Sandy: About that same time, I was on a business trip in London and that original mentor for whom I had interned in London, his name was Maurice Pinto, basically said the same thing to me, he said, “I’ve told you three times that you’ve approached us that I would support you in a search and you’re 48 now, you’re not gonna do a search when you’re 52. I’m not even sure you’re gonna succeed at raising a search at 48 because 38 is the oldest one I’ve ever met.”

(intro)

From SMEVentures, it’s The Search Fund Podcast, a show about hungry entrepreneurs who, instead of starting a business, decide to buy one. These are their stories of success, failure, and the lessons they’ve learned.

Jake Nicholson: In today’s episode, we hear from Sandy Paige who is the self-proclaimed oldest person to launch a search fund. While I’m not sure that’s true anymore, I think it might have been when he launched his traditional search fund in 2017 focused exclusively on Northern California at age 48. Most investors actually declined to back his search, possibly due to his unique profile and geographical limitations, but Sandy now has the distinction of being not only the oldest but also one of the most successful search funds to date, having just sold his company for close to $300 million. Despite the big win, the whole episode has an undertone of humility. During our conversation, Sandy was in a T-shirt sitting at his kitchen counter eating a bowl of vegetables. I hope you enjoy listening to Sandy’s story as much as I did and if you’re lucky, you’ll come away from this episode inspired by the possibilities of search.

(interview)

Jake: Sandy, thank you so much for joining me today. You have quite an amazing story to tell and I’m really looking forward to sharing it with our listeners.

Sandy: Thanks. I’m delighted to be here. This will be fun.

Jake: Sandy, let’s start, as we usually do, from the beginning. Tell us about Sandy Paige as a child. Where did you grow up and what were you like as a kid?

Sandy: Oh, my. Well, I grew up in Maine. I was the youngest of four boys, actually, quite a bit younger than my older brothers by 7, 9, and 11 years younger and so I was one of those guys who ended up at the bottom of the pile or with my underwear up around my ears a lot, it seemed. I’m sure that time has made that into a bigger story than it actually is but that’s sort of how I think of myself. And I grew up in a standard upper middle class, white family in a college town in Maine, and so I just mean that because that’s what the neighborhood was like. It was a lot of that. My father was a banker and he was president of the small regional bank and mom was at home and so it was a town called Brunswick, Maine, and I grew up on the edge of Bowdoin College and then when we got to high school, in sophomore year in high school, I went away to one of those little New England boarding schools as my parents were leaving the town of Brunswick and moving to a farm and so I went to Tabor Academy in Massachusetts and then went on to Middlebury College in Vermont for college.

Jake: Were you a good student?

Sandy: I was an acceptable student. I wasn’t exemplary really in any way. I generally tried to work pretty hard, that was one of the ways I defined myself even then, but I didn’t have any particularly amazing results. My SATs weren’t spectacular. In fact, I squeaked into Middlebury I think on a favor from somebody. So that was never — I’ve never thought of myself as the smartest guy in the room. In fact, I’m quite certain I never have been and I’ve always had to make do in other ways.

Jake: Did you have other interests outside of school as a kid?

Sandy: Yeah. I mean, I did lots of different sports. I played tennis and skied and rode and played golf. I did a lot of things but it was — what do they say? Master of none, I think is the phrase. I wasn’t exemplary in any of them really, I just did a lot of different things and did them capably so I could have fun. For example, when I got to Middlebury, which is a division 1 skiing college, I certainly didn’t go on the team, but I could play with those guys. You don’t keep up with a division 1 skier but you can at least not get left behind when they get to the bottom of the hill. So that’s sort of what I would describe myself, the same with tennis, the same with golf, capable at those things but not exemplary.

Jake: The kinder term is generalist, you were a generalist.

Sandy: Thank you.

Jake: And what fueled your childhood dreams? When you thought about life, Sandy’s life as an adult, what did you dream it would be?

Sandy: Oh, I spent a lot of time having no idea, like most other people, and then I went to Middlebury and I was a medieval history major and I thought maybe I’d teach, I had no idea what to do. I think the choice of history even was by default. I found there was a professor or two who were super interesting and I think by doing history, I didn’t have to take a language or something and there was probably something to that. And I was just figuring a liberal arts education had a chance of letting me lead an interesting life. And, actually, it turns out to have been exactly the right choice for me, but that’s a longer story. I do think a liberal arts education is exactly the right education for many more people than are getting them right now because it teaches you critical thinking and that’s a big piece of the subject that you and I will probably dance around all during this podcast.

Jake: I was just having a conversation about that with some of my colleagues here in Singapore. Liberal arts education is much less common on this side of the world than it is in the US and it’s often misunderstood so it’s interesting to hear you point that out. So, did you have an idea at some point during college what you were going to do for work when you graduated?

