WSO Podcast | E66: LevFin Pro Gives us a Lesson in Mezzanine Financing
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Member @LevFinAlum gives us a 10-minute primer on mezzanine financing and shares his career path. Learn about why he got into investment banking in the first place, what's the hardest part about running his own shop as well as his one piece of advice to his younger self.
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WSO Podcast (Episode 66) Transcript:
Patrick (CEO of WSO): [00:00:06] Hello and welcome. I'm Patrick Curtis. Your host and chief monkey, and this is the Wall Street Oasis podcast. Join me! As I talked to some of the community's most successful and inspirational members to gain valuable insight into different career paths and life in general. Let's get to it. In this episode, remember, LevFinALum gives us a 10 minute primer on mezzanine financing and shares his career path. Learn about why he got into investment banking in the first place. What's the hardest part about running his own shop, as well as his one piece of advice to his younger self? Enjoy. You know, my live finned alum, thanks so much for joining the Wall Street Voices podcast.
LevFInALum: [00:00:55] No, happy, happy to do it and look forward to seeing how I can help.
Patrick (CEO of WSO): [00:01:00] It'd be great if you could give everyone just a short bio.
LevFInALum: [00:01:04] Yeah, so over my career now spanned, gosh, almost 25, 26 years. Started off generically out of undergrad in investment banking in New York, did that for through the junior analyst program into, you know, an associate left that firm to continue to still in the leveraged finance business on the buy side with a with a mezzanine equity fund also based in New York, did that for another few years, deciding, Gosh, I was living in New York and reached the point where I thought, Gosh, I can continue down this path and probably have a pretty good life, but decided at some point I needed to grow up. So I thought grad school was a great, a great way to do that and decide to move back towards where I grew up, closer to closer to closer to Texas. And so I ended up at grad school in Dallas and have continued a career at Post MBA in the deal finance world, first in project finance funding and investing in power projects. Then back then back into leveraged finance in some capacity as an advisor, then as a lender directly. Finally, at a boutique operational turnaround specialist, I was based mostly in Dallas. The firm itself was based elsewhere, but after building a network here, I decided that I would want to continue to do what I did, but started my own firm three years ago and have been doing similar. Although maybe down market in terms of size, call it two to $7 million to be the four companies based here in Texas and in the surrounding states. So career is tracked somewhat in the deal business, although a few stops along the way.
Patrick (CEO of WSO): [00:03:23] Yeah, for sure. Thanks for that. That summary there. So let's just start, although let's start. No, it's great. Let's start all the way back at undergrad. So you went to what I would call almost like a semi targeted grade school, but graduating in the mid-nineties and tell me what it was like. Words there, you know, you ended up getting into a love group at a what would you call that a boutique middle market firm back then?
LevFInALum: [00:03:47] It was, it was. It was a large, large bank. Large bank, OK?
Patrick (CEO of WSO): [00:03:51] So can you tell me about yeah. Can you tell me about like how you how you got? I assume you had some internships. Maybe you didn't. I don't know what it was like back then, but what was it recruiting like?
LevFInALum: [00:04:01] Yes. So my only internship throughout college was I worked for I worked for a few or two brokers who your traditional brokers, wealth managers, I guess they're called now and doing whatever it is that interns do and not. And back in undergrad, I really had some idea of what the differences were among commercial banks and investment banks, and certainly on the investor side with private equity and other alternative asset managers were didn't really understand the nuances, certainly that do exist. All I knew is my undergrad degree was in finance. I enjoyed the deal business at some level and you know, how I got into the business really was obviously the big firms the bulge brackets came on to campus to recruit, dropped my resume, had a good interview with a firm and six weeks four weeks later had an offer. And that's what started the whole journey.
Patrick (CEO of WSO): [00:05:19] And yeah, I know it was a while ago, but did you did you prep a certain way? Anything surprising anything? Any funny interview stories from back then? Did you flame out on anything or did you just crush every interview that came your way
LevFInALum: [00:05:32] Or do or
Patrick (CEO of WSO): [00:05:35] Or do you actually remember anything about like the number of resume drops you put in and you're like, how many actually convert it to interviews?
