Playing the Long Game: Building a 30-Year Private Equity Fund: Summary

Table of Contents

Insights

Unique Approach to Private Equity

💼 Unlike traditional private equity firms, Brent Beshore’s background as an operator and entrepreneur brings a unique perspective to the world of private equity.
💼 Brent Beshore takes a unique approach to private equity by buying family-owned businesses and transitioning ownership with a long-term perspective.
🤔 Brent Beshore recognized the opportunity in helping family-owned businesses transition and saw it as a career path with a lot of potential.
💰 Permanent Equity took a different approach with a 30-year timeline for their fund, based on first principles and without any prior experience in private equity or finance.
🤔 “Buying at the right price is important because often the seller wants to sell at the top and the buyer wants to get a good deal, but these two things can lead to a bad deal.”
💼 Brent Beshore aims for a minimum of 30% cash on cash returns over a five-year period, setting a high bar for their investments in private equity.
📈 By avoiding debt and maximizing cash optionality, a private equity fund can endure challenges, reinvest in businesses, and generate better long-term returns.

Importance of Ethical Practices and Trust

💼 “The first hardest part is after you bought it and actually are integrating it.”
💼 “The really hard part and where the multiplication really starts to begin is post close, turns out all business is hard and making money is never easy.”
⏳ “We went slow and we’re largely operating in anonymity for a long time to build our systems.”
💰 The private equity fund has a unique fee model where they take no fees or reimbursements, creating complete alignment between investors, portfolio companies, and employees.
🤝 The speaker emphasizes the importance of treating people honorably and respectfully in the finance industry, aiming to build trust and differentiate themselves from others who may play games or engage in unethical practices.

Long-Term Perspective and Continuous Improvement

🍽️ “I got to have dinner with Warren Buffett a while back and I got to ask him about the early days…in his 30s and 40s like he was highly active.”
💼 Warren Buffett took a risk by bringing in new leadership for a struggling company, and the success of that decision shaped his future and the creation of Berkshire Hathaway.
🏭 The founders of a family business prioritize the well-being of their employees and aim for an indefinite time horizon, focusing on treating everyone well in the long term.
💡 “The Pinnacle of business is to be always useful and never necessary.”
🔄 Building a successful business requires a focus on continuous improvement and seizing opportunities, rather than relying on a fixed plan.

Summary

The key idea of the video is that a long-term ownership approach, focusing on stable industries, treating people well, and building trust and relationships, is crucial for success in the private equity industry.

📚 Brent Beshore, founder of Permanent Equity, runs a unique 30-year private equity fund, emphasizing the importance of operators in the industry and his long-term ownership approach to buying family-owned businesses.

Brent Beshore, owner and founder of Permanent Equity, runs a unique private equity fund that holds capital for a 30-year term, which is uncommon in the industry, and he brings a different perspective with his background as an operator and entrepreneur.
Operators in private equity and family offices are often undervalued, but they are crucial for the success of investments, as discussed by Brent Beshore in his book “The Messy Marketplace.”
Brent Beshore, the founder of Permanent Equity, discusses his unique approach to private equity, which involves buying family-owned businesses with no intention of selling and taking a long-term ownership approach.
The speaker discusses his transition from being an oil-filled roughneck to entering the world of internet marketing and private equity after realizing he didn’t want to pursue a law degree or an MBA.
The speaker took a risk by buying a business with an SBA loan, which led to success and the realization of opportunities in helping family-owned businesses transition.
The speaker admits that in the beginning of his career, he took risks due to a combination of ignorance and arrogance.

💼 Buying and integrating businesses is challenging, but overcoming obstacles and learning from experience is key to success in the long-term private equity game.

Buying a business and conducting due diligence was much harder and riskier than expected, and it was only when faced with challenges that the speaker truly discovered their capabilities.
The speaker discusses the challenges and hardships faced in building a successful business, using the example of Warren Buffett’s early days in private equity and his partnership with Charlie Munger.
A company called Dempster Mill was in need of new leadership, so they convinced an accountant named Harry Bottle to move to Iowa and revive the investment, which ultimately led to a successful outcome and a strong relationship with the CEO.
Businesses often experience more failure than success, and the hardest part of buying a business is not the acquisition itself, but rather the integration process that follows.
Learning from experience, the speaker emphasizes that success in any endeavor requires hard work and overcoming challenges, particularly in the post-acquisition phase, and advises to avoid reinventing the wheel and to listen to logic and reason.
The speaker discusses the challenges of implementing changes in a business when buying it from a resistant seller, as it can lead to either regret or success, requiring an independent mindset and resilience.

🏢 The speaker discusses their experience of starting a 30-year private equity fund with a focus on treating everyone well long term, acquiring multiple businesses in the inefficient lower Middle Market, and their conservative approach to investing in a diverse range of durable industries.

The speaker discusses their experience of starting a private equity fund, acquiring multiple businesses, and the challenges of operating in an inefficient market.
The lower Middle Market is an inefficient legal market where skill is crucial, and the speaker’s 30-year private equity fund is structured differently from most funds with a shorter timeline.
Families build wealth by starting debt-free businesses and compounding over time, which is different from the traditional private equity model of buying, leveraging, and selling within a short period, so the speaker created a private equity fund with an indefinite time horizon, no debt, and a focus on treating everyone well long term.
The fund has a 30-year time horizon, with no fees or reimbursements, creating alignment between investors, portfolio companies, and employees, and quarterly dividends are distributed with a preference to investors.
The speaker discusses their conservative approach to investing and the diverse range of businesses they have in their portfolio, including aerospace, manufacturing, software, swimming pool building, fence building, military recruitment, and a matchmaking firm.
The fund looks for businesses with owner earnings between 3 to 20 million dollars, and the industry must be durable.

