How Borgman Capital Built a 20-Company Portfolio
Sequoya Borgman, Founder and CEO of Borgman Capital, joined host Mikk Markus on the Buyers & Builders Podcast for an in-depth conversation on building a lower-middle-market private equity firm through independent sponsorship. Drawing on experience across 20 acquisitions and eight platform companies, Sequoya explains how Borgman Capital sources off-market opportunities, evaluates founder transitions, and aligns with individual investors and family offices. The discussion explores why conservative balance sheets protect closing certainty, how leadership fit dictates portfolio value creation, and why microeconomic fundamentals matter more than broad macroeconomic predictions when buying small businesses.
Watch or listen to the full episode above to hear Sequoya Borgman detail Borgman Capital's investment philosophy and operational model.
Key Takeaways
Founder transitions require underwriting human capital alongside financial statements
Replacing a founder who has run a business for 30 or 40 years is often one of the largest risks in lower-middle-market acquisitions. Founders frequently carry decades of concentrated institutional knowledge, customer relationships, and operational responsibilities. Replacing that single individual often requires hiring two, three, or four executives, which adds overhead, reduces EBITDA, and impacts returns. Successful transitions require realistic succession underwriting before closing and post-close patience while new leaders earn the support of the existing management team.
Conservative balance sheets protect transaction certainty and long-term resilience
Raising equity deal by deal requires locking in capital schedules weeks before closing, leaving little room for last-minute adjustments. Borgman Capital addresses this by routinely raising an additional $500,000 to $1 million in cash balance sheet cushions on acquisitions. This extra capital absorbs working capital fluctuations, prevents closing delays, and allows portfolio companies to navigate economic cycles smoothly without emergency capital calls or excessive leverage risks.
Trusted networks generate sustainable off-market deal flow
Over 80% of Borgman Capital's platform acquisitions originate as proprietary or off-market opportunities referred through local networks. In secondary markets, trusted advisors such as commercial bankers, attorneys, accountants, and insurance agents connect buyers directly with business owners. Sellers in these markets often prioritize employee continuity, community impact, and legacy alongside purchase price. Building direct relationships with owners during diligence creates alignment that protects the business during vulnerable post-close handoffs.
Materiality discipline prevents small details from derailing quality investments
Early career dealmaking often suffers from over-negotiating minor deal points or getting bogged down in complex purchase agreement language. A core principle of Borgman Capital's underwriting is that $500,000 will not make a bad deal good or a good deal bad. Deal teams and legal counsel must focus on resolving material risks that alter core business economics while pricing smaller items or letting them go to preserve momentum, goodwill, and trust.
Questions Addressed in the Conversation
Why choose the independent sponsor model over raising a traditional fund?
Raising capital deal by deal preserves access for individual accredited investors and family offices who build an active, supportive network. This 500-plus investor community delivers referrals, industry expertise, executive connections, and deal flow that institutional fund structures rarely replicate. Additionally, deal-by-deal capital provides flexible hold periods, allowing the firm to avoid forced fund liquidation timelines and align exit decisions with business performance and market conditions.
How does Borgman Capital evaluate acquisition candidates at initial review?
Initial screening focuses on microeconomic health, strong cash flow, durable business models, bankability, and capable management teams rather than turnarounds or heavy restructurings. Utilizing a CPA background, Sequoya reviews financial trends and cash flow statements within minutes to confirm baseline operational health. If a company passes this initial screen, the team invests the time required to travel, meet owners in person, and evaluate leadership and transition requirements directly.
How should board members and owners manage struggling leadership replacements?
Early intervention is critical when a newly placed executive lacks cultural fit or fails to earn the support of the management team. While a new leader requires realistic time to learn a business, poor fit usually manifests within one or two quarters. Boards should increase touchpoints, evaluate management support, and make leadership corrections within roughly three months rather than letting misaligned execution drag on.
From the Conversation
“Five hundred thousand dollars is not going to make a bad deal good or a good deal bad. Small numbers aren’t going to change the outcome. Look at the big picture. If it’s a great investment, get the transaction done. If it isn’t, walk away.”
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This transcript has been edited for clarity and readability. Please refer to the original podcast recording for the complete conversation.
Mikk Markus: My guest today is Sequoya Borgman. Sequoya is the founder and CEO of Borgman Capital, an investment firm specializing in acquiring majority interests in well-established, closely held lower-middle-market companies. Thanks a lot for coming to the Buyers & Builders podcast.
Sequoya Borgman: Yeah, thanks for having me on the show.
Mikk: I was doing a bit of research, and your most unusual job so far has been door-to-door satellite dish sales. That’s fascinating. What did you learn from it? What can you apply today based on those lessons?