Sandy: No, nothing. I graduated from college and then said, “Oh, no. Now what do I do?” In fact, I continued bartending, which is what I’ve been doing during the summer and I had — let me just correct the record a little bit. Immediately out of college, I went to Europe, to Switzerland, to work at a wonderful place called the Salzburg Seminar for American Studies, which is just a great international think tank-like place and full of really bright people doing really cool things all around the world and that sort of validated, with a liberal arts education, you can do lots of different interesting kinds of things, and then I came back to the States and, again, like I don’t know what to do. So I bartended while I figured it out and I do remember one night, I served a drink and I can still tell you, it was a Jack Daniels on the rocks, to a man who was Buzz Fitzgerald, and Buzz Fitzgerald was CEO of Bath Iron Works, which in Bath, Maine, is one of the two US makers of Aegis Cruisers for the Navy, among other things, and we had a wonderful chat at the time. I don’t want to bore you with all this but I had a great conversation and, out of the blue, the next morning wrote him a letter on my little dot matrix printer off my Macintosh IIe and I said, “I’d like to get back together and talk some time,” and I don’t know what hubris led me to think that I could send such a letter but I sent it off and like a week later, I got a letter back from him. This is how you communicated in 1995. He wrote me back and he said to come up for lunch some time and we’ll talk. And so that was how I met my first mentor. And Buzz Fitzgerald then that evening was having dinner with one of his very good friends whose name is Angus King and Angus, at the time, was considering running for governor and running as an independent, as it turned out, and he needed somebody to drive his vehicle around the state, be what’s called a body man in politics. And so I thought, well, I’ve just gone to the store and bought a Rolodex and I had like two cards in my Rolodex and I thought maybe a good way to fill my Rolodex would be to tag along with this guy as he surely loses this election, but not a bad way to spend a few months. And a year and a half later, he had won. He became governor of Maine as an independent and I became his personal assistant and I saw my first risk, if you will, paid off and I don’t mean pay off anyone monetarily, I simply mean I met a new friend and a bit of a hero and another mentor, who still to this day remains in my life. He is now a US senator. But that was a really important piece of growth for me and spent a couple years working for him in the state house in Augusta, Maine, and then left to go work in industry and I just knew that if I stayed in politics, I would stay in politics.

Jake: Let’s talk about that. What did you learn working in government? You were there for a few years.

Sandy: I was, yeah. I was his personal assistant for a few years and I think the first lesson is, at least when you’re working at governor’s offices, leadership matters. And how you lead and how you go about it and how you are your true credible, honest self as a leader really matters and if ever there’s a place where you pretend to be somebody who you’re not, where it will be made glaringly clear, it’ll show up in politics because it’s just not a place for faking and Angus was really very good at that. So that was certainly one of the things I learned.

Jake: And when you applied that learning to yourself and your plans for your own future, did you see yourself getting involved in politics at any point?

Sandy: Not really. I mean, it’s hard to be in politics and not hypothesize to some degree that, “Hey, if he can do it, I can do it,” but I didn’t mean to end up there other than I was trying to do a little bit of good and had some time to burn and, before I knew it, I was actually doing that and working for a guy I believed in and still do. So, I don’t think that lesson showed up immediately. Certainly, I didn’t have any opportunities to lead at that stage, I was 25, and perhaps I was leading in a sense, as you do in that position, but as I went on in my career, I was starting at the bottom, my next job was in the communications office of a global semiconductor company based in Maine and I was the junior communications guy drafting press releases and stuffing envelopes and doing the things you do when you don’t know anything and you haven’t done anything. And that was useful, those were a good couple years, but at that stage, I realized I needed an MBA if I was going to not become a pure marketing guy.

Jake: Let’s reflect on those few years at Fairchild Semiconductor. I understand this was your first real sort of business experience, and coming directly from a liberal arts degree in history and working for three or four years in government, do you recall how those three years changed your perspective on the world or career possibilities or even yourself?

Sandy: At the time, it was a spin out from National Semiconductor and so it was a really interesting learning experience and it was intended in post-spin out to go public, which it did, and so it was also a very large leveraged buyout. It was the largest LBO, I think, at the time that had been done in the semiconductor space. So I got a window into kind of LBOs and I got a window into the IPO process, I got a window into acquisitions, which the company did a fair amount of, not by having any responsibility but simply by being at the company and paying attention. And so I found all of those things really interesting and wondered how that executive at C-suite was going about evaluating those opportunities. They were big numbers for back then and even now, but a really cool process and for a young kid like that, the advice I’d gotten a few years earlier from somebody when I said, “How do I go about making a career?” the advice I’d gotten that had been so useful was, “Don’t pick an industry or a particular path, go find the most interesting people you can find, doesn’t matter what they do, the most interesting people you can find who have high sort of ethical and moral principles that you agree with and go work for them, like you’re only 25, like what possibly wrong could come of spending a year or two of your life like that?” And he said, “I dare you to do it and come back and tell me if I’m wrong.” And, of course, he was right. He’d probably given that advice to 100 kids looking like me over the past few years. And so that’s kind of how I took the various different opportunities on early in my career and that was how I ended up at Fairchild, some really interesting people and it was also what led me to leave Fairchild which was just the realization that I didn’t have the toolkit, I needed the MBA toolkit to do anything substantive, really, probably, for me, particularly, as a liberal arts guy, medieval history, in particular, I needed that MBA toolkit. It was just very well timed for me. I was married, we had one-and-a-half-year-old when I went to business school and by the time we left, I went to Babson in Wellesley, Massachusetts, for my MBA, I did the full-time two-year program there. About the time we left, we had another one on the way.