📈 Private equity fund focuses on stable industries, improving businesses, and finding the right leadership, while entrepreneurs aim to become replaceable and source deals through content marketing.

We look for stable industries that provide real value, can be bought at the right price, have a long-term vision, and are not driven by fads or market timing.
The speaker discusses their decision to focus on adolescent businesses that are in an awkward in-between stage of being too big to be small and too small to be big, where they are good at what they do but not great at all aspects of the business.
The speaker focuses on improving various aspects of a business, such as marketing, sales, operations, and HR, in order to strengthen the core and enable growth.
The speaker discusses the importance of focusing on the business model rather than a niche when buying businesses, and explains that the decision to bring in a new CEO or utilize internal leadership depends on the specific situation and the need for a smooth transition.
In private equity acquisitions, it is becoming less common for the CEO to be the founder and primary owner, as larger businesses tend to have a more robust leadership team, which provides durability and reduces the fragility associated with a founder occupying all three roles.
Entrepreneurs should aim to become the most useless player on their team in order to have a sellable business, and the speaker sources deals through content marketing efforts and other methods.

📺 Outbound programs have not been successful for the speaker’s company, they prioritize treating people honorably and respectfully, valuation in business acquisitions is messy but determined by considering opportunity costs and returns, achieving high cash on cash returns in private equity investments is important, and dating is like a first date where arguments eventually arise.

Outbound programs have not been successful for the speaker’s company, as all their deals have come from inbound sources, and they prioritize treating people honorably and respectfully.
Outreach efforts have not been successful for the speaker’s company, despite their competitors finding success with it, and they are content with their current strategy of focusing on inbound leads.
Valuation in business acquisitions is a messy process, but it is determined by considering the opportunity costs of potential buyers and the returns they aim to exceed.
The speaker discusses the importance of achieving high cash on cash returns in private equity investments and emphasizes the need for thorough due diligence to accurately assess a business’s potential for growth and profitability.
Dating is like a first date where everyone is presentable and flashy, but eventually, arguments arise over what to order.

📚 The due diligence process is crucial in private equity, debt should be used carefully, and taking a long-term approach is important for business success.

The due diligence process involves a 25-page checklist covering various aspects such as environmental concerns, trademark and patent issues, and a team of experts is employed to address these core issues.
The higher the purchase price, the more thorough the due diligence process needs to be, and sellers in the digital space often have unrealistic valuations compared to companies like Facebook.
The speaker explains that they choose not to use debt in their private equity fund because it only benefits the buyer and hurts other stakeholders, limits flexibility, and leads to decisions that are not in the long-term best interest of the company.
Consider the business model and time horizon when determining the amount of debt to use, especially for businesses with cyclical and non-recurring revenue models, and factor in the margin of error and additional expenses when buying a business.
Using debt for acquisitions can be beneficial for growing a company quickly, but it is important to differentiate between using debt for financing inventory versus putting a large amount of debt on the business, as the latter can lead to a significant portion of cash flow going towards bank payments and potentially increasing bad debt.
The speaker emphasizes the importance of not having a rigid plan for a business and instead taking a long-term approach to make gradual improvements without the pressure of short-term goals.

🏢 Private equity firm takes a slow and intentional approach, building trust and relationships, and offering help to partners; operates like an assembly line with specialized teams, focusing on long-term growth and providing opportunities for families.

We take a slow and intentional approach to building trust and relationships, offering help and suggestions to potential partners after closing deals, such as identifying opportunities for improvement in their marketing efforts.
The company only forces quick changes when there are ethical or legal issues, otherwise they take their time to understand the complexities of the business before making any decisions.
The speaker discusses the importance of understanding the history and power dynamics within a business in order to make effective changes, and explains how their private equity firm is structured differently by using a system similar to a regular business rather than relying on individual partners to handle all aspects of the operation.
The private equity firm operates like an assembly line, with specialized teams in operations and finance, assigning two people to each company post-close to work with them on a day-to-day basis and bring in outside resources, allowing them to scale better and hold smaller companies for a longer period of time.
The goal of Permanent Equity is to provide opportunities for people and work with families, rather than focusing solely on making money.
We are responsible for helping families and their employees flourish, even though it can be messy, and we never expected to be where we are today, but we are grateful for the opportunity to steward what comes our way.

📈 Starting a private equity fund requires hard work and patience, with a focus on buying one successful business before expanding, utilizing flexible debt options, and effectively communicating your value proposition to investors.

A friend sold a million dollar content site on a marketplace and received an unexpected all-cash offer, which was a life-changing experience.
There is a lot of opportunity in entrepreneurship, but it requires hard work, stress, and strain, and there are no easy options or shortcuts.
Prepare yourself for the challenges and give yourself enough time to be selective when starting a private equity fund, as it typically takes three years of full-time work to find and operate the right business, and when raising money, it depends on your goals.
Start by buying one business successfully before attempting to buy multiple businesses, and consider using the SBA USDA program for flexible debt with fixed-rate 10-year terms, although it comes with personal guarantees and risks.
Have a clear and focused story when raising money for a business, clearly communicate your skill set and value proposition, and ensure everything is organized and well-defined before making promises to investors.
The speaker discusses his travel plans and mentions his family background, while also promoting a website for buying or selling profitable businesses.