The Difference Between Growth Equity vs. PE vs. VC with Stew Campbell

Kison: [00:00:00] I am Kison Patel, and you are listening to M&A Science where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies and what actually happened during M&A deals.

Kison: Hello and welcome to the M&A Science podcast. [00:00:30] This podcast is part of a mission to rethink how M&A is done. The old school double led approach, it's dead by LED M&A, is all about strategy, alignment, and efficiency. Putting value creation at the center of every deal. Let's be real. It's not just about closing the deal, it's about making it successful.

Kison: We uncover what truly works in M&A by learning directly from the best. I'm your host, Kison Patel, founder and CEO at deal room and Chief Scientist at M&A Science. Joining me today is [00:01:00] Stu Campbell, partner at TCGA leading growth equity firm focused on investments in consumer brands, media, sports, and culture.

Kison: TCG specializes in helping consumer facing companies scale, offering not just capital, but also deep expertise in strategic growth, operational scaling, and founder led businesses. Sue has a wealth of experience from his time at Norwest Venture Partners and now at TCG, where he supports high growth businesses on the [00:01:30] journey from founder-led startups to market leaders.

Kison: Today we're gonna talk about how growth equity differs from other investment models. The role of boards in scaling founder-led businesses, how to build strong value-driven partnerships that ensure long-term success. Do. Thanks for making it happen here. I appreciate it. Live in New York. We're at TCGs office.

Kison: Anybody wants to evaluate. I appreciate them for giving us a nice office suite to work out of. I appreciate making the trip over here. [00:02:00] I know you're visiting from the Bay Area.

Stew Campbell: Yeah. Thank you for

Kison: having me. Pleasure to be here. Wanna kick things off a little bit about your background?

Stew Campbell: Absolutely. It's a winding story to get to growth equity, as you'd imagine.

Stew Campbell: I grew up in South Jersey, distinct from North Jersey, so go birds. I found myself in Idaho, so I spent my high school years in Idaho, and then made my way down to Stanford. The Idaho part of the journey is interesting and important only because it added another layer of geography and culture and dimension, and I.

Stew Campbell: The two states of which I grew up in really had an influence as to [00:02:30] how I now think about working with companies and working with founders and working with different platforms. Undergrad at Stanford had a little bit of a choice whether to take the banking route or the consulting route. Coming out of undergrad, choose consulting, so had the pleasure of working with companies at the ground level.

Stew Campbell: My uncle famously said. What do you know as a 22-year-old about helping companies and or the market? I don't, but I know how to gather the data, analyze it, and work with folks much older and smarter than me in order to go help those companies. Pop my head up to figure out what was gonna be [00:03:00] next and found growth equity.

Stew Campbell: It was an asset class that spoke to me. It's about working directly with founders. It's working with companies that have tremendous growth ahead of them, but you're still rolling up your sleeves and it's still, it's an entrepreneurial venture along with the founder 15 plus years later, still doing it, happily doing it.

Stew Campbell: It's just an absolute privilege,

Kison: full career investor

Stew Campbell: working at this point. At this point. It is. It's been such a blessing and a pleasure. It's the most humbling job because every day I get to work with the very best of [00:03:30] the founders and the companies that have made it through this glacial process that over 5, 10, 15, even 20 years.

Stew Campbell: At the end of that, they have a company that's growing, that has enough market to go tackle, has a level of scale, and I have the chance to go meet them. That puts me on my toes humbly, puts me on my heels sometimes, because they're just such impressive founders. And then we have to figure out a way to sell them capital, which is a.

Stew Campbell: Kind of bizarre way of thinking about investing. They're profitable, they're doing great, and yet we think that we can [00:04:00] help and make two plus two equals five. And that is just a fun, fascinating, sometimes frustrating

Kison: journey and work environment. I'm excited to have a fun conversation with you. Uh, be frank.

Kison: My perspective on career investors slowly shifted, starting with our mutual friend Jason Birnoff.

Stew Campbell: He's a good one. We had a

Kison: challenging conversation. Anybody listening, highly recommend listening to that podcast. And I realized like there's some smart, savvy investors out there that make an actual difference.

Kison: Let's see what we can come into in this conversation. Absolutely. We talked about the board before, [00:04:30] and that was my skepticism. 'cause again, we're, and I'm gonna use our company's example since it's easy, I don't have to worry about anybody suing me, but we're a bootstrap company. About 50 people. 10 million run rate.

Kison: One of the beauties I always take pride in is that we

have a one single person board over here.

Kison: Yeah. Yeah. That was one of the things, as soon as you start talking to investors, that's one, one of the luring things that pops up. It's, I gotta create a board and then I gotta report to the board and give all these updates and stuff like that.

Kison: I love to hear from [00:05:00] you about the role of the board. How does that come and play, and how does that evolve?

Stew Campbell: So to level set a little bit growth equity, I define it as equal parts growth and private equity. So growth is just about future seeing and accelerating what's already going so well. Finding the investment in people, the investment in infrastructure and technology, international expansion, whatever is gonna be in front of a company.

Stew Campbell: Supporting that growth, not necessarily with a venture mindset, but with a growth mindset. The private equity part of the definition of growth [00:05:30] equity. It's the he respect for p and l, the strategic direction of the company, positioning for sale, the use of capital markets and debt. When you merge those two, you find growth equity in the middle.

