You've raised $875 million in one of the most difficult fundraising markets and decades. How are you able to accomplish this? For us, it was a function of having the right time, the right strategy and the right team. Our track record records been good. Leading up to the fundraise, we have been posting a lot of exits, a lot of very successful exits and our DPI numbers have been great. At a time when there isn't a lot of DPI, so the timing was really good. Our strategy resonated with investors as well. We focus on the lower middle market, we buy founder own businesses, we buy sub-$10 million without businesses, and we are a purchase price matters firm. And I think all of that story is resonating right now with LPs. We have a 45-person team, which is quite a large team relative to our fun size. And I think people love our team today. Every onsite diligence session that people do, people, we get complemented on all of our team. And I think it's a combination of those things, the time, the strategy, and the team that led to a great outcome. The Renovus alongside being overstrived on $875 million, we also ranked number one in terms of quantitative metrics like IRR, DPI, TVPI. What allows you to capture alpha in your fund? What's the secret sauce? It's a great question. It's just a quick story. There was a morning in 2022 when we both woke up to having all these inbound emails from institutional investors, highly respected names from around the world who one of the set-up meetings with us. That's not what we normally wake up to. And we were wondering what was going on. And it turns out we have been named in one of these studies. This particular study, HEC.Jones Private Equity Report is one that turns out to be very widely followed. You needed to have 10 years of track record in order to get into that study. In 2022, we built up 10 years of track record. And I've been in that study every year since then. So it's just been fantastic for us and helped to raise our brand and raise our profile, which has been great for fundraising. But it's also been great for recruiting executive talent to our portfolio companies, recruiting in young and very talented people who want to make their careers at Renobus. It's been an amazing momentum build for us. But to answer your question, what is the secret sauce? There's really no one thing in private equity. And we hear this all the time from founders considering selling their businesses. Every private equity firm looks the same. We show up in our Patagonia vests and we look a certain way and we're smart people. But from one firm to the next, are they different? And in some ways, we are like the others. We do LBOs. We do some business repositioning. We employ smart competitive driven people. So what is it that has enabled us to deliver the results that we delivered for the investors? We actually, in last year's annual meeting for our investors, tried to answer this question for them in the course of our presentation. And what it really came down to was we put forward three questions for ourselves. What game are we playing really? How good is our team? And do we have any special resource advantages? The game we're playing is about playing in the lower end of the lower middle market. Almost every deal we do is of some $10 million that business. The number of at-bats that we see compared to an upmarket strategy, it is night and day different. We have so many more targets that we can pursue within our strategy. We are buying from founders. We're the first institutional investor. We're buying fundamentally solid businesses, but where there is so much value that an experience institutional investor like us can have. So we're trying to play what we call the game on easy mode. I think that's been a big driver. In terms of the team, we have a big team. We mentioned that 45 people that is large, especially relative to the fund size that we have. One of those investments that we've made is we have a full-time director of people. That's become more and more popular in private equity. A lot of times though that people percent focus is on portfolio companies. Our director of people spends all of her time recruiting, training, and ensuring that we're living out our cultural values and that people can make great careers at the firm. We also work with an executive coach. He works with a partner. He works at the levels beneath the partners. And so there's just a lot of investment when you add all that up and a lot of time and focus spend on building a truly world-class team. So I think the team is a special part of why we've been able to produce the numbers. We've been able to produce. And we now have this kind of flywheel effect where we have stayed down market and focused on small businesses and have this vast network of people that are willing to talk to small business owners who are thinking about selling their business to private equity and can tell them you should sell to these guys because if you roll a piece of your equity into the deal, it's going to do really well. Look at how well it did for me. And so I think just the staying power that we have had in the market and doing this for 15 years and all the successes that we have is built up brand and a network of references that really is helping us to stand out relatives in the cup. Over those 15 years, what has compounded exponentially and what has compounded linearly? I have to for be surprised to hear and we say this, I'm so uber focused on talent. It's part of the business that I like the most. I think that has really compounded exponentially for us. We have, we have mentioned that we showed at our annual meeting the series of slides about what makes us special and why we're able to produce great results. One of those things was all the boomerang talent that we've had at the portfolio level. We had a page that was just focused on CEOs and founders who have done business with us on a repeat basis. And we have people on there that hadn't just done like two deals with us. They had done three deals with us and they'd all been successful. And I think when you're able to build that network of really good people who want to keep coming back into the Coronavirus ecosystem and they happen to be friends and connected with really good and really talented people and they're pulling their people in. I think that network effect is really special in compounds. There are so many thoughts that come