How to Raise Capital for a Private Credit Fund

a few things. So, one is the bigger managers, they said they want to be able to give you large licks of money. We can't because of the way we run. We're very specialized. Second is that 5year track record is a formula. So, the computer says no, you're going to be the best fund in the world. Every the Wall Street Journal, the formula says we're not allowed to give you money. Your problem, Patrick, is you built a great product. You talk about risk, you talk about return, but the mechanics of the product don't suit the capital of today, and that's the managed account. So what you should do is create a framework that suits what they want and then slap on a product and that's how you build a business.

The reason we were able to grow so quickly, well quickly if you like, you know, we went from 0 to 20 mil in 12 months, doesn't sound like much, but there's a lot of core investor base, this is through referral, through online, through whatever bankers cuz investment bankers live and invest, professional investors live and breathe risk. And when people like that looked at what our product was, they went, "This is a no-brainer. It's absolute no-brainer. Your asset back, you give me that sort of return, you can get the money." Running a business can feel lonely, especially when the decisions get heavy. Welcome to CEO Rispro by Sora Jane. Practical insights from the boardroom and the meditation cushion.

I'm Sorb. I've done 10,000 hours in three major parts of my life. I spent 10,000 hours being a CEO, 10,000 hours being a board member, and 10,000 hours meditating. What we're going to do in each episode is really unpack a real business challenge that a CEO is facing and see if we can work through it together. Enjoy.

Thanks, guys. Welcome to another episode of CEO Whisper. Today I've got Patrick from Rickson Capital. Do you want to introduce yourself?

Yeah, thanks Soro. Um, Patrick William. I'm founder or co-founder and managing director of Ricken Capital. We're a specialist boutique theme private credit fund manager. Got two funds at the moment. The Ricken Income Fund, which is a high yield asset back strategy that's at about $170 million funds under management. and a brand new fund, the Ricken Credit Opportunities Fund at about $2 million. It's one month old.

Uh and that does high yield cash flow lending.

And just to probably explain to people, so what what what do you do? So basically, it's a small company. They need to borrow some money. So they'll come from someone like you. You'll collect a whole bunch of cash from a lot of people and lend it out to lots of individual people. Is that the gist of it?

That's a great summary. Yeah.

Yeah. Okay. Perfect. Okay. So the idea is I've got some money. I can give it to you. I'll get a better return than I otherwise would and you'll diversify the risk across, you know, 50 or 100 uh transactions.

Exactly.

Okay, cool. Perfect. Makes sense. So, the way we run this podcast is we we think about a business problem that's kind of top of mind for you.

Um and we'll kind of workshop that and talk through that. Have you got something that's kind of top of mind for you? Something that you're struggling with or thinking about?

Yeah, look, a key priority for a what we call an emerging fund is raising money. So, we've got a great product, we've got a great reputation, threeear track record, but when you're not a billiond dollar fund or you're not a retail fund, it's hard work raising money. So, you know, we've got a group of investors who look after us and like us, but to go out to the broader market and access larger pools, that can be a challenge.

Yeah. So, is that the key problem right now is how do you raise more money and just for everyone else? Because I imagine the way it works is you'll get a percentage of fees under management, maybe some percentage of the upside. So really the more you manage the more you can push your cost base against a larger revenue base of fees that come in.

Exactly. No, we're not asset accumulators so we don't do deals and grow the fund because the money is there but there's enough demand from borrowers in our space that you know we'll do one or two deals every month. We can do four to five the capital

if you had more money to lend out.

Absolutely.

Okay, perfect. So is the problem that you know how do you raise more money? Is that what you're trying to do?

Yeah. And do you have a specific goal that you're trying to get to like like what what is good for you? Is it to fill up this new fund that you have that's currently at 2 mill and get that to a higher number? Like what is success for you?

So well long-term success is for Ricken Capital to become a large multiasset manager, multiple funds managing, you know, well over a billion dollars.

Yeah.

But if you talk about the 36-month gold, let's take the RXen income fund which is a bit more established to about $400 to $500 million. It's a niche strategy so we expect it'll plateau there but it's to take that fund to its full extent. The new fund which is at 1 and a half million is nent that's got a material uh addressable market. So again going to market and making sure we can grow that because the demands there from qualified borrowers.

Yeah. Okay. Brilliant. Well I mean tell us some of bit of the backstory. So how did this all get started? Uh so I started my career in M&A and with McCory capital of Singapore in Sydney then a boutique M&A house in Sydney called Equasia and then about 2018 we decided or we concluded very correctly advisory is a lousy line of work because it's so transaction you do a deal you pay you can pay wages when you don't have deals you're worried about your job and we realized funds management was a sustainable business model collected pool a pool of funs funds, you deploy it and you get yourself a management fee ensures all the bills are paid, everyone's got a job.

Perfectly timed for when that realization occurred was the Hen Royal Commission where the banks effectively pulled out a best of me lending. So,

okay.

We had an opportunity to set up one of the first private credit funds in the country. I transitioned from M&A into private credit and so I ran that fund for a year then moved to another fund where we ran money.

So, you ran a fund for somebody else or was this with somebody? Okay. Yep. Okay. This was you learning, figuring out how it all happens, what what you need to do.

Absolutely. It was a big transition from advisory.

Mhm.

Um so I did that for a year. Uh but I was still doing advisory work on the side and I wanted to become a pure play fund manager. So I left and moved to another shop where I ran their private credit strategy. Uh we had a bigger team, a lot more money. And that's when it came to me that this can't be that hard. Surely I can do this myself.

Yeah.

Okay. And then how long before you then set up Ricken Capital? How long before you got started? What what year was that in?

So the idea came about in late 2021. We launched Ricken Capital in mid 2022 and the fund launched in September that year.

Okay. I mean the realization you you came to around you know recoccurring revenue, it's the exact same as the tech industry figured out probably about 2010.

Yes.

That it's great selling a software license and that's what everyone used to do. is you charge a million bucks license fee, 20% per year maintenance, and then you give them free upgrades. They thought, "Oh, we're better off charging a million bucks a year."

Um, and that's what they did, right? Cuz with reoccurring revenue, yeah, you just have this blanket of safety every every month, as I'm sure you're experiencing now.

Yes.

As opposed to chasing these big kind of crispy cream um M&A transactions. Yes.

You got a whole bunch of cash, but then you might go very very quiet for a long period of time.

It makes growth very difficult to plan for,

right? Because you might get this huge ups and downs, right?

Yeah. because you have a good year, you get confident, you go, we'll bulk up the team and the economy swarms and then you're letting people go. Whereas with us, I know exactly what we're getting every month.

Yeah. And the the old model as well makes you very reliant on key people.

Um because M&A, you're probably buying from a person cuz that's the person that will do your transaction.

Yes.

But funds management, even if your best manager left, funds aren't going anywhere, right?

No.

Like they're kind of tied into ricks and they're not tied into an individual. And because if an individual leaves, it's very difficult for them to then go to their old funders and say, "Hey, put some money into my new one because well, the money might already be locked away in the old fund." Yes.

And if it's doing well, it makes it makes the cost of switching very very hard. It does. Well, that's an interesting point. So, for our business, because it's still relatively new and I'm the principal in the public face, it tends to require me to be involved. uh which is fine

on the sales side of things to try to to raise capital

to raise capital and what we're trying to do very consciously is to transition away from that because to your point it's the business that's good it's not about me we've got a framework around how we raise money deploy money manage the fund regardless who runs it the framework is there and as long as you comply you're going to end up with the same result

yeah so how big is RX now in terms of employee size I mean besides fund under management what other metric do you guys use

yeah in terms of employee five full-time employees, executives y

uh and we've got three people on the investment committee.

Okay, brilliant. And how do you raise money today? How does this happen?

We've been very fortunate. So, we've got about eight wealth managers who really like us and support us. So, there's regular flows from them every month. We've got easily 400 individual high net worth investors. We've accumulated over time. They top up. Most of them top up every month, every quarter. And then we're out here doing things like this podcast, business TV, OSBiz, Google Ads, YouTube, and people find us and it's a lot of word a month as well.

Well, I mean, is it is it kind of working right now the growth? I mean, it's just not at the speed that you want it to be, is it?

Yeah, exactly. It works, but there's so much op so much more we could do if we had larger elixir capital.

Yeah. And what's I assume that you public you publish your returns, do you? Yes. Yeah. But what kind of returns has your fund promote or historically has over the last one or two years?

Yeah, look, target return is 10 to 12% peranom net and that's all paid in cash. The last 12 months it's been 11.5%. And since inception about 11.8 it's a good return.

It's return.

So why why rush it? Like why not just let this organically grow? Cuz if you're kind of getting that return, you'll probably get like 20% more funds under management every year, right? Most people probably just reinvest their dividends.

Yes.

Cuz they're like, "Oh, wow. This is good. I want this to grow."

Yeah.

And if it continues, they'll think, "Well, I've got this other cash with somebody else. It might not do as well. I'll give that to Patrick at Rickson cuz I he's he's doing all right.

Why not just let this organically grow?"

Because there two sources of uses for our capital. So, one is existing borrowers who draw it out. So, we'll give someone a growth facility of say $20 million. They'll take a mill on day one and we'll give them money every month over two to three years. So we got regular drawers there. So if we just sat back with the flows we have that's pretty much all we would do which is fine. Yeah. But the extra money allows us to write more new rules. So you keep building the fund but as the fund grows the draw from those individual draws increases as well. So you are chasing your tail. As it becomes bigger you actually require more funds.

Sure. Cuz I imagine that if you can't do these follow on transactions they'll go to somebody else. I imagine

that's right.

So just recap the last point. So if you don't have more funds to follow on for these smallmemes businesses, then they might go to somebody else. They'll establish a relationship with them and then you might not get more work.

That's right. Well, generally they'll go to their shareholders or some family office.

They'll find money elsewhere.

They'll find money elsewhere and not even on better terms either, but they need that money to grow. So we offer the best terms of the market, but if the money's not there, you can't wait.

Yeah. Sure. Okay. Um, and what rate are you growing at now? Like what is a good growth rate for you today? Look, we we grew by 70% last year. So, you know, growth rate of we're timing growth rate of at least 50% this year.

Yeah.

Then, isn't what you're doing already working? Like, why do something different if you already have these eight wealth managers? Isn't the goal just to go find more and make sure you're freed up to go find more people? Like, why why is this a complex problem? Because those relationships take time. So, some and all wealth managers have their own criteria. So for instance, many of them will say you haven't got a 5year track record. We won't invest in you. Yeah.

Or they'll say um I need weekly liquidity which we kind of you know we're in for one to three years. It'd be dishonest to try off a liquidity that's less than four weeks. Yeah. So everyone's got their own criteria. So because we're emerging, you know, 3 years at 170 mil sounds like a lot to me anyway, but not to the market. That limits um the addressable uh wealth manager market. So the people who supporters are self-licensed specialist boutique houses.

So in terms of the people that you have today on your books that provide you capital.

Yeah.

How many more are there like there out there in Sydney or Australia out of the eight you already have? Are there many more people?

