulos: Yeah, I think historically, capital has been perceived somewhat again as a binary of, hey, you can, [00:32:00] Get debt on the company and retain all of your equity, or alternatively, you can sell all of the company and have no ownership of it, but over the last 10 years in particular, and as it's kind of come down to the middle market, lower middle market, there's a lot of different options in there, and so people could sell a third of their company, people could take on debt that has a Equity kicker or warrants, they'll call it.

So maybe you take on X amount of debt, you pay the debt back, but then you also have to give 10 percent of the company as part of it. And so that could be structured debt, preferred equity, but the point being is we like to always work with clients to define what the objective is and then you can kind of back into what the right type of capital is because it's not just debt or equity.

Now what I will say from an environmental perspective right now the cost of capital People will say it's gone up, but in reality, it's kind of reverted back to historical norms in many ways.

Debt capital for a business may be 7 9 percent at this point in time from a bank. From a non bank, it could be 12 15 percent depending on the situation.

[00:33:00] Equity. I think has to be fundamentally supported. And again, we've avoided historically industries or parts of the market that have been kind of super hot or very cyclical. You know, our business has always been the consistent company, so they're not the sexiest necessarily. But, and they don't go wild during the frothy times, but they don't go down during the bad times either.

As long as the narrative supports it, the equity is available. I think equity, so typically equity would be underwritten to a 20 percent return was always the historical private equity model. And so if you think a 20 percent return implies a five times value, but what you try to do is you craft the narrative in a way to,

I think, show that the exit of that equity will be meaningfully higher, which allows for a lower annual yield, which allows a higher multiple, and it gets into the technical stuff.

I put it this way. It's available. Equity is available. Debt is available. The cost of debt has ticked up. The cost of [00:34:00] equity has, I wouldn't say the cost of equity has ticked up, but the scrutiny has been up. Like, I don't think people are listening to purely the upside story. They want downside protection.

But again, I think that things sometimes are so good for so long, not good, but so irrational to some degree for so long that when rationality sets back in, people think of it as a negative, we actually think of it as a positive because there's a rotation of sorts that when the VC stuff is not kicking off ridiculous returns, I think people say, like, what can we buy that A, will perform and B, won't get me fired, right?

Because if you

Jeffrey Feldberg: Sure.

Arthur Petropoulos: a corporate development department goes out and takes a huge stab at this early stage darling and it dies on the vine,

Jeffrey Feldberg: Yes.

Arthur Petropoulos: there's a lot, someone's going to have to answer some questions. But if they go out and buy a company that generates the same amount of earnings every year, then Worst case scenario, they're going to say, oh, it didn't grow the way we thought it was going to grow, but it still does what we think it does.

And so I think from an equity perspective, downside [00:35:00] protection is again, back in the vogue from a debt perspective, cost is up but banks are still lending. And there's a lot of non bank lenders that have become, I think more, They filled the gap. I think back in the day, you'd have banks, and then you'd have non banks that were very expensive, but there's been a middle ground now of very sophisticated middle market, lower middle market, non bank lenders that can provide capital for the right situations.

Jeffrey Feldberg: Well said, Arthur. And my personal bias, I call it a cockroach startup mindset. This is how I run all of my companies because the market's gone back to fundamentals. We're not on this, oh yeah, it looks good, we're going to give it a crazy value. It's hey, I want to protect the downside. I want to know there's actually something there.

But if we operate like a cockroach startup mindset, where, okay, we're going to possibly bootstrap this. We've got to have real customers, a real business model, actual profits. You can never go wrong with that. And when the market goes out of vogue from that way, you're still in good standing because it always does come back.

And when it does come back, you're all set to go and you don't miss a beat. But let me ask you this before we start going into the [00:36:00] wrap up mode, Arthur, are there any questions or topics that we haven't covered? Is there a message that we haven't spoken about yet that you'd like to share with the listeners?

Arthur Petropoulos: I think the one that you just, focused on relative to, I liked it, the cockroach startup, right, but you want to be self reliant in business to the extent that you can, and so as we grow a business, we want to not be solely reliant on one client, right, because customer concentration decreases value, increases risk, and so the same way we think about growing a business from a team.

client perspective and not, and avoiding concentrations of avoiding over reliance. We want to avoid over reliance on capital as well. I think that's the, you know, there was an expression someone told me that if you drown in the middle of a lake or if you drown five feet from the other side of shore, you're still drowned.