Mikk: Maybe more importantly, you’ve been involved in hundreds of mergers and acquisitions, restructurings and financing transactions. There are probably thousands, if not tens of thousands, of people with credentials like yours, but only a few actually make the jump and build a firm like you have. Where does that drive come from, and when did you decide you would rather buy companies than advise them? It’s a very loaded question, but you can start.
Sequoya: That was a lot right there. I don’t know about the drive. I come from very humble beginnings, so I had a lot of those types of jobs when I was a kid and through high school and college. Being a door-to-door salesman really teaches you what you definitely don’t want to do when you grow up. You also get used to rejection, and that’s a plus for really any career, especially in this industry. I think that helped me.
Sequoya: What really got me into the investment side of the business was going to college, getting my master’s degree in accounting and working for a very large international CPA firm. I was a CPA for almost 20 years, working on transactions and with a lot of private equity firms. That gave me exposure to the industry, how deals were structured, and how well some private equity founders and friends who ran those firms were doing. I worked on some very successful lower-middle-market deals, and that really gave me the itch.
Sequoya: I was doing half the work without the upside and without really seeing the whole transaction from start to finish. After 18 years in public accounting, I decided to take the jump. I had thought about it for about five years before I took the leap. It’s really hard to walk away from a nice, steady career and do something more entrepreneurial. I talked to a lot of people who had done that, and it’s not easy, especially when you have a family and a lot of people counting on you.
Sequoya: I wish I’d done it earlier in my career, but I’m glad I did it when I did. Looking back, it’s been a great career move, and from a timing standpoint it couldn’t have been better. I launched the firm in 2017. It was a great economy, lots of deals were getting done, financing was pretty easy, and a lot of money was going into private equity. It was great timing.
Sequoya: A lot of very successful people talk about how timing helped them. Looking back, it clearly helped us hit the ground running and start with some successful deals right off the bat. Right now is a much tougher deal environment. I think people launching now will have more trouble finding deals, getting deals financed and finding equity for those deals. Sometimes it’s better to be lucky from a timing standpoint than anything. That’s a long answer to your question.
Operating Through Uncertainty
Mikk: That’s fascinating. I posted on Twitter that a person like you—I didn’t mention a name or company—was coming to the podcast, and one comment was that everyone fancies themselves a macroeconomist. You have a great overview of various industries through your portfolio companies. Where are we now, and where are we heading, based on what you see across different markets and businesses?
Sequoya: We invest in the lower middle market. Our businesses are all under $200 million in revenue and under $20 million of EBITDA. You have to focus less on the macroeconomy and how it affects the overall economy and more on the micro side: what is affecting that particular business?
Sequoya: The uncertainty this year is affecting all of them. The top line is a little softer than we’d like; that’s probably the theme across the portfolio. Overall, though, it’s not too bad. We’re not in a recession. Maybe they’re not hitting budget, but they’re still up year over year. That’s not a bad environment to be working in.
Sequoya: Uncertainty is having more of an impact on long-term decision-making, strategy, capital expenditures, buying businesses and selling businesses. It’s hard to make a long-term decision when there’s so much uncertainty around what will happen over the next three, six or nine months. It’s starting to settle down a little. Companies are working around tariffs and seeing how those affect their businesses. They’re getting a little more certainty around interest rates and everything else going on.
Sequoya: The job market is actually more pro-business right now, which helps some of our businesses. On the lower end of the middle market, there’s less international exposure for a lot of these businesses, so some are actually benefiting from the political environment right now.
Mikk: Not many people have your experience doing hundreds of deals, restructurings and financings. What early mistakes or lessons most shaped your approach to the types of businesses you want to acquire and invest in?
Sequoya: I say it a lot, but I think the biggest mistakes are really around hiring. Besides buying and structuring a business correctly, the biggest factor is the leader you put in charge of running the business and creating value.
Sequoya: Sometimes you do your best diligence on a person. They look great on paper, interview well and have strong references, but for whatever reason they don’t fit culturally, don’t get the support of the management team, or aren’t right for that particular business. Our early mistakes came from hiring the wrong leader.
Sequoya: Our box is family-led and founder-led businesses that, for the most part, are transitioning to a new leadership team. We probably corrected those mistakes early in most cases. You can tell early in the investment and hiring cycle whether a leader will be a good fit, so we don’t let it drag out. Probably 50% of the time, we’ve had to make changes in leadership. Fortunately, we’ve gotten better at it over the years.
Sequoya: It’s hard to replace someone who founded or ran a business for 30 or 40 years. They know the business inside and out and represent a huge portion of its value. Often it takes two, three or four people to replace that one person because they’re so integral to the business.
