Ladies and gentlemen, welcome to the Business Brew.
I am your host, Bill Brewster. Thank you as always for
listening. This episode features Al
Goldstein of Stoic Lane. I'm gonna read straight from the
marketing material here. Who is Stoic Lane?
Stoic Lane consolidate small businesses at four to six times
EBITDA, adding technology to drive robust cash flow yields
and IRS with tax efficient compounding.
Now, I wanted to talk to Al for a couple reasons, but Adam Wyden
introduced us and Adam said AL's doing some interesting stuff.
Got on the phone with Al and went through some questions and
then found out that he was structured as a corporation and
he really is thinking very long about the entity that he's
building. And if you like what you hear,
reach out to Stoic Lane. Al strikes me as a good dude and
he's trying to build something. So I hope you all enjoy the
episode. It's a different kind of
episode, so I don't think any disclaimers are needed given the
fact that this is illiquid and that requires some
accreditation. However, just in case they are,
nothing in this podcast is investment advice.
Everything is for informational and entertainment purposes only.
Please consult your financial advisor before making investment
decisions. Do your own due diligence and
treat everything you hear on podcasts with a healthy dose of
skepticism. All right, thank you all for
listening and enjoy the episode. All right, everybody, ladies and
gentlemen, as I like to say, welcome to the Business Brew.
We are joined today by Al Goldstein of Stoic Lane and Al
is doing some interesting things in private markets.
So we're going to have a little chat here and see how it goes.
How you doing today? I'm doing great.
Thanks, Bill. Thanks for having me.
Friend of the pod Adam Wyden was the person that made the
introduction, so thank you to Adam for that.
Al, do you want to give people a little bit of your background so
that they know where you're coming from?
Yeah, no, for sure. But by the way, hopefully you
don't hear this building getting knocked down behind me here in
the middle of Miami Brickell. Creative destruction?
No worries. Love the creative destruction
like and like you said, thank you to Adam for making the
connection. But I'll give you super quick
background, I guess on me and and a little bit of stoic.
So immigrant kid was born in the former Soviet Union in
Uzbekistan. I don't know how many listeners
here have gotten the chance to go to that part of the world.
Grew up in Chicago and studied my started my career in
investment banking in New York at Deutsche Bank and lasted
pretty much 12 minutes or something to that effect.
Why? Why so short?
Yeah, no. Well, so I think you and I
talked about this a little bit, but learned a ton in the first
six months. Nine months worked crazy hours
and that was great. But fairly quickly, I think my
my learning plateaued and we were we were very process
oriented and had a chance to quit and go do a start up when I
was very young, when I was 23 years old, 20 years ago.
And my Co founder in that start up, who was a mentor of mine,
I'm still very close with. He he said something to the
effect of I want to give you the opportunity to benefit from your
own hard work. And yeah, he kind of neglected
the whole fact of like, you know, give up your nice salary
and cushy job and work for peanuts and move back in with
your parents in Chicago like that.
That whole thing fell by the wayside.
But Needless to say, we we did it.
My brother, my older brother joined as really, you know, the
Co founder, third Co founder, first employee in in addition to
me and Dave Shore, who's my original mentor.
And we built this company that very quickly grew to a
significant scale and that we started really one of the first
online lending consumer lending platforms, ended up selling it
to a public company over the course of four years or so.
And that we did great. Our investors did phenomenally
well and we did something like A70X return on capital from from
that business was this was. This innova or did you sell the
ANOVA? We we sold Innova, but it wasn't
called ENOVA at the time, OK. So the company was called
Cashnet USA, which which is still the brand for ENOVA for
the US market, OK. And and it became basically the
business it is today. So I've, you know, that's part
of kind of my, my, I think learning experience of my
narrative is I've watched that business continue to compound
and grow for the past 15 years now since 2008, late 2008 when I
left. And that company today generates
double in cash flow what we got paid.
And so it's a really big company.
And so I think it really ingrained this idea that the
eighth wonder of the world is compounding, you know, sort of
this idea that if you have a good business with various
entry, great culture, you know, sort of advantages relative to
competition, that business can continue to grow for a long
time. Did you have a sense of how it
did through O 8 right, because you sold prior to O 8, correct?
Yeah. We actually sold in late 2006
and we had a two year earn out commitment.
So we got to watch it through that period of time.
They actually did really well. Part of it was driven by quick
reaction time to worsening credit and got the benefit of
people pulling out of the market or providing credit.
So you know, we've got better quality customers and continue
to expand its product set and they've done a great job under
the new leadership. And a lot of the people that
that we had as part of our team went on and did great things,
whether it's building big startups or run big companies,
some are still there. So that that was my first
company. And then we just happen to have
some liquidity because like you said, oh, wait.
And I always liked real estate. So we ended up building a real
estate company starting in 2009 to buy distressed assets.
And we focused on multi family or apartments.
Pretty good. So we built yeah, no in, in in
hindsight, it was a pretty good time to buy assets.
It was. You didn't feel like it at the
time, though I would imagine it. Was kind of a scary time, yeah,
a pretty, pretty tough time to go raise capital as a 2627 year
old kid that I think I looked like I was 15 at that time.
Were you still in? Chicago.
I was in Chicago, Yeah. So we started buying apartments
in Chicago. How old were you when you when
you immigrated? Were you born here or did your
family bring you here? No, I was eight when we came
over. Do you speak any English?
No, not at the time. I'm still learning.
I think you're doing pretty well.
All right. So then did you move to, like, a
neighborhood where, like, it was, you know, I mean, Chicago's
got little pockets, right? Where they only.
Oh, yeah. So you didn't really like, when
did you integrate sort of into American culture?
Well, so I, I joke about it. I, I was a little kid.
I was eight years old and my older brother was 13.
I think it was more part of, of the Soviet immigrant Russian
immigrant community. I fairly quickly picked up
English. You know, when you're a little
kid, you just that it comes pretty natural.
So I was the ESL kid for a couple months and then fairly
quickly I became the American kid and I played sports and I,
I, I actually was really fully integrated.
So we moved to Skokie, IL and then my parents moved around
every, every, I don't know, every year to get a slightly
bigger housing. I joke about it.