Jake: You say you realize you needed an MBA because you needed the toolkit and I guess my question on that is a bit strange, but a toolkit for what? To accomplish what? Like did you start developing a sense of career ambition that you didn’t have before or at least clarity that you didn’t have before? Is that what was happening?

Sandy: That’s a good question. So two things. One, I needed a toolkit and I probably needed two years to process what I was learning and to think about how it could be applied. So, for me, the Executive MBA program, for example, at night wouldn’t have been a good fit. I might have gotten the toolkit but I wouldn’t have had the group learning that was more effective for me, the long period group learning that takes place during a full-time daytime program. So we sold the house and I think we had $75,000 to spend so I basically gave it all to Babson and we lived on whatever we could find for a couple years. So I think the toolkit was one thing, the processing time to figure out what to do was the beginning of some strategic thinking to realize how you use some of those tools and where they can be applied and broaden my mind on what business can look like and Babson happened to be very good at describing business broadly, it can be nonprofit, it can be entrepreneurship, which is their forte, it can be corporate entrepreneurship, it can be lots of different kinds of business and entrepreneurship, and what I didn’t say at the beginning of this was I did have a sense, a growing sense through my later childhood that I really wanted to create a business of some sort. I had this thing in my mind, like I wanted to be able to ship a product and stand on a loading dock and watch a truck drive away and think that’s my family shipping product. And my family had a history, two generations, my father’s father ran a large woolen mill first in Boston and then in Maine called Seabright Woven Felt and they made blankets and green pool table felt that you see on all pool tables, they used to make that, and they made blankets for the Army, and it was a successful business for some time. And, at the time that manufacturing and that sort of thing needed to go offshore, it didn’t. It never went to Jamaica or wherever it was that everybody was offshoring in the 1950s, that is, and so the business eventually went into decline and by the time my father came along, there really wasn’t a whole lot left of it and so he went into banking. My father was a guy who had gone to Harvard Business School and failed out, and why he failed out, it wasn’t because he wasn’t smart, it’s because he’d never finished Brown. He’d gone to Brown for two years and then went into the Army and came back and talked his way into HBS and then failed out because he failed the banking class, of all things. Banking class was, I think, in those days, if you failed one class, you were done. He had two and a half kids at the time and not living on campus. So there were some things that I kind of wanted to finish and I’ll admit that, to some degree, I was very proud to have finished, for example, an MBA and I had a sense that it would be great to bring some, if you will, I don’t want to say family prosperity but bringing a new generation of business that will be generating value hopefully for decades and maybe generations to come back into our family and I’ve kind of felt like I had a shot to do that if I could find a way to do it.

Jake: Thank you. Now, so you have these goals, you’re on this podcast because you’ve been a successful entrepreneur and, at this point in time, you had just finished an MBA at a school that’s very well known for its entrepreneurship program, both undergrad and the MBA, and, yeah, perhaps this is a bit unfair but the next four-year period directly after your MBA on the surface, at least, looks fairly un-entrepreneurial. You were a comptroller at a heavy industrial construction company involved in C cabling, is that correct? 

Sandy: Yeah. 

Jake: And then you started your own business after that, but sort of what happened during those four years as the comptroller that I suppose served as a bridge between your MBA and starting your entrepreneurial career?

Sandy: Sure. So that’s probably partially the result of a poorly drafted LinkedIn profile. The entity there, Atlantic Energy, which was at the Chamber of Companies was financial comptroller but there were three employees of that division and we just raised $12 million from a bunch of guys, former Enron guys, to follow this crazy idea of — I should say the founders had raised the money and I showed up to help run the money, to run long-distance HVDC cables offshore from Nova Scotia down into the places that needed the power, Boston and New York. And so, actually, it was rather entrepreneurial. It was kind of corporate entrepreneurship. And I loved it and it was a chance for me to go in, I wasn’t a CPA but I could do the controlling that needed to be done and planning that needed to be done for a $10 or $12 million venture capital round and there were only three of us, four of us and so you end up doing everything anyway and that was a fantastic early lesson in entrepreneurship and some really important valuable lessons got learned by me and by others, but for the purposes of this conversation, I took away some important lessons there that I will take to my grave, for sure.

Jake: Such as? 