Oh many many more. Many many more. But it's about getting in front of them. Number one. Number two building a relationship. Number three getting through their due diligence process before that initial lick of the capital account. Oh, we've got fans in lots of fires, but it will take months before they convert.

But is it I mean what I'm trying to understand is it just a time thing cuz you you must be doing this. All right. You got 400 high worth individuals. You got eight in in kind of so what you call wealth managers.

Yes.

Um is it just a time thing? You need to wait for you know the other hundred to go through a process and at some point they'll come on.

Exactly.

Yeah.

Uh but the challenge is how long it's like how long is a piece of trim, right? Is time a month or is it a year? a month means we can do all these because remember the deals don't wait for you so they're there at the moment. So ideally we can capture those borrows today lock them in for two to three years that accelerates fund growth that also helps investors because a return safe sword and b you're constantly improving the diversification of the part.

Sure. Sure. Sure. Okay. I mean I understand what you're saying. I just wonder whether it's a it's an actual solvable problem. It is, but time is I go back to that time is key because the deals are there. So for instance, you don't want to have six quiet months or three quiet months. You want to be steady on that growth. But as you get bigger, the draws of that capital become become larger. So you've got to you've got to match that perfectly.

But I guess as you get bigger, you'll probably be able to raise funds easier as well from your existings and from the returns you're providing out to those people.

So that will kind of solve itself, I'm guessing, to some degree. Um, but you do need to obviously raise more money to give more debt out to new companies cuz that won't organically grow.

No, that's right.

Yeah. But I guess what I'm trying to understand is is where's the complexity in this problem? Because you've already got a whole bunch of 100 irons in the fire across all these other wealth managers.

Yes.

Why don't it just be a process that you you've obviously been very effective at and you you'll see to fruition or or is there a complexity that that I'm kind of missing or is it just an impatience?

No, it's it's just a certainty of timing. So you can have 100 IM or thousand I mean to use an example of say a software business or I'm selling a piece of software. I know that the big players I'm making this up but I know the big players have two purchasing cycles during the year. So I can start my process start the pitching start the marketing start the lunches and the coffees knowing that by June they will sign and I will know what my certainty is. I'm just understand the complexity of the problem and I guess the analogy of the tech world kind of makes sense. You got a might have a buying cycle. These guys might have a cycle for them to select.

Yes. So you've already got a product. It's it's sitting on the drive. It's sitting in the server. I know that the two sales cycles June and December. I work towards and then June I go look I've done very well. I've hit 50% of my target 100% my target. Well done. Bonuses all around. Whereas with what we do, I need the money in Jan. I may need the money in Feb. I need 2 million here, 10 million there, but then I've got a sales cycle that is indetermined, right? It could be March, it could be June, it could be December, but the borrowers are there. And if I don't put the money out the door, A, I don't get those returns from my investors, but B, you then build a wrong sort of reputation in the market.

The Ricken guys love to talk. They've got a great solution, just don't have money, and people will stop picking up the phone.

Yeah. Okay. Are there many other small private credit funds in in the country? There many people doing this like you guys.

Lots of people in the market but we don't have a direct competitor in this space. So our competition is effectively the family offices. Now people don't want to go to the family offices because the family offices will try and take equity as well. We're non-dilutionary. But again, right, the money is not there. You you'll take the option that works. Is there something to the fact that there aren't many other competitors in in your space? Is there something not attractive about this space?

It's a small market. Simple as that. So, we think the addressable market for the income funds about half a billion dollars tops. You know, if you go and tell speak to someone at Challenger and tell them, I've got this great fund that caps out at half a billion dollars, they'll tell you that's called a fatal strategy.

Okay?

Cuz you know, if you're a billion dollar fund,

it's not not worth at that scale. Not worth it. And same with the family offices. Whereas we're employee owned, you know, five guys and two um business partners out of Edid makes perfect sense for us.

Yes. Your cost base is low. Your number of employees is low. You'll still do well out of

That's right.

Okay. And what are your other sources of funds besides the wealth managers and high net worth individuals or or family offices? What where else would you go to?

Well, those are the two key sources. Those are definitely the two key sources. Um, you know, people talk about institutional money. The challenge with institutional money is they're very large checks, but a they can they those can be multi-year processes and b they don't pay full freight. So, you know, our our management fee is 1.5% peranom on funds under management. If you know Aussie super came in and said,

they would not pay that. They'd pay you point something. Yeah.

They'd say I'll pay you 0.1 and you go what's the point? I'm going to do all this work and I can't pay salaries on that.

Yeah. Okay. I'm trying to actually I'm trying to get right in my mind. Is this actually solvable? Is this just something that time will sort out for you?

Time will solve it. But the question then is, you know, you're sitting and twiddling your thumbs waiting for money. And the danger there is if you're not pushing hard enough and bringing in enough, people stop calling you

and then you're no longer viable as an option.

So what would you do if this was not not a solvable problem? If it was only time that you'll only grow by, you know, x million dollars per year because that's just the rate at which you can um, you know, bring on new wealth managers and get more money out of your existing people, what would you do? What would plan B be?

Well, plan B, it's actually someone from the DC Collective gave me this idea. He says, look,

what you the challenge quote unquote challenge you've got is your wholesale fund.

So, you know, you're not not accessible to retail investors and B the redemptions are quarterly and people really like these quick redemptions. So the suggestion is and this would be plan B is we set up a brand new fund structure where retail investors can invest and get a fixed return 6 7 8% whatever it is but it's a fixed return there's a first loss piece that a handful of wealthy investors will fund they will get a big fat return 15 16%. And that business can grow very quickly. Uh but in my mind, we've already set up the fund. It works. Um and it's about rigid entire fund structure. We we'd like to run with what we've run with for a while before we make that decision.

Yeah. Okay. Well, let me understand more in terms of raising money today. Maybe walk me through the process. Like how how do you go to a wealth manager or a high net worth individual or a family? Just walk me through that process from kind of start to finish.

Yeah. Uh with the high net worth individuals, they find us. Oh, it's word of mouth. How do they tend to find you?

Uh I'm I've got a regular slot on OSBiz which is a business TV channel. Um and we speak at events so and we're on Google aheads as well. So you look at us look us up pop up. Uh so they fill in off expression of interest form on our web page. I get their email and mobile. I give them a call and we set up a meeting.

And what's the general pitch to them? It's a standard pitch and it's it's worked very well for us because what we say is look what differentiates us from other private credit strategies is to get a higher return in credit. You take on a risk premium. Bigger the risk, the higher the return. But by focusing on an underbanked niche, we're getting a higher return through a scarcity premium. We get a higher rate. Not because the risk is higher, it's because the borrower has an option. I can go at 6% and give up 10% of my business or pay 14 and keep my business. So, we're getting a premium return for relatively low risk. Uh investors love that story.

And and how how much does that grow in your high net worth individuals? Cuz if you kind of say the wealth managers, that might just be a long sell cycle.

Yes, it is. Um that might take them 6 months, 12 months, it might take three years till you've got a 5year track record. Or they might say, look, you know, your fund has to be half a billion dollars. Yes. before we're willing to put any money in it because below that there might be too much concentration risk in the debt that you have.

Mhm.

Um so let's just assume that I don't know if there's a lot you can do there. No,

then nothing obviously comes to mind.

Yeah.

Cuz you've just got these structural rigidities that you're kind of locked against.

That's a good way of putting it. It's actually the structure. You need that track record. It doesn't matter how good you are. You're not 5 years. Some managers won't touch you. The other is because you know a wealth manager's job is to manage your money and manage it well, not to worry about me. So we've had large wealth managers who like us say look can you take $30 million a month eyes closed so we can't because if we did and a borrow wasn't there returns would fall they go well it doesn't doesn't suit us there so but the downside of being boutique is it does limit your addressable universe.

Yeah totally and I guess it probably limits you on on both sides like limits you from the very large transactions because you might not have enough customers to push the debt out to so you'll have cash there that's not earning you any return. Um, but it also probably goes the other way as well because you are still new. You've been around for a couple only been around for a couple years

and often I find with a lot of fund managers the the risk of downside

is not worth the upside.

Um, you might not be a known quantity to them. They want to see you run for a couple more years.

Yeah.

Like who's this guy called Patrick? Ricken Cap's only been around for two years. They can't give me a five or 10 year kind of track record.

Yes.

So like like we said that that might not be solvable in a short time scale.

Yes. And it might just be that they just need to get credibility in you as a person, lunches, coffees,

um, quarterly results quarter after quarter after quarter.

I mean, the analogy I'll kind of give is um, so last company I exited, public company, Urban Eyes, $100 million business. It just took 16 quarters of good ASX results.

Yeah.

It just took quarter after quarter after quarter.

Yeah.

And at some point the market figured it out.

Yes. and then everyone kind of jumped on the bandwagon and the share price went up 5x.

Yeah.

Um so it might just be a slow boring grind.

I I'd agree with that. That's that's I think that's what will happen.

Uh it just clicks and people that and it's and it's brand value. You made a good point there because you know I think it's KKR that's had their credit fund gate two to three times which is

not a good thing but they can still raise oodles of money because if things go wrong people can go look it was KKR what what else could I have done? And that brand value carries a lot.

Yeah. Well, it was no different to like in the 70s or 80s, like no one ever got fired for buying IBM.

Yes.

Like it was always a good decision.

Yeah.

And buying from Ricken, even if you give me 2% more return,

if I'm a wealth manager and I've got to go answer the people that I'm getting money from,

Yes.

it just might not be worth the risk.

That's Well, that's right. That's right.

And I'm guessing that's why your sales cycle is so long right now.

It is because it is building that credibility. And look, with the people who support us at the moment, those eight managers, we've known them for a while. We've worked together for, you know, most of them two on average two years. Uh, and they've seen those.

What made them sign up? Cuz it sounds crazy to me like someone gives me a call. I've got a new phone. I don't know you.

Yeah.

Um, unless you knew them from your prior relationships.

Warm rel warm introductions.

Yeah.

From people with mutual respect on both sides

and and that was enough. Well, that that's a big gate opener, you know, because if someone you know and respect really respect goes, look, Sarabs are a great guy. You should speak to you. You've passed a lot of gates because when you speak, I'm not questioning your credibility. I'm talking about product and facts rather than feelings. And the appeal we've got for some wealth managers is the fact is boutique funds generally outperform mainstream funds. So there are a lot of investors out there who actually prefer a boutique fund manager and they will actually divest once the fund hits a certain size because they go look there's no alpha anymore. You're just a big fat machine.

You run and you're boring.

Yeah. Okay. And so out of the ones that you're chasing now um like how many more wealth managers would you be chasing? You'd be somewhere in like a sales cycle.

Well, we've got See, it's not just send them an email, have a chat. You need those warm introductions or you need them to reach out to you. That's actually the best way. And then you begin that sales cycle. So,

and how many would you have? Would it be like a 100? Would it be like a thousand? Like how many people would be going through that process with you guys in the whole various stages?

Oh, about 15.

Okay. So, you got

15. 15.

Oh, five. So, I got 15. Is it a case then maybe the only way to solve the wealth managers is to get more warm intros.