LevFInALum: [00:05:43] Do you remember? I don't remember the exact number of drops, but I will say that let's say I drop 10. The conversion rate. The interviews was like nine. So oh, really good was it was. It was high. And I guess it's higher, and I don't know if that's high, but and I think the reason is that because of the school I attended and because of the nature of the firms that were recruiting at our at our school, there was a lot of alumni. Yeah. And I think that that a lot of decision makers were alums. And as result, I think all things being equal, alums like to be surrounded by other alums, at least the senior alums. The senior guys who are alumni would like to have their ego stroked by the junior guys who are alums. And so I think that that's perhaps one of the one of the accidental benefits of being at the school I was and being recruited out of the by the groups that we were. So, so you make you make it a lucky. You're good. Yeah.
Patrick (CEO of WSO): [00:06:50] So you make it up to New York. You're in this love fan group. You're doing a lot of good transactions. You are there for a good four plus years, you know, getting promoted analyst to associate with no MBA. Was that standard back then or what was the was the thought process? Hey, I'm going to be a banker for life here? Or what was the thought process around that?
LevFInALum: [00:07:08] I would. I would like to say that there was a big plan in place. That was my that was my goal was really not really having a lot of people in my network or friends going through. We were all going through it at the same time. So none of us really had any visibility into what the life was going to be like or the or the path. I think some that's not entirely true. I think certain of my peers had a very good idea had it all mapped to some degree and had a plan to how to get there. I think mine was sort of a less proactive than it probably could have been, but more reactive to different opportunities that I had. And do you
Patrick (CEO of WSO): [00:07:52] Think that was maybe because you were working long hours or were the hours long? And you know, is it something where you just kind of had your head down?
LevFInALum: [00:08:00] Yes, I think, you know, as far as work hours per week, I think even today you don't know what it's like, but it's probably pretty similar crushing 80 to 90 to 100 hour week, who no one really knew what time off meant and vacations were actually. One thing I do remember is that when you are, when you're able to schedule, say, a week a week off people, people are pretty much left you alone. And so I think that people valued the work time, certainly. But people also recognize that gosh, if we if we if we crush them too hard for too long without break. The usefulness or how much contribution these guys can make is just diminishing, so yeah, I think that there that there was definitely an effort to make sure we had some time away completely.
Patrick (CEO of WSO): [00:09:07] Yeah. And I think we're seeing a lot more of that nowadays. With the competition from tech, you see all the bulge brackets making a push towards improving the lifestyle for the analysts and the junior bankers with, you know, time off and all that stuff from, you know, pencils down Friday night to Saturday morning. I think it's Saturday or something like that. And then another other firm, other banks, do you know, at least one weekend off per month type of thing? So that's interesting. So that even back then, at least at this bank, it was a little bit more as that first year analyst, you were actually able to take a vacation one week vacation or not.
LevFInALum: [00:09:43] I think it was after
Patrick (CEO of WSO): [00:09:46] Very first your first year
LevFInALum: [00:09:47] To get this. Yeah, I think it was after. I think, you know, what I learned quickly is that the work calendar doesn't track any traditional calendar at all. So even though it's, for example, the holidays doesn't mean that people stop right or that I should stop or we should stop working. It tracks a deal calendar, which is whatever stage your transaction or pitch or whatever is in. That's what you should be doing. No matter if. If it's a holiday or it's somebody's wedding or somebody's birthday, it doesn't matter. Sure. I think that that that you're getting it done because that's the culture. It's a culture of somewhat face time. Of course. Yep. Bad, bad or good, but also the teens. I'm sure this is true today are staffed so routinely or you're spread so thin across so many interesting and maybe less interesting transactions that you're pretty leveraged to pretty maxed out at all times. You had any capacity that's almost viewed negatively versus keeping yourself fully engaged.
Patrick (CEO of WSO): [00:11:10] Yeah, the staffer would always try to make sure you had you were at full capacity, right? Exactly. So question so for the people who are a little bit less familiar with mezzanine. Can you explain to them like what? What mezzanine capital markets is or what? What are mezzanine investments and how like the type of work you were doing? Just because I think people have heard the term, but not everyone knows what it is.