Sequoya: Some investors underestimate the value of that entrepreneur, owner, CEO or president. Hiring four people to replace one costs the business quite a bit and affects EBITDA and returns. That’s part of our analysis when we’re buying a business.
Mikk: How involved are you in hiring and finding the right people now that you’ve made 20 acquisitions across eight platform companies?
Sequoya: We’ve bought 20 companies, and we’re pretty involved. We have 15 people on our team and a value-creation platform that is involved daily or weekly. These are small businesses, not large middle-market businesses that can run themselves. They all need help.
Sequoya: Some run more autonomously than others, which is a testament to their leadership. Others need much more handholding. They need us to open doors and help with day-to-day operations. It depends on the business and the investment. Some are growth-equity investments, which need more help than a traditional established business with an established business plan.
Mikk: You started with the first acquisition in 2017, and now it’s year eight. You’ve said being an independent sponsor is more stressful than you expected. What would your first note to your 2017 self be?
Sequoya: It’s clearly more stressful being an entrepreneur. Thousands of employees have their livelihoods in your hands, along with these businesses, their communities and the charities they support. That’s a lot of responsibility. You’re responsible to many investors and their personal net worth, and to the banks. The banks are probably the most stressful part of the leveraged-buyout business.
Sequoya: Going into it, that’s not something you think about as much when you’re sitting on the other side of the table as a consultant or working in the industry. The stresses are different there: deadlines and client or customer demands. Once you invest in a business, your fiduciary responsibility is to get the best return possible for your investors and for us. We personally invest in every deal.
Sequoya: Every business goes through cycles, with different things affecting it, and those definitely keep you up at night. It’s no different from any entrepreneur who has started or run a business. There’s a lot more to it than people think.
Building the Independent Sponsor Model
Mikk: What is the story of the first acquisition? You don’t need to mention the industry or business, but how did you finance it using individual investors? How were you able to put it together after leaving your job?
Sequoya: Actually, the first deal fell apart. I like to tell that story because a lot of people think it’s easy. It’s not. I had a deal under letter of intent, and the seller changed their mind about a week before closing. I had to go home and tell my wife. She thought I was crazy for taking the leap and walking away from a great career, and then the deal fell apart.
Sequoya: Fortunately, right after that, a commercial banker who is a good friend introduced me to a client who had just had a deal fall apart. The seller had walked away because he wasn’t comfortable with the buyer. My friend introduced us on a Thursday, I met the owner on Saturday, and by Monday we were shaking hands and had a term sheet in place.
Sequoya: It was a very nice material-handling business. We closed about 90 days later, and it was a great investment. We’ve since sold it. It was a home run from my standpoint, and I would definitely invest in that space again. Networking and relationships really matter in this business.
Sequoya: We used traditional bank financing and had a small sliver of mezzanine debt. I invested personally, and 26 other investors participated. One family office was the largest investor, and 25 high-net-worth or ultra-high-net-worth individuals filled in the rest.
Sequoya: I didn’t know many of those 26 individuals when I launched. I asked probably hundreds of people I knew to invest. Maybe they passed, but they introduced me to someone interested in investing in private companies. I always say you have to keep asking until you get it filled.
Sequoya: That was the only deal we weren’t oversubscribed on. We were undersubscribed by about $50,000 and had to put in a little extra money personally to close. Ever since then, we’ve been oversubscribed on every deal. The lesson is to keep asking. Not every deal is for every investor. Some like growth equity, some like venture deals, and some like real estate. You need to talk to investors who like private businesses. Many built their net worth by running a private business or being part of a family business, and they like these transactions.
Mikk: How did it feel after making the jump and successfully acquiring a business with 26 investors and your own capital? How soon did you move to acquisitions two and three? Was the original thesis just to do one?
Sequoya: I don’t know if we really stopped to celebrate the first one. Looking back over 20, when you get one deal done, you’re on to the next. That’s part of the industry.
Sequoya: We closed the first one, and about three months later we had another lined up. We closed that about 60 days later. It was one of our largest transactions to date and a very nice business in the food industry. A mezzanine investor introduced us to that transaction. We still own it. It’s been a great investment, and we’ve completed some add-ons and grown the business.
Sequoya: During diligence for that one, we lined up the third under letter of intent, and it has gone like that ever since. You can’t stop looking for the next deal while you’re in the middle of another.
Sequoya: Early on, we ramped up more than many independent sponsors. Often, one or two people buy a company and get overwhelmed by day-to-day management. We brought on employees and partners early, which gave us the bandwidth to continue acquiring businesses. We also built strong boards with outside members who know the industries and can add value. That helps operationally and lets us invest across industries. We’re not experts in every industry, but we partner with people who know them inside and out.