Absolutely. Whenever people say, "What can I do for you?" I go, "If you know a wealth manager or a high net worth or family office, introduce us."

Yeah. Okay.

Well, that that might just be one that takes time. I guess

it is.

Yeah. And probably all I assume you're already doing this, right? You're already probably trying to reach out lots of people, have lots of coffees, network really well, so more people know you. So, if someone knows someone that knows someone that knows a wealth manager.

Yes.

That they will think of you.

Exactly. And we've got a really good profile on LinkedIn. So, you know, we provide topical content. So, not spruing the fund, actually top actual topical content on the industry, interviews and such. So you know we've got lots out there who value in that is to show the market there's a fund out there that has good views runs very well is very open number one and number two by virtue of the brand being there all the time builds familiarity so people go look I don't know them but I hear about them all the time you know 50 likes and all these positive comments it just builds that trust. Yeah. And I think the other thing it is is I think you just want to be top of mind when they're thinking about this.

When they're thinking about, you know, I've got to allocate some capital. You just want to be one of the companies they think about.

Absolutely.

So I think about 90% of the time, whatever companies they think about the top two or three, that's who they end up buying from.

Yes.

Yeah. Okay. That that kind of makes sense. So um probably should have even asked at the start. So if you're let's just round it up, say you're $200 million, you're getting one and a half%. And so you're charging say $3 million worth of fees which fair and reasonable across six people. Bit of cost. You're kind of doing okay. When you get to half a million, that's when everyone does really well, right? That's when everyone you've got enough debt out there. You've really diversified your risk. You're making a meaningful fee out of it. Yes.

How how long will that take you, do you reckon, if you just do what you're doing today?

Probably 24 months. 24 to 36 months. Yeah.

Okay. So you'll double the fund in more two and a half time.

In two and a half years and and it's very much the point that you made because as the fund grows larger, it does get easier to raise money, but it comes in big licks. So you know, you sit there and you go, "Oh, far out. I'm done so well. No one wants to deal with me." And then one day it's $20 million. Step up. Then it's quiet for a while. Another step up. Um so we expect that to accelerate over the next 24 months.

And can you outsource the task of raising this money? Is that a thing in your industry?

Very. Well, there two ways to look at it.

Put them on like a broker or something. I know when we raise money either public or private. Yes. Often bond to a broker, you pay them, you know, four, five, six% whatever their fee is and they go raise the money for you.

Um, they are, but they're very expensive and they're not viable. So, what we are looking to do at the moment, so we've actually got a recruiter is hiring a distribution person. So, that's effectively your in-house broker. someone who specializes in raising money for funds um and has a suite of relationships. So the good the good guys are hard to find. We've got a handful of good candidates. So that could be a game changer for us.

And how do you how do you find someone like that?

Uh look the recruiter always helps but it's a small industry. So you know you know some the names. Uh so it's just about whether or not someone is a happy where they are b looking for something new or c working somewhere where that asset class has lost its shine cuz their their bonus is on how much money they raise. So if you're selling an asset class that isn't popular anymore you be looking for a new

you're going to raise less money and okay that kind of makes sense. Okay. So so that will kind of increase the network increase more referrals and all those kind of things.

So the right person will be a game changer for us. Yeah.

Cuz I imagine right now right right now you're that person, are you?

Yes.

And are you then also the person that brings the work in as well?

No, it used to be. Thank god no longer the case. So you know for the way you describe a funds management business is it's it's an airplane with two engines. You got one engine that's the borrowers. The other engine is the raising money. The borrower side is well covered. We got a team of four exceptional people running that. That's a machine. Just runs like a well machine.

The profile. What's a typical company that would borrow from you? What what's an example?

The best example is what I call other lenders. So, non-bank financial institutions. So, John has set up a business. It is an equipment financeier. He's got a he's got a great market. He's looking to target. He makes good returns. He's got a very low loss rate and all this is done with call it a million dollars he's raised from friends and family. Now, he's got this lending business, makes a good margin. He needs to grow it because it's a billion dollar addressable market. The problem he's got is the banks say when you want a $100 million facility, call me. The big funds say call me at 15. John says I'm at one. What do I do?

And that's our target market. So we turn up and we'll tell John we'll give you a $20 million facility. We'll give you a mill on day one. And as long as you've got growth, we'll drop money into you and then we'll help them grow that book until they can refinance out with someone else.

Okay. So it's a small business needing what$1 to 20 odd million dollars in in various chunks.

Yes.

Um what's what's a typical loan size that you'll do or is it always these draw down facilities? Is that what you guys prefer? They're primarily drawown facilities. So day one checks are anything from 1 to 10? Uh 1 to 5 is the sweet spot. We like that. Uh but most facilities have an up upper limit of $20 million.

And where do you get most of your borrowing work from? People reaching out to you directly. Is it

reaching out directly? Yeah. and referrals from directors. So I'm a director of a business. I've used Rickson. Someone else's that I sit whose board I sit on says, "Look, I need this money. No one wants to give it to me or they're all trying to rob us." And he says, "I know who you should call." Okay. Then they recommend you and then the work will come through. Okay. Well, let's go back to the the raising the money sites. That's that's the crux of the problem. Then there is no easy solution really. No, there's not.

You can try the distribution thing. That might work. You might get a great person. They might kind of help. You might get more um network connections as you grow. It'll kind of solve itself a bit, but maybe not at the pace that you need. Besides that and high net worth individuals, and let's assume you can't do retail. That's just too hard for now. Oh, well, the one option that's always hanging in the back of your minds is there are family officers that like what we do and the promise they've got or the pitch they've got is let me buy into your business and I will open the taps and I've got 2050 $70 million that I manage for my family and other families.

They'll give you which means you step up straight away. Uh so,

and what what will they take from you in return?

An equity stake of some form. Uh, and everyone wants way too much for a business that's profitable. It's way too much

because I mean all that kind of does is speed up your growth a bit, but then it might cost you that growth might cost you too much, right? If you have to give up meaningful equity and you're kind of growing anyway and that's exactly the point sort of the point you're making, right? With time we'll get there. So, is it worth giving away five 10 20%. Number one. Number two, it adds complexity. So, you know, we've already got a share a business owned by shareholders. Sorry, owned by employees. We've got a financial partner of Adelaide. They've been very good partners. We get along. We know each other. And if you bring in a new party who's got might have their own agenda just creates risks creating conflict.

And if you're It sounds like Yeah. Look, I think I'm sure that's what you're thinking. Like it just sounds like it's not worth the grief.

No.

It might bring your growth 3 months earlier or 6 months earlier, but then you might get just totally get in bed with the wrong person.

And yeah, and it's not necessarily them doing the wrong thing, right? It'll be a debate about salaries, bonuses, or

there'll be some misalignment somewhere, right? I want to exit in three years. Why don't why aren't you supporting the exit and say look that's not what we want. So whereas the core group we have we have a aligned vision.

Yeah. And it's it's it's more fun being the boss in control.

Oh yeah.

Um so you can you can do what you want right between you and your co-founder and the five people you can decide to do whatever you want.

Yes.

You don't have to answer. So so that I think you're right that doesn't kind of make sense.

Yeah.

Especially if that kind of money will only bring you how much forward would that bring your growth? What? Three six months or more?

Yeah. Look, let's be generous here. A year.

A year. Yeah, look, it is helpful. It's always helpful those step changes, but what you don't want is in three years time to look back and go, I should have just waited and here we are having these angry phone calls and meetings.

Yeah. Okay. So, high net worth individuals kind of their family offices too hard. They're going to want too much skin for their for their funds. And any other options you guys have?

That's pretty much it. That's a lot of money. You know, if you look at self-advised high net worths, the wealth managers, you know, that's a multi-billion dollar market. It's all about getting in front of them, educating them, and selling the product.

And how do you get in front of the high net worth individuals? That's referral similar to wealth managers, is it?

Referrals are the best. So, again, I I speak on OSBiz on private credit every two weeks and they've got a fantastic viewership of self-advised high net worths and we get a lot of leads there.

And and what rate is that? growing at if it's 400 now, how much would you expect that to be in 12 months time?

Uh 400.

If it's 400 high net worth individuals today,

oh yeah.

How much would you expect that to be in 12 months time?

Probably 600.

Okay.

Cuz as the fund grows, the check sizes grow as well because as an example, when we first started, we had investors who gave us $50,000. Uh and the reason they do that, they're very frank. They say, "Look, I don't know. I don't know. I can afford it if you run away with my $50,000." But as you grow, people go, "Look, I like what you're doing." is half a million. So, it's real step changes.

Why Why is there a rush to grow? Help me understand that. Like, what is it inside you that's making you want to grow so quickly?

Don't get me wrong, I come from a tech space, right, where it's it's always about grow as hard as you can.

Yes.

But in a tech space, you don't have the same constraints.

No.

And I'm trying to understand and in your world, the constraints have real cost to them, right?

Yes.

So, in your world, why why try to grow so quickly? So, be very careful how I answer that because it's not unconstrained growth. It's growth because the opportunity is there.

So, you know, I'm an entrepreneur. We're I run my own business. I can see this sea of opportunity and I go, why am I tapping 10% when I can tap 50 or 60%. But if I can tap 50 or 60, I can build the team and launch fund number three in two years versus 5 years. So, it's a matter of practicality almost, right? It's there. Take it.

I hear you. But let me let me say that another Okay. I mean, conversely, let's just say you've got 100 potential borrowers out there.

Yeah.

Today, you can service 50 cuz you that's how much money you have.

Yeah.

Um,

if you service the best 50,

you'll do better than servicing 100, right?

Cuz there will be a top 50 or bottom 50.

So, you if you're very very selective about who you lend money to, you'll probably have a higher return. You'll have less bad debts. If you're giving like 11 and a half% and you're charging them what say 14% take out management fee,

like you're not getting a lot of bad debts. No, it's a very good book. See, that's also a very good point. So, what appeals to investors when they look at us is we're an asset back lender. So, if you turn say I want 80 80 cents, I'm taking a dollar of plant property, equipment, receivables off yourself. So, it's secured against something. It's secured. So, when I say there's an addressable pool of 100, I'm talking about 100 who tick all those boxes. I'm picking 50. So, I'm not taking the top 50. I'm taking the first 50 cuz they've taken the money. I'm tapped out and I have to let the others go.

Yeah. I mean, what about just, you know, good old supply and demand? In your case, demand's outstripping supply. So, what do you do? You just increase the price.

You charge them an extra percent, extra 2%, you charge them a, you know, signup fee, whatever, whatever you get you can to extract more from them.

You screw them for options, you screw them for warrants, all those kind of things. But that's what I've been on. I was on a public company uh space tour. We got totally screwed by warrants by pure.

We know them well.

Yeah.

So, um why don't you do that?

It's not about increasing the the fund size. It's about well, okay, maybe the fund size will grow at the speed of grow. We'll do all the right things. We'll get distribution person on site. We'll get more marketing. We'll do more,

you know, coffees, more lunches, we'll do more networking. That will grow.

Yeah.