Stew Campbell: Those founders that have those growth equity businesses or available businesses to set the stage, those founders are typically around a dining room table. This office may be the board. There often isn't even a board. It's a family member. Some friends that give advice. Maybe a couple of seasoned entrepreneurs that have been [00:06:00] along on the journey.

Stew Campbell: That's what we're stepping into as a growth equity firm, TCG. We work with those founders and go into those family rooms and sit around those dining room tables, and that's the start of the board to go from that to. A succession like 15 person board where everyone flips the binder to that tab and says, let's report on this part of the business.

Stew Campbell: There is a lot of business building that goes with it, but there's also a lot of board building and what that tenor and tone and infrastructure looks like for the board is super important. A couple of hallmarks. [00:06:30] First, the board should not, from my point of view, be a reporting mechanism. In the end, it's how to govern the company, how to make strategic choices for the company.

Stew Campbell: The board should serve the company and to do that, we find that setting up the board and how it's used in terms of both the composition of the board and its uses in terms of meetings is super important to support the founder, for instance. Board meetings, I find it great when we actually never talk about the p and l.

Stew Campbell: It fits a strategy offsite every three months, and we're constantly talking about how to improve the [00:07:00] business and we cover the financials on a monthly basis with a short hour long call over Zoom. I'd rather spend that time in person saying, what are we gonna do to push this business and go uncover challenges and opportunities rather than serving a reporting function.

Stew Campbell: The composition we can talk about in terms of the people around that board table, but the use of the board to take it from what was a dining room table to eventually a much more formal structure. We have to accommodate the founder and work with them.

Kison: I, so I'm curious like how, 'cause you, when you start off, and I'm reflecting on my personal experience with having an advisory board, [00:07:30] and that's evolved quite a bit over the years.

Kison: Just company grows, your needs change. You start formalizing the business operationally and realize things like. We need more of the functional type of expertise to put on the advisory board and we start moving people around. Is that something similar with the board? Like what type of guidance and is there a difference that you would expect between advisory boards?

Stew Campbell: We and I don't have much ego and when we come into a business, it's who can we surround the founder with at that table to give the best advice, often in diligence in that dating [00:08:00] process, which I'm sure we'll get to with the founder, the question will come up, who do you want sitting around you and go play wishlist on LinkedIn and say, who would you most want to sit across from you and help you answer those questions?

Stew Campbell: 'cause we're not going anywhere. We'll be here. We'll be there in support, but if that independent board member can serve in my seat or serve alongside me, that's all the better. Then setting up a mechanism. The CEO has access to the board, but also access to those independent board members independent of me.

Stew Campbell: They can be a sounding [00:08:30] board, they can be a venting mechanism if necessary. They can be an alternative communication channel outside of a regular monthly board cadence. So that's a, it's just a very important part about setting up an organization.

Kison: The flip side, and I talked to other CEOs. Maybe they're struggling or they have more of an opposing view of the board where it's a challenge for them.

Kison: Have you seen that? How does that play

Stew Campbell: out? Oh, absolutely. There are always going to be challenging situations. There are gonna be disagreements. There are rarely ever any votes, if you will. It's a [00:09:00] disagreement of opinion. It's a disagreement of strategy, maybe personnel, but it's really not two opposing forces, like the succession example.

Stew Campbell: There's no votes up, down, and abstaining. It's really a collaborative effort where. Discussion happens and maybe solutions are enunciated and eventually ratified and worked on and worked through. But yeah, sometimes there'll be disagreements within timing as it relates to an exit that's exacerbated sometimes when you have.

Stew Campbell: Different interest levels based on different advisors, and we can talk about that later in terms of when you [00:09:30] have different timeframes involved. Sometimes there'll be fundamental strategy questions that you have to work through, and then sometimes it's, it's an era of crisis. We can talk about Covid, which was our version of the Great Recess, the GFC that I watched as much more senior leaders.

Stew Campbell: When I was an associate at Spectrum. I saw them navigate the GFC with some amazing deft. We then had Covid. There were disagreements on how to respond to an existential crisis that was changing. Frankly every week. But yeah, that friction exists. But if it's collaborative and if you've done your work [00:10:00] upfront with that founder, when you get to those tough points because you know that they're coming, it's solution minded, it's pragmatic, and it's in a forum and in a manner which there's fundamental trust.

Kison: You haven't sold me on getting ab boarded for our business. Can you gimme an example of like, when. The board led to some big game changing moves for a company.

Stew Campbell: A recent example, I'm involved in a great brand called Epic Gardening. So if you are an aspiring gardener or a relatively well-versed gardener, you've probably come across Kevin and his brand, [00:10:30] and they own a category from a content perspective.

Stew Campbell: They command great attention that they're just an absolute resource when it comes to educating for all parts of gardening, which in a lot of ways is. Like wine buying and any other education where as a consumer you're a little bit overwhelmed with the wealth of information that you need to actually be a professional.

Stew Campbell: Gartner, the board has increasingly helped the company think through M&A as the right to win because once you own the content and the ability to speak authentically. And in a meaningful way to those consumers. [00:11:00] When you recommend something or you then have that commerce and those products that sit behind that very recommendation, it makes it all the better and it makes for an easy path.