LevFInALum: [00:11:33] So, you know, my mezzanine career track both the sell side and the buy side, so on the sell side, it's what you might imagine in terms of, you know, I was in a capital markets group. What does that mean, really our role a little bit different from origination in that it was our responsibility to generate the relationships with the actual purchasers, the investors of the mezzanine, debt and equity on occasion securities that we were that were being originated by our coverage groups. Right. So not to get too basic, but the way that we thought about mezzanine, especially private were the gap financing in lower middle market deals such that a mezzanine financing could be anywhere from in our group, from five to seven million all the way up to 50 million, but basically filling a hole among private investors versus the bigger public institution. Or, I should say, between the bigger institutional dollars that were buying leveraged loans and high yield bonds. So these were private, more privately negotiated, bespoke or one off type financing opportunities for those
Patrick (CEO of WSO): [00:13:01] Those type deals. And back then, did most of them have like equity kickers and warrants attached to them. So if a certain valuation was hit that they would convert to equity or they could convert to equity or a small percentage?
LevFInALum: [00:13:12] So the answer to your question is we structured them as their debt securities with equity, with equity tickers. So in other words, with equity warrants attached that the because if you think about a capital structure, there was some contractual return. But a lot of times these lenders were taking a hybrid of debt and equity risk. So they would say they would price in some of that equity risk by taking a certain percentage of the company's equity. Oftentimes anywhere from a point to, who knows, five to 10 percent. Rarely do we ever see it up at 10, but five is pretty average.
Patrick (CEO of WSO): [00:14:02] Yeah, one to five is what I had seen, at least back in the day when I was interviewing for a hedge fund that one way back in the day. Yeah. But so I'm curious the way I should think about this. So when people were structuring these debt securities with equity or warrants attached, those equity warrants, was it typically something where it would convert no matter what or only it would convert at a specific valuation, like on a financing event? How would or just it convert it after a certain amount of time? Like, how are they typically structured? Because I would. I think myself and the listeners might actually learn something from understanding how those are structured. And if you know how they're structured today, has have things changed on that at all? Do you
LevFInALum: [00:14:41] Know? So I think that it's been fairly consistent with a warrant. So warrants are detachable. In other words, they are they can be detached from your bond and traded independently. And really, what is a what is a warrant for equity? It's really a long term call option on the equity of the company. And you it's your right, not your obligation, to convert to buy equity and have that if it goes public. Obviously, there's a market for your securities, right? And you know, you can structure warrants, however you want. And the way that Ares typically were one, they were detachable two that they were cashless exercise. In other words, you didn't have to pay to exercise your warrant. They were paying
Patrick (CEO of WSO): [00:15:37] Almost like more like restriction, almost like more like restricted stock or something like that.
LevFInALum: [00:15:41] Almost, yeah, almost they were unregistered, yep, but on a change of let's say there's a change of control, it's the easiest example a company gets sold or acquired your warrants immediately vest or convert, or you can redeem them into the amount of the equity that that sets the stages on the warrant. And so that makes sense.
Patrick (CEO of WSO): [00:16:05] And what about the underlying debt portion of the interest rate? Was it typically higher than a subordinated note like an unsecured bond? Or was it because it had the equity upside? Was it priced typically under that? Do you know? Do you remember around? Was it like eight to 15 percent?
LevFInALum: [00:16:22] These things were fairly typical. Structure would be an 11 to 13 percent cash coupon on the underlying debt, maybe one to three one to four percent. Pick payment in kind. Yep. In other words, you just get paid in more and more bonds and at the time. No. Well, no. Let's say there was a one year non-call period, then a some sort of call schedule after a year or after, however much time. Typically on the buy side, we restructured at least two year non call with some sort of McColl provision. In the meantime, if you really had to redeem these ahead of the call schedule, there was a mechanism for that. But we as investors, you want to know your money is tied up for at least a minimum amount of time before it gets called back or redeemed or repaid. Because if you're going through the effort to make the investment, you want it working for you at
Patrick (CEO of WSO): [00:17:35] Least a couple of years or something. Yeah, make sense.
LevFInALum: [00:17:38] Yeah. Otherwise, the reinvestment risk having to redeploy that capital if it comes back to you soon or it comes back quickly to find another opportunity. 18 to twenty one percent return is typical.