Mikk: Across those 20 acquisitions, do you find the company first and then look for a CEO or leader, or the other way around?
Sequoya: We do both. Many people—some firms call them operating partners—want to buy and run a company. We meet with many of them and pursue deals together.
Sequoya: It’s hard to find a very good investment at a fair price and have the leader in place on day one. The stars have to align. It’s more likely that you find a good company for sale and then work your network to find a very good leader.
Sequoya: People looking to buy a company often search for a year or two before taking another role. By the time you find something, they may have moved on. One business we bought recently took more than 20 months from our first conversation with the family to closing. It’s hard for an executive to sit on the sidelines for that long.
Why Raise Deal by Deal?
Mikk: Today you have more than 500 individual investors, and you launched Pass the Hat. What is your thesis for working with individual investors instead of raising a fund?
Sequoya: We get that question quite a bit. We could have raised a fund a long time ago, but the 26 investors who supported us from the beginning—and the more than 500 who have supported us across more than 20 transactions—would, for the most part, not have been able to participate in that fund. They’ve been loyal. They’ve supported us. We’ve been oversubscribed on every deal except the first. Why would we walk away from that?
Sequoya: People underestimate how much value these investors provide to the businesses. If we need executive references or need a business to open some doors, among those 500 investors are very successful individuals and business owners who can help us create value and improve returns.
Sequoya: With a fund and a handful of institutional limited partners, you don’t get those referrals. Many of our investments have also come through this network. The network has grown, especially within the family-office community, because people talk to their peers when they like how you manage investments, your philosophy and your thesis.
Sequoya: We have 15 people on the team, but no one in a dedicated investor-relations role going out to meet these investors. The majority have come through internal referrals.
Mikk: How do you manage more than 500 people? Have you ever had to fire an investor or decide not to let someone invest again?
Sequoya: No. I enjoy when people have different ideas and ways of looking at things, just as I do in board meetings. When investors call with ideas about improving operations, increasing revenue or things we should consider, those are great conversations. We’ve never had to fire a limited partner. We’ve been very fortunate.
Mikk: If you were starting today with good deals, how would you build the investor list? Is it as simple as talking to more people?
Sequoya: I wasn’t aware of the whole independent-sponsor network and how much capital is available. You can take the route we took—and we’ve gone so far down it that I don’t think there’s any going back—or partner with one limited partner who will provide most of the equity and maybe take a little more of your upside. That’s much simpler.
Sequoya: The downside of having as many investors as we do is the time it takes during diligence. You may have only 60 or 90 days to close, and raising the money takes my time and my team’s time. Partnering with one or two larger limited partners can free you to focus on diligence and getting the transaction over the finish line. Both structures have positives and negatives.
Mikk: What is the smallest check someone can invest?
Sequoya: On the first deal, we allowed checks as small as $50,000. We’ve kept that as our base. On some bigger deals, there may not be room for checks that small, but we try to let our early, smaller investors participate in every transaction that interests them. We’ve never really raised that minimum.
Mikk: Let’s say you have a deal under letter of intent and 60 to 90 days. How do you contact all those investors and make sure the deal gets done?
Sequoya: Fortunately, we review a lot of transactions to find good ones at good valuations. Once you do that, you have a lot of interest.
Sequoya: We wait until we have a good idea around the numbers. We’ll complete the Q of E. Once we’re comfortable that the financing is in place, the transaction isn’t going to change, the numbers tie out and major diligence items have been addressed, we put together an offering memorandum and send it to all our limited partners.
Sequoya: About a week later, we hold a virtual investor call. We walk through the investment thesis and answer questions. We open the data room for sophisticated limited partners who want to review the diligence documents, legal documents, quality-of-earnings report and everything else.
Sequoya: We then give another seven to 10 days for follow-up questions, calls and commitments so we know how to allocate the available equity. It’s a nonbinding commitment until subscription agreements are signed. Although we generally ask for an indication of interest within about 10 days, investors usually have around 30 days before making a binding commitment. After subscription documents are signed, they typically have another two to four weeks before funds need to be wired.
Sequoya: It’s about a two-month process, depending on the deal. If we have only 60 days of exclusivity, we tighten the fundraising timeline. In a traditional 60- to 90-day diligence period, investors have roughly 10 days to review, 30 days to commit and another 15 to 30 days to wire funds.
Mikk: You launched passthehat.com to bring in new investors. How has it worked, and what has been most effective in attracting people who didn’t know you before?