So I, I have three young kids and we worry so much about do we
change schools and can we move and, and, and it's amazing
environment. And my parents, to their credit,
they, they could care less. Like we moved across the street.
I went to a different school. They're like, I don't know.
Yeah, yeah. Good luck.
I, I think, I don't know, I think our generation worries
about that a little bit more than our parents, but I, I think
our generation would be good to remember the kids are pretty
resilient. Well, that that's kind of what
I, my wife and I talk about is we're both immigrants.
She also is an immigrant and just, it ingrains a certain, I
think, adaptability in you. And at the same time, by the
way, a love for America because we came here for a better life
with nothing really as refugees. And I and I think, you know,
I'm, you know, there's a separate conversation that
people question American decisions and whatnot.
And I always come back to the fact that, hey, you know, I'm
just thankful as a little kid, somebody put me on a plane and
brought me here and gave me this amazing opportunity set that
this country provides. Yeah, I mean, I, I think I told
you, my wife's family is a Polish immigrant.
She was born in Chicago but grew up in the Polish area where like
they only big Polish. Community.
Yeah, they only spoke Polish. She didn't speak English until
she was like 6. And, you know, you talk to her,
you talk to her dad. I mean, they they came here
looking for a better life. And God bless him, he made it,
you know, and and you look at what he provided for his
daughter and what she's become. It's the American Dream
personified and and you are as well.
We try to remind our kids of that constantly, but it's all
about lived experience. If you don't, if you don't
actually live it, it's very hard to digest it.
And so that's I think the question like you said for the
next generation. Yeah, well, I am.
I'm doing my best to raise soft children, so I have to harden
them up somehow. I I don't know how I'm going to
do it, but we'll see. Anyway, that's neither here nor
there. All right, so you started the
real estate firm? We started this real estate
company. We started buying distressed
stuff, you know, scary time, obviously a financial crisis.
This was really before TARP and TALF and all these programs that
brought the quiddity back into the markets.
And we ultimately built a pretty big business.
And we actually did it in a hold Co structure in in a holding
company as opposed to a traditional sort of deal by deal
or fund model. Because one of my lead investors
convinced me that that is just a better way to create alignment
of interest and ultimately get to a point where when you choose
to sell or go public, you're going to have one set of
decision makers to make that call.
And so we set up a private REIT called Pangea, you know, like
the supercontinent with visions of grandeur and they built up a
pretty nice business. We, we bought and renovated
15,000 apartments over the course of really six or seven
years and built up our own management company.
So we were operating workforce housing sort of, you know,
challenging, challenging assets and challenging neighborhoods
that that you really have to managed very, very closely.
So we built up that full capability set.
So we were what? Kind of neighborhoods are we
talking? Urban Chicago, like Minneapolis.
Oh, you know those yeah. Oh, I mean South Shore, you
know, Chatham, you know, Auburn, Griffin, you know, great
neighborhoods, amazing properties, by the way, amazing
real estate that could never be rebuilt.
But you know, neighbors that that do have crime, that have
high unemployment, that that historically have had
challenges. What did that like, what did
that teach you owning assets in those neighborhoods?
I mean, did you, did you come in with any preconceived notions
and then leave thinking something different or not
really? I'm not sure.
I think, I think we tried to to always leave the preconceived
notions at the door as much as possible.
It's hard to do, but I think my experience has been that you
just have problems and solutions and you try to really sell them
one at a time. And I think my take away is
these are neighborhoods with great people and neighbors that,
you know, they, they have challenges.
You know, there's, there's, like I said, crime and unemployment
and, and certain issues that that hurt the neighborhoods.
But you have great communities of people that are amazing and
they're loyal and they're just looking for, you know, great
products and services. And that's what we try to
provide. And but the take away from, from
that experience was you really have to be on your game.
You have to, you have to be be able to execute very quickly.
You have to be able to solve problems, fix issues in the
buildings, you know, make sure you deliver a high quality
product and, and do that in an environment that other, other
operators in real estate maybe can't do.
And if you do do that, you, you get amazing loyalty.
You have tenants that you know been with us for 10 plus years
that you know the buildings have continued to perform great.
The portfolio has performed amazing well.
Even even now that we've actually sold the portfolio, we
get to see that it continues to perform well.
Yeah, that's neat. I, I like the idea of I mean, it
would, some of those would almost be like opportunity zones
today. I mean, I don't know if they're
technically designated as such, but I like the idea of like
going in and. Investing.
You know, investing in the community, providing services
that other people aren't willing to.
And and that's, that's like win, win.
Well, we've done some amazing things down there where we
created a sister foundation. So Pangea property is the name
of the real estate business. We created an entity called
Pangea Cares, which basically just reinvested in the
communities in which we operate with after school programs and
internship programs. And it's it's kind of the
circular construct that does work really, really well.
And so that's been, yeah, that's been phenomenal.
So that was, that was really my life professionally from 2009 to
really, really full time through 2014 or something like that.
When I was running the business, I was CEO and then I took a step
back to become Chairman of that business.
And I'm still Chairman of the Business Today, even though
we've now sold most of the real estate portfolio.
And I started a company called Avant, again focused on the
middle income consumer lending category.
We now call that Fintech. At the time, yeah, At least the
first time around with Enova, the I don't think Sintech was
really a moniker people would use.
Yeah. What what about the consumer
lending area like provided a lot of opportunity that you saw and
and made you want to enter it not once but twice?
Yeah, well, I, I, I think I told you I'm not very smart for one.
So, yeah, I, I, I joke about, I mean, I, I think it's this
really idea that with better data, better analytics and
better technology to deliver products digitally, it really is
a math problem. So when you kind of think about
everything we're talking about with AI and, and LLNS, we've
been focused on developing better, better models, machine
learning models to drive better credit decisions for 20 years.
And the idea is pretty simple. If I can underwrite to the best
quality consumer, why? Why define quality is lowest
risk consumer? I can offer that consumer a
lower rate of interest on credit and I got, I don't know why
fireworks. Look at that.
There was like your. It was like your computer was
ready when you hit the the. Punchline there like exploded.
I think this might be my kids taking over my computer
sometimes to do their Russian school.
So anyway, I it's just, it's the math problem of it, but at the
same time, it's got that same dynamic.
If you provide a great quality product and service to customers
that have been generally left behind by banks.