Patrick (CEO of WSO): [00:17:53] Yes. So let me. So you're saying that a lender could potentially get 11 to 13 percent cash coupon plus one to three percent pick payment in kind, meaning it's getting rolled back into the balance of the thing. So it's really almost like 15 to seven, 15 to 16 percent plus they could. Plus they could actually have some warrants attached detachable warrants on that piece of paper. So it's a pretty expensive. Exactly. It's pretty expensive financing for a company, correct? And it should be what kind of companies would do this? Like, why wouldn't they just go get a bank, a secured bank loan? Maybe they don't have enough assets, but what are there? Is it typically because a bank will give them a loan? Or what's the what's the situation? You're distressed.
LevFInALum: [00:18:33] So, so yes, it's a it's an expensive quote unquote relative piece of paper compared to debt. It's always going to be cheaper than equity as what is the way to think about it is, is that if you're raising $20 million in financing and you know the dilution from having to give up, say, a five percent warrant versus a $20 million equity direct investment is significantly different. Right? But you know why? Why are why are companies raising mezzanine capital? A few reasons. One is that there is an active market of investors purchasing these kinds of or investing in these kinds of securities so that that there's going to be some liquidity for that hole in the capital structure. Oftentimes, banks. So the way that we thought about the capital structure is you get a certain amount of leverage through the traditional bank market and there's going to be if it's a buyout, there's going to be an equity component in that. But to fill out the capital structure, in other words, to get all the cash needed for an acquisition, you might need to fill it with what's now or what can be mezzanine debt.
Patrick (CEO of WSO): [00:20:04] And do you feel like that's becoming more common because leverage is so high on these buyouts right now that where people are trying to write, you know, people are buying companies at 12 to 15 times EBITDA and it's, you know, they're getting eight turns of like senior like senior debt or is this something where it's become more common, do you think?
LevFInALum: [00:20:25] Well, I think that that where it has become more common lower middle market that the middle market, for sure. But what how has the mezzanine market evolved rather than it being strictly? It's a basically a private, high yield debt security. Now what you're seeing are more creative senior financing second lean left out senior financing to help fill that to help fill that financing potential financing gap. But with more senior paper, because you know, a lot of close a lot of investors have or credit funds have dedicated dollars or have an entire strategy built around senior financing with a little bit of yield. And how do you get that? It's in these other creative securities or creative financings that fill the same role as mezzanine, but maybe from a pricing standpoint are a little more competitive. In other words, you know, LIBOR plus 10 LIBOR plus nine versus a straight 11 to 13 percent cash plus pick plus equity. Yeah, you can still get your $20 million hole filled, but at a more cost competitive, potentially. Ok. It doesn't always, you know, it's still leverage. It's still debt. Yeah. So you're still maxing out the cap structure to some extent.
Patrick (CEO of WSO): [00:22:03] Ok, so that's fair. Sorry to take you on that little tangent. I'll get back to your career now. Yeah, I think it's just I think it's just interesting because there aren't a lot of there's not a lot of information out there on like the MBS capital market. It's a very kind of niche space. And I thought it would be interesting to just hear about it.
LevFInALum: [00:22:18] It's a very subterranean world.
Patrick (CEO of WSO): [00:22:20] Yeah, exactly. So, OK, so back to your back to your background. So you kind of get promoted. Analysts to associate was there at any point before then. Were you thinking MBA? Were you thinking, you know, why? Why kind of jump firms? And did the MBA ever kind of cross your mind before you jump firms? What was the thought process around that?
LevFInALum: [00:22:39] Yeah, you know, so getting promoted within the company was certainly the carrot that that they offer internally as a here's an opportunity you work for an analyst, as an analyst, as three to three years. If you do well, people want you to stick around. You can get promoted without your MBA. But, you know, separate from how it might work internally at firms, did the MBA ever come up? Absolutely. It comes up. It's part of the analyst subculture dialogue of, Gosh, do I go back to get my MBA? When do I do it? Where do I go? It's probably on your mind from the very day you start, which is because, you know, these programs are two and three years. Let's say there's no option for promotion. What do you do after two or three years? You know, the natural migration, if you want to stay in the industry or the adjacent industry, is the MBA, right? So it's and all your all your senior colleagues, the associates and on up to the MDS and 90 percent, at least the ones that I worked with all had their MBAs to some top schools. So as far as it being part of the discussion or thought process, absolutely, because you're surrounded by I was surrounded by some of the smartest people I think I've ever worked with or been around and all went to great schools and thought, Wow, I think that that's probably my path too. And for not knowing anything else.