Sequoya: We launched a separate platform because we were changing our internal fund administrator. We outsourced back-office fund administration to Asset Class, and InvestReady handles many of the accredited-investor checks. We wanted a separate platform for onboarding new investors, so we launched Pass the Hat.
Sequoya: Our main website is focused on business owners who want to sell to private equity or private investors. Pass the Hat is focused on individual investors, wealth managers and their clients who want access to direct private equity investments.
Sequoya: It has been great. The problem is that we need more deals. We have plenty of investors; we need more good companies that want to sell.
Sequoya: A lot of larger private equity firms are going into the individual-investor segment because there’s less liquidity on the institutional side. I think we got ahead of that by launching this platform. It has worked out well so far. We just need more deals to put on it.
The Private Equity Market and Deal Sourcing
Mikk: What is happening in private equity now, and what do you think the next five years will bring?
Sequoya: There’s still a lot of appetite for private equity, but unfortunately there’s less liquidity and fewer transactions. Valuations are down a little. Banks are putting less leverage on deals, which means you can’t pay the same amount and get the same return.
Sequoya: People are holding on to their companies because of uncertainty. It’s hard to sell a business that could be affected by tariffs or other factors in the environment. Fewer transactions are going to market, and fewer of those are closing. We tried to sell one earlier this year that didn’t get over the finish line because of uncertainty affecting that business.
Sequoya: Once there’s more certainty, the economy is steadier and we can see 12 months into the future, I think transactions and private equity activity will pick back up.
Sequoya: Although banks are more cautious, many funds have been raised for debt in leveraged buyouts. The funding is out there; there are simply fewer transactions for the moment. That can last only so long because there are still many buyers and many aging business owners who want to sell. They just don’t want to sell when valuations are down. If they know they could have sold for much more two years ago, they may hold for another two years rather than sell now.
Mikk: You like second-tier cities such as Portland, St. Louis, Kansas City and Omaha. Why focus there instead of the biggest cities?
Sequoya: Most of our transactions have been referred through our network. In smaller cities, relationships still matter. You can find nice businesses for sale through someone you know personally or through a commercial banker, attorney or accountant. That’s less common in large cities.
Sequoya: In places like New York and Chicago, there’s more competition, and transactions are more likely to go through professional auction processes with investment banks. In secondary cities, people want to sell to someone who will take care of the business, employees and community, and continue supporting the charities they care about. Those are the businesses we want to buy. Transactions tend to go much better when the owners care about those things.
Mikk: You’ve said 80% to 85% of your platforms are proprietary or off-market deals. What are the top sources? Do you expect that to change?
Sequoya: Off-market deals are always hard, and there are no truly proprietary deals. Most owners talk with multiple buyers before selling, and that’s helpful because it sets expectations.
Sequoya: When we’re the first to talk with an owner, price expectations can be much higher than reality, especially in the lower middle market. They may hear about a big transaction that sold at a large multiple, but that isn’t their reality. After talking with three, four or five buyers, they get a better idea of what the business is worth.
Sequoya: Most introductions come from trusted advisers: attorneys, bankers, insurance agents or accountants. Those advisers know who is active in the geography and in those kinds of businesses. They may introduce us and two or three other parties, but we would rather buy where we can build a direct relationship with the owner.
Sequoya: We want to know the owner is someone we can trust, who cares about the business and will help the transition to new leadership go smoothly. The biggest risk we face is buying from a founder and having the transition go poorly. That affects the investment, especially early in the life cycle. In the first year, you may be making investments, losing a customer or losing a key employee. A strong relationship with the owner can help through the first year or two and improve long-term IRR and cash-on-cash returns.
Mikk: How many new deals does your team review each week? What moves a deal from interesting to something you let go immediately?
Sequoya: I’m a numbers guy. We review about 1,500 deals a year. Every Monday, we meet for an hour and a half to go through the pipeline from the prior week and deals where financials arrived later. There are probably four or five that we really like and examine deeply.
Sequoya: I probably receive 10 books a day. It’s crazy how many investment-banker or brokered deals come in. As a former CPA, it takes me less than two minutes to flip to the financial statements and see the health of the business based on trends and cash flow.
Sequoya: That has to check the first box. We aren’t buying turnarounds or restructurings that will be a heavy lift. We’re not structured for that. We want nice, cash-flowing, bankable businesses with strong teams and good business models. We want to maintain them. I always tell owners we like to buy great businesses and try not to mess them up. It’s easier said than done, but within a couple of minutes you can tell whether it’s that type of business.
Sequoya: If it is, we’ll spend whatever time it takes and fly to meet the owners. We’re on the road almost every week. That’s where you find good businesses: you fly to smaller municipalities and meet in person.