But if we have more demand and supply, maybe we should see how to make more money off these guys. See, see theoretically that makes sense, but if you break it down, so one example is, you know, there are a few things in fact. So one, what makes us different is appealing to borrowers is

we're high yield. We don't take those warrants because as soon as you say, I'll take warrants, they go, look, there are four other guys who do it. And then you're competing on price and terms. So if we do that, we're no longer different. In fact, your differentiation. Okay.

Completely. And then on pricing. Now that's a good point because when a borrow comes to us, you know, a lending business, these lending businesses make 30 40% margins. We could charge them 20. But the danger is number one, you charge someone 20, it ticks off the borrower cuz no, the fair price is 7%. So the borrower views you as you serious? Y

and they tell people market, look, the richen guys gave us a solution, but far a bunch of sharks. But I charge them 14 to 15. They go, look, they're expensive, but they're good guys and it's fair. So there's a psychological element to it and there's also the fact that I don't want to put pressure on my borrowers because you know there's a point where a borrower wobbles not because the business is struggling it's because you're taking too much. So that sweet spot of 14 to 15 makes sense for us.

Sure. Cuz I guess if you do charge a lot more then they might not be able to pay and put more pressure on their business and the entire debt might be worth less.

That's right.

Okay. What else can you do then? Look, we just market like mad to get our profile out there to investors. So, that's all I spend all day doing. LinkedIn, emails, phone calls, coffees, and lunches non-stop. Um, and it pays off, right? It's very tiring, but what happens is the first time you're a stranger, the second time I've seen this guy before. Third or fourth time like, "Hey, Patrick, nice to see you." At some point, it becomes a check. It's just this constant grind. What we're trying to get to is where we don't have to do that grind anymore. Cuz in reality, right, when you think of a fund, that's not what a fund should do.

Fund's job is to invest equity, debt, hybrid, and deliver a return that investors want and the money should come. It's the early days where you've got to tell people, hey, think about me as well.

Yeah. And that's the hard slog.

Yeah. I mean what percentage of your cost base like you know if you had to allocate your salary and the other five people what percentage of your cost base do you spend on sales and marketing and and raising money?

Uh we don't spend money on raising uh sorry

but in ter in terms of time and hours and those kind of things or mind space.

Look for me it's pretty much a full-time job. So oh 20% of our wage cost is on marketing and we spend a lot of money on advertising. So, Google ads, uh, events, we hosted the polo with one of our big wealth managers last year. Uh, all those things cost a fortune, but a it's a great way to show your partners you care and you treasure the relationship and b it shows investors that, you know, it's not just take your money and your fees and go away. Uh, it's the picture of a boutique fund. We catch up, we do lunches together, you can call me in the evening if you're worried. Um, and all that builds that trust.

Okay. So really it's it's it's more than just raising money. It's it's almost like a growth strategy for you, right?

Yes.

Well, assuming that you've got more demand than you can possibly supply on the borrowing side, it's how do I grow raise more money and you've got, you know, you got your marketing, you got direct sales, you've got a distribution person that might come on board with with a bit of network, a bit of connections. What else are you doing in that space?

Those are key ones that marketing. I mean this it's sort of this is really left field is building out that second fund because what we've been told is some wealth managers will want to see a menu. So if you turn up I've got one product you go look not for me the meeting's over. You turn up with four products it opens the doors because I might like the equity strategy I might like the higher risk strategy I might might the lower risk strategy and that's a door open have a multi advance they can choose which one kind of works for them.

Okay. So but perversely that's your point about time as well right

as we grow larger and bolt on two three funds

it becomes easier uh when I'd rather it'd be easier today.

Yeah. Yeah. And do many other companies offer what you offer to these fund managers?

Uh to the wealth managers.

Yeah. To the wealth managers.

We're comp for our niche if you look at it from what we do where we invest. So the niche being you know low risk high 11 12% 10 or 10 12% return uh more business lending.

Well take a step back on first principles relatively so very high return for relatively low risk monthly cash payments.

Okay that's the appeal. Okay. So you give us $100 you're going to get a y you know you're going to make $10 to $12 a year and that $100 is capital protected uh because it's asset back. No, it's not a guarantee, but there is an underlying asset base.

Yeah.

So, how come you're not growing faster then? Because that sounds pretty good. You've already got two years of track record. Let's just ignore the fact that you have don't have five yet. Yeah.

How come you're not getting more and more from your existing wealth managers? How come they're not just, you know, totally throwing more cash your way cuz oh my god, this is amazing.

This is like the perfect crime. It's low risk, asset backed, reasonable fees, high return.

A few things. So, one is the bigger managers. said they want to be able to give you large licks of money. We can't because of the way we run. We're very specialized. Second is the that 5year track record is a formula. So it's a computer says no. You can be the best fund in the world. Every the Wall Street Journal, the formula says we're not allowed to give you money. Those are the key ones.

And then finally, the the wealth manager is looking to build a diversified portfolio. So we're delivering 11 a fantastic risk. But then they look at a listed fund and go look I can get in and out of that any day during the day. They're doing eight. They haven't blown up. Broadly the portfolio doesn't move the needle. I may as well stick with them. Yeah. Okay. I've had a bit of experience in this place. So u public company I just came off the board of uh Trial Key just rebranded to Path Key. We partnered with another company to set up a fund specifically a fund that invested in bio. We had an AI algorithm that would predict the outcome of clinical trials.

Get it right about 80% of the time. Small bio trial failing they go to zero. Trials succeeding they tend to go up. But the only way that we even though like the fund was amazing. We were returning like 30%.

But the only way we got any meaningful capital was we had one cornerstone investor one a guy called Tony G super worth hundreds of millions of dollars. He was happy to back it. He was the major shareholder in the tech side as well. And that's kind of how we got scale instantly. Is that an option for you? ignoring family offices that that will steal your kids from you. Is that an option for for you to get that to get one cornerstone investor, you you do some sort of reasonable deal which is still fair for you and they get a slightly higher return.

Yeah. So, we had a conversation about that with someone today. The question is how much

how much upside they're going to steal

how much they upside going to take and we're very cautious because one of those things if you start the conversation you're very started on the back foot right the negotiation you want the deal so they'll squeeze you so

it's an option there are a few people interested but you know unless they approach us we've got to take the position we are okay the way we are

yeah what are the other what are the other lenses of of this problem like how are other people solving this what are because every fund needs to raise money I imagine lots of people start funds. How are other people solving this?

First thing I tell you, like since I've become a fund manager, an emerging fund manager, there's a group of us who hang around, we meet each other at events, it's very, very, very hard. In fact, we're very fortunate to be where we are, as in everyone's on a market wage and the bills are paid. You'd be amazed how many funds and the customer shut down uh because it's become harder and harder to raise money.

Yeah. What does that tell you if lots of funds are finding it very hard to raise money? it see it's not because of product the products are excellent I know these people products are excellent the people are fantastic it's what's the phrase it's a it's not commoditiz I guess maybe it is a commoditization of product by the industry so you you went back in time 20 years ago wealth manager sits there and he goes where do I put money oh Patrick I'll have a chat with Patrick I'll have a chat with Sorro today a lot of the wealth managers the other change is they use what I call manage accounts so your wealth manager doesn't say I've got you in fund XY Z.

They just say I've put you sort of you're reasonably young. I've got you on the 60% growth option, 40% uh conservative. That's all they know cuz there's an asset consultant in the back who puts together that portfolio. So the wealth managers don't speak to you. You speak to them and say look talk to these guys and these guys are looking for something that is commoditizable. So the first question is do you have daily liquidity because I need to change my portfolio daily. you're no out. Will you pay me a big rebate of my of your fees? I said, "Well, my fees are pretty skinny." No, you're out. And that's keeping a lot of people out of the market now.

I mean, are are there funds to be raised?

The money? Oh, definitely. Definitely.

Are there funds to be raised that will fit the profile of money that you can take that would make sense at a price that makes sense and that would invest in a in a fund like yours?

Well, if you're which which is where why we're at 170 mil. It's that demographic. So I just say to people the reason we were able to grow so quickly well quickly if you like but you know we went from 0 to 20 mil in 12 months doesn't sound like much but there's a lot. Our core investor base this is through referral through online through whatever were bankers because investment bankers live and invest professional investors live and breathe risk. And when people like that looked at what our product was they went this is a no-brainer. It's absolute no-brainer. Your asset back, you give me that sort of return, you can get the money.

Okay.

I I don't know. I don't know. I think it's just one of those things that um

the market will only grow at a certain speed sometimes. Um and you can churn a lot of money on marketing and that that might improve it.

If the market is actually bigger and they don't know about you, they have they don't have enough exposure to you or you're not top of mind. That will help grow it. But sometimes there are limiting factors to growth. Look, I will say the the one the market has changed and if I had to go back in time with the knowledge I have today, what you've got to do now and this is good advice I got from again someone from the AC collected is what you he he says your problem Patrick is you built a great product. You talk about risk, you talk about return, but the mechanics of the product don't suit the capital of today and that's the managed accounts, you know, those asset consultings.

So what you should do you could do it now or you definitely do it when you start is backsolve create a framework that suits what they want and then slap on a product and that's how you build a business.

Yeah. So for example build a product which give them the daily liquidity and all those kind of things daily liquidity retail uh first loss provision. Um so look in my opinion it's not compelling at all. You look we talked you whiteboard you know I wouldn't put money into that. This is but it's not you you you're targeting you're targeting an asset consultant who just tells the wealth manager this is the income option.

Yeah. And how come we haven't done that? Is that still on the on the cards?

Well, we solve and solve model that we learned about that about two months ago and the funds $170 million. It's a bit late to turn the ship. It's an option. It's something we think we're talking about, but uh ideally we don't have to go down that path because what we're still trying to push to investors is we've got a cracking product. You understand risk. It should be a no-brainer for you to give us capital.

Yeah. I mean, it's hard to I mean, what you've got that standard dilemma of do I sell a quality product

or do I sell something that's easy to sell?

Yes.

That might not have the same quality.

That's exactly right.

And you're picking the quality path.

Yeah. which might be right, might be wrong. I've got no idea. And the challenge for us is we've come so far. So, you know, if we were $20 million today and I had that advice, I go, you know what, call the lawyers. Let's restructure this. But, you know, we've we've got scale, we've got two funds, we've got a great reputation, we're building. Um, why reset all of that? Because if you reset it, it's a completely different market.

Yeah. And I think the subtlety of it is is you've experienced success doing this.

Yes. You're thinking, well, I've done this. So, I've got this much funds under management under this short period of time.

This is kind of working.

Yeah.

I mean, if if it went horrible in 6 months time, you closed up,

you like that was a bad idea.

And then you'd go set up this retail fund. That would be a lower quality fund, but that would would be a lot easier to sell.

Yes.

Yeah.

Yeah. So, then it kind of makes sense. Well, you you got two options. Like you can stick with the quality

or do you want to play both? But you got to make sure that a low quality fund fits with you.

Yes.