Sandy: Well, for example, we were operating in the buildings and with the support, infrastructure support of the Cianbro Corporation and the CEO and leader of Cianbro was a guy named Pete Vigue and there were a number of times where we ended up to make it short. We were becoming short on money in the process of raising money and was the only one of the partners as the CEO of a company, the rest were just pure entrepreneurs that had no capital, where he — I think he basically found a way to support the company but didn’t take advantage of his partners in a way that he had every right to do because he was the one putting money to keep the effort going fully. And his message was, basically, look, we all got into this together, we all have different strengths and different weaknesses, I happen to have access to capital and so I’ll keep things going for all of us, I can’t do it forever but I’m not going to take advantage of you guys at this moment of vulnerability. because we’re partners, and it’s kind of the old “You dance with the one who brung you to the dance” lesson and I have taken some of those lessons that I began to formulate and it mattered when I was raising my own capital. Those people who gave me the capital to do the search took a chance on me. That was their money, not mine and they asked me to spend it and it was risk capital and they knew what they were doing but I’ve always treated that as almost a holy grant that I took very seriously and that plays out in lots of little ways. It plays out in how you communicate and who you communicate with and how well you communicate, what you say and the ability to do what you say, just always being transparent and having integrity and, generally speaking, if it works, great, and if it doesn’t, at least these people will respect you and what they’ve learned about you in the process. And that’s what happened to Pete when he supported that effort and it ended up being extraordinarily successful for all those partners. I also took away another lesson, which is that it was extraordinarily successful from an equity perspective for the people who had equity, and for those of us who did not, it was still a job and so I still remember, as comptroller, I sent the wires off at closing, it was a project finance deal so there was a sort of the development fee up front and I still remember hitting Send on those wires thinking some of the people I’m sending money to haven’t contributed as much to this as I have. These are big numbers. They were at the right dinner at the very beginning and, as a result, they were part of the partnership. And there’s nothing unfair about that, there’s nothing wrong with that, nothing they didn’t deserve or have a right to. But there’s a lesson there. And the lesson was, unless you got the equity, you probably don’t get the upside. That’s a pretty obvious lesson, you learn that in business school, but it was a really good way for me to learn it in a very real world scenario.

Jake: Fantastic. So you took that lesson and you started Second Street Consulting. Were you a solo entrepreneur in that venture?

Sandy: I was. In fact, what that really was was my first search. It was the world’s most poorly capitalized, self-funded search ever in the history of searches because — and I’d heard of search at that point, I’d wanted to explore it during my MBA summer internship, I spent it with one of the early advocates of search, a guy named Maurice Pinto in London, and he encouraged me to graduate from Babson and go do a search. And I just looked at him like he was crazy, like who on earth would come out of an MBA without ever having managed anybody and how can you ever talk somebody into selling you their business? I don’t know how that works. So I approached search, I chickened out, I didn’t have the hubris to think that I could be successful doing that. And also fair to say, I really didn’t want to move anywhere in the country that it might have taken me at that time. We had two little kids and we were very happy where we were in Maine. And so I veered away from it and said I’m going to go get some operating experience and did that and learned just a ton in the process and approached search again five or six years later.

Jake: So after your aborted search, your initial search, you went to work in 2008 at the Jackson Laboratory in Sacramento. This experience would turn out to be fairly important to your search fund journey. Can you take us through, first, what the Jackson Laboratory does and what you did in that company and, primarily, how you developed as a manager and a leader over that 10-year period?

Sandy: Yeah. So, in spite of what I just said about equity, my Jackson Laboratory story will make absolutely no sense because it’s a nonprofit but I’ll get to that. There’s a short interlude in there which you skipped over at the Knight-Celotex Company where —

Jake: You’re right, I did.

Sandy: — and the short answer there is that it was probably one of the most impactful one-year learning experiences in my life. I was a general manager of basically think of it like a paper mill, an old paper mill, on the banks of a river, of the Androscoggin River in Lisbon Falls, Maine, and my first day on the job, I drove in and introduced myself and a guy handed me a union card and said, “Sign this before the new guy gets here,” because he didn’t know who I was. I walked into my new office and put my hard hat on and I go in steel-toed boots and I dial up my boss, who was head of operations and I said, “What is little three by five card? Why am I supposed to sign it?” and the guy was like — you can imagine what he said. So the next year of my life was running a 24/7, 365-day-a-year manufacturing, big manufacturing process where trees would get dropped off at one end and ship a product, which in our case was wood fiberboard, not actually paper, but it’s made through the same process, and battling union organizing effort. And as we got towards the end of that, the folks at the Jackson Laboratory, which is based in Maine, it’s an 80-year-old, nonprofit, independent genetics research institute that basically does many, many things, one of which is breeds and distributes laboratory mice, they had come to me and said, “Hey, do you wanna go to California and build us a plant out there?” And I had said yes. So I was — “But I’m not leaving until this union vote happens.” And we lost the union vote by one vote, as I recall, and I had sort of arranged for my successor and the lesson there was, I mean, oh, man, the lessons there. Demographic, just to give you a picture, a visual demographic of a mill in Maine, this was the average age of 55, white male, high school education, I think there were 120 employees, I think 119 of them were men. I had the Jackson Laboratory, which is called Jacks, asking me to go to California where the average age of our workforce was like 28, as I recall, and I think it was 55 percent female and all college degree and a bunch of master’s and PhDs and they would leave — while at the paper mill, people would stay for their lifetimes, people would leave California for $2 to go across the street, for $2 an hour. And so very different development opportunities as a general manager, basically, not to mention the difference between Maine and California just culturally and business environment wise. So, just fantastic experiences. And I went to the Jackson lab thinking I’d be there just a few years, I would benefit from and hopefully contribute something good. At this point, I had a spouse who had faced breast cancer and so the idea of contributing something through working at a place that was fundamental to basic research into curing all diseases and had a meaningful role in the early treatment, all treatment of cancer given the early Nobel prizes that they’ve won. That was pretty special to me. And that was the equity, if you will, of going to the Jackson Lab at that stage of my career. It was a trade-off but it was extraordinarily valuable to me to be able to do something about what was making my wife sick and I was never going to be a scientist so the least I could do is make sure they have the right tools to work with. And so that was 10 years ago, we built a 200,000-square-foot facility out here and filled it up pretty quickly and it has been a very good economic success for The Jackson Laboratory and the benefits of that have accrued, obviously, to patients but also economically back to the state of Maine that I come from. So that felt and still feels really good.