Patrick (CEO of WSO): 00:24:21] So why jump to why did you get another? Why did you go to another firm and just take a promotion? You ended up not going to the MBA right away. You ended up becoming a VP at another mess. As for doing, you know, type lending? Right?
LevFInALum: [00:24:37] Yes. So I went from associate to whatever the equivalent. I can't even remember the title.
Patrick (CEO of WSO):: [00:24:45] Assistant Vice President, Assistant Vice President
LevFInALum: [00:24:48] Yeah, AVP, which is this is probably the senior associate equivalent. Ok, but you know, why did I choose to do that one? In 2000, whenever it was right before my firm got acquired by another firm, there was a lot of turnover in the firm, which is, as I learned early in my career, turnover and jumping around from different firms. It happens every day. It's not. It's not. It's not something isolated. You know, it's part of the culture of the investment banking system at the time was taking your taking your either your group or yourself and doing it at another firm or maybe a lot more competition, especially around guaranteed. Why I did you know, there was a there was an opportunity to join a client of ours who I really respected and thought that what a what a great way to learn a different side of the business as an investor versus as versus on the sell side. So it was I don't want to say it was a natural extension of what I was doing, but it certainly made sense at the time.
Patrick (CEO of WSO): [00:26:10] Well, it was basically going to the East, going to the buy side basically, right? So you went from sell side,
LevFInALum: [00:26:14] Basically going to go into the buy side? Exactly.
Patrick (CEO of WSO): [00:26:17] Yeah, which is what a lot of people do nowadays. So it makes perfect sense. And you were there for a good number of years. You were there for three years before kind of deciding, yes, the MBA was your thing. It does look like you had a little bit of a of an entrepreneurial stint there before the MBA. You kind of co-found a startup. We don't have to say what it is because then it'll probably be obvious who you are. But yeah, the
LevFInALum: [00:26:43] Point is like what really? What it taught me was while I thought that I had a pretty good background in finance and in the deal world, what I didn't have a great background in at all was How do you operate a business? How do you how do you come up with a growth strategy, marketing all those things that you kind of hear about and learn about that other companies do? But when you're a practitioner, an operator, and so I had no background in anything other than an Excel spreadsheet, I thought, well, maybe, maybe, maybe grad school is the way to learn these things and also enhance what I already know. And so it was, I would say at the time. Granted, I was perhaps a standard deviation or two older than the average age of going back to grad school. But it made all the sense in the world to me. If I wanted to continue to stay in the world, in finance or in any role going because of the things you learn or the networks you build all those things.
Patrick (CEO of WSO): [00:27:59] So going into your MBA, you kind of knew you wanted to stay in finance and you basically were going in there. Was there a thought of, Hey, I'm going to go investment banking, I'm going to go back to sell side? Or was it, hey, I definitely want to stay by my side? What was the thought process kind of going into your MBA? Like, did you know what you were going to recruit for, right when you started? I know you were trying to get it sounds like closer to home, closer to family. So you went to a school? Yeah, down south. But if you could just tell me a little bit about like the thought process of kind of going into that program.
LevFInALum: [00:28:30] Sure. Well, my stated thesis at the time was as an entrepreneur, as I mentioned, I had no background really as a manager, and I thought that I had, you know, decent enough overall business judgment as I quickly learned I had zero skills and anything other than if you needed someone to build an Excel spreadsheet with sources and uses and a debt cap table, I was probably pretty good at that. But that's about it. And so really the idea was to go into grad school and really get a background, a better one in those skills where I had no background marketing strategy management and see if being an entrepreneur or business owner or was going to make sense in the middle of my,
Patrick (CEO of WSO): [00:29:33] It sounds like, I mean, I was just going to say it sounds like you kind of had your eye towards your own thing for a while. But then, you know, coming out of your MBA, you really kind of stayed in finance for a little longer. Is that is that accurate? You did another like, let me see one two three four, almost like five six years, seven, six, no eight years almost before you kind of jump back to the startup scene.