to me. One of those is our own revolution. Then we started the business. We were really deal guys and at really good training and experience putting deals together. Over the last 15 years, we've elevated our role from just the leaders to fund managers and from there to firm owners. And what that means is that as we've studied different models, we have become good at not just doing a great deal at the deal level, but delivering great fund products to the LPs where we are generating not just good deal returns, but good growth returns and most importantly, great net LP returns by recycling capital by using really innovative financial capitalization at the fund level. So those things have resulted in very significant growth in terms of the results that we've been able to produce. So that evolution obviously continues and brand is something else that has had a pretty significant impact. That 15 years ago, nobody knew who we were. Today, thanks to all the transparency that that parties are bringing throughout it. The market is through rankings and through a lot of benchmarking, a lot of investors, not just here in the US, but globally are able to find us and raising capital has become a lot easier than it was 15 years ago. One of the hardest things of investing is seeing what's shifting before everyone else does. For decades, only the largest hedge funds could afford extensive channel research programs to spot inflection points before earnings and to stay ahead of consensus. Meanwhile, smaller funds have been forced to cobble together ad hoc channel intelligence or rely on stale reports from sell-side shops. But channel checks are no longer a luxury. They're becoming table stakes for the industry. The challenges has always been scale, speed, and consistency. That's where alpha sense comes in. Alpha sense is redefining channel research and set of static point and time reports. 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If I gave you 100 points in terms of what drives the company, how much comes from the three of you versus your hires and this machine that you built in terms of talent? That's a great question. For the first fund, it was really the three of us that did everything. We raised the fund, we sourced all the deals executed, did the portfolio management work ourselves. And so certainly all 100 for for fund one and the goal has been to shift that down over time and we we have been very successful in doing that. Now we think of ourselves really we've gone away from being players. We're still playing but we're playing player coaches and we've organized the firm to with the specific intention of enabling really good intelligence people. Coaching them up, working with them, developing them and seeing them spread their wings and being really successful. And now we're at like a point of our own individual careers where like nothing makes us happier and seeing people get it. I was saying just as we were kicking off the podcast that we just completed an intern call where we announced all of our internal promotions for the year. I mean it was kind of an emotional event for many of us. Like there is great pride in seeing the people beneath us succeed. Was that something that was difficult to cultivate? There's a lot of learning that goes as you build a firm as investors. You take a lot of pride in putting together the best deal possible, the best financial structure, the best executive team in doing both financial and operational engineering to get to create opportunity investors. This is something we take so much pride in and that becomes a DNA. But when you are building a firm, it's not about the best deals you do. It's again, delivering a great fun for the investors and that means not just doing your job, but creating an environment for your team members. Fun one, as I mentioned, it was just the three of us doing the entire thing. And that was a function of starting in 2010. It took us two solid years just to get into business, no paycheck. And so we were really careful with our management fee dollars in the early years of fun. Fun two comes along. We start bringing in some institutional investors. In fact, our largest institutional investor in fun two is still our largest institutional investor today. And they asked us a really simple question, when are you guys going to start building? And they were walking us through like why we should do this, giving us comfort. Hey, you're going to be around for a while. And it says this sometimes, some of these institutional investors, they believed in us more than we believed in ourselves. And that helped get us started on really investing and thinking about Renovus as an enterprise. And we have so fully embraced that 10 years later after our second fund was raised that today, this is what we have. We have a large team. We have a director of people. We work with an executive coach. And so it has been a gradual thing, but we've gotten some great advice that's helped us make that transformation that we very much needed to make. That's my heuristic for who you want to surround yourself with people. People that see more new than you see yourself. And similarly to that, I look at the heuristic of who you want to hire is somebody that is going to do things that you never even imagined. So you bring somebody in, not only do things as good as you are even better than you, but come up with things that you didn't even think about. Absolutely. This concept, I think like Netflix popularized it of talent density. You have a talent dense organization that just raises everyone's game. I think our people are best people. They're raising his game. They're raising my game. It is awesome to have people around us, even if they're less experienced, but you just see their passion and competence. That makes everyone better, including us. The talent that we are hiring, they have a lot of new ideas, new competencies that better than AI than we would have ever been. So we've learned so much about AI adoption within our firm and how we can push that out to a portfolio companies from one of our associates. So, yes, there is this five wheel effect that Jesse was talking about. You learned from your junior people, they learned from you. And in a way, what we talk to them about is that we are looking to bring in more entrepreneurs in the firm, not more managers. And we're also constantly screening people, not just for their pedigree