Stew Campbell: We've really leaned in to help them with, here are some acquisitions of products and of certain categories that at the bottom of that customer journey, when they've learned, they start to build their gardening plan and now they say, okay, I'm ready to start transacting and start really building it. We become the transactor and the commerce ascension of choice.

Stew Campbell: That strategy is something that TCG uniquely can go help with and can really [00:11:30] help the company lean into. They may have found acquisitions, but it's a part of the board strategy and the board led strategy that we can both help educate them on and orient them to, and then go support them in those very efforts.

Stew Campbell: It's a way of getting leverage from your investor to go tackle a strategy that may have been a little more difficult on your own. It's a great aspect of how we get involved. As a second example, that was playing offense in epic guarding going, seizing a relatively fragmented category with lots of available opportunities.

Stew Campbell: On the MA side, we [00:12:00] also played offense. In a more defensive manner at a brand called Smart Sign that I was invested in. It's here in Brooklyn, just a terrific platform selling customized signs, labels, and tags. You don't really think you know the product until you start looking around a given restaurant or a warehouse or an office building, and then you see all the signage that, and we saw an opportunity post investment to say.

Stew Campbell: We want to help you lean into an M&A strategy, start working with some of the vendors that supply all that for mentioned signs, labels, and tags, and we can help you lean into that, help buy some of them, [00:12:30] help better get more tightly integrated. And it turns out in that process during Covid and then all of this, the strain that happened in the years coming after Covid, owning your own supply chain, that gave the company quite a few advantages over its competition in terms of sourcing, pricing, speeded delivery.

Kison: These are good examples of pushing on organic and even. Strategically enhancing organic growth. This is where my ears get a little more perked up because I feel like the vision for this business is get to that point when we can be an M&A platform, [00:13:00] grow through acquisitions, see a lot of market opportunities for it, and I can sense that our peripheral is pretty narrow just because you have your day in day out of your business and you look around left and right and you can see what the market is, but then there's like a broader view mm-hmm.

Kison: Where it's hard to get that grab on. What are some of the other pieces that you may not be thinking about? And that's where I would sense some interest in having a partner that has that sort of muscle around M&A strategy [00:13:30] that can help start market mapping things with a bit of a broader scope and start bringing those, like the example you had of.

Kison: How to think about an acquisition strategy in a little different way that may not have been the exact same way you thought about it. Absolutely,

Stew Campbell: and there's many catalysts, and we can maybe get into this as to why a founder of a 10 million of a RR great platform would consider outside capital acquisition and biting off something much bigger.

Stew Campbell: And having a partner in crime to go do that could be one of those catalysts. They're the equity source and the funding source for that acquisition. But you can also [00:14:00] use that catalyst a moment in time to say. Hey, I'm gonna de-risk a little bit. I'm gonna take some chips off the table using this partner to not only give me some liquidity and some peace of mind, but also help me with this acquisition.

Stew Campbell: It's a little bit, not sure if you're, find yourself in Vegas, but your stack of chips grows, right? And at some point, if somebody was slipping some of those chips into your back pocket, you could keep playing. Whether or not you consciously knew it, you would de-risk and know that your night was fine as you kept playing.

Stew Campbell: Whether it's an acquisition being a [00:14:30] catalyst, a big international push. Frankly just time and the amount of equity value that you've created in NSAID poker chips, those all can be very good catalysts. And having a partner in crime and a true like-minded partner to go tackle that next set of challenges while you have those chips in your back pocket ends up becoming a pretty good setup.

Kison: I get a bunch of B firms reaching out all the time. It's like a blur and you know. Do you have your own folder? I do now. Sub folder venture investors. Yeah. I have a good pitch folder and a bad pitch folder. Yeah. I'm curious about this part [00:15:00] because now you start thinking about, Hey, you should start dating.

Kison: I start taking some of the calls trying to learn about the firms and some are structured funds, some, there's some evergreen funds out there. You're starting to see some strategy, do some of these type of deals. It gets interesting, but it goes back to like, Hey, if we partner together, all of a sudden we're gonna go twice the distance in the coming five years.

Kison: Now we're talking about something that's beyond just the money. Sophisticated investors. I'm getting tuned to that. Like, Hey, there's good, the network you've mentioned like, Hey, I can surround that [00:15:30] founder with these right people.

Mm-hmm.

Kison: I understand the value of that. I understand the sophistication of investors.

Kison: They give you a whole view, like they really understand the market where it's going, help you with the strategy, understand value. So it's like that partnership could, we're gonna run two, two times further or twice as fast. I'm putting value in that. But put yourself in my shoe. I wanna start understanding.

Kison: There's reputation around that and then their actual ability to do that. And I feel like it's just hard. You're gonna hit on all sides. You got like independent sponsors that wanna Absolutely, absolutely. Get your time. [00:16:00]

Stew Campbell: Yeah. It's noisy and I can appreciate that. I'll date myself. But back in 2008, despite us being in the middle of the GFC.

Stew Campbell: There were other growth equity firms, but you can count them on probably two hands that were really going after founder owned businesses. Then, the sourcing you would find yourself in a relatively smaller pond. We did a count a couple years back, 75 growth equity firms, probably a few more this year than last year, and that number keeps growing.