Jake: And how did you develop as a manager over that period?

Sandy: I was still, when I arrived. I was still smarting from losing a union election. I was also pretty sure that that facility that I had run might not last and it didn’t, within a year, I think it was a gravel pad and then scraped clean and all the jobs had gone to Virginia. So I was acutely aware that if people feel disenfranchised, if they don’t trust their leaders, if they get taken advantage of, even when it makes business sense, there was no other option really for that workforce and for the things that had happened to them, other than better communication. So I set about beginning to accumulate a set of management values that I have stuck with ever since about honesty and integrity and clarity of communication and transparency and treating your people as well as you possibly can, even if it’s at the expense of current economics. I think there could have been some things that were done differently in that scenario that would have prevented people from thinking a union would treat them better than the company did, and clearly it wasn’t the case. They ended up with nothing and I think had they not voted for that union, they probably would have stuck around a little longer. There were some macro forces that were against them anyway. So I’ve held on to that and tried to bring those values of transparency and just empathetic leadership as well as treating people on the high end of what the range is that you can work with for compensation and benefits and those sorts of things. Clearly, that has changed even further in the last 10 years and never mind post COVID, and I think that the trend is even more in that direction and that may not even be enough for people when you do do those things but that’s a different issue. We’ll probably not solve that one here.

Jake: When you and I first spoke some years ago, after Jacks, you would then go to launch your search fund and, at the time you and I first spoke, you declared yourself, as I recall, possibly the oldest person ever to launch a search fund. I’m not sure that’s true anymore, I think several other people have followed in your wake, but what gave you the confidence at that point in time, relative to some years earlier when you thought it was a crazy idea, to take the plunge and launch a search find? What made you say, “Alright, now’s the time”?

Sandy: Yeah. So a couple of things. My wife, who had had cancer, the cancer returned when we were in California and, subsequently, we lost her to cancer and there were a number of times where I had approached search again and veered away because when you’re going through three years of cancer treatments, it’s just not the time to put that sort of pressure on a family unit, and never mind, maybe what you might or might not have for health insurance while you’re a searcher, for at least quality health insurance. And so it made sense for me to stay where I was. And then, eventually, my wife passed away. I met somebody new and remarried and I got just as lucky as I was the first time in my second marriage and even as it relates to search, I married Meg, who was a CEO herself, she had an MBA. She was, after a bunch of dating, really tired of hearing me talk about the search fund thing and eventually — she was working full time and had access to benefits, eventually, she basically said, “You sort of need to shit or get off the pot. I don’t wanna be married to somebody who’s still talking about this.” About that same time, I was on a business trip in London and that original mentor for whom I had interned in London, his name was Maurice Pinto, basically said the same thing to me. He said, “I’ve told you three times that you’ve approached this that I would support you in a search and you’re 48 now, you’re not gonna do a search when you’re 52. I’m not even sure you’re gonna succeed at raising a search at 48 because 38 is the oldest one I’ve ever met.” He said, “So you sort of gotta decide,” and I did and Meg was — your spouse is always the first person who needs to be as onboard with search as you are because there are many very, very difficult periods in a search and also in a CEO seat. So I was unbelievably blessed to have her support and we had a deal that I wouldn’t quit my job until we had the search 60 percent raised. And it took a while. It took six months working full time and raising, partly because I was a 48-year-old guy who didn’t go to the GSB or HBS and I was trying to do a geographic search because we weren’t going to move our four high schoolers anywhere in the country that I found a business so it was going to be in Northern California generally, a geographic search, and I was eventually successful in raising it. But the good luck of that whole process too ended up being that I had this great cap table of the original search kind of mafia, what we called the original search mafia, guys who remember — guys like Bill Egan, remember when they had a search guy in Seattle and then LA and Denver and in Boston and in New York and most of them found businesses in the places they were located. And so they weren’t terribly offended. I think even if you look at the data now, something like half, Stanford data says something like half find their business in the area in which they’re based for their search. So, like it or not, many searches are geographic or they start that way. It’s also true that the other half don’t and somebody on the investment side wanting to make sure as many of my searchers find businesses as possible and I’m more sensitive to that than I would have been when I was trying to raise. So that’s why I eventually did. At the time, just ended up being right. It was also — I’d been at The Jackson Lab for a decade, I’d gone as far as I could go there, I had been asked to move east to the headquarters at least I think twice and I turned it down and you don’t turn those things down three times and it was just time. It was time for all sorts of reasons for me to move on to do something else. So the timing worked perfectly. And I set about doing a traditional search and I felt traditional was the right thing for me as I think it is, frankly, for most people, and started searching a little before I had the fund closed. And I think it was December, middle of December 2018, when the search fund was funded, like we did $420,000 in $30,000 units and had a lot of half units. And I think the largest — I think I had one person, effectively one person with one and a half units or something like that, but I knew he wouldn’t take one and a half, it’s a pro rata, but it was a nicely distributed cap table that I look back on and sometimes when I’m forgetful, I get very smug about it and think how great it is. But the truth is, it was also kind of who I was left with. Everybody else said no. Believe me, I knocked on every door.

