This is Mesters in Business with Very Results on Bloomberg Radio. This week on the podcast, I have an extra special guest. Graham Weaver is founder and partner at Alpine Investors, a private equity firm focusing on software and services. Graham has a really interesting background, both engineering at Princeton and essentially launching a PE firm while he was a graduate student at Stanford. Everybody knows the story about Michael Dell launching a computer business out of his dorm room in Texas. This could be the first PE firm I'm familiar with that got started in a dorm room. What makes Graham so interesting is while everybody else in the world of private equity is focused on the analytics and crunching numbers and creating econometric models that will tell you way to invest I think they've found a very different model that has been extremely successful for them, where the key focus is on talent. How do we find the best talent, put them in place running our investment companies, and allow them to generate the sort of returns UH that you don't really generate by just looking at a model. I found our conversation absolutely fascinating, and I think you will also with no further ado my discussion with Alpine Investors. Graham Weaver, let's jump right into this, starting with your background. When I hear someone has an engineering degree, I tend to think of venture capital, not private equity. Tell us a little bit, how you went the PE route instead of the VC route. Well, I actually started in private equity right out of undergrad. I really didn't know the difference between private equity or consulting or anything. I had zero knowledge of at and I was fortunate to end up in Morgan Stanley's private equity group. I loved it, and I've kind of been at it ever since. Really really interesting. So is it from Princeton to Morgan Stanley, uh, and then Stanford or am I getting the order? Yeah? I when I was at Princeton, then I went to Morgan Stanley and their private equity. Then I worked at it from called American Securities for a couple of years, and then went to went to business school after that. And somewhere in the middle of this, there's a pig farm in Missouri that I'm having a hard time figuring out what a pig farm has to do with with private acts. So the very first deal I worked on. So I come out of school, I'm wearing my cross pen and my lapel, and I'm like wearing a tie and well buttoned down exactly, and I think I'm a big shot being on Wall Street. And I get shipped out to this pig farm in Missouri, which was a deal Morgan Stanley had invested in. They'd invested a total of a billion almost a billion dollars of debt and equity, and it, suffice to say was not going well. So not that I was going to go save it as a twenty two year old analyst, but I got shipped out. I lived in the CFOs basement for about five months and we did everything we could, but it turned out not to not to be a great investment. So there's not big money and pigs. Well, it turns out hog prices are wildly cyclical. And you know there's the expression, how does uh six footman drown drowned in a river that averages five ft? You know it's because there's parts of the river that are deeper. Will you know, we build our whole model on hog prices being forty seven dollars and when we with that's what they average. But that doesn't tell you how much they swing up. And it turns out, yeah, they were. They went to eighteen dollars and we had seven hundred million a debt and that didn't that that didn't go well. So that's the that's the old joke. It's not the price, it's the volatility that it was. Yeah, it was rough, but it was a That was my introduction to the glamorous business of private equity. And you didn't turn around and say, I want nothing to do. I had the time of my life. It was so fun. Um, how is sleeping in the CFOs basement? What was his house on the it was it was the whole entire town smelled like a pig farm, and which was not especially delightful. It's not. No, it turns out and every and pretty much everyone in the town worked and had some affiliation with the pig farm. The CFO was also a Morgan Stanley guy, and he was probably twenty seven. So neither of us years of experience, you, neither of us had any clue what we were doing. And uh, but but it really wouldn't have mattered. When your revenue gets cut by like eight percent, there's just not a lot not a lot you're gonna do to turn that around. So so there's a cliche about tech firms being started in dorm rooms. How does a private equity firm start in a dorm room? So I I show up at Stanford and I'm in my first week of class, and then, similar as today, you have to take these core classes your first year, which are just not that you know there, just fundamental. They're they're not that exciting. So the first class, I sit down and there's this this twenty five year old who's never worked today in his life. He's a PhD student, he's never taught before, and he's kind of just reciting out of this strategy book. And I just thought to myself, Oh my god, what have I signed up for. So I had this idea that I was going to go try to buy a business, and I had you know, in your first three years as an analyst, you basically build a financial model. But I had the confidence of someone I thought I was much more, much better than I was. So I I convinced h an owner. I started cold calling companies in a sector that I had looked at previously, and I convinced this this owner to sell me his business, and and then I had to go raise the money, most of which was debt and the little bit of equity that was needed I financed with credit cards, right, So that was literally how I started, not your typical private equity founding story. How did that initial PE transaction work out? I did a total of uh three label deals with some add ons, lost money on one, made money on or made you know, lost a little bit of money on, lost made a little bit of money on the second one, and the third one. Third one was a total home run which actually just sold uh this year, twenty years later, so that that one turned out, well twenty years that's impressive. That's not the typical private equity holding period. Yeah, well it was just me. I was the it was just mine, so you could afford to be patient, and it was It was awesome. It was a great that one. What what what space was that it was? We had these companies that made these little labels that went on products like, for example, in Trader Joe's Trader Joe's Private labels things. We made all those labels. It's a totally unsexy business, but it was very consistent and it's profitable. It was really profitable, and no one wakes up and says, you know, I'm gonna be a hero because I'm gonna save half a cent on my label. So it tends to kind of like just clip along like a bond. So it turned out, it turned out well. But I mean I had absolutely no idea what I was doing, and uh, and so I