Devin Matthews: Private Equity Extraordinaire

Summary: In this episode, Dave interviews Devin Matthews of Parker-Gale Capital—a private equity firm based out of Chicago that focuses on buy-out investments. Listen as Dave and Devin do a DEEP dive into the intricate processes surrounding successful business valuation and acquisition. Time Stamped Show Notes: 00:30 – Dave welcomes Devin 00:45 – Parker-Gale Capital—private equity fund out of Chicago 01:07 – PEFuncast 02:19 – Went to Tuck to obtain an MBA 03:52 – Devin is the guy with the answer key for entrepreneurs 05:03 – Build a business that's sustainable and drives profit 06:04 – Devin ONLY buys companies from founders 07:52 – How Parker Gale came to be and how it works 10:18 -- Most founders sell to Parker Gale because they want out 15:25 – The different flavors of venture capital 16:52 – Is the venture capital world looking for the one unicorn? 17:50 – Most venture guys are willing to take some pretty sizeable losses 18:29 – A typical venture fund might have 30 businesses in its portfolio, a buy-out fund might have 10 19:33 – Private equity aims to make money on every deal—3 to 4X their money over a 10 year fund life 21:16 – Where do Private Equity funds get their money versus Venture funds? 24:04 – The leveraged buyout 26:48 – Standardizing the business—getting to a recurring revenue format 27:30 – The Three P's: Profitability, Predictability, and Prospects 29:43 – Accrual-based accounting is a necessity if you're going to get acquired 30:28 – Cash is king and it always will be 32:31 – The relationship between profitability and growth 33:14 – If you're not profitable, it's hard to invest in a business 35:15 – If you started a business and now intention of selling it—extract as much profit as possible 38:09 – Are expenses added into EBIDA? 40:20 – The importance of having quality representation (advisors) in the negotiation process 43:25 – The auditing process of an acquisition by a Private Equity firm is BRUTAL 44:24 – If the due diligence process doesn't go smoothly the deal is doomed 48:08 – Devin defines the value of a GREAT lawyer 51:23 – The danger of over-valuing and under-valuing your business 55:15 – The TV show Silicon Valley?—Shockingly accurate   3 Key Points: The three keys to having a successful business (regardless if you want to sell it)?—The three P's: Profitability, Predictability, and Profits. Cash is king—it always has been and it always will be. Get mentally and physically prepared to endure the auditing process if you're selling your business—it's grueling and private equity firms spare no expense to cross the t's and dot it i's. Resources Mentioned: Entrepreneur's Organization – The EO Network Tuck – The business school at Dartmouth EBIDA – Earnings before interest, depreciation, and amortization PEFuncast – Devin's podcast on Private Equity Parker Gale Capital – Devin's PE Firm Credits: Show Notes provided by Mallard Creatives