Mikk: How do you structure deals, especially when all but the first have been oversubscribed?
Sequoya: There’s a large appetite among individual investors, family offices and some smaller institutions for access to attractive lower-middle-market deals at the multiples we’re paying.
Sequoya: Looking back, I didn’t understand when I launched that there was more investor appetite than opportunity. Earlier in my career, I was a partner at a large international firm and had a high-paying career, but I never had access to direct deals.
Sequoya: Unless you know someone buying businesses through a country club or another network, access is limited. Sometimes a financial adviser or wealth manager can provide access to larger funds, but many successful people have little access to direct private-company investments. There’s more demand and appetite than opportunity. That’s the part of the business I didn’t understand as well when I started.
Mikk: Is access improving through social media platforms? I know people from Minds Capital who raise money from individual investors. Will there always be plenty of capital and not enough good deals?
Sequoya: Capital goes where the returns are. As long as private equity returns remain above market, the capital will be there. Returns have been declining over the last two decades. More competition, more private equity firms and more leveraged-buyout shops drive up multiples and drive down returns.
Sequoya: If too much capital goes after the space, returns will be affected. Then you may as well invest in an ETF if you can get liquidity and less leverage risk. As long as the returns are there, there will be plenty of capital.
Conservative Capitalization and Leadership Fit
Mikk: You’ve said that when a deal is oversubscribed, you sometimes add an extra $500,000 or $1 million of cash to the balance sheet for future events. How often do you do that, and what is the reasoning?
Sequoya: We do it on most deals. You never know where working capital will land. With a fund, you would know on the closing date what working capital is, where transaction fees are coming in and how much cash the business needs.
Sequoya: With our structure, we have to line up and wire the money probably 30 days before closing, so we don’t have the opportunity to adjust at the last minute unless we go back to all the investors. That’s messy and could delay the transaction. We’ve never really done that. We could personally put in more if we had to, but we raise extra so there’s room.
Sequoya: Another $500,000 or $1 million on a $20 million or $50 million transaction has minimal impact on IRR. It gives us certainty of close. The worst situation would be the bank saying we need another $500,000 because working capital isn’t where we expected. If that delays closing by 30 days while we go back to investors, who knows what could happen? Time kills deals.
Sequoya: We’re conservative. We don’t put large amounts of leverage on these businesses. We overcapitalize them, and that helps them through cycles.
Mikk: When replacing a founder-CEO, what do the good hires have in common?
Sequoya: I wish they had one thing in common; that would make it easier. You have to find the person who is a great fit for that particular business. Every culture is different, based on how the founder or owner built it.
Sequoya: A lot of great leaders come in but are set up to fail because they’re not like the founder or the culture, and they don’t get the support of the management team. If you don’t have that support, you either have to build a new team around you very quickly or you’re set up for failure. The biggest challenge is finding a leader who can build the support of the management team.
Mikk: How long do you give a new CEO, and what is the first move when you realize it isn’t a good fit?
Sequoya: Usually about one or two quarters. It’s a board decision; we don’t make it ourselves. We’re very hands-on with businesses where the leader is struggling, meeting daily or at least weekly. We bring the board in and discuss whether to give the person more time.
Sequoya: It takes a couple of years to get fully up to speed on a new business. We don’t expect someone to reinvent the wheel or do fantastic things immediately. The same is true for salespeople; it may take a year before you see a return on that role. But when you know someone isn’t a good fit, dragging it out doesn’t help.
Sequoya: In those cases, we give about three months, then bring in an interim leader or conduct a search through an outside recruiter. We interview candidates, the board interviews them, and sometimes they meet the leadership team or former owner to confirm cultural fit. We complete personality assessments as well.
Sequoya: The second person tends to have more support from the management team. If they didn’t like the first replacement, they tend to like the next one. It’s hard to follow a founder, but following someone who wasn’t a good fit is easier.
Managing and Growing the Portfolio
Mikk: With a large portfolio, how do you manage a company losing a big customer or facing a supply issue or tariffs? What does a standard 30-, 60- or 90-day plan look like?
Sequoya: I don’t do it by myself. We have 15 people on the team, four offices around the country and many outside resources that we bring in when challenges arise. We don’t try to do everything ourselves.
Sequoya: There are excellent consultants, operating partners and others who have helped us. When you find an outside party that helps one portfolio company, you can use that resource across the portfolio for similar challenges. We have great HR consultants and many other specialists.
Sequoya: Once a month, all the portfolio companies share best practices and challenges. Within those companies, someone has faced that challenge and knows how to address it. We don’t bury our heads in the sand. We get ahead of it.