Stew Campbell: And because the model works. Identifying founder owned businesses, developing a relationship and [00:16:30] investing success has bred more success. There's gonna be more firms that look a lot like the TA in summits that started the model way back in the day. What I encourage founders with when I ask about that sub folder is when you do a little bit of reputation work and you figure out, okay, these are the more qualified firms.

Stew Campbell: Um, I tell both founders and then our own associates within the associate program be a consultant and to founders. I say, use them as a resource. Your time is precious. The associate wants to get to know you, get to know you, the business, and, and somewhat qualify you to make sure that [00:17:00] you're hitting some of the themes, some of the levels of scale that would be good for that person's firm, and potentially investment parameters, but they're asking time of view.

Stew Campbell: I always ask the associates, come with a perspective, give something to the founder relative to just a give and take. Tell me about TCG. Tell me about your firm. Offer up what you've been doing. We just did a benchmarking study. Would love to share what we found. I was just at this conference that I didn't see you after.

Stew Campbell: You should have been there. I would love to share what I learned. We have some good insight as to what happened to this other relatively well [00:17:30] known transaction. We would love to share more. Any of those perspectives can be very good for a founder and then you're giving and then have a little bit more of a right to ask a little bit of something.

Stew Campbell: Plus, it also qualifies you that the interest is real and that the category knowledge and expertise is also there. If they're offering something that's genuine and actually hits right, it also helps in the qualification process.

Kison: They can actually create value. Our mutual friend Jason does an incredibly good job of this.

Kison: He does. I don't know, sometimes I wonder why he talks to me? But I asked for some advice on certain things. He's more than happy to do it. He's led me, his [00:18:00] office to go do events. He's coached me through putting a CEO on our advisory board that had some special terms to put in together to make it happen.

Kison: Nothing but good things to say about ta. I think you're right about that. Is gonna, can you sort of at least invest in the relationship to figure out. If they're accretive to how they approach working with you,

Stew Campbell: and I would encourage you to push any member of the firm that you then have some time with. To help as they can and almost serve as a consultant, as advisor of the company while you're in that dating process, it takes [00:18:30] six months at the very fastest to really chase after a change transaction or often not.

Stew Campbell: It's two, three years I've gone as long as six years. In that process, it's incumbent upon that forward minded growth equity to show their value so that they can be invited into a business. Use the associate for the market knowledge. Ask for introductions on the recruiting side if you're looking for a very specific C-level executive or advisor, and see who the network of the partner has.

Stew Campbell: If you want certain introductions on an acquisition idea, say, Hey, have you met with that company? I'd love to get to know them. Use [00:19:00] the whole firm. Before you ever consider partnering with the firm and let us prove our value because we're confident we will. And then when that time makes itself apparent, you should probably consider a transaction.

Stew Campbell: I've had this three year relationship with a firm and I've done X, Y, and Z. That's a perfect preview as to what they're gonna be like as a partner. That's incumbent on us to put in that work.

Kison: Yeah, they tracked your history, built a rapport. I like that. I'm a little more blunt. I like the listening pipeline.

Kison: Then we'll keep talking about customer sales introductions. Yeah,

Stew Campbell: yeah,

Kison: absolutely.

Yeah. Get us some of your [00:19:30] portfolios or how come you're not a customer exactly like your first investment should be becoming a customer. What, what are we doing here?

Stew Campbell: Absolutely. Uh, within consumer land, we often will try the product.

Stew Campbell: We will go talk to buyers. We will go figure out some level of customer product fit and have an opinion or an instruction that goes along with it. Similar to a customer instruction.

Kison: But I like that it was stepping back and just even taking the time to get the market knowledge for the founder. What I'm realizing is I brought a COO in and I'm less in the day to day and more working on the business.

Kison: That's a lot of work to really figure [00:20:00] out the market. It's a different view of talking to the customers, the different view where you look at the landscape you guys do that day in, day out. So if I can pick up Intel from that perspective of. What have you already done in our market? How do you think about it?

Kison: Where do you see it going? That would be very valuable. And then those introductions you mentioned as well.

Stew Campbell: Absolutely. And doing that all before you transact gives you that much more perspective.

Kison: What about relationship flow? Unfortunate. I get this podcast, I get to jump to a partner level of conversations.

Kison: But a lot of these firms you're associated with then [00:20:30] at some point they give you VP. I guess, how important is it to get partner level engagement? To me that's like, I kind of wanna know what that culture is like at the partner level. 'cause that's what gets me excited about working with the company. But then it's nice to know that even the associates of VPs are smart.

Stew Campbell: Yeah, absolutely. So there's two perspectives there. One is I. The harsh reality of growth equity based on the time needed to work with an entrepreneur, and then the number of frogs then have to go kiss. There's a volume part of the equation in which finding really talented, [00:21:00] hungry young individuals that know that category, that know who we should be talking to and help connect dots for the rest of the partnership.

Stew Campbell: It's a model that works. And while it feels sometimes like you're speaking to a young person, you'd rather be talking to a founder. We invest a ton of time in those associates and make them an extension of us. So that I have implicit trust as they're speaking with founders that know that in the background, that communication flow of, Hey, I talked to that company and that company, and that one's really differentiated itself.