LevFInALum: [00:29:58] You know, the classic, you know, what do you what do you start ups today do when they find out that their initial strategy might not be working? They pivot. What did I do in grad school? I pivoted. Yeah, I pivoted. But it wasn't a pivot away from being an entrepreneur or business owner or senior manager at a at a at a more corporate firm. It was a pivot back towards a world that was already somewhat familiar with in the world of finance. And so but the difference might be that instead of really migrating myself back to the back of the northeast, back to New York, I would do it in the near future in the southwest, where I was, where I was back in grad school. So I think that that that that that that certainly came true as I finished out the program. But you know, I got some great advice from an undergrad professor talking about an MBA who said, Gosh, if really want to get the most out of your MBA program, you can go back to the same school. You did your undergrad and probably already do well or go to a similar schools that everybody else does, who come out of finance or investment banking in New York. But try to. Why not try to maximize your MBA experience by going someplace completely different? A different geography, a different network, your classmates who come from different industries in that way, you can take what you've already learned sort of on the job or pre MBA career and not only learn new skills, but also at the same time get more familiar with lessfamiliar industries and less familiar geographies. Did you feel like that was what brought me back to where I went to school?
Patrick (CEO of WSO): [00:32:03] And do you think that was good advice long term now looking back?
LevFInALum: [00:32:06] Absolutely, absolutely. I think that I think that there is for me, that was the right, a right decision only because I think that that, you know, living the New York City private equity investment banking lifestyle. It's a great one and one that persists for many people for many years. And people do very well, obviously. But I think. But for me, I thought that. Uh, the I think I miss working in New York sometimes, but I don't know if I miss living there all the time. And so for me, the lifestyle choice of being in a different environment, doing the same thing, doing Wall Street on Main Street, if that's the most abused cliché in the world was it was an opportunity to do that. And certainly the trade off are many certainly lifestyle, certainly upside, potentially, and all the trappings of what makes New York such a wonderful city to live and work in. It remains that way and you know, I can visit, but still get to come back to something of a lifestyle choice or way, or at least a completely different geography to come back, to live in, to grow a family in, for example. And I think that that's sort of how the career is pan or career and choices have panned out to for sure to do what I enjoy, but to do it in an environment that's more supportive of planting roots for a long term, for sure.
Patrick (CEO of WSO): [00:33:51] So you're coming out of your MBA, you kind of, you know, you're at you're at these kind of well-known firms for a year, anywhere from a year and a half to a year to two and a half years. Doing everything from you did even another stint in independent strategic advisory firm. But you know, some, some as an investment associate at another firm, you know, sourcing, evaluating, monitoring, private place debt. So kind of similar to what you were doing pre MBA. Is that fair? Yes, that's fair. And then you kind of. You moved out West. So tell me about that, why did you have family in in in Dallas and then what was the decision to move out west?
LevFInALum: [00:34:37] So the decision to move out to California really was an opportunity to pursue and grow a an underwriting group that a large international bank was growing in the western U.S. So in other words, they had an eastern U.S. presence personally.
Patrick (CEO of WSO): [00:35:02] Like what was the underwriting? Were you were you married or you were you married at the time? No.
LevFInALum: [00:35:06] Personally, this is the thing this is this is sort of the funny part of it, which is got married in the early part of November the year I started at the bank. Ten days later, we were driving a U-Haul after, like three days after our honeymoon ended, we were driving as a newly married couple from familiar to less familiar but more interesting geography and weather in Southern California. So I think that that was we thought we thought, you know, the thesis used that word again, starting off together as a young, starting off as a young couple. Why not do it at a completely different environment? That way, we are relying on each other for what
Patrick (CEO of WSO): [00:35:57] Was her family back in this or this was her family as well, back in the south, away from California.
LevFInALum: [00:36:05] There was family, it's all our networks and family and support. Lives here in Texas. Yes, and we were we were relocating to a place where certainly we didn't have. I had my sister at the time. Yeah. Well, she's obviously still my sister. But my sister at the time was living in was living in L.A. So we had a family member who was who was going to be is going to be out there. But interestingly enough, my sister has relocated back to where we are now, and so we are all back together again.
Patrick (CEO of WSO): [00:36:43] Good. That's good to hear. It's tough. It's tough moving away from family, especially once you start a family and everything. And I know my parents are out east and Terry, my wife's family, is kind of Southern California, where in Northern California, it's tough. It's tough sometimes, especially with the young kids. But anyway, so you're taking this opportunity. It's a career opportunity. You move out west away from family and tell me kind of what? Let's get to the entrepreneurial stuff. So you ended up jumping to another firm in an MD capacity doing kind of it sounds like more going back to sell side. Is that accurate?