Banks have chosen over a long time horizon to, to walk away
from serving the middle income and, and the non, you know, non
prime subprime consumer. I think if you could provide
them great products and and Avant's focus is unsecured
personal loans, credit cards, expanding our products that
overtime that customer is going to be very loyal and very happy
with you for a long time horizon.
How long is the typical loan that you that you would extend?
Avast products are three to five years on the personal loan side
and then credit cards. So credit, you know, credit
cards obviously a revolving line of credit.
And it's been, it's been fun to watch that company develop.
And so as part of that development, eventually we
actually split the company in two.
So we built a bunch of technology for ourselves.
We started selling that technology to banks who were
trying to do the same thing we were trying to do is improve
their customer experience. And so we had what we ended up
doing is deciding to split the company into the two parts.
So you have Avant which is a pretty big consumer lending
business, one of the top top 20 or so credit card issuers now in
the country by just number of customers, couple million active
customers. And then you have Amount, which
is a pure technology company that took the technology that we
built for ourselves, rebuilt it, re platformed it and then offers
it to banks as a partner where banks can use it to improve
their own digital experiences. So that was that was sort of my
professional life from 20/13/14 full time until 2020 when we
split the company in two and I became chairman of both a lot
that amount. OK.
And then you said I don't have enough on my plate because I'm
chairman of Pangea, and that's kind of gone.
Not totally. And then I've got these two
companies. So I'm going to start Stoic
Lane. Yeah, like I said, not not.
It's not about being smart. I do wonder, I do wonder if you
have an off switch, do you just you are always going is that is
it like do you meet that? Internally, I'll tell you we had
a phenomenal experience as a family.
So we have three kids. They're now 8/10/12, but 20/20
was obviously COVID and we split the company Avant in February of
2020, March of 2020 COVID hits. And then, you know, my kids are
out of school for over a year and they were little and I was
pretty burnt out and I'd always wanted to go travel with the
kids for some period of time. And so my wife and I actually
did that. And so we, we went and we spent
six months, maybe maybe five months traveling around the
world during COVID, which was an unbelievable experience for our
family. And nobody was traveling, which
was a crazy time an. Aggressive decision that I
respect very much as somebody that came to Florida.
Yeah, no, we had, we had this unbelievable experience and I
feel like it really created this bond with our family and
hopefully our kids got to see some stuff that they would never
see. Yeah, I'd imagine.
But for me, for me, that was a great catalyst.
I think, I think it kind of like reinvigorated this fire to want
to build something really big that's that's hopefully multi
generational, which is what Stoke Lane is.
You know, Stoke Lane is is really modeled on obviously
Berkshire Hathaway is is one of the largest, most well known
longer term investment platforms.
But Constellation software, Danaher, you know, Liberty Media
IAC that that was the vision that that I've been thinking
about for a long time. This idea of creating a longer
term operating and investment platform that will just be able
to benefit from that longer term compounding, but at the same
time use technology, use better operational capability, adopt,
you know, the next most most important advancement a la AI to
drive better longer term efficiency across businesses in
my world, in my world, you know, being where I've played my whole
career, which is financial services and real estate.
Yeah. So you, you say in the in the
one pager that it's fire, right. So national services, not
insurance. The RE is real estate but it's
like. Counting, right, Well, so
originally we said fire, finance, insurance and real
estate. It was a little catchy and, and
that's what we didn't know what we were going to do.
So that was sort of the broad lane and it's pretty broad
because fire represents 20% of GDP.
But what we've done since is we've really created 2 core
platforms and we have a real estate services platform where
we've assembled a couple of really large companies that are
some of the biggest companies in the US and what they do.
And then we have a. Platform we call financial
solutions really back office services for entrepreneurs and
small businesses. OK.
So that's that's what we built. And so, so let's put a little
bit more of a fine point on that.
The the real estate company, the operating companies, What
exactly are you doing? Yeah.
So I think our core strategy, and again, don't, we were
starting the business in early 21.
So we officially launched Stoic March of 2021, raised capital
for the first time in August of 21.
This was sort of the heart, the heart of, you know, 0 interest
rates, every asset was being pumped, SPAC, you know, crypto,
you name it. And personally, I, I have a
value bent and just the way we were trying to think about it as
partners, where, where can we go where we can buy companies at
reasonable multiples of cash flow instead of paying, you
know, 50 times revenue for minority stakes in startups, but
at the same time get that long term growth.
And So what we really came up with isn't this idea that we are
going to buy small operating businesses.
We're going to focus on professional services.
So asset light companies that are highly fragmented, that are
not using a lot of technology, buy up those companies, create
scale by putting them together into a larger platform.
So step one is integrate those businesses to create scale.
Step 2 is really use best in class technology systems,
optimize the businesses to actually get the benefit of
scale. And then longer term, step three
is drive growth and better margins over a long time horizon
using tech, AI, outsourcing, sort of you name it.
And that's what we've done. And so we did that in vacation
rental management where we assembled the second largest
vacation rental property manager in the US, we call it Monarch.
We've done that in real estate valuation or appraisal in a
platform we call Ascribe and we're now doing that across
accounting in a platform we call Archer Lewis.
What have you experienced in the portfolio side of like the
Airbnb, for lack of better term, rental management?
Seems like, you know, 2021-2022 you were right in the teeth of a
ton of demand. Has that sort of softened at all
or is it still pretty, you know, like what do you see from your
lens? Yeah, no, you're totally right.
I mean, the, the the initial COVID wave obviously was
challenging for that whole industry because everything was
shut down for a period of time. And then everyone started
traveling and nobody had to be in an office anywhere.
And there was stimulus money and and liquidity everywhere.
And so those, those companies all grew like crazy between
really 21 and 22. So we've got into this space in
the very end of 2021, we bought our first platform and then we
really scaled in 22 and 23. And I think our assumption was
that that was going to stop and that it was going to be a softer
period of time. And it and that was going to
come off a little bit and you're going to have a couple of years
of stagnation just in occupancy, average daily rents or AD Rs Rev
par being the combination of those two factors.
And that's really what we've seen.
So the last year was with a tougher year in the whole
industry. The the overall Rev par was down
1415%. This year's 15 to be a little
bit slow challenges with supply, too much supply that came into
the market depending on what market you're in.