and resume, but for their potential. I just am looking at how do you do that? How does a fund manager go about assessing out, I guess, somebody's soft skills or somebody's future talent versus their track record of completing talent? This is spending time with them and having a good sense of who you want to bring into the firm and who you do not. Jesse was mentioning to you are chief people's officer. She's someone who had never done any HR work. Jesse got to know her through his time with his local church and she had such amazing people's skills that Jesse kept talking to me that we need to trigger on. And when Jesse approached her a couple of times, she said no. The person who was running our IR was actually an asset manager at Vanguard, but we saw in her the passion, the detailed orientation, which many times you don't see in other IR people. So, we are really screening for attributes, not for people's backgrounds. And when we are hiring our people, we tell them the first couple of years are on us. Even when we are hiring, who you may consider plug-and-click investor who comes from a brand name, private equity firm, we say to them, look, we do things slightly differently. We pursue the same kind of deals that you may have in your firm, but we are operating at the door end of the market. We have more of a valuation discipline that you may have seen at your firm. We are willing to do more volume that you may have seen at your firm. So, it is, and it takes them at least a year, but once they get it right, they really start to perform and become believers in our firm. Support for today's episode comes from Square, the all-in-one way for business owners to take payments, book appointments, manage staff, and keep everything running in one place. Whether you're selling lattes, cutting hair, running boutique, or managing a service business, Square helps you run your business without running yourself into the ground. It's actually thinking about this other day when I stop by local cafe here. They use Square, and everything just works. Check out as fast, receipts are instant, and sometimes they even get loyalty rewards automatically. There's something about businesses that use Square. They just feel more put together. They experience a smoother for them, and it's smoother for me as a customer. Square makes it easy to sell wherever your customers are, in store, online, on your phone, or even at pop-ups, and everything stay synced in real-time. You can track sales, manage inventory, book appointments, and see reports instantly whether you're in the new shop or on the go. And when you make a sale, you don't have to wait days to get paid. Square gives you fast access to your earnings through Square checking. They also have built-in tools like loyalty and marketing, so your best customers keep coming back. And right now, you can get up to $200 off Square Hardware when you sign up at square.com/go/how I invest. And I want to get into your portfolio construction later, which I think is fascinating. But on the LP Max, you mentioned that that institutional investor came in fun too, and now they're one of the larger investors. How is your LP Max evolved from fun to to fun for? When we started in 2010, it was right in the midst of GFC, and there wasn't any capital available for first-time managers looking to start a blind pool of capital. So through Jesse's research, we stumbled upon this program run by the US small business administration called the SBIC program, except that that program was really for mezzanine investors and for people who had a lot more deals on their crack record as we did. But the best thing about that program was for every dollar of capital you would raise from third parties. The program would give you two additional dollars of capital. So essentially the US small business administration became our largest LP in our fun bond with 67% of capital coming from them and the rest by mainly coming from family offices and high networks. So fun too is really when we made the transition, not complete, but beginning to make transition from that investor base to bringing in a large university in government insurance companies and start building that base. To our last fun, fun for, where instead of the SBA being 67% of our capital is less than 20, we've been able to retain all our large accounts and really proud of the 130% re upgrade from our existence, meaning investors who gave us 500 million dollars in fun three, not only they have kept that investment with us, but on top of that they've given us another 650 million dollars. So we've been able to keep our existing but expand the LP base and over time diverts if I obey from the capital that we've been receiving from the SBA. As I mentioned, you're overspread, there's a lot of demand. How did you pick and choose which LPs you wanted to add to fun for? So how did we select our LPs? So I would say it's a matchmaking process. Obviously our existing are the ones who know us best and they always have the first tips at the available capital that we're looking to raise and they came in very, very strongly. So they filled out most of the capital need that we had and beyond that, we've been very strategic. There are certain areas and certain types of capital that we think could be a base for our long-term success and growth. So we brought in one large state program and we feel that could be a way for us to build that type of investor base. For the first time, we've been outside the US and got a number of high-proof fine institutions and family offices in Europe and the Middle East. We think that we can significantly expand that. So when availability was limited, we used those limited slots to bring in what I would consider strategic investors who can really have both grow our capital base. And that's just geographic diversification. The new investors, largely people, we're very confident that the capital base is going to be stable over a long period of time. And to your point, it's not just the relationship with the person. It's also the quality. I just interviewed the former CIO of UTIMCO, the second largest endowment in the world. And I learned they're going to be the number one largest endowment next 10 years because they get one half two billion dollars from the state of Texas from oil reserves every year. So kind of knowing where what's going on with the underlying capital base is also really valuable versus a