LevFInALum: [00:37:18] Yes, so but you know, what's unique about that firm was that it was very operational, focused. In other words, yes, we did the more traditional things that advisors do and they sell and buy side. But we also did a heavy amount of restructuring work. And a and even probably heavier amount of distressed sale or credit creditor and creditor advisory related to debt restructuring. So I think that was that that was interesting in all kinds of ways. One, it was entrepreneurial, entrepreneurial firm, started by a career entrepreneur who happened to just be very successful in turning around businesses as a board member and thought, Gosh, I wonder if there's a way to grow what I'm doing as a board member, but to build a business around it. And today it's a premier. That business is a leader in boutique sort of advisory around certainly restructurings, but more generally in M&A, in the four or five verticals that they're in, I think they are. They do really well. A leading firm in a lower middle market. And so it was really that model in my experience there in my relationships with those principals there that gave me any confidence at all an inspiration to go out on my own.
Patrick (CEO of WSO): [00:38:55] So tell me about that. How I mean you're starting your own boutique advisory firm for the lower middle market. Is that is that correct? But you're also it's almost like a merchant bank model, right, where you're also providing potentially direct investments as well or helping source that?
LevFInALum: [00:39:09] Exactly.
Patrick (CEO of WSO): [00:39:09] So is it from your own capital or is it from you're just you have the connections to the investors and you provide that service for fee and stuff like that? Or are you actually taking ownership? Is your firm taking ownership in the system?
LevFInALum: [00:39:22] So we are. So what we say we do, we do two things. One, we're an advisor and specifically in exit sort of financing, not exit but exit of founders of businesses. And so, you know, a lot of times our typical client is someone reaching retirement where a business is in the family or been in a family for a generation or two and
Patrick (CEO of WSO): [00:39:56] They don't want to pass it on to their kids. They're worried about passing on to their kids so they want to liquidate. No, I'm just kidding. I just,
LevFInALum: [00:40:03] Yeah, there's no fear, you know, there's no confidence or there's no interest fear among the next generation. And I think that they are asking themselves, especially in the lower middle market. Gosh, what does it what? What are my options? What are my strategic alternatives? What does that even mean? Right. And so I think that by and large, we spend a lot of our time just in helping people, helping illustrate what the anywhere from what the math looks like to what a process looks like and helping them to prepare if it's not imminent. You know, what can a lot of questions we address our, you know, what can we be doing in the business today if in two to three years or longer, I'm want to sell my business, sell our business, and that's what we do. And you know, I think that where we are geographically, a lot of businesses of that size in a number of different kinds of industries. And so I think that it's a longer lead cycle because if you are obviously helping someone address some questions two years out from any sort of process, then then it's a little bit longer than what you know, your typical life cycle might look like. But right? But if you think about it, the way that we think about it or I do is if you're if you're trying to be someone's trusted advisor, you know, parachute in overnight and become someone's trusted advisor, you have to earn it and you earn it by one is referrals. That counts a lot, but two is by showing and demonstrating and answering questions and being transparent, open and honest about what it is that they can expect in terms of anywhere from how long does it usually take when it's a process look like? What's the difference between this type of private equity firm versus a family office? So it's a lot of just, yes, somewhat educating the market, but also by being someone's resource. Are answering questions that this is probably the first time they've ever faced them. So it sounds like you have like you have a but sometimes it is.
Patrick (CEO of WSO): [00:42:24] You have a pretty solid network. It sounds like, you know, in in the south or in your area. So you've been able to kind of sources the referrals, so you're getting business that way. What's been the hardest part about going out on your own? Has it been just the volatility? And I'm sure, you know, some months it's, you know, you have a big fee and then the next month you have zero. And is it the volatility in earnings? Is it the is it the recruiting talent? Is it what's been the hardest thing about what you've done kind of starting out on your own?