We we've purposely stayed out of of cities.
So we don't generally operate in urban markets.
We operate in traditional vacation markets that don't have
nearly as much supply that don't have, you know, the Airbnb
arbitrage model as he will busy people that will rent A unit
from from an owner in an apartment building and then go
on Airbnb and lease it out and try to make the spread.
We don't typically compete with that.
So we don't do any of that. We manage homes on behalf of
homeowners that have a second home.
They might have a second home in Lake Tahoe in, you know, the
Panhevol of Florida, in Sea Brook Island, Georgia, you name
it. And we try to provide them this
great experience where they don't have to deal with it.
They get a check every month and then when they choose to come
and stay in their property, their property is going to be
spotless and it's going to be well taken care of that.
That's the experience we try to provide.
And you know, I think we've done a pretty good job in maintaining
growth and, and improving growth.
And it's still a challenging year in the market, but I think
we've, we've kind of done a pretty good job of improving how
we think about pricing and getting the benefits of scale.
And so we're actually growing, whereas the industry continues
to spotter along right now. But I, but I personally think
the whole industry has gone mainstream with COVID.
So many people have discovered that you don't have to stay in a
hotel when you travel. You could find us on Airbnb,
VRBO, Home Away, or you can find this directly.
But then once you have that experience that you've gone and
stayed in a house with 345 bedrooms and a yard, it's pretty
hard to want to go stay in a hotel room.
You know, it's just, it's a totally different experience.
Yeah, well, especially now that you don't get your hotel room
clean unless you make a special overture to somebody to do it
right. It's it's one thing when you're
getting service associated with it, but if I'm not, if I don't
get my service, then I might as well, especially if I'm
traveling with the family. The Airbnb model is much better
for me. Well, that's what I think it is.
We travel all over the world with my kids.
We stayed in in Airbnb's and homes all over the world and we
had a great experience and like how we use Airbnb now as, as
it's now and or, or VRBO or HomeAway.
I I think they're great companies as marketing company,
but I travel by myself. I go to New York.
I was in New York yesterday. I stayed in a hotel because it's
easy, it's simple. I don't have to think about it.
But if I'm going traveling with my family for a week and I need
a place to work and I need some room for the kids to sleep, it
just the hotel housing stock isn't built for that.
Yeah. Well, and then you get in two
rooms and once you start doing that, the cost gets crazy.
So it's a, it's a nice value proposition and your strategy is
to do the asset management side of it, but not you don't have
the capital outlay. So if I I would be a a customer
theoretically that owns a second home, I'm the one that holds the
assets and then you sign up with me and you send me a check,
right? Correct, Yeah, We don't own the
properties and have no interest in in building up the asset
base. Our interest is providing the
best experience we can to our owner and in some, in some cases
the owners may choose to buy multiple properties.
So we have owners that own, you know, 15 or 20 properties that
we manage for them and that's great.
And our whole focus and goal is how do we operate our business
most efficiently and how do we provide the best cleaning
services and how do we price most effectively?
How do we provide them the best AP is and onboarding into the
RBL, HomeAway, Airbnb, Expedia, making sure that the most new
guests find them, but at the same time also provide them
great websites so that repeat guests that want to stay with
them directly can stay with them directly.
So it's really focused on the operating side of that, that
experience. And then ultimately the goals
are pretty simple is you want them to have great income and
it's totally passive and at the same time great experiences when
they stay in their homes because most of our owners stay in their
homes. Yeah, yeah, yeah.
That makes sense. It's sort of like a way for them
to cover some of their expenses while they're not utilizing the
home. Exactly.
They might stay in their home three-week, 3 weeks a year,
maybe 4 weeks a year tops. The rest of the time the home is
just sitting there underutilized and it's taking on just sort of
natural wear and tear. And so this way they get to
offset that cost. And then people are in the
house, they're checking to make sure if a pipe burst, we catch
it pretty quickly, that kind of thing.
So do you have like regional managers that I, I guess what
I'm, what I'm trying to figure out is you, you mentioned, you
know, decentralized operations right in constellation.
So like, how does that permeate what you do and how does that
apply to what you do? Yes.
So the way we've scaled is we've bought 24 companies, individual
companies to create this platform, Monarch.
And these are amazing companies that have been around for a
long, long time in Lake Tahoe. We have Tahoe Getaways and R&R
in Aspen, Wear Aspen Signature in the Panhell Florida.
We have a company called Benchmark and Vest Beach.
And basically our strategy is we want to preserve the long term
value in brands that we have acquired.
We don't want to destroy those brands because a lot of times
those brands have been around way longer than we've been
around and they've great experiences, great reputations.
And so that's what we try to do is we try to incentivize the
owners to stick around as long as they want to stick around and
try to make their lives better so they don't have to deal with
the administrative stuff that they in a lot of cases don't
want to deal with. So the back office, the
accounting, the HR, and they could focus on dealing with, you
know, their clients, on finding new homes, on being in the
community. And so that that's a big part of
what we're trying to do back to the decentralized management and
then essentially provide them the support for the
administrative side to make their lives more efficient,
provide them technology services that they historically couldn't
afford, could provide, provide them data and analytics.
So they could think about how do they optimize pricing most
effectively? How do they, you know, figure
out how to scale vendor relationships and get better
pricing on, you know, linens, sort of you name it.
And it's worked really well. And, and I think that hybrid
approach where you can go to the property that you've gone to for
the past 15 years and it still feels the same, that looks the
same, you get the same quality touch, but maybe it's even a
little bit better because now you have more consistency.
Now you know you can have kind of some features that
historically you didn't have because we're trying to learn.
So we're taking what's working in one market and trying to
apply it to a different market. Yeah, that makes sense.
How do you think about, to the extent that you you can talk
about it, how do you think about incentivizing the owners that
are staying on in order to keep them motivated?
Yeah. No, I mean, we, we, we really
focus on long term incentives as part of this idea of how do you
continue to scale and grow a business for a long time.
So it's not only the owners, obviously all of our key
employees and executives. So it's really a function of
when they sell, a lot of times they'll take a piece of the go
forward business of Stoke Lane as part of that compensation.