Stew Campbell: That's going on in real time. It's just really an extension of [00:21:30] resources. The second bit is that certainly at TCG, we're all sourcing. We're all trying to get to the found and to the right situation. We do some very heavy, thematic based sourcing where we have sessions trying to figure out. Based on aggregate knowledge of where do we think the world is going and where should we be investing based on that?

Stew Campbell: What themes are interesting in the short run, the medium and the long run, and let's go invest and let's go ideate against those. And that's a partnership among associates at the junior level, mid-level, and partner level. And then we're all working [00:22:00] conversations and we're all sitting in the background.

Stew Campbell: There's a full firm effort. I wish I could source more. I love it. I love connecting with founders. And so the associate program and the inbox that is full. View that and the quality and the depth of that email as an extension of kind of maybe how the firm is thinking about positioning itself to potentially help you.

Kison: I want to come back and expand more on that. I want to conclude the boardroom part specifically now that we kind of understand, you know, say we sort of found the right partner and, and as you look at building the board, what are the [00:22:30] dynamics that really make that board successful?

Stew Campbell: I would kind of split the board dynamics into making sure that there is a rhythm in M&A data flow, and just a set of infrastructure that takes the company from maybe that dining room table to something in which these new interested partners that you've brought in, whether investors or independent board members, all have the same right level of information and have it readily available.

Stew Campbell: So there's a certain cadence and a certain infrastructure. It's a [00:23:00] little bit of a growth and a stepping stone for those founders and for those teams to go from ad hoc reporting, sometimes to much more a formal structure. The more important part is how do you structure those conversations? I talked about the quarterly board meetings being more strategic offsites.

Stew Campbell: It's making sure that when a founder and a CEO approaches a board meeting, whether it's a monthly big quarterly board meeting that's in person. There's a North Star that's part of that board meeting. We are gonna focus all the conversations and strategy on this North Star. It could be a [00:23:30] challenge, it could be an opportunity.

Stew Campbell: It could be an M&A topic, whatever is most top of mind. And then having the board aligned early on, both materials, thought, process, and conversations so that when you show up, it's a little bit of that Amazon effect, that when everyone shows up in that boardroom. We've all done our reading focused on the North Star, and it's a targeted high intensity conversation to help that CEO.

Stew Campbell: Yes. The purpose of the board is to govern the CEO and to make decisions on behalf of the company and its shareholders. In practicality, [00:24:00] I view the board as a serving mechanism to the CEO and his or her management team to help them make the best decisions. So there's two different roles. The first in the growth equity realm, you almost can skip over in practicality because we're so focused on, but, and growth and surrounding that CEO with the right resources.

Kison: Having that defined North Star seems to be like a clutch element that everyone on the board is aligned around that they know this is what we're trying to do to help. Absolutely. The company get there. What's an example of that for us? [00:24:30] I'll tell you what it is. It is right now we do incredibly well selling corporate development.

Kison: You're listening to this in corporate development, not using the deal room, so you're missing out on private equities. Our next big market, we have a very small piece of private equity and I just see huge growth for us potentially there. 'cause the exact same model would apply well to private equity. That's kind of what I see as the North Star for the next two, three years.

Kison: A couple of examples. It could

Stew Campbell: be a category we want to focus this entire discussion on how do we best position ourselves to dominate? [00:25:00] Wholesale. Yes, we're gonna be talking about D two C efforts and maybe direct to consumer efforts or retail or sourcing. Yep. But if the next big leg of growth for our consumer brand is in wholesale, we may have to relate all those back to how do we best support our wholesale partners?

Stew Campbell: The North Star may be a. 2026 infrastructure. So what are we doing from a hiring perspective to make sure that we're ready for this next leg up of growth? So whatever we're talking about across channel product opportunity, it's with this 2026 infrastructure in mind, as you get closer [00:25:30] to potentially a sale transaction and an exit event, the North Star may be some requisite level of EBITDA margin.

Stew Campbell: Now, we really think if we can get this to 25 points of EBITDA margin, that will be the right level of scale to optimize for a sale. We've had 4, 5, 6 years together, now's the chance to really focus on getting that ready to take to market. So it can shift across a number of them. It can be as blunt as just people.

Stew Campbell: It can be as specific as wholesale. In any case, if the board members are able to consistently flip back to [00:26:00] that front page and realize we're still talking about 2026, even though we're talking about 2025 directly to consumer planning, that ends up being the right rhythm.

Kison: We talked about this before, but you get a board that matures.

Kison: And you have multiple investors on that board with different competing agendas, timelines. I'm sure you've seen that happen.

Stew Campbell: I have. Fortunately, most of my investments have been into bootstrap founder owned companies. In that dating process, you set up the transaction, the incentives and the expectations the right way.

Stew Campbell: Everybody's [00:26:30] focused on the same exit and you set up an equity pool. They have their rolled equity, so they basically, the proverbial second bite of the apple where they have a chunk of equity, may still be controlled if they sold some minority stake. Those incentives are pretty well aligned where we're all gonna shoot for the same outcome.

Stew Campbell: When you have multiple staged investors, depending on the timing and the size of investment that sits between those investment rounds, it can put pressure, especially if a company's not really chasing the high flying IPO and is working towards some level of sale, that will [00:27:00] have differing effects on those investors.