And fits with your culture and fits with your personality and fits with the vibe

of your organization

and your ethics. And that was my challenge is this is doesn't feel right. You advice was you're a it's not about whether it's right or not. That's what the formula requires. So you suit the formula, you're going to have a great product. uh sorry yeah a great product in terms of structure rather than actual financial product

that will be easy to sell people will buy it you'll have a lower return you'll have higher risk yeah but it will fit whatever box or spreadsheet that someone needs to do the automated asset allocators use yeah

okay so I get why you wouldn't do that if that that doesn't feel right for you doesn't feel right for you

no no that's and we're not a machine style fund you know if you look at the big funds it's a machine right just people coming in and out and it it just churns. We're not like that. That's part of the appeal as well. We're all faces. We're all individuals. You see us at events and lunches and the investors who have backed us love that and they find a lot of value in that. And plus, I think in in the long arc of time, I think quality wins.

I would like think so.

I think so. Like if you most most areas in our lives, like if you look at electronics,

like there were all those cheap phones, but then the most expensive Apple and Samsung phones were

or there was all those cheap laptops. Now, Apple and Microsoft ownable ones,

vacuum cleaners, everyone that I know, at least in our demographic, buys Dyson.

They're the most expensive, but they're the best quality.

Yes.

Um, so in the long arc of time, quality wins,

but it takes a long arc of time.

Yeah.

Cuz you need that time to evidence that

this actually is a quality product.

Yeah. Oh, that's right. And look, we're good with time, but be nice if it was faster. I mean, my my comment around time to investor is always, look, I don't rush anything. So, if there are no deals out there, we will not take money. Um, and my pitch to investors is

it's a marathon, right? It's not a sprint. I'm 43, my youngest is nine. I got years to go. I can do one year with no growth, but if the growth is there, I want to grab it.

Yeah. Yeah. Okay. What other options are there? Right. So, you've got the distribution person coming on.

What other team members can you bring on that would actually help you help you grow the raising the money side of the business?

It's a distribution person. They're gold. The good ones absolute gold because that's their job, right? And the beauty of getting someone who's coming from a good established fund is they've got a rolodex of people who trust them and a fund that's performed well. So, you know, if you were selling product X and then you moved to Ricken and you turn up in front of the advisor, you go sir's the guy put me on to fund XY Z and we've shot the lights up. What have you got for me next? Um, so that person is a very crucial hire.

Yeah. How how do you how do you make sure you get that higher right? Because let me put a negative hat on. um the only distribution person that is going to want to leave

means either their fund is not performing.

Yeah.

Or they're not raising enough money to pay themselves.

Yes, that's fair.

They're probably the ones that cycle through jobs every two years cuz it just takes two years to get found out, go jump into another ship.

Yeah.

But if you're a really good contribution person, it probably means your funds performing so you're able to get more follow on capital.

Yes.

And it probably means that you're doing quite well cuz you're raising lots of money. And then why would I leave to go to Rickson? Like what's Rickson going to offer me?

Yes.

Or how are they going to attract me when I'm kind of doing okay now?

Very fair question and that's a huge consideration. We never want to take someone out of a job there and then boot them after 2 to 3 months. And likewise I don't want to pay someone who's not going to deliver. So the beauty of this space is it's a small industry. So the handful of names we're speaking to are known entities. We've heard about them or we know someone has heard about them. We can see how the funds have performed and some of the funds have wobbled. sometimes of controversy. So that's a fair reason to leave because they go look someone said something about them there are I don't feel comfortable pitching this anymore.

Yeah.

Um we're also a high growth opportunity. So you get people who are mid to late 30s particularly if you're working for a big fund

until the guy above you dies and yeah

yeah you're just a small cog in the middle and you never move. Whereas if you join us we're talking about second third fourth fund. You've got to create your directory and for the right person there's equity. So we're very

which they'll never get in a

never get

they'll get a bonus right that's what they'll get in in another place. So why are you using recruiter then if if all these people are known entities that you can reach out to directly and or could have a conversation with.

So the people well time because I spend so much time raising money it's inefficient to be chasing people for roles and second there might be people we don't know. So we know the organization, not the person. Once you pull the name up, we can make a few form calls and people go, "Yeah."

And the recruiter can run around and do that admin and set up the interviews and

Absolutely.

So when you interview a distribution person, I'm going to tell you, I know everybody, everybody likes me. I've got this great rolodex. I'm going to raise you all this money on day one. The analogy I'll give is like a saleserson. When you recruit them, they're like, "Oh my god, I have all these connections." Everybody says they have connections, but they often come come out to be very hollow in my experience. M um how do you make sure that doesn't happen to you as part of this process?

Fair question. Some key tests are again you look at the fund because the fund is legitimate has some scale even as a worst case that person is tagged along to all the meetings rather than having a relationship. That's good enough because that gets us in the door. That's base case. Second, I make it very clear to people when we speak say look I know it's a long game but we're looking for someone who on day one can walk in and go look here 10 relationships I've got. I'll bring you a million dollars a month from day one. Then everything else is the big checks. So people know when they turn up, there is an expectation.

You're bringing small checks with you. If you're not bringing those small checks, they're not going to make provision very quickly.

How when a fund gives you So when someone gives a fund money, one of these wealth managers,

how tethered are they to the individual or how tethered are they to the fund?

Depends on the it it depends. So we've spoken to people where wealth measures where it's relationship based. So very much tet to the person.

Okay. So they know that person. So I mean the analogy I'll give like a real estate agent, right?

Yeah.

I care nothing about the brand of the agency. It's that person that I met. If I go to another place, I'd go with them.

Is it like that?

There is an element of that because the wealth managers have their expertise and their expertise is building portfolios, engaging with the client. They're not equity market experts or private credit experts. So that person they speak to that front, that distribution person. That's the person educating them. This is what my fund does. This is why it's good. And there's a wobble in the market. They're on the phone explaining that wobble and giving you confidence. So you go, you know what? You might not be the portfolio manager, but far up you give me confidence and you haven't done the wrong thing by me. Okay. And how long would it take for this kind of person to succeed?

Would it literally be day one within a week or two they bring in a million bucks a month worth of additional funds? Like how long would you give somebody?

Well, we give someone at le 2 months for a check of some, you know, a million dollars. So, if you can't bring in a check within 8 weeks, that means you haven't got those relationships. You're going to use us to start marketing again. That's a lot of work.

Yeah. And is that reasonable enough for someone to bring in a bit of money after an 8we cycle?

Absolutely. Because firstly, you've got a transition period when you leave your job. So you're telling all your network, I'm leaving FundX and I'm going to turn up somewhere else. I'll be in touch. And people should be, if you're good, people should be calling you going, where you go,

you must be going somewhere good. Tell me more about this place.

So by the time you turn up, you got 3 to four months of you've done some homework, had some more relationships, had some more coffees, more lunches. That's right. if it's such an important role and let me ask another question what's the probability of success of this distribution person like what's the chance they're going to make it through preparation is it 90% is it 10%. If you get the right person, oh, it's very high. If you get the person the right So, you know, the two candidates we're looking at, which we like, I'd be amazed if they didn't get past probation because we've had the conversations, they happen to be people that we know, I'd be very surprised uh they would get passed.

And a big part of that is also our philosophy, which is you don't want to take someone out of a job and say, "Oh, you're not right for us. Goodbye. You're now employed." So we we want to make sure we're doing the right thing by you when we take you on board. So you know what our expectations are.

Yeah. Cuz my experience in hiring has been a bit different. Like no matter how much I've tried thousands of people, thousands of interviews.

Yes.

I still only get it right half the time.

So I figure

and that's look when I started it was like 0%.

Yes.

Success. Now it's my 50%.

So I've gotten very good at firing people.

Um so simple example. Yeah,

I've got some EAS in the Philippines

to get a new one. So, I recruited four people

and within a month I sacked three of them

and I just kept the one that was succeeding really really well.

Yeah.

In your world where distribution is so important

and the cost of that salary compared to the upside is nothing.

Yeah.

Why wouldn't you just recruit two? And if two work that's amazing.

Mhm.

Why why recruit one?

Good question. Uh there's a risk and overlap. So if you hire people, they're competing against each other. You know, there's some lines of work where you want people competing with each other. This is not that type. This is not that line of work because you don't want to call someone go Sab called me last week. Sort of is taking me out for lunch. Why are you calling me?

But you you just divide up the territory, right? You have these the ones that you know these relationships that you know

and this is, you know, I know A to A and LK. However you divide it up, right? You could actually divide up a sales territory across two people quite effectively, right? So they don't overlap. No, not for this line because for instance you'll say you'll say I've got an existing relationship with the bell port. I'll say so do I. I know the guys in Brisbane you got you know the guys in Melbourne. So it be it does become challenging and then when the money starts flowing I'll go look I spoke to John in Victoria who allocated

allocated too and then you start butting heads. So you you definitely want a very good structure with roles like that. There's a guy in charge and then the junior people where you go look you manage that relationship. you're not paid as well, but I'm giving you that relationship and telling you make sure you keep them happy. Make sure the flows come.

Yeah. Well, it probably depends if if if you're very certain they're going to succeed. One recruit makes sense.

But I've never recruited someone where I've been that certain.

Yes.

Um like even for CEOs because I place a lot of CEOs in companies being being on boards. Even CEOs, you'd think I'd be above 50%. I'm not.

No,

I'm still not above 50%.

And the crap thing with CEOs, you get stuck with them for 3 years. Yeah,

especially the public companies that I'm on,

you just get stuck with them for 3 years.

Yeah.

Um, so I'm very surprised you're that confident. Is that confidence founded?

I think it is. It's because I mean, you can tell me if I'm wrong, but you know, if you're looking at leadership of a company, I see you have a listed company. It's reasonably subjective. John C interviews very well. He's actually not a nice guy or he pitch you know some people markets. They sit down and they can just talk. Whereas the work we do is very very objective you know to use the example of the the guys we in our credit team very defined interview process right here's a balance sheet talk me through why it's a good lend or not what would you structure what metrics would you use why you know you pull it up very very quickly there you go you know are you competent or are you not competent and then everything else you can train on the job you know the way I want my credit papers written and here's a template that's how you write it

so it is a lot more objective I'd say.

So I would have agreed with you unless I had some of the experience that I've had. So

one of the companies I was on the board of and I'll just share the public components. It's a company called Space Store publicly listed. So they do smart watches for kids.

Um so we had to exit the founder for a bunch of reasons. I was on the board. I stepped as the interim CEO for four or five months

and my job was just stabilize and go find a good CEO. And I was thought that's great. That's my thing. I can go find a great CEO. Um and this is all public. There was a guy called Simon Crowther. He was the CEO of Nemat.

Yes. Um, so one of the only guys in Australia to build a unicorn.

Yeah.

And he took that from Amazing Story, amazing guy, fantastic, lovely. He took that from like um I think like employee number three or four from a hardware camera company.

Wow.

And I think he he he got a bit crooks. He had to leave, but it was $250 million by the time he left.

And two years later, they exit for like one $1.8 billion in the US.

So I convinced that guy to join Space Talk.

Yes.

That was 3 years ago. M

and the market cap is half what it was 3 years ago.

Yeah.