pension fund that might be overfunded or other pools of capital, otherwise great relationships, but they might be in a difficult situation in capital base. Absolutely. So one of the most interesting parts about your fund is your portfolio construction. Tell me about your portfolio construction and how did you come about with this unique structure? Our portfolio construction has a number of attributes first. We believe in starting out small and over time building our position. So if you're looking to invest $100 particular business, we missed out out at 50 or less and over time as we professionalize the business. And we scale the business through acquisitions, we put in more capital. So building position over time is the first thing that we think about. Secondly, because we operate not just in middle market, but at the smaller end of the middle market, we look to create a diversified portfolio for every fund. So we have typically around 15 or so active positions per fund. If we have early wins, we give the profit store investors recycle the cost basis. So have some of our capital make return more than once. And through that, we end up investing on average 120% of the LP capital. And for that capital to have a compounding effect on the over on net returns of the fund, this helps us keep the spread between drugs to net returns for investors low and over on deliver a really good fund product for the investors. You guys have figured out what private equity has taken a long time to figure out, which is if you have a great company, why are you selling it four, or five years later to your competitor, we're going to keep on investing and helping that company grow. I'd like to say that we figured it out right away, but it actually is a learning of ours. Autif talks likes to talk about our both our worst deal and our best deal we ever did. It was in a company called Red Nucleus. And this was done out of our second fund, which is which is a great fund. But you know, it was a business that we bought with $4 million of EBITDA. We took it to 12 million of EBITDA and sold it. It did very well for our investors. And then that company continued to grow significantly after we exited with the team that we had put together with the strategy that we had been executing, as we've grown our knowledge and grown our confidence by observing what, you know, our market GPs are doing, we've realized that we're able to do this. And so now there's no kind of dogmatic approach. I'm not quite that says, okay, when you double the EBITDA, now it's time to exit. And as a result, we have, you know, a business that started with 4 of EBITDA. And today is 50. We have another one that started at 3 and today is 90 of EBITDA. So I think that's actually a practice that we're proud of today. And we think makes a lot of sense, but it's one that has been a learning of ours over time. But in these investments, not only that we're growing at EBITDA, we're improving the quality of our businesses. So we make as much money from growing the EBITDA multiple. So we, on average, have been able to buy these smaller businesses for mid-single-digit EBITDA multiples. And we sell them at teams of multiples. So that has a compounding effect. Family offices have been doing this for decades. I spoke to Sam Zell's partner, Mark Sotter, who's continues to run his, his foundation's family office. Also, Brent, be sure he's in the Midwest. He has this 30 year fund where they figured out that a, first of all, if you make a fund that lasts longer or you're making decisions over a longer time horizon, you actually build healthier businesses. If I asked you guys to flip something in three years versus holding it for 10 years, regardless of how good of a guy you are or you're incentive is just going to be to build a fundamentally different business. What's corrupted that process historically is these two to three or fund cycles. You always want to be showing momentum. So everybody ends up owning slightly worse versions of the business downstream because of these short-term over optimization. There's a lot we could talk about here. I think a lot of private equity has become what we say internally as investment banking plus. There's a very short-term orientation that's kind of crept into the industry and it's not just among the GPs, managers, the executives, the C-suite executives throughout the economy. They're now all trained this way. So I just think, okay, I'm going to get hired, I'm going to exit in two years and then I'm going to be on to my next private equity thing, the next thing I find. And I actually do think that if you can get your LPs to support this and you yourself can think differently. There's a great opportunity if you can be a little bit more long-term. Why do founders lower their valuation in order to partner with you? It's the selling business by a founder is perhaps the most difficult decision they ever have to make at a professional level. It is an emotional decision. It is a game changer financially for them. So they are very diligent about it. They look for a number of things and price is just one of those things that they look for. First of all, they look for a counterparty, meaning a private equity firm like us, that is transaction worthy. An entity that understands that business has sector expertise that has a really high close rate that once we sign on a piece of paper that we are interested in the deal that we would get to a closing of the transactions. So they care deeply about those things that the counterparty they are dealing with is transaction worthy. And that is one area where as of late private equity has gotten a bad rap justifiably or unjustifiably. So we position ourselves as not just another New York based L.B.O. shop but rather a founder-owned, founder-led firm that is based in Philadelphia and on location. We use it as a strategic advantage to give the message that we are a different type of a firm when we understand what it is to run a spawn business that is looking to become a midsize business. Beyond that, they do care about price. May take a few dollars less but they are looking to get a fair price. So in that respect, purchase price matters. But beyond that, in our model, we encourage them to roll over 20 to 25 percent of their stake. So they want to believe that the roll over stake could be worth more than the cash out that you see on day one. You guys both embrace this contrarian