Sequoya: When we invest, we have a 60- and 90-day plan and an investment thesis, and we implement those quickly. You need a plan, although you always have to pivot. Often you go in with one thesis and discover it isn’t the best path.
Mikk: Do you buy and build, or buy, improve and sell? You’ve had three realized investments. What is your approach, and what can you share about the exits?
Sequoya: It depends on the company, industry and competitive landscape. It may be a buy-and-build, a growth-equity play or a very nice business that is already growing. Add-ons add risk.
Sequoya: We’ve had nice businesses and exits with no add-ons. Others are in fragmented industries with many small competitors and are ripe for a roll-up. In other businesses, there are no competitors worth buying. If you acquire something that isn’t a great fit, you take integration risk and may not add value. Just because you can buy another company doesn’t mean it’s accretive to the original investment.
Sequoya: In growth-equity investments, we may use no leverage and simply add equity to grow the business. Those businesses often don’t need add-on acquisitions because they’re growing organically.
Mikk: You have four locations and plans to grow. How do you find local operators who can do what you’ve done?
Sequoya: We’d love to bring on more people. I tell people who want to do what we’re doing that we already have the platform, back office, track record, investors and banking relationships. We have everything needed to be successful.
Sequoya: Someone can go do it independently and build that platform, which isn’t easy, or join an established group. We’d love to talk with them. To succeed, though, they need to source good investment opportunities. If someone has a great network and can do that, we’d love for them to join us.
Mikk: What do the first 60 to 90 days look like for someone in a new location?
Sequoya: It’s a lot of networking. When I launched the firm, I think I had 200 coffee meetings, lunches and dinners within the first 60 days. When people join us, they focus on creating awareness in the local market.
Sequoya: We hold a launch party in every location, and then once a year we bring together centers of influence and other people in the geography so they know what types of businesses we want to invest in. The person has to do a tremendous amount of networking and let everyone know what we’re looking for. After the first 60 days, the work becomes meeting referrals and businesses, reaching out and attending networking events and conferences.
Relationships, Flexibility and Partnership
Mikk: If we watched your investment meetings for a month, what would be different from other firms or funds?
Sequoya: There are many funds, so I’m not sure we’re different from all of them. There are around 1,500 independent-sponsor groups and another 2,500 funds, so there’s a lot of competition.
Sequoya: We’re focused on relationships. We want to buy from a business owner whom we respect and trust and who wants what is best for the business. It’s like any partnership or relationship: you won’t hit it off with every seller.
Sequoya: If we do see eye to eye, we pay fair prices. We’re not trying to be bottom feeders. We want nice businesses with owners who care, because those tend to perform much better. Sometimes a seller cares only about getting the highest price and moving on. That tends not to be the best fit for us, though another group may be a better fit.
Sequoya: Sellers with good businesses have plenty of options: independent sponsors, funds, family offices and strategic buyers. We’re one option.
Sequoya: We’re a hybrid. We have the resources of a lower-middle-market fund. With 15 people, we can compete toe to toe. But because my partners and I invest in these transactions—and sometimes I’m the largest investor—we’re also similar to a family office.
Sequoya: Our structure lets us hold for the long term and be flexible around structure, rollovers and what the owner wants. Some owners don’t want to sell to a fund in the fifth year of its life cycle, knowing the business will be resold within three years and employees will face more turmoil. They prefer someone without that flip mentality.
Mikk: Do you also back searchers?
Sequoya: We love searchers. I’ve said many times that I wish I’d known about that path coming out of college. I don’t think it was really a thing then; it’s much more popular today.
Sequoya: If searchers find a great business, we’d love to back them. Some may have backing for a small business, perhaps a lawn-maintenance company. We’re happy to offer advice, help with structuring and talk through the transaction.
Sequoya: If they find a business larger than expected—perhaps through a family friend—and it’s more than they can handle, we’d love to partner. The same applies to one- or two-person independent sponsors who find something much larger than they can do themselves. We’ve partnered with groups like that.
Sequoya: If searchers can find and complete something independently, they’ll do great. If they need help or want to look at something together, we’d love to see if we’re a fit.
Investor Risk, Liquidity and Exits
Mikk: What is the most misunderstood risk of raising money from hundreds of individual investors?
Sequoya: There are many SEC regulations. Make sure you have the best attorneys, don’t cut corners and have a third party complete all accredited-investor checks. That’s the biggest risk.
Sequoya: Plenty of people have wanted to invest with us but didn’t understand what they were investing in: that it’s illiquid, they can’t get their money back whenever they want, the businesses are leveraged and the bank gets paid first. I wouldn’t take money from people who don’t understand the risk. That’s also what opens you to liability.