So they have incentive there. And if they want to stay around
for a long time, we'll try to create the right incentive to
match what they want to do. And, and we've heard this from a
number of owners where of the 24 companies that we've acquired,
20 owners are still with us, which I think is, and this is
just in our vacation rental vertical, just to be clear.
And I think that's a huge win. We're super excited about that.
And a number of them thought that the by now they would have
retired, they would have moved on.
And they've told us, you know, we're sticking around as long as
you're here. And, and so that to me goes back
to why are we doing this? I think that's that's the piece
that that I get energized about. So something that you, you said,
you know, you give them some equity or, or a piece of Stoic
Lane. I'm not trying to put words in
your mouth. And if I misspoke, I'm sorry.
But but the thought that I had you talking about long term, do
you mind talking about how Stoic Lane is set up?
Because when we first talked, I think it was about 45 minutes
into the conversation, I was like, oh, so you're AGP and you
were like, no, no, no, no, no, it's nothing like that.
So I think it's kind of interesting the approach that
you've taken. Yeah.
So we're we're basically a company.
So we're an investment company. We have shareholders, I'm one of
the biggest shareholders personally.
Our shareholders have preferred shares in the company that that
could convert to common if we go public, which is our long term
strategy. And then management incentive,
you know in a private equity firm it would be carry
management incentives is really in the form of common shares
that vest based on performance. And so we create alignment of
interest between our investors and management by tying it to
really long term outcomes. And so our goal is to create
compounding multiples of capital that translate to hopefully 25
or 30% annual returns for the next 10/15/20 years, right, nice
and easy, right? Like.
Easier said than done. Yeah.
Well, I talk about it's, it's easy to build a model that shows
that because I think what we're doing translates, you know, on a
model basis to significant long term returns because we're
buying companies at reasonable multiples, market multiples, but
they're small companies. And so typically we're buying
them for five times cash flow. That's kind of our model.
And you put them together into these larger platforms.
In theory they're worth a lot more.
And so that translates to higher returns.
The theory though, the big test is can you actually operate
these businesses? Do you keep management engaged?
Can you continue to grow as they're part of a larger
platform? And I think that's that's kind
of the skill set that we're trying to bring to the table is
that really have a unique experience.
So that's that's the structure and the long term goal is how
you create significant multiples of capital over a long time
horizon 10/15/20 X for our investors.
Yeah. And, and the other thing that
you would had said to me is like I, I think when, when you're
thinking, you're thinking about, you know, running this for a
very long time, right? I mean, my interpretation of our
first conversation was not that you necessarily regretted
selling your first business, but you watched it become what it
became. And you thought, next time I
want to hold that compounding for as long as I can once I get
the right wrapper, if that makes sense.
Is that fair? Yeah, no, for sure.
I, like I said, I've been, I've been a student of these amazing
leaders and CE OS, you know, Mark Leonard, a Constellation
and, and obviously Buffett and Charlie Munger and and a number
of others, John Malone of Liberty Media that have built
these amazing businesses. But they didn't do it overnight.
It took, it took years, twenty, 30-40 years to really get to the
point where these companies were really scaled platforms.
And so we think of ourselves really just in our form at a
stage we're 3 1/2 years in and we're just kind of getting our
feet wet, hopefully. And so our viewers, we could
continue to expand. So we really have these two core
platforms. Our platforms can grow
horizontally as we find adjacent opportunities that make sense.
We're hopefully we have benefits of already being in a business
where we have adjacency of having great young leaders that
could step into roles as CEOs, as product leaders, as
technology leaders, as chief revenue officers that we're
we're kind of building up, giving them great opportunity
and I ideally create these amazing advantages that can
continue to multiply. So that that's really our view.
You know, our real estate business Pangea was started in
2009. It was a 15 year journey.
My hope is that this is like I said, 2530 plus year journey and
we could continue to deliver amazing outcomes for our
shareholders, but at the same time continue to to really
foster these great brands that have been delivered and that
have proven out in their first kind of first ownership by these
great founders. And what we promised these
founders is we're going to do our best to protect your legacy.
So you just, you know, you could continue to build it.
You can eventually retire, take a step back, but feel
comfortable that your legacy is going to be protected.
Why did you exit Pangaea? So this we sold the portfolio,
you know, ultimately the challenge with any businesses,
are you growing? And if you're not growing, can
you continue to motivate the young team?
And we just really weren't growing because I think the
challenge with real estate is so cyclical.
And we bought real estate from 2009 to 2014 or 15.
And we really didn't buy much real estate from 2015 on because
we just thought the prices were too high.
And you know, ultimately I think we should have kept going and
eventually prices corrected, but we just felt like if we weren't
going to continue to grow and didn't see opportunity to
continue to grow the real estate portfolio, it made sense to
explore the market to sell it. Interesting.
So what did I mean, what did you experience as a leader when the
growth sort of slowed? I mean, obviously, you alluded
to keeping the team motivated, but I'm just kind of curious to
hear what happened there. Yeah.
I mean, I think that, I think that's just kind of a bit of the
challenges when you're growing the business and Pangaea grew
from zero to 500 plus employees in three, 4-5 years.
And you know, obviously it's crazy.
You're trying to try to make sure you have a good process and
you're trying to improve all the time, but you're really, you're
really, it's exciting, you're pushing forward.
And a certain point when you're not growing as quickly, it
doesn't mean obviously the business collapsing.
That's when you actually become very profitable in theory
because if you're doing your job well, but then you have young
people that are looking for the next opportunity that might not
be there. And I think that's a bit of the
challenge that we saw. And and that's actually part of
the opportunity set at Stoke Wayne is we may have one
business that's not really growing, but hopefully we have
another business or two that presents great opportunity for
people to move to. Yeah.
But that was a bit of the challenge is how do you continue
to give, give that next generation of people amazing
opportunities that the prior generation had?
Yeah, that, I mean, that makes sense.
And yeah, I would imagine as as it gets stagnated, it's it's
just tough to convince, you know, you start to not retain
the talent and it's like, OK, well, and I, I assume what you
sold in 2020 or 2021, something like that, 2019.
So we we sold in a few in a two-part transaction.
I'd say it, it was a long deal. It's complicated, but we sold
originally the the first part of the portfolio in 2020 to and and
the rest of it, you know end of 23, so.