Jake: Well, they’re regretting it now. So you ended up acquiring Explora BioLabs less than a year into your search, correct?

Sandy: It was — a little embarrassed, it was I think six weeks into my search. We had the LOI and I dropped everything. I see all these other searchers who are running three or four LOIs at once and I dropped everything and focused exclusively on closing that deal.

Jake: Can you describe the company at the time you acquired it? What did it do? What was its footprint and approximate size?

Sandy: Yeah. So Explora was and sort of still is but on a grander scale falls into the category of a CRO, a contract research organization. And to be clear, I ran a CRO at The Jackson Laboratory and this was one of my customers and my stand for the deal said, “We’re not gonna do anything biotech.” I didn’t set out to do this. This wasn’t one of my thesis. I just stumbled into it because I called — long story that’s kind of funny, too long for here, I called the owner and he and I started chatting and I sort of remember there was something unique about his business because I wouldn’t have bought just any CRO. What a CRO does in his space and CRO is a very broad market concept, its contract research, lots of different kinds of contract research, but what he did and what I had familiarity with was called the in vivo stage of the preclinical drug development cycle and even within the in vivo stage, rodent research so mouse research, mouse and rat research studies, which is a really important step in the drug development process and what he did was three things. The first, which turned out to be the most interesting and useful for this conversation, was what he then called on-demand and that meant he had seven different facilities in areas of biotech density in California where he ran a mouse research Lab, these are called vivariums, and client could come in and rent a room for a year and he would provide the facilities, the infrastructure, the labor, the regulatory construct, and the client wouldn’t have to build that room themselves. They also wouldn’t have to outsource the entire study to somebody else and lose control of it. So it was a hybrid solution where somebody said, “I don’t wanna invest my own capital in building something that costs $500, $600, $700 a square foot to build but I also don’t want to give up control of this study to a large or even a small contract research group who’s gonna run the study and then maybe screw it up and I’ll lose control of the research.” So that was called on-demand. The other thing he did was if you already had your own vivarium, he would staff it for you so that’s sort of technical staffing. And the third piece is actual contract research. If you have a study you don’t want to run or can’t run yourself, you could give it to Explora and we would run it for you. That’s standard. In fact, at the time, Charles River, who, for example, is the largest player in this space in doing that and they still do that, Charles River was also in that middle tier, the technical staffing of vivariums, but the thing he did more of than even Charles River or any other competitor was this on-demand stuff. That was a really interesting piece of business for us. And that’s largely where all the growth came. You also asked what it was. It had 25 people, it was about $10 million a year, round numbers for search fund geeks, EBITDA was roughly 25 percent, so that’s sort of the scale, but fairly $10 million for 25 people is a fairly high revenue per employee, which is good, particularly when you’re growing at 30 percent or so a year and to be able to see that happen.

Jake: In April of this year, Explora BioLabs was acquired by Charles River Laboratories, another industry player, for $295 million, approximately, $295 million. And according to what I read online, it was doing somewhere around $40 million in annual revenue at the time. I don’t know what EBITDA was but that tells me you exited in the neighborhood of seven to eight times revenue. And, again, I don’t know how much equity was put into the deal but I have to guess that was a phenomenal outcome for you and your shareholders. So, first of all, a huge congratulations on that. Can you take us on that four-year journey from the initial acquisition to April of this year? How did the company evolve? How did you take it from where it was to what it became? And how much of that evolution was planned from the beginning versus you executing your strategic agility along the way?

Sandy: Well, so a couple things. I think the number $40 million for revenue was out there, it’s quite a bit higher because it was growing so quickly. It may have had a trailing 40 but the forward 12 was more like 55 or 60 or something like that. At least that’s what we were certain we were going to do. And EBITDA, we were sold off on multiple 4 EBITDA, which would have been in the $18 million range of EBITDA that we would have expected to deliver in the forward 12 months. 

Jake: Incredible. 