Stew Campbell: It can create some conversations. I've been fortunate to only have a few of those, but. For all of the opportunities of being a growth or a venture investor at the earlier stage and going and finding opportunities that can meaningfully move a fund performance. The challenge of being in that sort of a setup is that you do work with other investors and you have to find alignment.

Stew Campbell: You have to spend as much time with the other investors as you do with the founder. So that's their own challenge that comes with that opportunity.

Kison: That's what I'm wondering, like how do you navigate that? If you're the founder, how are you [00:27:30] gonna navigate? Suddenly the board matures and now you got some conflicting opinions on the strategy because

Stew Campbell: they got different investment

Kison: timeline horizon.

Stew Campbell: Again, I don't have a great wealth of experience in dealing with that, but from both the fund perspective and the founder perspective. The institutional relationships between those investors and how much they've worked together and then on the deals and how they worked out. In the same way that as you start to vet firms, you should diligence their portfolio and their outcomes if you are gonna have multiple investors on [00:28:00] board.

Stew Campbell: Figuring out where that Venn diagram and overlap is and how those businesses went and talked to those execs.

Kison: Very important. You mentioned earlier this growth equity versus growth capital versus private equity. Let's break that down. Venture, you're

Stew Campbell: taking quite a bit of risk, quite a bit of opportunity that goes with it.

Stew Campbell: These are capital, super

Kison: high valuation capital,

Stew Campbell: consumptive businesses, 20 X on revenue. Yeah, capital. If there's revenue capital, consumptive businesses in which there's an idea, maybe there's product market fit, maybe the product's running. But that seeds series A [00:28:30] a one, you know the numbers keep growing.

Stew Campbell: That first 10, 15, $20 million of venture is really to go take something to market and dive, invest very much into people well ahead of any rational revenue or let alone EBITDA multiple. But with that great risk comes great reward. Growth Capital sits after what I define as venture growth. Capital is taking a winner.

Stew Campbell: And trying to make it an absolute winner. Those are the series B or series C rounds that you hear about. They're still consumptive. They're still cash burning models and consumptive [00:29:00] models, but chasing growth, the growth capital bet is one that we see enough and can feel enough within the business and the momentum that we feel that our 30, 50, a hundred million dollars bet, even if it's consumptive on a capital basis, we'll pay large dividends because that reward outweighs whatever risk there would be.

Stew Campbell: Again, those are consumptive. Go to the far end. Private equity, you can have multiple flavors. You can have a middle market, lower middle market bulge bracket, but each of those businesses are well established. They are EBITDA positive, they're five 10% growers. They're [00:29:30] immature markets as mature businesses, and it's very much on operational control and operational fine tuning.

Stew Campbell: That is part of their organic plan. And then often there's an M&A path because they're usually of the scale in which they can absorb smaller businesses to find inorganic growth. Growth equity, like I said, sits squarely in the middle with the backdrop of a founder owned business typically, or at least light institutional owned business.

Stew Campbell: It creates quite the combination of both growth and profitability.

Kison: So yet

Stew Campbell: BC growth capital, I skipped [00:30:00] growth equity. Yep. And then went to private equity. Private equity, private equity. Depending on the scale, the asset has reached a level of maturity that we can discuss what the right growth lever is, but five to 10%.

Stew Campbell: Top and bottom line growth. But growth equity has this responsibility to go but a 15, 20, 40, 50% growth rate and go seize an opportunity. 'cause those markets are young and that's where you see that

Kison: square in the middle between growth capital and private equity.

Stew Campbell: And because these are founder owned businesses, they've had to have had a [00:30:30] really healthy respect for profitability.

Stew Campbell: 'cause they bootstrap themselves up. They may have reinvested a good amount of their own profits, but they've grown into that market with that requisite growth rate and that opportunity in front of them while doing so profitably. That's a fascinating and really powerful combination.

Kison: Okay, so vc, high risk.

Kison: Picking a bet at pre-market fit. You got growth capital and that's really trying to, here's something that's already proven. Gas on the fire. Putting gas on the fire. Yeah. Still pretty early.

Stew Campbell: It can be early. Any of the lettered [00:31:00] rounds between B and F are some version of a growth capital round that has taken a proven winner and try to make it that much bigger.

Kison: We'll jump to private equity, more mature businesses by 10% growth, buy and build, buy those things, acquisitions. And then there's

Stew Campbell: our growth equity that sits in the middle, gonna squarely in the middle of all of those

Kison: models. It's a growth company and there's still M&A opportunity to accelerate it, but you're still pushing on growth now.

Kison: Let's talk minority recap versus buyout. Where's the appetite between these models? In terms of at

Stew Campbell: [00:31:30] TCG, we're open to either, and it's really solving for what a founder and his or her team needs most. There's some bias in a super fast growing platform that there's a little bit of a signaling effect. If you have a 150% grower, a hundred percent grower, and you're profitable.

Stew Campbell: Now is the time to sell a hundred percent. What do you know that I don't know? In terms of asymmetric info, there's a little bit of a bias towards a minority run where there's that much growth and that much pie left to go grab. Let's support you in a minority [00:32:00] fashion and can be liquidity, can be growth capital.

Stew Campbell: That recap is perfectly fine. As businesses mature, as founders mature. Then control opportunities come up personally and on behalf of TCG. We love when founders roll meaningfully and there's 30% of their potential liquidity that they leave back in the company and then work with us to grow that 30% to three, four times that amount when we eventually sell.