philosophy that I share transparently. I've realized by George O's, which is invests to investigate, put in a little money and learn more to get an insider edge. Tell me about that philosophy and how do you internalize that philosophy into your fund? We love Stanley Druckenmiller who, you know, we famously learned from George Soros and read everything that he says. And of course, he's a public markets investor and more of a trader. But what we have taken from that statement and applied to our business is the view of, as we talked about earlier, building a position over time. When we enter into a new business model, there is a huge difference between owning something in that segment and not. And buying something, even if it's only a five million dollar EBITDA business, buys you a seat at the table. There are people who will talk to you that will not talk to just the private equity firm. There are other business owners. There are things that you get invited to, district conferences. There's a big network of things that open up to you once you invest. And I can maybe just illustrate it to you an example. We exited a legal services business called Harbor last year. It was a thesis that we built in 2021 and made our first investment in early 2000. And we ended up doing 10 add-on acquisitions over the course of our ownership period. The difference between what we saw when we didn't have an investment and what we saw when we did have an investment was night and day. And the add-on acquisitions that we sourced, we believe many of them, we don't see if we don't have something in there. And so investing in something allows for a much greater investigation of something even when you start really small. So that's how we apply, you know, that surro system to to renew this. It reminds me of a intelligence question. I like to ask towards the end of the process, which is, what am I going to find out in the next board meeting that you're not telling me right now? People don't always, and usually they don't answer that honestly. But that's really what you're trying to stress out, which is, what am I going to find out within the business that I could never really find out. That's not in the spreadsheets, and that's not in the data room. I'm a big believer in how you phrase a particular question, and I'm now going to use that question in all of our diligence sessions going forward. So thank you for that. You do learn so much about a business after you own it. That's a fact that every GP will at least admit to you privately. And obviously investing involves, you know, making decisions about an uncertain future. And so as the future unfolds after you make the investment, of course, you're going to learn a lot. What we like about our strategy of doing follow-on investing and building our position over time is that, you know, if you could decide between investing all of your money in a company in day one or investing the same amount of money over a three or four-year period, and you could stop at any time, you would obviously choose that second that second-brought 10 out of the 10 times. And so we really like that. We like getting smarter, gaining conviction, investing accordingly, or losing conviction, and stopping investing accordingly. So, we love Nesser at you. As a thought experiment, if you could invest one dollar in the business to get access to information and be on the inside, obviously you would do it. So it's a question of what is the right sizing of the first check in order to make make it more valuable than potentially the downside. It's not a matter of if that makes sense. That's a strategy. It's a matter of sizing. In our strategy, it's really a question of like business durability. You know, we invest in very small companies. There is such a thing as too small. You know, if you invest in a $2 million of businesses, the first thing you buy in a fund, is it even a business? And so that's how we think about that question. If you could go back to 2010 when you were first starting Renevos, now a lot of mistakes, a lot of lessons learned over the last 15 plus years. What's one piece of advice that's timeless that you would give in a younger version of yourself that would have either helped you celebrate your career or helped you avoid causing mistakes? Think of the business we were starting not just as a project business where we are doing deals, but life and operating business. Will the business that would be there forever? That means to take more risk early on to invest more in the team early on and do things that would pay off dividends not in five or 10 years, but over 25, 30 years. The reason why a lot of young investors like us have a three to five-year horizon is that early on in a career, there were multiple precessions and you got fired and you became unhired. So there's been this mindset of Feaster Famine that at times a good crab, whatever you can, versus investing in a business like most of our founders do who we buy from that never building a business to sell. They are building a business that may be transferred over to the next generation. So having that longevity to the business really helps you build a business that does good deals, but overall over time we are incentivized by having our love assets answer there and it aligns actually really well to the coach that we've been working with personally for many years now. When we hired him, this is what he says to us now, he's like, "You guys hired me to help turn Ranobis from a great fund into a great firm." And it wasn't something that we thought about in 2010. In 2010, it was about, "Hey, let's try to get into business together and build a fund." And somewhere along the journey, somewhere in fun too, we really started thinking about Ranobis as a firm. Well, Jesse Autif, you guys are growing legends in the private equity space. It's going to be very fun to see where you guys go over the next 10 years and we'll have this conversation maybe in a couple of years and check in and it's been a pleasure to sitting down and thanks so much for sharing your story. Thank you and we welcome doing that again with you. Thank you for having us. Thank you guys. That's it for today's episode of How Invest. If you're a GP with over 1 billion in AUM and thinking about long-term strategic partners to support your growth, we'd love to connect. Please email me at
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