LevFInALum: [00:42:53] The hardest, the hardest is the volatility, it's the feast famine, yeah, downside protection of trade off. So what I mean by that is, yes, certainly when you're working for yourself, the upside can be pretty unkempt, depending on just many things. But the downside is also uncapped because if you're running a business as a business, you're incurring whatever costs you are and you may not make anything for that month, the next month. Third month or the fourth month. And there has to be some comfort or not comfort, but you have to get comfortable with being uncomfortable believing that you are doing it right or as we do as I do at the end of every year at the beginning of the New Year, which is to say, OK, do I still enjoy what I'm doing? Is it still generating a positive net income to support the family? And do I still get the quality time in and around families such that? That's why I'm doing it in the first place, right? So I think that those are those are questions that I think I should ask. Everyone should ask themselves every no matter what their career. But it certainly as a having my own business is something that I'm more keenly aware of, which is all the ups and downs, all the costs of managing, of managing a an advisory investment type firm and, you know, to answer one of your other questions. It's our capital that we invest for that if it's if it's the size or interesting enough, we will certainly bring in friends of the firm to help fill out financing. But these are in the differences that the advisory business focuses on middle market companies. The investment business is early stage businesses, early, early stage companies, fair and so somewhat complimentary of the advisory business. Somewhat not. I would say it's complementary in that we continue to we just have a are always in some sort of deal flow conversation, either as investors or as advisers, for sure. And so it keeps the network, keeps the networks fresh and new and growing.
Patrick (CEO of WSO): [00:45:39] That's great. Well, listen, before we wrap up anything else you would kind of share with your younger self or the young listeners episode any wise words of wisdom before we call it.
LevFInALum: [00:45:49] You know, I think that that if I could advise my younger self or at least provide an overview for anyone considering the early stages of this, this career, which is, you know, don't let money be the guiding factor among the choices that you make early. I think that that what perhaps might be a better guide for earlier in your career is asking the question less, you know, where can I make the most money versus where can I learn the most? Can I have the most responsibility at an early stage in my life or early stage of my career life such that I will be learning by fire versus settling or not settling, depending how you look at it? For the most competition, because you know, when you're in your early 20s, mid-20s, everybody sort of roughly around the same. It's when you get later on where the differentiators happen, when you're earning capacity. But those are all determined by how much you've learned and how much how much experience you've been able to accumulate across different roles, different industries.
Patrick (CEO of WSO): [00:47:07] Yeah, when people ask. I would add to that advice and say, don't just don't chase the extra ten thousand if it's not as good a learning experience, but also don't chase the name. Oftentimes, people will be willing to take a middle office or back office position at a bulge bracket investment bank and turn down a solid middle market investment banking front office position, which blows my mind because you're going to be doing completely opposite work and it pigeonhole, you know, or not opposite work, but completely irrelevant work at the middle office or back office, making it almost impossible for to get to the front office where if you start in the front office or get there quickly, it's much easier to lateral firms within a year or two.
LevFInALum: [00:47:48] So you're absolutely right.
Patrick (CEO of WSO): [00:47:51] So it's really important that you don't chase the prestige. Or the money early in your career. The leverage is later
LevFInALum: [00:47:56] Because you're right and when you are switching firms, the first thing is they're going to ask, especially for an office. If you're is, you know what? What have you worked on and what deals have you worked on? Did you work? Everybody knows what deals all the other firms are doing, and they'll ask you. Well, I really wasn't on the front office part of the bulge bracket firms, and then they'll quickly find out, Well, you're probably not the greatest fit, even though you're coming from an even bulgar bracket. But if you're coming from a just hyperactive deal environment right at a lesser known firm, people are going to find out that, Oh wow, you worked on that deal, that by that IPO, that M&A and you'll be able to speak to things you actually did as opposed to. Yes, my firm was involved in the leading on the name deals, but you know, I was messenger in bank documents back and forth from the seventh floor to the 11th floor. You know, that's it's a different experience, and people are smart enough to ask the right questions to figure out what you actually did, for sure.
Patrick (CEO of WSO): [00:49:10] Well, listen, live, Finn alum, thank you so much for taking the time out of your busy schedule, your entrepreneurial schedule to educate us.
LevFInALum: [00:49:21] My pleasure. I look forward to figuring out how, how else I can answer other questions. But looking forward to the Wall Street oasis.
Patrick (CEO of WSO): [00:49:29] Thank you. Awesome. Thank you. And thanks to you, my listeners at Wall Street Oasis. If you have any suggestions whatsoever, please don't hesitate to send them my way. Patrick at Wall Street Oasis. And till next time.
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