Kison: My sort of goal is that in a couple years we get to 20 million a r, 25 million ARR [00:32:30], and then we recap the business. A minority recap, or it's 30% off, let's say roughly two thirds primary and one third secondary. Okay. Is that reasonable thinking for someone like me and 'cause again, like all these firms, they have a different appetite.

Kison: Some are more accommodating obviously, but some are definitely like more buyout like, hey, based on size, like we would wanna buy it out and then flip it around where it's the founder's got 30% absolute, gimme the other side of the table and the thinking around that.

Stew Campbell: Absolutely. Part of that vetting and then eventually dating process is to really [00:33:00] suss out if that minority deal is your prerogative to really push them on that and say, you say you're open to minority.

Stew Campbell: Which of those logos were minority deals? We talked about this category. Can I ask for example terms? You could ask for terms, you can certainly ask for which of those logos were minority deals. We had a great conversation about your investment in my category. I wanna see their term sheets. I get you to share the term sheets at the right point.

Stew Campbell: You can always ask for guiding terms or what are some third rails or some absolutes that you engage with on a minority basis. So there's a number [00:33:30] of terms and a number of minority protections and provisions. Asking for those as guiding principles may be helpful. Some firms will not do all common deals.

Stew Campbell: They will have to have some level of structure to sit above you, especially if they're giving you liquidity. Vetting that early and finding comfort or discomfort is probably important. There's an element of redemption, which if you're in control of the board and I've given you X amount of capital. We have to have a mechanism to go generate a return from that.

Stew Campbell: [00:34:00] So 5, 6, 7 years, at some point I should have the right to put that back to the company and force you to go do something. Now, in practicality, that doesn't happen all that often. Either companies work or they don't, and if they work, they're finding a great sale. But it needs to be structured so that at the right point, you can absolutely ask investors, what are some guiding principles for your minority deals?

Stew Campbell: Taking a step back from that. It's great to have a founder that has some of that perspective coming into the conversation because it really helps with that vetting process. [00:34:30] So oftentimes a founder will ignore a number of emails, not really engage with any investor, and then the volume increases because of accolades, because of being published on some list or some speaking event and notoriety and relative theme within your category, increase the point where.

Stew Campbell: You are then inundated, and if that just happens to collide with when you're ready to go transact, that's an overwhelming situation. You have just dozens and dozens of interest investors and how do you go vet through that? So establishing what you'd be looking [00:35:00] for in an investor and what you'd be looking for in a deal, and starting to have some of those vetting conversations.

Stew Campbell: If you can approach that decision point of, okay, now I'm ready, but here are the 10 firms that I've enjoyed having conversations with. Let's go start to create a little bit of a March Madness bracket among those 10. That's a perfectly good way to do it.

Kison: I like this. So being upfront, so it's not so much of, oh, I gotta think through, do I take majority of this?

Kison: And that you should know, have some sense of what you want in terms of capital requirement. That's where I, I think, bring anywhere from [00:35:30] 30 to 50 million of primary capital to go do acquisitions. Um, it's where we're actively building a pipeline, then taking $10, $20 million off the table just to be able to.

Kison: A nice place here in Manhattan. Yeah, maybe someone, and it's,

Stew Campbell: it's the sourcing team's responsibility and it's a little bit of your opportunity to figure out which firms could be really good partners based on category expertise and resources and everything else. If your personal goals change, what we really even talked about is you [00:36:00] think you want a minority deal.

Stew Campbell: You believe you do. Yep. And very well should and could happen, but things change and life happens. And I've seen far too many times. Founders have a perspective of, I will only do this. I will absolutely only do this. Then things have happened and the relationships that have been started can lead to much better and faster conversations because that minority interest could turn into a control deal.

Stew Campbell: Something happened, you found a new pursuit. You [00:36:30] wanted to move you, there was a bunch of friction within the team, and you needed a really good thought partner to help think through something. There's any number of reasons for that. If you siphon down too early, right, or don't engage investors at all, you can leave yourself trapped later on with some relative indecision.

Kison: Ideally give a, given a profile at least a sense, but that's having a good partnership that something does come up. They can help support you and facilitate restructuring that, that capitalization for you. Yeah,

Stew Campbell: having those relationships early so that when you need to or [00:37:00] want to go pursue a transaction, it makes it such a better and more well vetted process.

Stew Campbell: To hang up for sale, sign on your front lawn and say, my software company's not for sale. I'm moving on. I have no more interest. That's perfectly fine. And there's plenty of companies that do that. And then it's really just who has the most strategic value and willingness to pay, and you know that you're moving on.

Stew Campbell: We're not, but you're most likely moving on and you're selling the asset to somebody else. Any notion of I'm gonna be an ongoing owner of this [00:37:30] business and have 30%, 70% of it. Creating that dating process of firms is just such an important way. 'cause you're gonna be together for 5, 6, 7 years. And so spending as much time and early as possible is just, it's such a beneficial process.

Kison: Being upfront and just saying, Hey, I'm, this is what I'm looking to do. Minority recap, get to 25 million ARR. And I can be upfront about that.

Stew Campbell: Absolutely. And

Kison: just say, those are my

Stew Campbell: goals. I would love to start a relationship. Here's where I would love to learn from you. This is what I'm comfortable sharing [00:38:00] at this point.