Sandy: You go from running two and a half to selling on trailing earnings and selling against 18 on forward earnings, that’s the four-year journey. There’s a number of things to say about this. First, remember, I stepped into this, you would have hired me to do this job, given my background. So I think a lot of my investors recognized that pretty quickly. This is something for which I was uniquely qualified. If the deal had cratered, the seller was already saying he would hire me and give me a big chunk of the company. Of course, in order to make sure it didn’t crater, I told him he couldn’t do that. But it was something I had very high levels of confidence in managing because I was familiar with all the players and all the pressure points. And it was actually something I had even felt strongly about when I was at Jackson, I couldn’t really put it together, this concept of on-demand vivarium in areas of density. So it was something that was a perfect fit for me. And what that means is I came into the job with some credibility and people trusted me right off the bat. I didn’t spend a year learning what the heck all this is about and developing theses and going to trade shows and building up credibility with the team. I sort of came through the door with that. And, simultaneously, and this turns out to be really important, it also allowed the board to trust me and for us to step on the gas really quickly. We didn’t spend a year all of us learning. I was able to teach the board what they needed to know in order to have the level of confidence that we were going on the right path. And we did. We stepped on the gas really quite rapidly, as you would have to, to go from where we started to where we ended. How do you do that without ever raising equity? Just round numbers, we had roughly $10 million of equity in the deal and I think, along the way, we paid a dividend back for half of that. And how do you grow like that? There has to be a source of gasoline, like where are you getting your capital, particularly in a capital intensive business, and what we discovered, and did have this thesis going, we didn’t believe it would be as successful as it was, was that the landlords, the life science landlords, and you’re really talking at the time we started about Alexandria and BioMed Realty, they didn’t like having clients come in and build these small vivarium facilities and so they were increasingly willing to fund the construction of our facilities as long as we would take a lease, they would wrap that capital into the lease. So the leasing process became a source of capital for us. And over the course of four years, I think we probably built $75 million worth of facilities, just off the top of my head, with no debt really and on $10 million of equity. It doesn’t mean we didn’t have enormous fixed costs, because we take on a lease, it’s a long-term financial obligation so this business is sitting on — it’s the WeWork problem. What sunk WeWork was enormous long-term liabilities and not enough cash flow to pay the rent, basically. And we didn’t have the problem of paying the rent because we managed it in a much smarter way but still, we had $120 million of gross lease obligations. That’s not what the balance sheet reflected, because GAAP accounting on leases is fairly complicated and somewhat different. But those leases added up and they made us unbankable largely too because banks would look at us and say, “Well, I know you have no debt but you’ve got these leases,” so that was a very tricky tightrope to walk and we were acutely aware that while we didn’t have any debt and we had this really strong EBITDA, we also — if you have $18 million of EBITDA, we had seven or six rent payments annually that were contractual obligations. So it was just a great lesson in balance sheet management and how you can use other people’s money, which was what we all should have been taught in business school. We certainly were at Babson using other people’s money to some good and all of our landlords loved what they got from us and they still do and some of them may even wish we were still out there doing it.

Jake: It was a four-year blitz, tremendous value creation, top line growth, EBITDA growth. Did you enjoy it?

Sandy: I did. It was the most fun I’ve ever had and the highlight of my career and probably the honor of my career. And there’s an important piece you sort of skipped over but if you’re going to talk about the growth path, the next question is kind of like how’d you do it? Well, I answered the capital question, but really the true answer, the dirty secret, lies in the human cap, and, in particular, the leadership team, that because I had hired and fired before, I had fairly high confidence in my own ability to choose the right people and I put a team together pretty quickly within the first year and a half that stayed there the whole time. I had no turnover in the senior team. They were an unbelievable group of professionals. We had fun. There was no drama. They worked really, really hard and were grinders right along beside me and I would say, we all share — which you don’t try to hire people who are like you but we all shared just fairly high levels of humility and a willingness to do whatever it took and fairly high emotional intelligence, I think, amongst the group that. We all came from backgrounds where we were grinders and hustlers, if you might use that word. None of us really go to the best schools but we were a high performing team like you’ve never seen and so they’ve actually set to such an extent that they’ve all effectively left the buyer and the company and moved on to another one together. Not intentionally together, but they’ve all sought each other out and settled back in the same place together, without me, clearly. They’re a great group of people and I’m not going to have any conversation about the success of Explora without giving them all the credit. And the second half of it is what I learned when I faced that union card on that first day which is if the people throughout a service organization or even a manufacturing organization don’t feel like what they do is important, don’t feel like they’re getting paid fairly, that doesn’t always mean paid the most but it means fairly and feel recognized for the work they do and when they make suggestions, you take them and they see the cause and effect of their own brain power, that’s what we did throughout the organization. And we didn’t have fancy things written on the wall, we didn’t have a big motto and lots of cheering and group off site, we just sort of all did our jobs and I certainly was as active a communicator as I could be, which I had pretty good comfort doing by then, and I must have been credible in some way because people stuck around.

Jake: So you put in four years of hard work to achieve this tremendous result, not to mention a substantial career before that. Prospective searchers often asked me, let’s say I do buy a company and successfully create value and successfully exit, then what? Then what do I do? So what are you doing now? Are you taking it easy or do you still have fuel in the tank for another go? What’s your plan?