I suspect it was not so bad and in the end to.
You know, it worked out great for our investors who put their
trust in US and and ultimately like we, we have raised capital
from outsiders. Our outsiders eventually want
liquidity. And so we thought we might get a
chance to go public as a company.
We didn't for a number of different reasons, but also
growth, right, Like we didn't have that growth engine yeah,
available to us. And so we got the liquidity back
to our investors by selling the portfolio.
I think that's still playing. The plan is to go public and and
I think we'll have hopefully the opportunity to do that because
of the diversity of our businesses and the ability to
keep growing for hopefully the next the next 1015 plus years.
One of your verticals is accounting and I think that
there's a few, few companies, one is an Australian listed one
that's that's trying to do something similar.
So how are you finding the the bidding opportunity for
accountants and accountant firms?
You know, is it, is it more competitive incrementally or is
it, is it kind of, I don't know, fairly stable?
It's, it's pretty interesting because it feels to me like a
lot of investors and private equity, you know, private equity
investors and and search funds have discovered the opportunity
in the accounting sector at a pretty similar time.
But it's still really early because we got in, we've been
thinking about the opportunity set for the last year and a
half, two years. We started buying platforms
companies earlier this year. You know, folks, a few folks
started in the last couple of years, but it's a highly
fragmented space. There are 40,000 accounting
firms in the US. Many are very small.
The sub sector of the market we're focused on.
These are pretty small companies which which we like operating in
that space, but most people. Yeah, don't necessarily have the
stomach for it. It's, it's hard to execute on.
You have to be really efficient. So we think we still, there's
still opportunity, but it's challenging.
We're definitely seeing competitors come into the space.
But we think it ultimately comes down to how can you execute?
Can you actually operate then can you integrate these
companies and preserve the culture and the values of the
business that you're buying? And we think that we have a
unique ability to hopefully do that over time.
Yeah, I would think with accountants, especially some of
the the smaller firms, there's some element of key man risk
too, right. I I would think it's very
relationship driven. Yeah, I think that's true across
our businesses. I mean, that's what we've
gravitated to. It goes back to if you can
execute on that transition and make sure that people stick
around and ultimately you can, you can keep the relationships
happy. I think you do incredibly well.
But if you just buy the companies and you're an absentee
owner and you expect them to work, it's just not going to
work. So yeah, it's very similar
dynamic to our vacation rental business.
It's a relationship. Ultimately you could fire your
manager if you want to. And I think we've done a pretty
good job of providing a great experience and great opportunity
set for the owners that have sold to us.
Like I said, 20 F, 24 still with us.
Our hope is that that's consistent in the accounting
vertical that sellers really, really get excited about the
Stokeland vision and continue to be part of it.
And and therefore we have these smooth transitions that take a
long time and hopefully are pretty seamless that that the
clients actually get better features, better services and
don't decide. They don't, they don't need to
move on. They don't need to try to find
somebody else. Yeah, I mean that that it makes
sense to me. And at least on paper, you know,
it's, it's the execution that's, that's the tough part, right?
No, 100% like me personally, for better, for worse, I, I like
taking on execution risk. I don't want to take on market
risk. You know, I think market risk is
this idea that I'm buying something because I think it's
going to go up in price. Like I don't, you know, that's
not my strength. I've never been a trader.
To me, we're buying something that if we can execute on our
plan, we'll create value because of the plan, but you have to
execute on. So how do you think of yourself
as an investor? I mean, are you willing to maybe
pay a little bit more and bet that your execution is a little
bit better so you'll be able to create more value?
Are you trying to buy things at like rock bottom prices and
improve them or? I mean, I know that's obviously
the Holy Grail. I'm just trying to think of like
your philosophy generally. I've talked to a few people that
run companies that now, now they have shifted from trying to buy
like cheap turnarounds for lack of a better term.
They like to pay a little bit more and get a little bit better
of an enterprise. And that's, that's like in the
private world as well. The the Buffett transition,
yeah, I think, I think we're definitely you know, we're we're
price takers. You know, we're, we're we're
looking to to pay basically market because it's a
competitive market where and we're trying to buy companies
that are good companies that are growing and and they're
effective without us and because.
I think, I think that means that with our help hopefully and part
of a larger platform that actually grow faster and they'll
be better. But we're buying small companies
and so the market price for smaller companies is just lower
than bigger companies. And so our view on value is if
we can execute on this idea of creating scale, creating unified
brand, creating kind of consistent growth, the market
will reward us with a higher value based on the scale.
So if we don't need to get, you know, we don't need to squeeze
our owners. We want them to feel like
they've gotten a market price, you know, they've gotten a fair
price. We just want to be the easiest
person for them to deal with. So they want to work with us.
Now when you say unified brand, are you talking about, and I'm
only asking this because you, you had mentioned the real
estate company is sort of operate in regional brands are
so are you more talking about like what owners think of you as
or in the accounting vertical or are you actually rebranding in
going to market with like one brand?
Yeah, I think, I think it depends on the market.
And like I said in vacation rental it it we're keeping the
local brands a little bit like the hotel.
You know Marriott has a number of different brands that that
they operate. It's a little bit of that
concept. In our other verticals we tend
to go with one brand. So our, our appraisal of real
estate valuation business with was eight different companies
that now we're all operating under one brand.
We call a scribe and they're doing great, they're providing
great service. Our accounting business is
called Archer Lewis. So ultimately all those
companies will be, will be operating under that brand.
And I, I think, I think that just creates consistency for the
clients over time, creates a, a more unified experience.
And so even in in our vacation rental business, we have
different local brands, but then there is one unified brand over
the top, which is called Monarch.
Yeah. So is it, is it like, I don't
know, Bill's property management, a Monarch company
basically. OK.
Yeah, that makes sense. Exactly.
What's going on in the in the real estate appraisal business?
I would imagine that rates have sort of punched it squarely in
the face. I know you know you execute as
well as you can, but when you're swimming against a tide like
that it it can get very difficult.
Yeah, it's been a challenging few years.
We, we came into the business underwriting high rates and so
we assumed volume would come off.
I don't think we quite assumed it would come off as hard as it
as it has where there's effectively no refinance
business. If we're talking about
residential real estate, there's, there's zero refinance
activity and purchase activity is at 40 year lows in the
industry. Yeah.