made I made every mistake you can imagine, and it still worked out. When you launched in two thousand and one, you started with fifty million dollars something like that, and now it's up to eight billion, of course, eight funds, and your most recent fund just closed about two billion dollars more or less about two and two point four, all right, so that's that's real money two point four. Obviously you're doing something right. The track record has to be attractive. Is it the same investors rolling over or or new and different investors. Who's the clientele for this? In the very early days, it was a number of individuals because no institution was going to back at well. You have to have a certain track record, be around for certain length of period, be able to check all of their due diligence boxes, and that takes time money, And I checked zero of those boxes store room, check what else? What else we got? Check exactly? I checked no boxes. And that took me like almost a year to figure out. I went to all these institutions and I never got past the first meeting anywhere. And then I found a number two really two individuals who thank god there I still owe everything to these these two. UM one, I don't know if I can, you could say whatever. So UM one was Tom Styer who ran for president. Um he was one of the early ones. And then Doug Martin from the Stevens family, And they were just the two best investors you could ever have. And um they were supportive and most importantly they were supportive after Fund one, which was not a good fund. So that's the reason we're still in business. Why not a good fund? Just performance wise? Or was it because when you launch, you know, one, we're still in the early days of a massive downfall in technology, media, internet, straight across the board. Not you know, it's not unless it's a distress fund, that's not the ideal time to launch. Yeah. I would love to say that it was the market, but it wasn't. It was self inflicted. It was me making a lot of dumb mistakes, being overconfident, you know, and and just investing in companies that looked great in a spreadsheet and didn't. What looks great in a spreadsheet is low purchase price and a lot of leverage. That looks always looks good in a spreadsheet. But the the problem the qualitative, Yeah, the leverage is the problem. And the qualitative things about is it a quality business? Those things you can't model in a spreadsheet. And so I just made a lot of dumb mistakes and we will actually the whole fund overall loss money. I would highly bury not recommend having your first fund when you launched to lose money. It was probably not the best strategy. It was an anchor around our neck for pretty much a decade. So that raises the question, if the first fund was a bit of a stiff, how did you raise money for the second film? Well, thankfully, we were really I really communicated a lot with Doug and Tom, and they understood they could see us getting better, you know, they could see us making a lot of improvements, fixing a lot of things that we got wrong. And both both of them were pretty seasoned investors. Both of them had had mistakes they'd made before and so they you know, thank god, we're really supportive. And then and then it wasn't like immediately we started knocking out of the park either, but we started getting better and better and and and then and then really around the time of the recession was when we really completely transformed and became kind of the business that we are today. And it's a little bit of a cliche. They're not so much investing in a fund as they're investing in you as the manager. Obviously they saw something that was, hey, needs a little seasoning, but there's a lot of potential here. Yeah. They saw someone who was willing to literally run through walls and run through a burning building to make it work. And and I almost literally did. I mean it was it was that um we were and not just me but our whole team was was really committed to trying to try and make it work. And I think they saw that quite quite interesting. I have to talk a little bit about your growth rate. You began with fifty four million dollars all in your eight billion in assets totally Obviously a lot of that is not just growth but new investors coming along. But still that's a as a as an pe company Alpine has really seen quite a corporate growth trajectory. Tell us what led to this success rate. Yeah, So when when the recession hit, we were, uh in we're not well positioned. We didn't. Now, when you say recession, because some of our audiences, you know, older than twenty five, I'm assuming you mean oh, eight o nine crisis, Okay, not the one in not the one that maybe happens sometime in two and certainly not two thousands. So the great financial crisis. So great financial crisis happens. We were we invested the last dollar from our third fund two weeks before h two weeks before Lehman Brothers blew up, and so we were out of money and we had it took us forever to raise the next fund. But that period where we didn't have any money turned out to be the most important period for us. Why because we started deciding we were going to look at our own business, you know, kind of like, rather than working in the business, We're going to start working on our business. So I hired an executive coach, um and he helped. He he really helped me kind of redefined the business that I truly was in which I'll come back to we hired a consulting and coaching firm for our whole organization, and so we really started doing some soul searching for lack of a better word. And then and and from that we really you know, changed our strategy and developed kind of a new playbook. Um, so let me interrupt you there, because that you raised something that I'm fascinated by. So first, what leads you to say we need a pro to come in and show us how to do this? And second, how do you even go about finding an executive coach that sounds like man, that's a consulting field fraught with you know, let's polite and just say high risks. Yeah, it's it's it's a great question. And I am a huge fan of executive coaching. I have had a coach since two thousand and nine. I've talked to a coach every week or every other week since oh nine, No, Kidd, and we at Alpine have twenty three coaches that are part of our There their ten ninety nine folks, but they're part of our ecosystem that's available to our people at Alpine and our executives. So I'm I'm just a huge fan of coaching and Basically, what I love about coaching is you you create space away from the business of the day to day and you ask yourself a bunch of really important questions. You know, what do I want? What success look like? What do I want to you know, what's a five year plan look like? And you actually have to really burn some energy into thinking time thinking about um those answers, which are really hard answers, which most