Sandy: Yes and yes. I’ve begun taking some advice of people who have been in this situation and I’ve said no to a few things that have come my way already that would have pulled me back into full-time sort of leadership roles. And take the first year to kind of get your feet under you. I know for sure that I’m not done but I feel like my next contribution is going to be to help, frankly, other CEOs to run in my shoes. That’s one of the reasons I was able to be successful as CEO of Explora is I didn’t have to run the business. I wasn’t that whole thing about working on the business or working in the business. I never really worked in it. Even though I was qualified mostly to be a CEO, the COO, I had a great COO, eventually, and she was fantastic and she was just the right mix of, “Here’s where I need your help, the rest of it leave me alone, I got it,” and she did. Same thing for the VP of Finance, same thing for the head of sales, same thing for the head of engineering. None of them really wanted to bring me stuff but when they did, I knew it was important and they got what they needed, generally speaking. It wasn’t always yes but yes isn’t always the answer they need. And so the ability to be working on the business right out of the gate was key to stepping on the gas quickly and staying ahead of the 1,000-pound gorilla in the space. I think if I hadn’t been able to do that, even if I’d taken a year, 18 months to get my feet under me, I think they would have caught up and we wouldn’t have been as far ahead as we were when they decided they really wanted to be in the space and were willing to buy it. So, to your question of what am I doing now, the thing I’m doing that I enjoy the most is mentoring other search CEOs, trying not to get on too many boards but the question does seem to keep coming up and doing a fair amount of search investing and paying it forward as much as I can. And there may be a day where I take — there’s likely to be a day where I get involved again and raise some money to do something that is also I think interesting and that’s kind of percolating but I’m not going to be the day-to-day guy, I’ve got somebody else in mind who I think is at a better stage in his career to be the hunter killer and work 80 hours a week. That’s probably not something that I’m going to do. I guess I would also say, well, I’m only 53, I’m also a guy who’s been widowed once and I know that could have been me and so I’m careful not to think I need to work ’til 65 if I don’t need to but to make sure the work I’m doing is stuff I really enjoy, which I have the luxury of being able to do now, and something that actually makes a difference. And I can tell you, helping search CEOs makes a difference. It’s one of the most remarkable roles doing a search fund from start to finish that one can ever — the journey is just irreplaceable in the face of this earth, I think, and this time and in this country to be able to — the honor of being able to do it is I just think there’s nothing like it. It is not for everybody, by any means, but if you think it’s for you, it’s just an extraordinary way to build something cool and get a chance to run it and certainly to be able to have economic upside. I mean, honestly, like where else can somebody who doesn’t have capital and has never been a CEO, where else can you get 25 percent of the cap table if it goes well? I mean, you got no money and you’ve never done it before, go ahead and be CEO and you can have 25 percent if you do well. That’s just unheard of, right? So if you can get that gig, I’ll help you be successful. And so those are the kinds of things I’m doing. I’m for sure going to stick to having an interest in the biotech and pharma services space, which is where I’ve spent now the last 15 years of my life, because it’s an area where I have some expertise and I think when you have some expertise, you can probably make slightly faster, slightly better decisions, and when you’re putting people’s capital to work, that’s obviously something that has some value.

Jake: You just provided some good advice to the active and prospective searchers listening to this around the world. Before I let you go, any other advice you’d like to give, particularly to the prospective searchers currently weighing the pros and cons of launching a search fund?

Sandy: Yes, there’s a ton. I mean, I don’t know where to start. I think what I would say is make sure you have as supportive wife or spouse as I had in the process because it’s going to be hard. And the easiest part of it is raising the search capital. With respect to raising the capital, have a nice diverse source of equity. It doesn’t need to be the biggest guys, don’t think that having five people provide your search capital makes your life any easier than having 15. I don’t think it does. In fact, arguably, the more people on your table, the more likely you are to be able to close the deal. When your biggest stakeholder doesn’t like it, other people will. And if you have high conviction in it, you’ll be able to raise the equity. So I think wider cap tables generally are good. That’s tricky, because most of the people investing professionally in the space have lots of money now and is chasing it and then they want more of your cap table because they want to be able to put more money to work when you find something great. So there’s a tension there. But when I’m advising a searcher, I’m advising the searcher, not the capital provider. And then I guess I would just say throw everything at this, your heart, your soul, every inch of your day and night, and if you get to the end of two years and you haven’t bought something, that’s okay. It’s far better than buying the wrong business. And if you’ve managed your relationships with your providers of capital in a way that they respect and maybe even admire, I have never met anybody who didn’t do well on the other side somehow and I just think that’s about as much as you can ask for.

Jake: Fantastic. Sandy, thank you so much. This has, I think, been one of the most interesting conversations we’ve had on this podcast. I really thank you for being open and honest and sharing your story with us.

Sandy: You’re welcome. Thanks for having me and let me know how I can help.

(outro)

Jake: As mentioned at the beginning of this episode, I just loved hearing Sandy’s story and I hope you did too. Whether you’re a bartender unsure of what to do with your life or deep into corporate life, Sandy’s story can give you a glimpse into one version of your future, and it’s a pretty attractive version. It actually took me a while to get this conversation with Sandy in the calendar because he kept hopping off to different parts of the world by boat or RV, enjoying the fruits of his post-exit life. And he’s still settling into that life, but I think Sandy can now dictate and, to some degree, mold it as he sees fit. Now that Sandy is on the investor side, perhaps his future might just intertwine with yours.

Thanks so much for listening to this episode. If you enjoyed it, you can find more at the searchfundblog.com or wherever you listen to podcasts. I’m Jake Nicholson of SMEVentures and you’re listening to The Search Fund Podcast.