So we've definitely been challenged based on that.
At the same time, I think we've executed pretty well.
And so we're, we're just integrating the company into a
cohesive platform and we're picking up market share because
I think, I think our clients, basically banks and lenders,
servicers are happy with a unified national platform that
can deliver quickly and efficiently for them.
And so, you know, it's been challenging, but I think I think
we'll get to a good outcome there long term.
Yeah, well, it's not perpetual, right, but a temporary blip for
sure. Well, I think the market
stabilized mainly, mainly how how much worse could it get, but
it's pretty bad. It's there.
That's fair. If you do any office it could
get a little worse. But then again, you you might
need appraisals for for the hand and the keys back or whatever.
We'll see. Yeah.
No, I mean, I think, I think we're excited about where that
business currently stands. And, and it's been, it's been a
challenging 12 to 18 months, but we're we're really excited about
the growth that we're seeing now.
Do you see any like sellers of appraisal?
But I mean what's the bid ask spread on some of those
businesses? I would imagine if you have one
a willing seller is hard to come by I guess is what I'm thinking.
Yeah, there, there really hasn't been that much activity.
You know, we, we're we're excited to be in the market.
We'll look at opportunities to get bigger and get the scale.
We're the 5th largest appraisal company in the US Are you really
our goal in it? Yeah.
So we, that's what we've put together.
Like I said, we've gotten, we've created a national platform.
Our goal is to be much larger than that.
So we do something like 20,000 appraisals a month, like pretty
big company, relatively speaking.
Our goal is to, to be #1 or #2 in every market in which we
operate. So we'd love to find ways to
scale and get bigger through acquisition and organic growth.
So we're we're just looking for opportunity.
Yeah. Generally and philosophically,
how do you think about sort of building moats in these
different businesses that you have?
I'd just be curious to hear you riff on that.
Yeah. No, I think it's a great
question. I think my experience has been,
you know, one of the challenges for real estate, my prior
experience where we were buying real estate is that pretty much
anybody that had capital could compete with us.
And that's why we ultimately sold the portfolio because there
was just too competitive, prices kept going higher and we
couldn't find anything to do and anything to buy.
And so we like the idea of competing in operating
companies, operating businesses where you have you have business
complexity, the capital markets are more challenging, you have
to have experience. So you have a limited set of
competitors that come into the market.
Basically we compete with middle market private equity firms.
You know, that's who that's who generally is, is going to try to
buy the same companies. We're trying to buy on the one
end and then strategics on the other end as we try to grow
these companies. I'd say on the buy side, part of
it is we go into verticals where you don't have a lot of platform
companies, bigger companies that private equity firms can come in
and buy. And we're built to buy much
smaller companies and we built the platforms.
So I think that's a unique advantage of our our Stoke Lane
thesis and how we execute. I think longer term, it's better
execution drives barriers to entry.
So better execution and continuous improvement.
That's been my experience. Because over time technology all
gets copied. You know, it's, it's whatever
unique kind of like formula you have, somebody's going to figure
it out. You drive better execution with
better culture, better people, and then continuously innovating
and cannibalizing what you already do.
And so that's, that's been kind of my focus is there's this book
I read years ago that I think we lays out culture in a formula
that, you know, like it's a way of thinking of the culture code,
which basically says, if you study seal team six and you
study winning sports teams and you study the best performing
businesses, what drives on this culture And culture is basically
having a unified vision of where you're going, having a team that
has trust so you can make mistakes and be OK and, and
you're not afraid to make those mistakes.
But at the same time, people will call out what's going on.
And so you're learning from those mistakes.
And you know, that's what we try to do.
We try to create great environments for the smartest,
the most hard working, energetic people that want to come work
in. And ideally we try to recognize
who they are and try to push them up as quickly as we can.
And I think that drives better culture, long term meritocracy
and and ideally better results. And so you can try to compete
with us today based on what we have, but hopefully by the time
you're there, that's 12/18/20, four months down.
We're we're so much further because we're constantly trying
to reinvent ourselves. How did you pick you know the Co
founders that are listed are Jake Nice and Matt Foran?
How did you you all come together?
Yeah, so, so I, I've known, you know, most of our, our team,
their people I've worked with in the past, I've known for a long
time. So Matt Ferran was actually my
high school fraternity brother. So I've known him forever, 25
years at this point, a joke. I think I ran his, his lines for
his budget class at some point. He still, and we still get
along, but him and I have actually never worked together
in the past, but we've always tried to because he was in the
insurance world, which is where fire finance, insurance and real
estate, it's very operational. And he previously built a
startup that I was too dumb to invest in and then sold it to a
big insurance company and then ran distribution for another
very large insurance company and just really unknows that world.
And I think our experience, because I have more the
financial services real estate side, he has the insurance side
just blend together really well. And so we came together around
this idea. And then Jake Nice, I actually
pulled out of investment banking and he and he came to work at
Avant as he was, I think employee 25 or 26.
Yeah, his second job, you know, after investment banking, he
worked for a former boss of mine, which is How I Met him.
And so that was over 10 years ago and, and he was phenomenal.
He ended up leaving us for his wife's residency to go and move
to Columbus and him and I always talked about getting back
together and building something. So he was just getting back to
young, hungry, smart person that, that I've had a ton of
success working with those kind of people over many years.
And we just came around this came together around this idea
and COVID times and, and said, OK, we all, we all believe in
this longer term compounding strategy.
And how do we create something that's going to outlast the
three of us and, and ideally surround ourselves with people
that that think very similarly. And we're four years in, still,
still kind of moving forward. We have great teams that we've
built around us and the Stoke Lane team's about 25 people at
the The Holt Co, which is really supporting about 800 people
across these various businesses that we've built up.
Yeah, interesting. I wish I had more hold Co
experience so I could ask you more relevant questions.
I'm I'm interested in how you build it.
How do you keep the team motivated?
You know, those are those are some of the the questions I keep
coming back to, but it sounds like.
You know, I keep asking myself those same questions, but I
think I think ultimately, like my experiences, if you are
surrounded by really smart, great people, it just rubs off.
And that's what motivates me more than anything is just
working with great people who are fired up to go build stuff.