of us never spend time thinking about. What was it just in the midst of the crash and recession that you said, hey, maybe we just need a little help. We're not we we don't have the professional background to run the business. We know the investing side, but the business side is something very different. How do you get I mean, I think one of the benefits of face planning in your first fund is that you get some humility and you I've always just been open to learning from people that are smarter and better than I am, and so coaching was an extra back then in two thousand nine, it was not very well known, and it was definitely an exercise in humility of saying I think I need some help. That that's the old joke. Experiences what you get when you don't get what you want right, Yeah, exactly. So once you make the decision, Hey, we want to bring in a professional to show us ways to improve our busines, the methods. How does one go about finding a business coach? So I had an introduction from a friend and then we had a number of lunches, and his business wasn't going well in oh nine either. As you can imagine, who other than people doing distress debt investing whose business was going great knowing, yeah exactly nobody. So in short sellers, everybody else was in trouble. So we had this awesome conversation. I can still it's one of these conversations you can still remember where you are and which you know exactly the moment. So we had this is actually after I brought him on. We have this awesome conversation where I said, hey, I have to his name's JP Flam, and I said, hey, I have to cancel our our coaching engagement. I'm just too busy, which was like we'd already decided ahead of time that there was that was no go. I had to stick with it, like that agreement. So he he text back immediately says, no, we're having it. So I get on the phone. He says, well, what's you know, what's so crazy that you're so stressed? Oh my god, JP, you know, I gotta fly to Dallas and fix this. And then I gotta, you know, we gotta deal we're to lose. And then we lost a huge customer in Chicago. Then I got into d C, and then you know, I'm going on and on, and he said, okay, well, let's let's kind of slow down and chill out. Let's talk about Dallas. What's going on there? Well, we you know, we just missed our bank projections the second time. And I'm going on and on, and he starts saying, well, tell me about the CEO and Dallas. I'm like, what does that have to do with anything, you know, in the middle of the Great recession, like blah blah blah. But you know it's not it's you know, it's a markets or whatever. Anyway, he it comes to the point he says, well, eventually he says, well, how would you how would you rate that that CEO? You know, a B C. I was like, oh, you know, probably a B. He said, Well, Graham, at the one of our engagements, you said you wanted to build the greatest private ely from of all time. Are you gonna Are you gonna do that with a b CEO? And I just like hit me between the eyes. And then he asked me another question. He said, and Graham, if you're someone who keeps a b CEO, what does it make you? How would you rate yourself as a CEO? And I just I like, its stopped me dead in my tracks. And that was really this light bulb that went off that ended up having us having me realize I'm actually in the talent business us that's the fundamental business that I'm really in. And that was like oh nine that we came to that realization and then started completely redesigning our our firm to like build our companies around talent, build our firm around talent, build our investment strategy around talent. So that that was just a huge turning point. So so let's talk about that, because all of your investments eventually get a CEO that's been trained at Alpine and has the benefit of all of this coaching, all of this training, all of this expertise. It's not that you're just looking for attractive balance sheets. It's where can we put someone in charge to move the needle by taking our expertise and applying it to this business model. Is that what you mean by when you say you're in the talent business? Yeah, I think that's what I mean. There's two parts of it. One is our investment strategy, which is what you describe, the others how we run our own firm. But sticking with what you were talking about bury the investment strategy, we found that the single most important investment decision we make is the management team. And it's more important than the price we pay. It's more important than the leverage levels, it's more important than the prior growth rate. And so we just said, well, if that's really the most correlated, most effective, our most important criteria, you know, let's make sure we get that right. And so let's actually kind of build our own CEOs and and and and put our own CEOs in so that we can make sure that we're getting a world class person to run each one of our companies. So so, in some ways this is almost parallel in the public markets to activist investing, where they identify a very attractive business that isn't quite living up to potential, right, and they say, hey, with a few management changes, we can turn this into a really good business. On the private equity side, I'm assuming the conversation is something like, we want to either buy your business or your entire business, but regardless, we want one of our professionals to come in and manage it. Yeah, that's right. A lot of the companies were buying don't have management. You know, might be a corporate carve out, it might be a management team that wants to retire or exit, and and that's great. So there's never any conflict. We're totally transparent. We're not doing hostile deals, nothing like that. It's always the transaction that the seller wants to do is they want to retire, so it's always very friendly. But we there aren't a lot of private equity firms that want to go through the process of changing management because it's very very hard to do. And that's the value add that you guys, that's a big part of it. Yeah, that's really quite fascinating. So there's a quote of yours I have to lead with which I find really intriguing. Quote. People create returns, not deals, not price. That's a that's a huge statement considering most of the analyst community, especially private equity is so analytical and modern driven. You're saying, this is a people business. Barry Um. I think that if you want to do something different than people, you have to have some fundamental belief that's different than what other people believe. And our belief is that returns come from from people, they come from talent and and and I think maybe one of the reasons why people shy away from that is it's hard to analyze, it doesn't fit in a spreadsheet, and it's incredibly hard to manage. So it's a lot easier to manage the the hard numbers that the financial statements and things than it is