And so that's the challenge with businesses. If you are predicating your business on things outside of your control, being at the macro economic environment, No one's entirely resilient to these things, but to make [00:37:00] yourself durable, anti fragile, as the book would say, those are important, because you don't want to predicate the value of your business on the theory of the bigger fool, and I get a lot of flack from my friends in VC, but I say, if the only way out of your business is that someone else believes it's worth more, it's worth more.

That's a hard way to like survive because you have to constantly be convincing the next guy that it's worth more to fund the operations of the business. And so for every company that sold for a billion dollars, the graveyard is filled with companies that raised money at this value, raised money at that money, raised money at this, all illiquid, all just on paper.

And then they run out of money and they shut down or they have to sell for scraps or something. I mean, you just saw Blue Apron went public for two billion dollars, just got bought for a hundred million. That's a quite the deterioration of value. And so I say, as you're growing a business, grow it to get the growth, to get the acceleration, to get the momentum, but make it durable, make it so that you are not reliant on The [00:38:00] bigger fool that you can just survive off of what it makes and that you will grow off of it because there is, it doesn't have to be one or the other.

There's some people that say, Oh, you can make a business, a cash register, or you can make it have enterprise value. Our answer, they say, what's better? And the answer is both. be able to make the business make fundamental sense, take money out of it. on the other hand of it though, do it in an intelligent way that it will have enterprise value on the long run and will be sellable. It is possible. So if we could tell you one thing, is it is possible to do both of those things along the way. And it's not, grow at any cost, you know, just get sales, and the rest will figure itself out.

I don't think that's true in every economic cycle, and so being the oldest is sometimes better than being the biggest.

Jeffrey Feldberg: Well said, Arthur, well said. And for our listeners, please take note because what Arthur is sharing is the absolute truth. He's been there, not only done that, he's doing that day over day. So Arthur, let's do one final thought experiment as we head into the wrap up for this episode. It's a fun one. Let me set this up When you think of the movie Back to the [00:39:00] Future, you have that magical DeLorean car that will take you back to any point in time.

So imagine now, it's tomorrow morning, and this is the fun part, Arthur, you look outside your window, there it is, DeLorean car, not only is it curbside, the door is open, it's waiting for you to hop on in, which you do, and you're now going to go to any point in your life. Arthur, as a young child, a teenager, whatever point in time that would be, what are you telling your younger self in regards to life wisdom or life lessons, or hey, Arthur, do this, but don't do that?

What would that sound like?

Arthur Petropoulos: That's an interesting question. I mean, I would say, head back to the teenage years heading into college, and I'd say, when you start a business I always wanted to start a business. I didn't know what it was going to be. I always wanted to do that. I had all sorts of wacky side jobs like a lot of entrepreneurs do, but I think I cared a bit of Perception.

I think I cared a bit of what it would look like or how this ideas would come together. And what I find is that there's a lot of excitement when you start a business, you get to tell everybody there's exciting things and [00:40:00] you know, you get to put all the memes on your tweets and stuff, but, and then when you sell a business, it's equally as exciting, but there's a humongous amount of time in between that it is solitary, dark, gritty.

And it's just you and God, right? And then, yeah, and everybody will be, you know, they always said, like, when Jesus came home, he was still the carpenter's kid, right? Like, so you will be doubted by a lot of people. You will be, you know, no one will believe it. And then when you ultimately make it, they'll say, overnight success, 20 years, overnight success.

But I, what I would say is, if it's going to be that it's only going to be you and God during the process, then you really shouldn't. Care about perception, thoughts, or anything else. I remember asking someone at one point when I started my company, I said, any advice? And he was a smart guy, and he said, the only thing I can tell you, Arthur, and the only regret you will ever have is that you didn't do this sooner.

And I think I had the idea of this business in my 20s, and I didn't ultimately start it, you know, maybe when I was like 26, 27, I had the idea of this and [00:41:00] doing it, and I didn't actually start it until I was 30 years old, because I was concerned of, you know, What it would look like taking that step back in terms of prestige and all this stuff.

And so if I could give my young self better advice, I would say it's going to be you and God when you're building it. And it's so you may as well contemplate it just that way now and pursue it. As soon as you have the idea, roll the bones, because it's just a matter of. Time and dedication. Alex Ramosi says, right, and I do believe this, life is filled with winners and quitters, and that's it.

if you keep playing, you will win. Right? And maybe it gets ugly, and maybe you have to figure out other ways to drum up capital as you're trying to do it, but you only lose when you quit, and so you're better off just getting in the game, getting in the jungle, taking that first vine and swinging in there, and you're not going to see the next five, but you've got to be on the first, right?