And, and we can figure out the economic incentives.
We can figure out OK, Like if we're building value and the
business is doing well, hopefully there's a lot there's
money to go around to make people happy.
But to me, the biggest motivator is really just be on a winning
team. I, you know, I grew up playing
sports. My kids play sports.
I'm a big believer in that is winning is fun.
Everybody wants to win. Yeah, losing sucks.
Losing sucks. Nobody wants to lose and but,
but I think being part of a winning team professionally just
means you're surrounded by a players who are pushing hard,
who are driving hard and are teaching you stuff every day.
So I'm coming to work to learn stuff from, you know, I, I was a
young kid. Now I'm, I'm one of the oldest
people around the office, which, you know, kind of happen like
that. But I, but I'm learning stuff
every day, which, which is what motivates me.
And I think, I think that's circular.
I think that's this virtual cycle we're trying to create.
How do you foster a you had mentioned, you know, the idea
that that people are willing to speak up and disagree.
How do you foster that kind of an organization?
Yeah, I think it's a great question.
I, I don't think you can do anything but just have it happen
and react the right way and, and try to have just open dialogue,
try to bring people in the tent and encourage people to
participate. And I think people, people kind
of see that it's OK. I think in a big company, it
just when you, where you have a lot of bureaucracy, it's very
hard because nobody's doing it. So are you really going to be
the first one that says, Hey, you like I got here 4 minutes
ago, but I have this idea like people just don't do that.
Whereas if from day one it's pretty clear that hey, I might
have, you know, I might be CEO, whatever that means.
But everybody constantly tells me all the reasons I'm wrong and
I'm OK with it. Like like.
I think you get the hint. Yeah.
Well, I think it's, I think
it's, it's, it seems to be a commonality of different
organizations that are probably largely tech focused.
But there was, there was a guest on here, he wrote a book called
The Geek Way. And that was one, one of the
sort of foundational principles of a lot of the businesses that
he has followed and kind of admires is the willingness to
foster not necessarily agreement and not necessarily
disagreement, but honest conversation.
Yeah, exactly, 'cause who you know, who knows?
I would be remiss if I didn't tell you.
We we talked about winning and losing.
My grandfather used to say show me a good loser and I'll show
you a loser, though. That's that's my, that's my
grandfather. 'S Oh yeah, no, I, I can't say
I, I don't say similar stuff to my kids sometimes even though I
I regret it. Yeah, I don't know that you
should regret it. I think it's a good lesson.
I mean, when you're talking to your kids and like, how do you
put into perspective what you had growing up versus what they
have now? Can you?
Yeah, I think it, I don't think so.
I think it's really hard. My wife and I talk about it.
We're both immigrant kids. You know, it's, it's, it's like
a foreign language. It's lived experience.
I think we continue to do it nonetheless and, and continue to
just kind of I, I actually think sports is a great allegory for
life. And, and it doesn't have to be
sports, just competition in general.
It could be chess, it could be robotics, you know, it could be
anything. But I think this idea of being
in a competitive environment where it doesn't matter how much
money you have or your parents have, or, you know, you fly
first class or business or you fly private.
Like none of that matters if you don't perform on the field or
you don't perform in your tournament And you have to deal
with that stress and you have to be able to kind of interpolate
it, put it aside and still perform.
I think that's, that's kind of a great, great allegory for how
life is. And then they, you know, if, if
you get a little bit of help to get through college and get your
first job, great. But you got to show up and you
got to perform. And, and that's what I try to
tell my kids is like it, it doesn't matter.
Like the material stuff is great, whatever, it doesn't
really matter. Perform, you know, train,
training makes you better improve your skills and
ultimately you got to be able to deal with the the anxiety, you
got to be able to deal with the stress and perform.
And if you do, things will turn out great.
I like that that's that is solid advice.
I mean, I don't know if it'll work.
No, it works. It definitely works.
I'm, I'm sort of dealing with it with my second.
He's, he's like naturally pretty good at a lot of stuff, but he's
hitting this like plateau where his natural ability can only
take him so far. And now he's, he's running into
kids that are working harder. And it's like, dude, you got to
work like that's, that's just what it is.
No, I mean, it's kind of amazing.
I think I hit that natural ability plateau extremely early
in my. Yeah, I did too.
He didn't get all my genes. Those are his mother.
'S my wife, my wife is is got the more the natural athleticism
I I joked. She gave the kids the genetics
on the athleticism. And I have the cattle prod.
That's OK. But but I was a wrestler growing
up and like wrestling is a is a grind sport.
You know, you just got to work. And I think, I think it's, it's
like a great way to learn that you might be better naturally,
but that lasts like a minute before the workers get ahead of
you. Yeah, yeah, that is good
lessons. The the earlier we can teach
them the better too, which is why I, I, I agree with you on
sports, right. It's like something like cannot
be denied if if they care about it or whatever your competitive
desire is. Yeah, exactly.
I you know, I like, I like sports, but whatever it is.
Yeah, Yeah, whatever gets you fired up.
Yeah, you can't fake it through chess, right?
Like eventually somebody's just better and they're gonna beat
you so. Yeah, of.
Course, Yeah, cool man. Well, I've, I've enjoyed the
chat and I like how you're going about what you're going about.
I mean, like I said, when we when we first started talking, I
was like, OK, it's a GPLP sort of like.
Not, I don't want to say like another one, right, but then you
mentioned that it was AAC Corp and and your long term vision
and you know, I'd be remiss to say that people should reach out
to you if they like what they heard and they're potentially
interested in investing right. I, I think that would be a call
that you'd be willing to take and you all, you all can go
through the formalities of accreditation and all that, but.
You are. That would be amazing, right?
So we're looking to grow. We have till the end of this
year to continue to raise capital, which we're actively
talking to people that buy into our vision and we have a long
term mindset, you know, so could continue to hopefully be able to
expand our opportunity set. All right.
Well, I hope that we introduced you to a few people here and I
hope that, you know it was a beneficial use of your time.
I'll have to make it down to Miami and say hi in person.
Yeah, well, I'll make it your way too.
All right. Well, either way it.
Works all right, man. Have a good one.
Stay cool out there. It's about to get hot.
It's a hot one. All right, have a good one.
I'll talk to you. Bye.