to, you know, really manage a team of people. So we were talking earlier that you appoint a CEO at these these purchased businesses that you've trained Um yourself, tell us a little bit about what that in house training looks like. So a lot of the CEOs we're hiring, we're bringing right out of NBA programs, and they have five years of experience typically before they go into business school, and that could be anything that could be there in the military, they could have been a consulting firm, they could have been investment banking and we have success with any of those back any and all those backgrounds. So and they've just been in two years of business school, so we don't want to put them back in business school. But what we're really teaching them, the fundamental thing we're teaching them is how to hire, how to build their team, how to set a vision, how to create priorities, how to get everyone in their organization excited and aligned behind what they're trying to do. Those are things that not a lot of business schools um teach. It's one of the things I try to teach in my class, but it's something that we bring in. It's the biggest thing we bring in that in that training program that we do. Hiring has been described as the most difficult aspect of building a company versus everything else. How do you teach good hiring? You can actually, to some extent, make hiring a science. UM and the simple I could talk for you. I could talk for three hours about this, but I'll try to do it in about two minutes, which is, you build a scorecard for what you want that role in that role, a specific list of outcomes you want that role to do. And then as you're assessing a candidate. You're looking for very specific evidence that they're going to be able to perform against that scorecard. And you have two things you're looking for, attributes and experience. Those are the two different parts of the interview process. Well, we all know what experiences define what attributes me. So attributes is about who somebody is versus what they've done. So an example for us, when we're hiring young people to become CEOs, we're looking at, you know, do they have a will to win? Do they have emotional intelligence and self awareness that they can get along with people? And then do they have grit? Can they Are they going to be able to see things through after getting kicked in the teeth, because they're gonna get kicked in the teeth. So those are the three attributes that we're looking for. Those are wildly more important than experience because they'll get experienced quickly, and you can teach experience. You can't teach those three things. You can't teach you know, the will to win, Um, they're kind of coming to us with that or they're not. That's a that's an intrinsic aspect of the personality. You either have it or you don't. There's no way you're gonna learn that, not in a period of time, or we don't know how to teach it if it is sable, really really interesting. So so you mentioned your class, let's let's talk about the management course that seems to be related to that CEOs and Training to tell us about that. Yeah, so the CEO and Training is the that's the name for the people that were hiring. Did you want to talk about that or the class itself? All right? So, um, the CEO and Training is the name we give to those people were hiring right out of business school. We're giving them that experience training that I mentioned, and then we're putting them right in. Um a lot of them are CEOs on day one of add on acquisitions and they get the reins and they're you know, they're off to the races. Um. And and you know, there aren't a lot of positions out of business school that you can become a CEO within, you know, right when you graduate. So we're we've designed that and it's been it's been a home run. We I underestimated how amazing these students would do and the roles that they've done, and uh, and it's it's it's been fantastic. Do you end up hiring people right out of your classes or yeah? I mean this is really as recruitment. I don't interview anybody from Stanford period. I don't even know if they applied. I keep a wall between you know, my teaching and um and and recruiting. But I will say probably teaching there has helped the Alpine brand, uh and and help me and more importantly helped me understand what students are capable of, which is a lot, and what they want, which is they want to be the boss right away. And I think so it's helped. It's helped me learn a little bit more about how to build a program that the students want to actually do. So one of the things the c I T program does is to try and increase underrepresented individuals and pe tell us a little bit about what diversity does for your business. Yeah, well it is. It's it's awesome what we can do if you The great thing about hiring for attributes over experience is that we can actually have a huge impact on diversity. So, for example, if I said we're hiring a CEO to run a healthcare software business, and our criteria is they have to have done it for twenty years. Then I'm that that battle has been won or lost twenty years ago. And yeah, I could hire someone who's a diverse candidate from one of my competitors, but I haven't really created any value if I hire someone right out of business school. Let's just use women as an example, and and and and and that woman wouldn't have necessarily seen a path to become a CEO, and I can provide her a clear path, then I can actually increase the number of women that become CEOs, which is exactly what we've done. We have over fifty of our CEOs and training that we've hired have been women, About thirty have been underrepresented minorities, and so we have we can have a we can really move the dial on creating more you know, diversity and CEO ranks. That that's really kind of interesting. Uh, let's talk a little bit about software and services. Why focus on those areas in particular. So one of the things that we figured out, which probably took us way too long to figure out, is if you if you buy recurring revenue, there's just a lot fewer things that go wrong. So we're not unique and focusing on um recurring revenue. But that we we turned the dial in and around that great recession time and decided that was all you were going to do. And so it's less focused on winning that one big sale and it's more about building a business that has a fairly steady revenue stream. That's right. And then if you marry that with what I was saying before about putting young people to run them, recurring revenues really helpful because in the first year they have a big learning curve and you you know, they we need them to have a little bit of a cushion for them to get up the speeds. Recurring revenue helps a ton because it does take them a little while to learn how to be a CEO. That's really interesting. Software obviously has been really hot over the past