Stew Campbell: Put them to work. They would love nothing more, and I would love nothing more than a founder to come to me and say, I'm aiming for a late 2026 or 2027 opportunity. This is what I see happening. I would love to start a relationship focused on A, B, and C. I would love to invest in that time because I get a chance to spend more time with you because when I buy deals and talk about how to vet them, it's.

Stew Campbell: Founder and team. Founder and team, and the third reason is founder and team. The markets will change, the products will change. [00:38:30] Challenges and opportunities will be unexpected relative to your underwriting case, but founders and their teams sit one, two, and three. If I have an opportunity to spend more time and you get benefit from it, it's

Kison: great.

Kison: That's good way to, to see how you look at it from the investor perspective. So that's basically what you're looking for is absolutely the founder team. It

Stew Campbell: tru it truly is dating and I say that I tend to overuse cliches and idioms to some degree, but it really is a dating process

Kison: for me. I'm transparent every time I get a chance.

Kison: Somebody I know like you, I give, dump all the quarterly updates and say, Hey, this is where we did. And I like it because I'm like, we have [00:39:00] nothing to hide. Like we are freaking proud of the direction that we're going right now. For a while I used to do it like a quarterly call and put everybody on because I didn't have time to talk to everybody, so I put everybody on a quarterly call.

Kison: That's great. They liked it because it's like kind of net networking for them, but you don't get as much of the relationship building and they feel like you kind of have some, the people that bugged the hell outta you are like the independent sponsors and they're trying to buy you for one x revenue or something weird like that.

Kison: There's that, but you wanna build a relationship and now I'm starting to get it to build the list of, here's firms I really admire, categorize [00:39:30] it. Here's like the TA Associates, which is like huge firm. Like that's gonna be a while before we get a check and especially Minority Recap. We gotta go. Yeah.

Kison: Get up there. So I'm realizing that here's some aspiration, good friends to have, but then what's the next tier down from where you were previously? Like Nor West? Maybe they're getting closer to the check size. Yeah. There, there's a little bit of that where you gotta size it, where's the sweet spot? And then being upfront, do they have an appetite for minority recap?

Kison: Now I want to get more like the vetting and competition part of it, because I [00:40:00] thought that was interesting when you mentioned, and can you get it down to 10 and make it competitive? Teach me how to do that.

Stew Campbell: The easy first answer about that first sale sign is just to hire a banker and sell it. And I love working with bankers.

Stew Campbell: Plenty of great relationships. For a control transaction in which you want to sell 80, 90%, that can be a great force in mechanism because it forces that competition because now you've engaged Banker X and they're gonna be running a process on your behalf. If that's not your prerogative and there's such a meaningful role [00:40:30] or a minority deal, and I'd argue that in that case a banker can be helpful, but you can also probably try to tackle it yourself.

Stew Campbell: To me, there's a walk then run stage of diligence, but also a vetting on both sides, which is if you have a certain idea of a transaction in mind, you can share a certain amount of information. Five, six bullet points worth of stuff, and it's probably what may be in, in your quarterly reviews. And send that and then send it with an expectation of, here's what I'm willing to send, here's the time I'm willing to [00:41:00] spend with you, and here's what I'd like to see that comes out of it.

Stew Campbell: And it could be an IOI indication of interest of just, you've vetted it with your ic, you're interested, there's more work to be done. Based on the six things that we've seen and our work in the category, this is how we'd see value. And you could ask for term sheets, non-binding, a couple pages long, and use those to force a couple groups off each other.

Kison: You basically run your own. You can run your own process.

Stew Campbell: Process. What sits behind that? First few things. You can either [00:41:30] pre-prepare as if you are running your own banked process and have a data, a data room ready, or you could just prime your team and tell 'em like this may be coming. What you should be ready for is that the groups that see that first round of information or that think that there's something really to go do, are not gonna play by the rules you set out April 15th, right?

Stew Campbell: The odds of April. I'd love to see a first term sheet. The right group that you've been dating for a while that really knows you and and finally has an opportunity and knows and have seen you perform over [00:42:00] time, will see that opportunity and will make it awkward for you. 'cause they're gonna come full throated, ready to try to transact.

Stew Campbell: Throw some hard elbows against the other firms in a not so competitive way and try to really go lock up a deal with you. Now, if that's what you're ready for and you've done enough of that pre-work, you're then in a position to say, I know Stu really well. I've had three great years for him. He's been waiting for this.

Stew Campbell: He finally got some information. He now knows I'm ready to think about something. He's ready to rock.

Kison: We're gonna split this episode up. Look for part two [00:42:30] coming soon.

Stew Campbell: I gotta ask, what's the craziest thing you've seen in M&A? There was one CEO that had that sort of a round table and shared, and then did what he wanted to do as a grand reveal alongside a potential bid process all in one spot.

Stew Campbell: All with the interested investors in person. He was intending to have a pull back curtain event. Reveal his company, ask for term sheets, and in a relative live setting among qualified investors. It was a fascinating process to [00:43:00] watch how it played out. Didn't actually end up in a transaction, but certainly a story worked really well or really bad.

Stew Campbell: Yeah, it is more the latter, but it was a, it, it worked.

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