So despite all the evidence, all the reference checks, we probably had like six interviews, all people on the board met him.

Yes.

Objectively only comparing share price cuz that's what investors care about.

Yes.

He actually hasn't succeeded. And the revenue now, so when I finished up as the interim CEO,

our revenue was say $24 million a year.

Yeah.

The revenue today is about 20 million bucks a year.

Oh. Yeah. So I used to be so confident about this stuff when I met these amazing people that so impressed me. I was aruck, right? Somehow I'm talking to this guy who's built a unicorn that for some strange reason is actually happy to join this company.

Yeah.

So out of curiously though, where do you think it went wrong? You know, the top two or three reasons.

So I think the if I was to summarize what went wrong is I recruited the guy that ran a unicorn.

Mhm. I didn't recruit the guy that was the scrappy startup employee number two. During that phase, he changed.

And I didn't realize I need that guy right at the start.

Yes.

This guy at the end that's used to, you know, running a billion dollar business. He's happy to spend a million bucks a year on recruitment fees.

Got it.

He's happy to, you know, fly business class everywhere.

He's happy to do all these things.

Yeah.

And there were just things I I did not untangle.

Yeah.

And even if I asked him, he would have just told me what I wanted to eat.

Of course. Yeah,

cuz he wanted the job, we wanted him, we're both in love with each other.

So that's where I think that went went wrong. I recruited the right person, but just at the wrong time,

the wrong time for him,

so that's why I I I love your enthusiasm for distribution and I'll ask in about 6 months. I just wonder whether you just get both.

Yeah.

Cuz let's just say, I don't know, you get both. It cost you

a million bucks. Let's pick a random number for, you know, office space, time, your time, other people's time. assuming that you can somehow stop the channel conflict

so you can somehow divide up those things or you pay double commission or you pay half half or whatever it is.

Um sometimes the the upside is worth it.

Okay, that's food for thought. It's actually food for thought. Um

cuz what's the worst that can happen besides your cost base going up a bit

and even temporarily they don't perform, right? Because they do perform.

It's it's amazing. You you'll grow even faster and if they don't perform well get good at firing and and they'll know they're not doing well, right? And if you got this two-month cycle,

you'll figure out very very quickly.

Yeah. Right. So the be the the beauty of what we do is they they'll know. It won't be a surprise.

Yeah.

And then they'll know they're not working and before you might even get a chance to get rid of them, they might just self- select opt out.

They'll start networking and going going to find their other job.

Yeah.

So that might be that might be something to consider cuz the other flip side is let's just say you get it right.

Yeah.

Just say, "Oh my god, you get two rock stars. you've done better than me or four times better because my success rate is 50%. If you get two and that's like 200% success rate,

um then you'll suddenly grow faster

and they'll pay for themselves like super quick.

Absolutely. Well, that's that's a very good point because they will pay if they're succeeding, they'll pay for themselves easy.

I always think see revenue generator can

Oh, thank you.

So, I always see revenue generators which which they are in this case, right? cuz this is the um this is the constraint of growth that you have in your organization.

Um you see revenue generators almost like a magic box.

You put a buck in, you get 10 bucks out.

Yes. Yes.

Yeah.

And when are you going to stop putting in that dollar coin, right? You you never will.

Yeah.

And then you might find that um I know some of the like if it was me, I wouldn't stop spending money on the marketing just in case both don't work out. And there is value to your brand, but you might find over time, you can spend less on sales and marketing.

Um, because if sales and marketing gives you two, right? It gives you more people to give you money, more people to want to borrow money off you. And if you have enough borrowers right now, you can maybe shave 20 or 30% off that. And these guys are going out to get you funds. You might not actually need some of that spend that you're doing today.

Yeah.

So, there might be a model where the hit to your cost base is actually not crazy. Or it might be a model where you might decide for a year. Look, hey, maybe 11.3 is not doable. We can do 11 or 10 and a half

cuz we're going to have to take a dip for a year cuz we're going to reinvest a bit, then we'll come out better on the other side.

How does that kind of fit with you?

Yeah, the long-term view, we're open to small sacrifice. Look, investors want strong returns.

Okay. So, so you can't you can't screw with that. Yeah. Look, and to be fair, the target return is 10 to 12. So if we deliver 10, if we're doing 11 and a half, you do 10, no one should technically complain. Uh but we like our outperformance.

11 is a better number than 10.

Oh, and that's really what we So internally that's the psychological

11. We just want to stick to that 11.

Yeah.

Um or or you just screw the other five employees, including yourself, and just say you guys are making a sacrifice for 12 months, right?

That would we just need to double down and reinvest in this business.

Yeah.

Um if the cash flow doesn't support it.

Yeah. Look, the cash flow would. I mean, with

if they do well, it's supported.

Yeah, absolutely.

If they're not doing well, well, you get rid of them. So, there is no cost out. There's no cash going out anyway.

Well, but perversely, it it solves for itself, right? Because they're bringing money in, you're building your management fee pool, which means the guys who are writing deals are busy and there's plenty of money to ever for everyone to be compensated. So, it actually does work. And any downsides of the strategy besides the channel conflict of having two distribution people not one a frugal ethnic which is why I was thinking of hiring one you really give me a lot of food for thought about this business of hiring two the only downside so we're because the industry is small because we're niche right now it's not some HR person four floors down making a decision it's it's me we're less likely to get someone who's contentious because we know you know it's a small market so the real risk I see other than hiring someone who's going waste our time for 3 months is hiring someone who sells a product badly.

So burns bridges that we've already got or would have built without them. So gone in giving the wealth manager a story that's dishonest to get the money out the door and then when we get a phone call one day going this is what you told me then we've got a problem. H

let's just say something bad happens, right? You just lose say a year's worth of growth

for whatever reason. You can't raise more money or this person has a horrible job or tanks reputation. How how much will that cost you?

Well, cost for a fund of our size, it could be devastating.

It would be devastating.

Could be devastating. Yeah.

Yeah.

So, there's super high risk of of getting this wrong. But then you've got two people that you'd know that you had some interaction with in the past.

Absolutely.

So, you kind of derisk that.

Yeah. They wouldn't be cowboys because, you know, you get people out there who are aggressive. We would never hire people like that. These we know these guys and we met I've spent time with them. Very stable.

The cost if they didn't perform for let's just say a quarter for 3 months cuz most people can fake their way through a quarter.

Yeah.

You might be really clever and catching in two months but most people can get to a quarter. They can fake themselves

and there's this deal just about to come. They're about to do it and

oh look they're they're just about to raise some more money and you know in

in April. No, no, it's May now. Oh mate, 1st September it's totally locked in.

What would be the cost of that if they drag this out?

Well,

is there a lot besides their salaries?

It's not the salaries really just salaries

because you're kind of raising money doing the organic way in your own kind of tasks anyway.

And and the risk of that is also low because again because of our size what I would ask them to do it's not a matter of not trusting CC me on every email.

Yeah. You go along to meetings you help them you make sure they're legitimate. Make sure they actually know that person that person has some value in there.

Yeah.

In them. Yeah, you're not going to Mossman sitting having coffee by yourself buying two coffees. The

two coffees in Mosman now been there with you and again the so with the good guys know what they're doing.

Yeah.

So going back to your point which I can relate with is um and ethnic frugal who love it.

Is this the right place to save money?

That is a very good question. So my shareholders, my my small cornerstone investors aren't ethnic and we have we get along very well and this is where they do test me. Why don't we spend this? Ah and they go look think about it from an ROI perspective. You spend this and you get that. Does that make sense? I go actually it does does. So we challenge ourselves there. So my default position is still don't spend but if someone can put a case to me explain why this actually makes sense very open to do it. But I guess the the difference here is how come you didn't put this case to yourself because you're the CEO.

You're making this choice, right? Yes.

And there's actually no one to put this case to you except for yourself.

Yes. One key reason as well is, you know, again, if you look at the fund today, two fund is all optics, right? Two funds, $170 plus million. All very nice. But the fund's done this. So 12 months ago, it was not a happy Christmas. Fund was much smaller. I've only come back to a market salary sorry this month

this month I've been on like a graduate salary for about two and a half years. So and the challenge with being tight is you see the world from a capital constraint standpoint. So we finally hit a point where we can afford a distribution person and let alone two.

But now today could you afford to if you had to?

We could afford to.

So now today you can afford to. So the reality is a bit different to what it was 6 months ago.

Absolutely. So, how come you didn't figure this out that maybe I should get two instead of just getting one? What stopped you from thinking about spending that extra money? I mean, the trauma of uh trying to get the business in in the black

while being able to support your support yourself.

Very frank, that's really what it is, right? Because

explain that more.

So, if you the biggest change in the business for me in the is

even 12 months ago,

is this business going to survive? and how on earth am I going to look after my family. Fast forward to in the last three months because the business is in the black and it's done this. You're not thinking about survival. You're thinking strategically, which is why we're thinking about the distribution person. We set up the second fund and because I'm on a proper wage, I'm not worried about the wife and kids anymore. So that mindset is a huge change.

How long were you in the red for?

The business was in the look, it's very easy for the business being black when I'm not being paid. So look, we weren't in the red for long.

But if you were being paid, if you did get a market salary, how long would it have been in?

Probably until it's 3 years in, so 24 months, 2 years.

And that's completely normal. That is clearly

that does not sound like enough trauma

to warrant this behavior.

Yeah. So I wonder whether there was something before like where did you learn the ethnic frugality from

I think ethnic immigrant really uh that's you know I mean this is more personal but I've lived a very blessed life you know so when I'm from Malaysia I went to university in Brisbane straight into investment banking uh in Singapore like you know life's been good but I'm actually from a bang normal middle class family in Malaysia the only So my change of life was university in Australia. Yeah.

And the only reason that happened was a fees were much lower back then.

I had family in Brisbane so no living cost and I won a partial scholarship. So as I said the stars align the gods and that was my stepping stone into something that put me on a complete different life path. So I think it's that step change that you always remember and you go I never want to go back to where the pre Australia days. Yeah, I mean it's the you know we spoke a little while ago about funds managers like sometimes the upside is not worth the downside

and there's nothing worse than being poor again.

There is nothing worse

when you make money.

Number one rule is just don't [ __ ] lose it.

Yes.

Just don't lose your money.

Um which serves up to a point, right? It serves really really well and it's super protective.

Um but sometimes it doesn't serve you really well. No, but but it's it's easy. Well, like it's it's very logical now when I speak to you about it, but at the time, so you imagine like you come from that background, then you get into investment banking. And I've did banking for 15 years. Uh and overnight when we set up Brexit, no more Uber Eatats, no more fancy restaurants, no more overseas holidays, no more shopping trips for 2 years. Now, it doesn't sound like much, but that's a hu as arrogant as it sounds, I've never lived like middle class. I'm cheap, but I've never lived. I I tasted what middle class life is in Australia. That's with a with a mortgage and a child in private school, and I went, "Oh god, we I need to get get out of this and back into a proper wage and a

Yeah.

And look, I wouldn't I wouldn't underbake the trauma because it's not just what's in your head." So, it's two daughters, wasn't it?