couple of years. Any chance that that changes or slows down or is software just the driver of the future. I mean, I think software is the driver of the future. And I think anything, even the driver of the future, can get overpriced, and you can overpay for any asset. And I think in the last few years, you know, people have have gotten a little ahead of themselves with some of the multiples that were paid. But I don't think that changes is fundamentally that I think sufferers. You know, softwers here for a long time, and it's and it's got a lot of really exciting trends. I'm gonna ask a question. I'm gonna have you put this back earlier in the hiring discussion, because I missed something and I want to come back to it. You've discussed episodic versus program matic hiring. Explain the difference between the two. Yeah, great questions. So I might have made up those two terms, but well, that's why it jumped out at me. I'm like, I don't know what I think. I think I did make them up. But um, so, episodic hiring is what everyone does. Okay, we need to seven opening fill this. Go to LinkedIn and ad get me somebody here exactly, or or yeah, we'll hire Russell Reynolds to get us a CFO whatever. That's that's how everyone hires. Um. That is two problems, a number of problems. One is its slow, uh, and two is it's expensive, and three is it actually doesn't even work that well. Like the higher the hit rate is pretty low. Hit rate across the board and hiring statistically is about fifty, but that's measured as are they still there in three years, not did they were they successful? So it's even worse than that. So that's a problem with episodic hiring. So programmatic hiring is you're going to hire the same role a lot, and so how do you make that more of a program. So for example, you know, we're hiring seventeen people from business schools that start next month, or we're hiring seven undergrads to be interns who will matriculate into full time roles, and and then so there's a group of people that are graduating, you can kind of have a class of folks. You can give them way more training, you can build a whole program using the pro you know, to use the programmatic term around that, and it's just a lot more effective. That's two roles that we do at Alpine, the CEOs and training and the and then the analysts. But then in our companies, you know, in some cases that's engineers technicians where that's they're recurring higher that they're doing and we're helping them build programs to to start with people who don't know how to do those functions and bring them up. You know, through training to to to learn those really really quite interesting and you can excale. You can just scale a lot better and you have a way higher hit rate. So you're constantly maintaining a pool of either potential hires or actual employees that you're waiting to promote. Absolutely. Yeah, before we get into the current market environment for private equity, I have to circle back to you. Teaching at Stanford at the graduate school, tell us a little bit about the courses you teach and what students learned. So I I teach two courses there. I teach. They're both they're both basically similar. One is for first years and one is for second years, but they're both centered around entrepreneurship. And the idea of the courses is that there's lots of classes on analysis and accounting and finance, and there aren't a lot of classes around how to actually manage people, lead people. And I'm talking the nitty gritty stuff of literally like what to say if you have to fire someone. My students have to rule that. My students will say, oh, I would just fire that person. I said, okay, great, I'll be them and fire me. And then they have to do it, and they it's allow harder than it looks. So they'll say, that's why people just cheat and send emails. Yeah, that would not be uh, something we teach. We do not. We do not teach people this. So tell us about the role playing. What is that? So so we so the student will actually play the protagonist in the case, and I'll play the antagonist, for lack of a better word, of the other characters. And then they'll fire me, or they'll have to demote me, or they'll have to tell me that they no longer want to be my partner or whatever the situation is that they're trying to get through. And then we'll play around with it and they'll realize, you know, some things they do right, some things they do poorly. And then the entrepreneur about whom we've written the case is in the class, and so then they'll chime in and say, well, wow, this is you did this this way, This is why I didn't do that, or I wish I would have done it that way instead I did this. Um. So it's a really it's a really really fun class. It's uh and and it's something that they don't get anywhere else where. They actually have to kind of implement the stuff they're talking about. So aside from firing, what else do you teach them everything? We we actually teach a lot on hiring. UM. We have a whole uh modules and playbooks and video and things I've made, and we do a class on that, which is really important. We talk about uh complex partnership issues, things with your board. They have to sell stuff, they have the fund raise, UM, how to how to make an offense and defense deck, to sell, to sell something, and in a whole list of basically things that entrepreneurs are gonna have to face in their life. Really intriguing. I have to imagine having been a graduate student at Stanford, it's deeply satisfying teaching there. It's a blast. UM. I started off as a case guest where they wrote a case about me buying stuff in my dorm room. And I was a case guest and I kept I would come home all energized, and it was my favorite day of the year. And then when the orv. Grossbeck, who wrote the case about me, who's a legend at Stanford, when he called me one day and said, hey, you know I'm gonna stop teaching this class. Would you want to teach it. And and my first response was, um, no, I have a job, you know, and I can. But I didn't say that. I said, hey, I'll think about it. And then thankfully everyone I was around was like, Graham, you have to do this, and it's your favorite thing you do, and and we we've figured out a way to make it work. So it's it's a blast. That sounds like that sounds like it's a lot of fun. One more thing I would just add is, um, what I realized that for a few years is I'll teach students all about entrepreneurship and we have this great class, and then they go take a job, you know, and consulting or you know, investor making. They never become entrepreneurs, even though that was what they wrote their essay about and that was what they were excited about. So I added to the class a whole part on Okay, wait a second, what is it you really want to do with your life? You know, what's holding you back? How would you make a plan to go do that? What are your limiting