And so, Anyway, that's the advice that I would give young Arthur who had a little more hair and could jump a little higher.

Jeffrey Feldberg: Terrific advice. You'll [00:42:00] only lose when you quit. What terrific advice. What a wonderful walk away for our listeners today. And Arthur, before we wrap things up for a listener who has a question, maybe they want to speak to you, get some questions answered about their business, maybe even how do you take them to market?

Where's the best place online that someone can find you?

Arthur Petropoulos: Sure. So three places we point people in direction of is our website, hillviewps. com. There's a link on there that allows you to schedule some time with our team and I try to be on as many of those calls as I possibly can. And then I'd say secondly is our LinkedIn page, both our company Hillview Partners as well as mine where we're putting out content every week, as well as you can just feel free to reach out and we'll get something set up.

There should be some links there. And then lastly, more from a content perspective, check out our YouTube channel. If you type in my name in YouTube, you know, we're just starting to get some good traction there. We've been doing it for about a year, putting in a couple of videos a week. And so we say, set up some time to chat.

Digest everything that's on YouTube, get some sense as to kind of how a lot of these things work, and then we're always happy to have those [00:43:00] conversations and I, what I say is that I think people are a little hesitant sometimes to reach out because they say, well, I don't want to, no, I don't know if I want to do this right now, or I definitely know I don't want to do this right now, but that's okay, because I think to your point, Starting the thought process is how to optimize things on the way there.

How do you want the end to look like to dictate what you should be doing today? We're always happy to have those conversations and whether we point the people in the right direction of someone like yourself, Jeffrey, or if there's something to do right now, the more conversations, the better.

I'm always happy to chat with people.

Jeffrey Feldberg: There you have it. Take Arthur up on his offer. Go to the website, book some time, speak to the team, speak to Arthur, see where that's going to take you and what that means for you. Well, Arthur, congratulations. This is officially a wrap.

And as we love to say here at Deep Wealth, may you continue to thrive and prosper while you remain healthy and safe. Thank you so much.

Arthur Petropoulos: Well said, Jeffrey. I appreciate the time here. 

Sharon S.: The Deep Wealth Experience was definitely a game-changer for me. 

Lyn M.: This course is one of the best investments you will ever make because you will get an ROI of a hundred times that. [00:44:00] Anybody who doesn't go through it will lose millions. 

Kam H.: If you don't have time for this program, you'll never have time for a successful liquidity 

Sharon S.: It was the best value of any business course I've ever taken. The money was very well spent.

Lyn M.: Compared to when we first began, today I feel better prepared, but in some respects, may be less prepared, not because of the course, but because the course brought to light so many things that I thought we were on top of that we need to fix. 

Kam H.: I 100% believe there's never a great time for a business owner to allocate extra hours into his or her week or day. So it's an investment that will yield results today. I thought I will reap the benefit of this program in three to five years down the road. But as soon as I stepped forward into the program, my mind changed immediately. 

Sharon S.: There was so much value in the experience that the time I invested paid back so much[00:45:00] for the energy that was expended. 

Lyn M.: The Deep Wealth Experience compared to other programs is the top. What we learned is very practical. Sometimes you learn stuff that it's great to learn, but you never use it. The stuff we learned from Deep Wealth Experience, I believe it's going to benefit us a boatload.

Kam H.: I've done an executive MBA. I've worked for billion-dollar companies before. I've worked for smaller companies before I started my business. I've been running my business successfully now for getting close to a decade. We're on a growth trajectory. Reflecting back on the Deep Wealth, I knew less than 10% what I know now, maybe close to 1% even. 

Sharon S.: Hands down the best program in which I've ever participated. And we've done a lot of different things over the years. We've been in other mastermind groups, gone to many seminars, workshops, conferences, retreats, read books. This was so different. I haven't had an experience that's anything close to this in all the years that we've been at this.

It's [00:46:00] five-star, A-plus.

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Deep Wealth is an accurate name for it. This program leads to deeper wealth and happier wealth, not just deeper wealth. I don't think there's a dollar value that could be associated with such an experience and knowledge that could be applied today and forever. 

Jeffrey Feldberg: Are you leaving millions on the table? 

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