Yeah. Yeah. Your two daughters would have noticed. Yeah.

We're not going overseas. We're not going on a ski trip. Your wife would have noticed.

Oh, yes. And I'm sure your wife is lovely and supporting, but after 3 months, 6 months, the father-in-law is probably calling saying, "What's going on?" Um, it's like I when I decided to my plan was to retire about 4 years ago when I exited that business.

Yeah.

And I told my mom, "Here's a plan. Can I have enough?" The first thing she said is, "What would your father-in-law say?"

Yeah.

Useless son-in-law.

My wife wasn't making that much money back then. She She does all right.

Useless son-in-law. He does nothing. Yeah.

No, I've made actually all this money in the past.

Yeah.

Um the social pressure from the family is intense.

Yes.

And and what I've learned from my So I'm I'm a meditator. Like that's what I do.

Um so I'll do my 2,000 hours a year of meditation.

Okay.

Um probably more than I do working these days.

Yeah.

Um but one thing that I've experienced is what happens with the trauma and and why when we logically talk about it, it makes sense.

You get stuck in a very deep part of the mind.

Yes. um where you literally physically feel something.

You feel that anxiety, the pit in your stomach or you feel something somewhere in your body.

Yeah.

And it gets stuck in a part of the mind that doesn't understand language.

Mhm.

And that's that's where it sits and resides for your entire life.

Okay.

Unless you go meditating and figure out a way out to pull it out. So as much as this logically makes sense, this is might not be the right place to save money.

Yeah. It completely makes sense that you're still basing your decisions on an emotion that you experienced a couple of years ago cuz that stuff gets buried deep in your mind. And that's why, you know, people, you know, if you ever had grandparents who went through the Great Depression,

60 years later, they've got money, but they still think they're poor

because that trauma just got buried deep in their mind and they just don't know where to pull it out.

Yeah.

Does that resonate with you at all or

Absolutely.

Which part? the the part about the trauma 60 years later because I think I've changed as a person after the last two years. I was I was always frugal, but I've never been more careful and next level frugal.

Next level and next level careful just you know tell the people will go to the restaurant and you know they'll get no one trays but the girls will get a salad a dessert and not finish it and they be oh it's a little leftover and I will go that was $12 dessert and you eat in half and I will sit there and eat it. uh which is which is insane for six bucks you know leftover which I wouldn't have done 2 3 years ago because

that the value of that dollar has just been driven it was always frugal but the value of that dollar because when you look and go oh my god this is what can happen when you run out of money

it's it's kind of funny people without a lot of money and people with a lot of money always think about money

people without and with a lot

without if you're like some half a million and you're more than $100 million You always think about money cuz when you're poor, every expense, you just got to think about.

Yes.

You you quickly tally the cost of this meal in your mind.

Should I do it? Should I not do it? Should I buy that drink? It's just like a university days, right? Yeah.

We don't have a lot of money. Yeah.

And you're like, I won't buy a soft drink cuz it adds an extra$ dollar50 to the meal. I'll just buy that

or I'll just have leftovers from from the day before.

Yeah.

And and ironically, people with lots of money,

they just completely obsess. At least my in my experience, they obsess about money.

Okay. cuz that is their defining characteristic.

Everyone's trying to screw them out of their money.

Yes.

They got all these leeches hanging on to them.

Y

and they completely protect about protect themselves.

And that's their measure of success. And you'll probably lucky you were somewhere in the middle before where you didn't have to obsess about money.

Yeah.

As much as you probably did during during the harder times.

Yeah.

Cuz during the harder times as as you chew into your savings and you see the cash balance go down every month, that sucks.

Yes. And you know, you're a good banker, right? You run that extra extrapolation in your head. There's 12 x many more months. Yeah. You had a spreadsheet, I'm sure. And you're like, great, I've got got 12 more months of food left. That's right. Before before you've got to make a decision. I still and and the big decision we made when I did the business. And this is also a big leap was if you're a engineer with Len lease, you go look I'm going to try something in Dubai. Lies will take you back in a heartbeat. We come back to Sydney where this line of work is is very competitive and there's a real human element to it.

So when I left the M&A/private credit house, the next one, it was under very bad circumstances because they were furious I was moving into competitor. When I left that shop to set up my own shop, they tried to sue us because they went, "You're building a product that we dreamed of building ourselves." So there's no plan B.

Yeah.

When you set up, it's not like someone's gone, you call me. If it doesn't work out, we'd love to have you back. It's cross the road if you see me because I don't want to be near you. And it it probably it's probably more it's probably even worse than that because if you become an entrepreneur, at least in my experience, if I was recruiting a CEO or a CFO, so if I was recruiting a CFO, I would not recruit an ex CEO.

Okay. Yeah.

Because I'm like, well, you've actually run your own company. Why are you going to want to work for me one level down?

Okay. Yeah.

And your actual your true ambition is to run your own business.

Yeah. You might settle here for 2 3 years and then you'll go and do it on your own. And that might be correct that might not be correct,

but that's a general perception that you know board members or CEOs have as you kind of bring people in.

You don't want someone incorrect terms of overqualified because it's not they're overqualified.

You've just got more experience that shown you the freedom of the world.

Yes.

That a typical employee doesn't have.

Yeah.

So if you were to pull the rip cord, it might have taken 12 months to recover. Right. Yeah.

to go find another job, make sure you find the right place. You might have to do one, not quite fit, find another one.

So, there was a long cost to change.

And I don't know if I could be an employee again.

You hear I used to I mean, you're you're a long-term entrepreneur. I'm a corporate man until 3 years ago. Um, and you hear that I used to hear that from people all the time. What do you mean? Job's a job. And now you get So, I work I've worked I work harder than I ever have, but I miss nothing at schools. always at the school for music and sport. Um,

you know, when I'm not raising money, I'm in the office in thongs and shorts. You know, it's pretty. My wife says it's disgraceful, but you know, it's it's just that power of I do what I need to do to achieve a result as opposed to playing politics or being a cog in a wheel where you're irrelevant. So, I've um I've always worked in corporate.

Oh, yeah.

Yeah. I've always worked in corporate. The only entrepreneurish thing was CEO of a public company, but I've always worked in corporate, but I never go back to not being a a CEO. I wouldn't work full-time anymore, but not being a board member.

Cuz what you touched on is very nuance. It's you have freedom. Like it's the freedom to choose what to do with your time.

Yes.

And when you're an employee, you just don't have that. And when you taste that, you I just don't think you can go back.

Yeah. And if you go back, you go back as a sad emasculated man.

Yeah.

Because well, you kind of failed in life and now you've had to suck it up and go back to this.

Yeah.

And where we sit, so we're in three string street. I look up. I can see Pharaoh Place and Groven Place where all the bankers are. You look out the window and you can see the guys, you know, beautiful navy suits, you know, like looking like a million bucks, big salaries, big companies. And I look and I go, "These guys, if you want a social or a social catch up, they can meet you for lunch, maybe for a coffee for 15 minutes. They're slaves, right? You might be half a million bucks a year, the big bonus as well, but that is their life.

They have no freedom over their time.

Absolut absolutely no control at all.

Yeah. I'm there with in thongs and rip shorts and I go, you know what? It's it's not it's not Apollo or KKR. Far out. I'm in charge of my life."

Yeah.

Yeah. So that and and I guess the moral of that was that's why it'd be so hard to go back to a normal job after this.

Yeah.

One for you to accept that and for another employer to accept that this would actually make sense to come back to back to here. And the other part I find very difficult after being an entrepreneur is

understanding what you're paid versus the value you create. Right? The guys that take you know he's on half a million dollars a year salary. He's making them multiples of that. And now I see it. Right? We just talked about hiring the distribution person. Probably pay him a big salary, but he's making more than that.

Yeah.

And now I would go,

hold on. So you're paying me X, but I'm doing Y at 2x. Why shouldn't I do this myself? Tell me. I think the only time it makes sense to work for someone else is at the start of your career

when actually what you're getting is training.

Yes.

Getting skilled up on how to do something. So in that case,

you might generate more cash than you cost, but your upside is skills. Competence is experience. But as soon as you're competent, you should totally work for yourself. Otherwise, you just don't get enough of the economic gain.

No, you don't. Yeah. And you know, there's things

And don't tell too many people that would be horrible. But you just don't get the economic gain for what you generate. But the other interesting thing I've learned is you say that most people there's a reason that entrepreneurs and people who have great corporate careers, you'd be amazed. Well, I'm surprised the number of people who are happy with that regular paycheck. And I can I understand why, right? I can take time off when I want time off and when I'm on leave, I'm on leave, you know, whereas that's not the case for an entrepreneur. I think it's I think it's more nuance. I think that there's two reasons people do that. The most common one, it's fear.

I'm actually not that good. I might get found out. I'm an imposter.

What if they sack me?

Um I've got a mortgage to pay. I've got my kids in private school.

I can't go for a week without working.

Yeah.

I'm just too afraid to go do this myself.

Yeah. Um that's why my I did do a startup when I was young. I was like 17 years old. Best thing ever.

Yeah.

I didn't know any better.

Yeah.

Ran it for four years. Sold it to Toshra. But I was younger and naive and didn't didn't know that failure was a thing.

Yeah.

But when but when you get married and when you get a mortgage

Yes.

And the bank is going to guarantee you take that mortgage out of your account every month.

Yeah.

Like the fear settles in and that insecurity that we're all bred with.

Like everybody that I know has imposter syndrome.

Yeah.

I think it's a deeply human evolutionary thing. Yes. So you never overstretch yourself and put yourself at risk.

Yeah, that's right. Because that would not work well for a tribe of 200 people, for someone to go and do something by themselves.

Yes.

Um you'd always kind of norm back to the mean. So that's one of the I think it's the fear. That's probably probably the greater one. The other one is there's nothing wrong or right about it because some people ambition is not their number one driver.

Yes,

it might be family and that's amazing. That's fantastic. It might be their church. It might be travel, it might be love, it might be poetry.

Yeah.

Um, but when ambition and work and growth is not your number one driver,

you don't spend time there.

No,

you you want to take the four weeks off. You want to go on holidays. You want to get home at 3:00 or, you know, just 5:30, knock off straight away, turn off your phone, and go spend time with your family.

Yeah.

Ironically, I reckon if you

frontload the work, you'd get more time that anyway. But but I think I don't think a lot of people see that. No. also because of the fear they actually don't think they're going to succeed.

Yes. Yeah.

Did you have that over those two years, the possibility that you weren't going to succeed?

Absolutely. Uh and we and we had a very rough start. So the the story is, you know, like a very sensible person. What I did was I set up a landing page for the fund while I still had a job. So the landing page basically said, "Look, here's a fund that doesn't exist. This is the idea. This is what we'll do. If you're interested, fill in the form and some guy will call you, which is me." and we raised $10 million of interest on that alone. I went, "There's my proof of concept." So, we bit the bullet, set up the fund, then I picked up the phone with all these people and everyone went, "Oh, you want the money now, do you?

Let me check with my accountant." My wife says, "No, I'm buying a property." And that $10 million went to one.

Okay. Yeah.