beliefs, what are the things? What are your fears? So we have a whole thread probably of the class is on those things. Because I'm like, what's the point of teaching people to be entrepreneurs if they don't become entrepreneurs. So so I've I've invested a lot into like personal growth and uh and that's a really really fun part. Well us too. Are any of those skill sets transferable to consultants who are they'll be working with other entrepreneurs and maybe haven't been exposed percent. It wasn't so much that I have anything against consulting. It was just that the student at the beginning of the class said, my goal is to do X, and then they don't do X. That was all. So tell us a little bit about your approach. What's your process like to finding a potential acquisition target? And since we look at both private and public markets, what do you think of in terms of valuation? How do you come up with a number? Yeah, great questions. We we have a large team that that looks for potential companies. We have actually fifty two people at Alpine and in the in our portfolio companies they are looking for deals. Um, so that's a lot of people. How big is a firm overall? Overall if you include the CEOs and training and um, we have in your ten consultants. We probably have roughly two, all right, So that's a that's a decent size. The fifty two also includes a number of people that are working at the company's doing sourcing, but they're doing the same thing. They're calling companies looking for investments. So we have fifty two people looking for deals and then a lot of those conversations are directly with founders. And what we're trying to do is figure out. The way we think about it is we can pay a price that we can hit our target returns, which I can't talk about on you know, but we can hit our so we we we can pay a price that we can hit our target returns with like a seventy base case, and then we need there to be a lot more upside to that than downside. So we want there to be like a case where we could hit many multiples of our target returns, and so based on that we kind of back into a price. And then where we get in trouble or where things get turned down at investment committee is when everything in the world has to go perfectly to hit that target. Because I've I've been in this business for twenty eight years, and when you start pricing in perfection, that's a time when you realize you're overpaying. So that that's that's it's that seventy probability and lots of marginals safety thing that you really, as someone who's like a little bit more senior at our firm, I have to bring that to the to the discussions. Yeah, that that perfect ten stuck the landing. Those are the outliers you certainly can't rely on exactly. You can't underwrite to that for sure. So when you look at this macro environment, it seems to be pretty supportive of economic expansion generally. How closely do you pay attention to things like, hey, the Fed is raising rates pretty rapidly, maybe they're going to cause a recession next year. We pay um attention to it to some extent. If you go back to the O eight crisis, Now that's a recession. Yeah, and we're we're just in a very different position. Um. I think we're way underbuilt on housing. So you know, I don't while the underbuilt on housing, so I don't see you know, I don't see things happen, you know, crashing there. I think we have the consumer isn't as leverage as they were back in two thousand eight, businesses aren't as leverage as they were. I just think it's a lot healthier. On the flip side, we also don't have the FED can't print money like they did in O A because of inflation. But I think generally it just feels like we're a lot healthier than we were back then. You're you're singing my song. I'm in the exact same place. I'm. I'm kind of perplexed by all the recession chatter. I mean, what are we two seven to eight million new jobs in this year? That's not what usually see, although, to be fair some past recessions, we were creating jobs right until the moment it stopped and and the bottom dropped out. But you know, it really depends on how aggressive the powers that you're going to get about inflation. So here's the question related to that, and oh eight oh nine, Let's say the naysayers are are right and the end of this year or we see something more than just a mile sheallow recession, we see a real recession. How does that affect the companies you look at and do you start doing, for lack of a better phrase, distress private equity invest Now you know, I think that what we've been trying to do over the last fourteen years is under age companies that would do well in a recession. Um, So hopefully we're gonna our companies will hold up well in that time in terms of what we look for. It does open up the door when you know, when there is a recession, there's a lot more different things that are for sale at different prices. And I think one of the great assets is if you have the whole team of managers that you can put into run distress things, you have a lot of options open to what you can look at. So there, you know, there will be a lot more interesting things to do with you know, if that happens, certainly don't wish that on the on the economy, on anybody else. And then finally I have to ask about the way you score software companies and services companies use a metric. I really am not familiar with e NPS. Can you tell us a little bit about Yeah, So, I think in general that there are leading indicators and lagging indicators. Lagging indicator is revenue. Those are lagging indicators. But yet a lot of managers they try to manage to lagging indicators, it's like and that, and that's just not very effective. So what we've tried to do is develop what are the leading indicators that are going to predict success. And the number one most important leading indicator you're not going to be surprising to hear me say, is talent. So if you tell me I'm on the board of your business and and we're starting to build the world class management team, I can tell you in two years we'll have a home run investment. So one of those leading two of those leading indicators related to talent are employee net Promoter score, which is the NPS, meaning how employees rate them exactly, would would they would they recommend this company to a friend, um, And we we measure that every quarter for every one of our companies. We measure at Alpine, we measure it for a whole bunch of different groups within Alpine. And then retention is the other big one. So if we can be managing those and getting those right, those are leading indicators that are gonna help us set up you know, the revenue E but dota come later, and those are hard things to manage. Getting those those metrics right takes a lot of work. That's Actually, where I spend most of my time at out and believe it or not, is making sure that we're creating an environment