Sequoya: Don’t oversell it. Be truthful. These are long-term, illiquid investments. Businesses go through cycles, and economic downturns can affect the investment. Be open and honest. The risk comes when people become desperate to raise money, oversell it or say things that may not be 100% accurate.
Sequoya: Investors must be educated and understand they’re investing in a small business, often smaller than a small-cap public company. Those businesses have more risk, which is why there can be higher returns.
Sequoya: People talk about financial engineering in private equity. Leverage is that financial engineering, but it’s also a risk. It’s like buying stocks on margin: you can earn a higher return, but you can also be wiped out if the stocks fall. Unlike a margin account, the company pays the interest on the leverage.
Sequoya: If you bought a business with 100% equity, returns would be much lower. If you use 50% equity and 50% leverage and pay down the leverage over five years, you’ve doubled the equity investment in five years without changing the business. That’s a great return, but it’s also a risk.
Mikk: You mentioned these are illiquid investments, but investors still have expectations. Do they get their money back in five years, 10 years or 20 years?
Sequoya: We model five years for essentially all our investments. You have to choose a timeline so you can model it. I always say the bank gets paid first. We deleverage the business before paying distributions.
Sequoya: There are tax advantages in the United States to holding a business for five years and not paying distributions through qualified small business stock. If it’s a deal under $50 million—and under the new tax regime, under $75 million, which includes a large portion of our deals—sometimes we don’t pay anything for the first five years in order to take advantage of that.
Sequoya: From an expectations standpoint, I would not expect anything back in the first five years. We deleverage the business during the first two or three years, which reduces risk, and then reinvest in growth. We usually tell investors it will be about five years before they see liquidity unless we say otherwise.
Sequoya: We bought one business that did very well. We doubled EBITDA in three years and received a very attractive offer from a public strategic buyer in the space. We didn’t run a process and sold after three years. That wasn’t the plan going in; the plan was a long-term hold.
Mikk: What is your view on holding and selling? When is the right time to exit?
Sequoya: In my experience, once you’re greatly exceeding the investment thesis or expectations, it’s time to sell. The biggest signal is when a lot of people are calling us or making inbound offers for the business. That tells me it’s a great, hot space, and that doesn’t last.
Sequoya: When that happens, we may receive a couple of offers and then hire an investment bank to run a process. That can happen early or later in the life cycle. I don’t believe in holding on too long because businesses go through cycles.
Looking Ahead
Mikk: Five years from now, what do you want to have built that isn’t true today?
Sequoya: We’re having a lot of fun. I’d love to continue what we’re doing. Very few firms are our size after eight years. In five years, if we can continue that growth trajectory, do more and larger transactions, and have more exits, that would be great.
Sequoya: The good thing about exits is that they give me more funds to invest in the next deal. We can only buy so many before you personally run out of money, so we have to sell from time to time. I’d love to continue what we’re doing, bring on more people who want to do it and buy more great companies.
Mikk: Two quick questions. What is the best investment advice you’ve received, and what is your favorite book?
Sequoya: One of my partners gave me the best investment advice early on. I used to be very rigid in negotiations and in sticking to my valuation. He said, “Five hundred thousand dollars is not going to make a bad deal good or a good deal bad.” Small numbers aren’t going to change the outcome. Look at the big picture. If it’s a great investment, get the transaction done. If it isn’t, walk away.
Sequoya: Don’t negotiate every minute detail. I tell our attorneys that too. Attorneys can over-negotiate some of the minute details in a purchase agreement, and that can affect whether the deal closes. There’s a lot of risk in what we do. Address the material risks, price some of the smaller ones into the transaction, and you’re more likely to get the deal done.
Sequoya: On books, I’m a huge reader. I always have about 10 books on my nightstand and wish I had more time in the day. Right now, I’ve started at least six and am about halfway through them, so I’m not sure I have a favorite.
Sequoya: I did like Do Hard Things. I’m big on pushing yourself physically and mentally. I climbed Mount Kilimanjaro this past year, and I enjoy doing those types of things. Private equity investments are tough, but I say all the time that if it were easy, many more people would do it—and enough people are doing it as it is.
Sequoya: I think it’s a great book. If anyone has book suggestions, please reach out or send me an email. I’m always looking for new suggestions. I just need more time in my week and day to catch up on the books I already have.
Mikk: Sequoya, thanks for sharing your story. I hope people start reaching out, whether independent sponsors interested in opening a new location with you or people sending book recommendations. Thanks again for sharing your story.
Sequoya: Thanks for having me on the show. This has been great.