So, you sitting there, I'm sitting in a room. I've got rent to pay.

I've got a borrow of cost base. I've got to borrow who wants $3 million in 6 weeks and I have no money. And that's when I went, "Oh god, what have I done?" So we had a rolodex of names that people had shared, you know, by cornerstones and the few people who had supported us said, "Look, call, you know, call Sab called John."

Yeah.

And for quite literally for two months up and down the corridor,

we called everybody and I'm an introvert and I never thought I'd do sales because I thought I'll build a good product, the money will come. And I basically had to sit there in the office at 2:00 in the morning going, "If I don't learn to do sales, I'm screwed." And best thing I ever did for a skill, two two months just walking up and down the corridor on the phone, etc. And you go from terrified to confident. You get a you know, you're ready for questions. You your story becomes very very clear.

You get great muscle memory.

A great muscle memory. just talk of articulate what you do and why you're different in fewer and fewer and fewer words in simpler and simpler and simpler language. Um I still wouldn't want to go back to that but uh but that was you know when you went oh my god what have we done

and that was you and a co-founder at the time that was okay.

Yeah.

Was there an option to pull the rip cord and just say no this is too hard?

No option.

You'd already quit your previous employee was suing you for going setting up another fund.

I'm not joking but su Yeah. So we get lawyers. Yeah. So, they already sued us. We'd gone public that we'd set up a fund. We signed all these documents with an FSL provider, a trustee. So, they're all 12-month contracts. So, if we pull the plug, I'm on the hook for 12 months anyway or they're going to pursue me for cost. So, I had to write it out. Was it was it more that or was it more the personal emotional I don't want to use the word ego cuz that's the wrong word, but that you've now made this your identity.

It does become your identity. Yes.

Cuz you that's your identity. Now, you've gone out, you've set up yourself, you've probably told all your friends and family,

this is what I'm doing. It's a great idea. I'm super excited.

Your mom's thinking, "Oh, great. You know, my son's going to become a billionaire one day."

Well, he's a he's a managing director of his own business.

Yes. Right. He's a CEO

of himself. There's that. But I will say one thing that kept me going, I knew it was an amazing product. And that's what I tell people now. It's an amazing product. I'm not trying to sell you something, but it's not 10 guys are selling it, but give it to but back me because you like me. I'm genuinely different. So, I had the confidence that it was different and it was exceptional. And I did have the I knew that there's nowhere else I could have gone, but I knew that if I stuck with it, it would work. And I had that confidence.

Yeah. Okay. Makes sense. Let me just give you one other analogy. So, I released a podcast today interview a little while ago. Today is the 8th of January with a guy who's setting up an ex AWS product manager. He's setting up a mortgage lending uh business home loans.

Okay.

Which is becoming a mortgage broker.

Yes.

Um and traditionally a mortgage broker gets paid about half a million bucks a year.

It's a proper sales role.

Yeah.

You have to go out find people find which bank will lend the money.

I guess it's the res version of what you do kind ofish but a bit

bit simpler because they're not managing a fund.

Yes.

Um the tradition they get paid about half a million bucks. So his theory was, what if I made a better product?

What if I paid my mortgage broker 100 grand or $150,000,

but the interest rate was 0.15 or 2% cheaper?

Okay,

so it's a better product. What if I could actually have a lower cost of sales?

Would I attract more people?

Yes.

Or maybe I'll give them back 10 grand when they sign up and 10 grand a year for every year that they keep a loan.

Okay.

So his real theory was, you know, what if I had a better quality product? would it sell itself with a lower cost of sales? And my experience has been that almost never works in the short term.

Almost everything you buy actually has an insanely high cost of sales.

Yeah.

And it takes a while to figure out the product is good or not. That's your 5year track record.

And you know, you've got to survive 5 years to have a 5year track record.

Yeah.

Exactly.

Yeah. So

I hear that a good product is important.

Yeah.

And I think that's foundational.

Like if you have a crap product, you'll have insane churn and people put money in and in a year's time they'll take all the money out. But I think I think it's okay to have a high cost of sales.

Yes. As long as there's an ROI on that cost of sales,

that's a given. In his world, this mortgage broker business, he's thinking, well, okay, I'll save 250 grand a year per broker, and I'll just channel that money back to a lower mortgage rate. That's very interesting as an idea. That's very interesting as a you know like just thinking it's not my business but that's the sort of thing you get free advertising like you know the the morning show or the today show they'll bring you on and for free because

totally telling yeah well he's launched some monetize so he's just launched this week.

Yeah.

Um

and he'll give people better rates. But I just wonder whether that model will succeed or not. I'm I'm 50/50 personally because my take on that was

if there's 100 people that going to sign up to a mortgage,

um I don't know, 50% will do the work with him.

Yeah.

50% will probably just never return the phone call.

Yeah.

And of 50% that are working with him, um 48 out of 50 will need a really good salesperson to hold their hand and take them through the entire process.

Yeah. Yeah.

Cuz they'll get busy, they'll forget, they won't send the right pay slip, they'll do something wrong.

And if you have a below par saleserson taking through that process,

they just won't convert.

Yes.

And that's why I think a lot of the organizations that do well have a really really high cost of sales. Like Apple has an insanely high cost of sales. When you go to the they've got amazing stores, they they don't think they pay their geniuses that much, but there's a lot of them.

Yes.

Like they are flooding every floor of their store. So to bring that analogy, so just to finish it off, so my experience has been it's okay to high have a high cost of acquisition.

Yeah.

Um because if it works, it works really really well.

Yes.

And if it doesn't work, so and if you have a low cost of acquisition and you don't succeed,

you actually don't know why.

Was the product not different differentiating enough for me to succeed or did I just have a crappy salesperson?

Yeah. So bringing that back to you with two distribution people maybe it's what it will allow you to do is is run a clean experiment.

Yeah.

Like you'll actually know at the end of it is getting a good distribution person right.

So the analogy I'll give also you know the James web telescope it's a news telescope NASA cost tens of billions of dollars.

Okay.

Um so the problem with Hubble the prior telescope.

Yeah.

It could only go back about 13 billion years

in which is huge right? But it could only go back 13 billion years. And they think the universe is like 13.2 13.4 billion years.

So they built a telescope that could go back 15 billion years.

Yes.

Cuz they're like, "We want a clean experiment."

We want to be able to see to the end of time in case there's something beyond that.

Okay.

And they just spent insane amount of money to actually run that experiment. And I don't think it's got any results yet, but at some point it'll tell us how old the universe is. But they just over spent

thinking that we actually there's there's insane value in figuring out this experiment. And that might be in your case. There might be insane value in figuring out is a distri distribution person actually going to work. And if you get one person, they don't work. You actually don't know.

Yes.

If you get two, you got a pretty good idea.

Yeah. What works and what doesn't and who's doing the right thing.

That's very very interesting food for thought.

Yeah.

Um because you're right. And the advantage we have versus your friend, I still think you'll get a lot of free advertising

is I totally tell. Let me tell you uh is cost of exec is also complexity of execution.

So with our guys it is a script and they're smart guys. These distribution guys are very smart and our product is simple. So you you tell someone what to do. All all they have to do really is find people to put the pitch to. Whereas with your friend's thing, you're right. Well, the product technically sells itself. The execution is complex cuz I don't have my pay slips. I keep giving you the wrong tax file number. I know whatever it is. So you need people who are able to churn through all those steps. My guys don't have to do that. They just need to be motivated.

People on the borrowing side do that in your world, right? They're the guys that have to chase people for the data room or the financials or the order report, all that stuff.

Yeah.

So the execution is not hard. It's just hustle and network.

Yeah.

And hustle and network is hustle you can kind of interview for. You can get a vibe for

network. It's so hard. It is just so hard.

Yeah. Yeah. No, I hear you.

Yeah. I mean, everyone says they got a great network and the list of 30 names and you'll check a couple and they'll work. But

yeah,

I'm I'm It's hard to find people with good networks that will actually

they will actually pull. I mean, the only person I've actually found, the guy Mike Ran, ex Premier of South Australia.

So, he was on one one of the boards I was on.

Fantastic guy, super lovely guy. He had a legitimate network. So when we wanted to go meet um W education person, he would go call the right person and set up. Um

so people at that level totally have but three levels down often they don't or often they're shallow

or often the life is very short.

That's a good point. Yeah. Yeah. Yeah. I know a grad somewhere who's rotating through teams so he's not there anymore.

Yeah.

Perfect. Anything else you wanted to cover or I mean what what's your big takeaway from this?

Look enjoyed the dissection. I mean this is really the value of these things right because you're caught in your silo and I know my little world I'm caught in my silo in my world it is very valuable to speak to someone who has run a business particularly looking at it from the outside ask challenging questions um with that financial return and investment mindset I mean that point about hiring two distribution people actually makes a lot of sense

really makes a lot of sense because a there is a well most importantly there is a probation period you're not delivering your you're up. Doesn't cost you anything.

Um so if and that person knows that they're not doubt. They know that as well. So someone comes on board assuming that odds are you've got the right person.

Yeah. And if they both work, oh my god, the upside's amazing

and the upside is incredible. As you said, they pay for themselves.

Yeah.

Anything else you want to cover or wanted to ask or any major takeaways?

No, that that was fantastic.

Yeah. Thank you. Last question I always ask people as they finish up. Yeah. Well, what what's something that you've always known to be true that later on you found that actually wasn't? So far out always thought to be true. This one a few of us have had a few of the dads have had a chat about this obsession with grades was more for young people or parents. You know where when I grew up and and a lot of ethnic families obsession with the the top student. You've got to be the top student, the chess player, this that that's your path to success. And I tell you one thing I've learned that is not the path to success.

You need a baseline of skills so you can learn articulate your understanding but it's those people's skills that build your career.

Yeah.

Uh and I find a lot of immigrants you know it might be controversial but you hear people say I didn't get promoted it's racism. It's not racism. You are tech you're technically you're technically very competent but that's the analyst. I can't make you the head of the team because you need to be able to speak to the board. Not just speak to the board manage the board. Sab's an easygoing guy who's takes feedback. John is a hard-nosed guy who needs needs to be managed. He needs someone who is able to do that and recognize that. I totally agree with that. I mean, the lens I'd add though, um, young kids, I'm I'm obsessed with grades.

Cuz if you can get both, if you can get grades with the ability to work super hard and you learn to work super hard.

Yeah.

I don't totally quite know how to teach people skills yet. M

um I think that's just time, experience, interacting with more people.

Yeah.

But there is insane value in people's skills.

Yeah. And a lot of the people that do well in life somehow get both.

Like they're smart, they work really hard and they're good with people.

Yeah. That that's a magic recipe, right?

And and and I do find a lot of people in the startup bull and finance who do well tick both those boxes, right? Academically you shut the lights out. But you can go from the restaurant to the pub to the conference to the office and just blend in and that is a recipe for success.

Awesome. Great. Thanks very much. Thanks for coming out.

Yeah, real pleasure.

Very nice to meet you.

Thanks for listening. I hope you enjoyed it. If you do want to be a guest, make sure you hit me up and do follow me on socials and make sure you check out