where the best people want to be and stay. And most people, again in the finance world, they don't think about kind of squishy soft metrics like that, but they should be well because they have a really outsize impact on the performance of a company. Absolutely, that's my view is they have they have the biggest impact. And my last question before I get to our favorite questions we ask all our guests. It's a little bit of a curve ball. You were a captain on a national championship rowing team, and so you look like you wrote so I uh, I came to college not even knowing anything about rowing. I didn't even know that the boats went backwards until I got in a boat. Well, it's not that exactly. I didn't even know that, um so I started as a novice. I walk on the team and it seemed like everyone else on the team had rowed before. So I was horrible, absolutely horrible, got cut and then just kept kind of and and so there's this funny story where the coach says, Okay, these are the people who go into boats. The rest of you are quote land warriors, and your land warrior means you go on the rowing machines. And so that that night when he kind of posted the boats and I wasn't in the boat, he said, all right, you know, so I did this calculus, and I'm like, okay, well, gosh, all the land warriors gonna show up before class. You know, classes first classes at nine, so they're gonna show up at eight. But so I gotta show up at seven. No, no, no, everyone's gonna think that. So I'll show up at six. So I show up the next morning, zero people, and one of the guys like, hey, idiot. Land warrior is another way to say you got cut, you know. But I still stayed as a land warrior and kept getting better at getting my Earth times better and better over time, and it was one of the greatest things I ever did. I I had, I had a great time. And and when were the national champions my senior year, I was so by then you're on the team. By yeah, by my Syria, I was pulling one of the best times in the nation. And rowing machine on the concept to rowing machine that you see in the gym to actually have a standard test which is two thousand meters that which you submit, you know nationally, And by my senior year, I had one of it maybe a few times, the number one time in the country. And and I was elected captain by my teammates of our team. And then that year we were supposed to have a rebuilding year because we lost all these seniors, and we actually won the whole thing. It was awesome. Wow, that's really amazing. Let's jump to our favorite questions that we ask all of our guests, starting with what kept you entertained during the pandemic lockdown? Tell us what you were streaming? Um. I went on this whole Buddhist thing during the pandemic, and I started reading a lot about Buddhism and streaming Buddhism, and it was it was amazing meditating or meditating and just kind of learning about Buddhism and you know, why we all suffer and how to you know, how all these thoughts we have in our head, our our own imagination. And I went on this whole kick during the pandemic, which was phenomenal, highly recommended. Uh and And basically the concept is that your reality is going through a filter and and everything that's happened externally, you're telling yourself a story about what that means and whether that's good or whether that's bad, and that that's really your reality isn't what's happening, it's the story you're telling yourself, and that you have complete control over that story. That's the classic narrative. That's yeah, that's the narrative fallacy. And that's kind of the fundamental premise of of Buddhism, which is your suffering is coming not from what's happening, but the story you're telling yourself. So I went on this long you know, meditating and and eating and kind of journaling about that, and that was that was a lot of fun. So so that we had this whole joke about um. We had a softball team here over in Central Park and we had the Buddhists playing the Stoics and the game never finished. Everybody just sat down and started having a long conversation. But I'm right there with you. You mentioned your UM two of your mentors who were some of your earliest investors. Are there anybody else you want to mention as mentors? The professor at Stanford you referred to us. Yeah, I'll both of those, Tom, Tom Styer, Doug Martin, and Irv Grosspec were super important in my life. I'll talk about Irv. He is probably probably if you had there's probably literally very a hundred people you could have on this con on this podcast that would list Irv as one of their most important real he was. He's a professor at Stanford and just uh, you know, makes time for folks. He built an incredible business and he just has this you know, unwavering moral code. Um. He was an early investor. He's the one who asked me to teach at Stanford, and I just I just find the way he's set up his life and his uh, just just the way he treats other people. Um, you're always the most important person in the world when you're with him. And so I've I've I've definitely learned learned a lot from him. Really interesting. Let's talk about books. What are some of your favorites and what are you reading currently? Um, I it's funny I end up rereading like the same ten books. Uh. In terms of my favorites I read, I have some I read currently too, but good too, great Warren Buffett's biography, Snowball, Steve Jobs Biography by Isaacs and Walt Disney's Biography by Neil Gabbler. UH Switch by Danna chip Heath, Made to Stick Dana chip Heath buffets annual letters like those are like I'm I reread those and and every time I reread them, I get kind of re energized. And We've modeled a lot of our business and a lot of my life around some of the things I learned in some of those books, and a lot of those are required reading an Alpine I can imagine what are you reading currently? And and right now I started getting on this burnet brown kick. I don't know if you've read some of her stuff, but the The Gifts of Imperfection I'm reading right now, which is just phenomenal. She is I actually download on an audible so I get to hear her talk about it. But she has um just this incredible way of talking about UH about things that other people don't talk about, like shame and how to um how to deal with the things you're not good at, and how to be intellectually honest and and admit when you don't know things. And she's I love I love her work. What's the title of the book. You're reading The Gift of Imperfection. It sounds really it's phenomenal. It's phenomenal. Um before I forget just as an aside, and you could edit this out. So I went to law school with a guy named Lawrence Cunningham who was the first person who recognized, Hey, all these letters from Warren Buffett. They're really fascinating deep stuff. He bound them. Yeah, I bought that book. I owned that book. That book has been like a perennial bestseller. And it's a you know, the old joke about the two economists walking down the street. One says, is that a hundred dollar bill on the floor, and the other says, no, if it was a hundred dollar bills, someone would have picked it up. It's the same. Yeah, these have been around for literally, I mean I think he first started in like ninety or nine two, something like that. And Buffett had been around for thirty years. By an a radio, twenty five years nobody had thought of doing. And you know what, like it doesn't matter if it's crypto or software valuations or the internet. The stuff but Buffett writes about is still the right stuff. Fundamental sense to discount the cash flows back and decide what you can pay. You're gonna put a premium on the discount rate if the stuff is a lot more uncertain. It's this is exactly the right formula today, and it was fifty years ago, and it will be fifty years from now. And any time that there's something new where people says this time it's different, you should be really skeptical. Alright, our final two questions, what sort of advice would you give to a recent college or business school graduate interested in a career in private equity. Well, I'll start with the first part just general advice, um, and then I'll go to the the private equity. But you know, as you can imagine, actually give this advice all the time teaching. But the the first thing that I think a lot of people graduating don't ask is like what they what do I want? What is five years from now, ten years from now? If I could, if I knew I wasn't going to fail, what would I want to do with my life? And they and start with that question and then start working backwards from that about what job you should take now and next year in five years from now. Instead, a lot of people just think, oh, these firms are interviewing on campus and I'll go here, I'll go here, and that's okay. But if you know where you want to be ten years from now, it'll inform which firm you go to work and what skills you're trying to acquire. So I think I think that would be My advice is like, in ten years you will you can do almost anything you set your mind to, and so give yourself permission to really answer that question, what do I want to do in ten years? Why does it matter if you quote know you're you wouldn't fail, Yeah, just to open the set of possibilities, or because yeah, I always frame it as if you knew you wouldn't fail, what would you do? Because without that people already jump to I can't do this, like subconsciously in the big fear failure so powerful even amongst really high performing talent. I think it's I mean, Stanford graduate students, I have to think that's the cross. In some ways, it's almost more prevalent because they have had so much success and they don't you know, they have this incredible track record. But I would say the number one thing that Stanford Business School students are are really just about anyone in the world. It's the same thing, which is they they they there, Their subconscious mind defaults to fear and fear of failure. That's fascinating because when I have discussions like this with colleagues or friends in Europe, the thing or even Asia, The thing that makes the United States so unique in the developed economy world is that failure isn't a scarlet letter. Especially in Silicon Valley. It's almost a badge of honor. Look at all the vcs that list all, Hey, we missed Apple and Cisco, we invested money in pets dot com. Look how terrible we are except for our compounded returns. It's a badge of honor to say we tried this, face planted, brushed yourself off, and moved on. But when you're starting out your career and you don't have anything to fall back on, and you haven't yet had the success that you can look back, it's really scary for people. And the thing that they miss is they underestimate what they could really do in in ten years, and they underestimate themselves. They forgot what got them that seat at Stanford Business School, and they compare themselves to you know, their roommate or their classmate or something. So the other half of the question, um, advice about private equity. Yeah, I would say I would say if if someone is interested in a career in private equity, I would I would say, all private equities not created equal, and there are literally, like probably a thousand different models and figure out, you know, go talk to a bunch of companies that are doing private equity a whole bunch of different ways, and figure out what resonates with you and your interests and your superpowers and where are you going to line up because it's it's a very diverse industry and you know, um, there are some firms that are making their money based on you know, hardcore fundamental analysis. You know, are we're making our money on talent. There's others that are, um, you know, doing us cutting. There's a whole bunch of different ways, and one or more of those is going to line up a lot better with what you're excited about. And our final question, what do you know about the world of software services in private equity today that you wish you knew twenty eight years or so ago when you were first getting started. Well, two things. The first thing is I wish I knew that it was going to work out fine, you know, so I was so stressed and put so much pressure on myself that I wish if I could go back and tell myself anything, it would be like, hey, Graham, you know it's gonna be okay because I went through a lot. That's a really interest. That's a really interesting answer, because you know, we just don't realize how much we freak ourselves out and and very often unnecessarily. What's the second thing? The second thing would be, I would be I would if I could have realized earlier on just how important the world of talent is and how that was really the thing that drove drove formans, because that that would have saved me a a decade. Sounds really like, um, You've honed in on exactly what makes your business work and really quite fascinating. Graham, Thank you for being so generous with your time. We have been speaking with Graham Weaver, founder and partner at Alpine Investors. If you enjoyed this conversation, well be sure and check out any of our previous four hundred discussions that we've had over the past eight and a half years. You can find those at iTunes. Spotify, wherever you feed your podcast fix. We love your comments, feedback, end suggestions right to us at m IB podcast at Bloomberg dot net. Sign up for my daily reading list at rid Halts dot com. You can follow me on Twitter at rid Halts. I would be remiss if I did not thank the crack team that helps put these conversations together each week. Robert Bragg is my audio engineer. Atika Valbrun is my project manager. Sean So runs all of our research. Paris Wald is my producer. I'm Barry Ritolts. You've been listening to Masters in Business on Bloomberg radioa