Introduction
What does it take to successfully transition from being an entrepreneur to becoming an investor? In this episode of The Business Philosopher Within You podcast, host Bhavesh Naik sits down with Beau Hale, a seasoned entrepreneur who has founded multiple successful companies and now leads Pine Peak Partners, a private credit and preferred equity investment firm.
Beau shares his insights on the mindset shift required to move from building businesses to investing in them. He delves into the lessons he's learned through his entrepreneurial journey, including the challenges of scaling, managing cash flow, and navigating exits. Beau also explores the differences between an entrepreneurial and an investor's perspective, and how he's leveraging his past experiences to identify promising opportunities and support innovative, trustworthy individuals in the lower and middle markets.
Whether you're an aspiring entrepreneur looking to one day transition into investing or an established founder considering your next move, this episode offers valuable guidance on navigating the path from building to investing. You'll discover the key strategies Beau employed to build and sell his previous companies, the pivotal moments that led him to shift into investing, and the unique insights he brings to the world of private credit and preferred equity.
Tune in to gain a deeper understanding of the entrepreneurial-to-investor transformation and unlock valuable lessons to inform your own business journey.
Audio From Startups to Investing: Beau Hale's Entrepreneurial Journey
Video The Journey of an Entrepreneur Turned Investor
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About Beau Hale
Founder & Managing Director, Pine Peak Partners
Beau Hale is the Founder and Managing Partner at Pine Peak Partners, or 3P, an asset manager focused on private credit and preferred equity investments in the lower and middle markets. Beau has a proven track record of staying one step ahead of ever-changing industry shifts and creating companies before the need for them is even known.
Before 3P, he co-founded Midigator, a pioneering chargeback and credit card dispute management platform, which was acquired by Equifax in 2022. He also co-founded Adboom Group, a digital marketing agency that ranked #3 on Forbes’ List of America’s Most Promising Companies in 2015.
Beau’s mission today is to invest capital in innovative, trustworthy and like-minded individuals, both established or otherwise, that are often misunderstood by traditional lenders and investors.
"Test and test and test"
~ Beau Hale
Founder & Managing Partner, Pine Peak Partners
Chapter-by-Chapter Summary
Following are the sections we covered in this conversation with their summaries, along with the time location in the video and audio to follow along. The timestamps in orange correspond to the chapters in the YouTube version of the podcast episode. This video will display to the lower right as you scroll down.
Please Note...
The numbers that precede the headings (like 00:00) are the time-stamps associated with the video version of the podcast that's included above.
00:00 Selected Highlights from the Conversation with Beau Hale
This segment, the "trailer" of the episode, highlights short snippets of the conversation that share Beau's wisdom on transitioning from being a business builder to an investor.
02:00 Introduction and Context: An Entrepreneur's Journey from Adboom to Pine Peak Partners
Bhavesh Naik introduces his guest, Beau Hale, as the founder and managing partner at Pine Peak Partners, an asset management firm focused on private credit and preferred equity investments. Beau previously co-founded two successful companies - AdBoom Group, a digital marketing agency, and Midigator, a chargeback and credit card dispute management platform.
03:21 Solving the Chargeback Challenge with Midigator
Beau delves deeper into the genesis of Midigator, explaining how the chargeback problem was impacting AdBoom's growth. Existing chargeback management providers were outsourcing the work to cheap labor overseas, resulting in slow response times and low win ratios. Beau and his team decided to build their own solution, which they initially just used internally.
However, as word spread, other companies started requesting to use the Midigator tool. Beau and his partners saw the potential to turn it into a separate business, officially creating the Midigator brand in 2014. They began onboarding more clients, including larger brands, as the platform grew. Beau notes that the two businesses, AdBoom and Midigator, overlapped for several years until AdBoom was eventually sold in 2018, allowing Midigator to become the main focus.
"You really have to test it to be sure. How do you ultimately test it? You don't just talk to your family and friends. You don't just talk to your parents and get their feedback. You get the data. You have to make sure that it's unbiased because the data doesn't lie, the numbers don't lie, and getting the objective data, not just from kind of a small pool of your close number."
~ Beau Hale
Founder & Managing Partner, Pine Peak Partners
08:49 The Equifax Acquisition: A Successful Exit
Beau describes the process around the acquisition of Midigator by Equifax in 2022. He explains that it was an outcome they wanted, though it was somewhat unusual as Equifax was the one to initiate the discussions. Equifax had recently acquired a company called Count, a front-end fraud solution, and saw an opportunity to pair it with Midigator's post-transaction chargeback capabilities.
The two companies had previously been resellers of each other's products, so the synergy was evident. Beau also had a private equity firm, LLR, that had invested in Midigator in 2018 and was looking to exit. While Equifax's proposal was the primary driver, Beau and his team did explore other options to ensure they were getting an appropriate valuation for the business.
Terms and Concepts for Exploring Entrepreneurship and Investing
These terms and definitions serve as a framework for understanding the themes explored in the conversation.
Bridge Debt: Shorter-term, asset-backed financing provided to sponsors who can't get traditional bank financing, typically with 1-2 year loan terms.
Private Credit: Debt-based investment strategies, as opposed to equity, often targeting higher yields and downside protection.
Preferred Equity: A hybrid security that has characteristics of both debt and equity, providing investors with a preferred claim on cash flows.
Chargeback: When a customer disputes a credit card transaction, often due to non-delivery, damage, or unauthorized charges.
Merchant Accounts: Bank accounts that allow businesses to accept and process credit/debit card payments.
Midigator: The chargeback and credit card dispute management platform co-founded by Beau Hale.
AdBoom Group: The digital marketing agency co-founded by Beau Hale that was later sold.
Pine Peak Partners: The private credit and preferred equity investment firm founded by Beau Hale.
LLR: The private equity firm that made an investment in Midigator in 2018.
Equifax: The credit reporting agency that acquired Midigator in 2022.
10:48 Transitioning from Entrepreneurship to Investing
After the successful Midigator exit, Beau, at only 38 years old, knew he wanted to continue pursuing his passion for building and investing. He had been an investor with various private equity and credit groups over the years, and the private debt and credit space particularly resonated with him.
Beau explains that the downside protection and consistent returns of private credit appealed to him, especially compared to some of his earlier investments that had gone to zero. He also felt there was room for improvement in the investor experience, with a lack of transparency and subpar reporting being common issues. This led Beau to launch Pine Peak Partners, with the vision of creating a legacy business that could potentially be passed down to his children.
"Never burn a bridge."
~ Beau Hale
Founder & Managing Partner, Pine Peak Partners
17:46 Focusing on Bridge Debt and Private Credit
Beau clarifies that Pine Peak Partners is primarily focused on bridge debt, providing shorter-term, asset-backed financing to sponsors who can't obtain traditional bank financing. He notes that this "bridge" financing is usually for 1-2 year terms, as it allows the sponsor to prove out their business plan and then secure longer-term financing from a bank.
While Pine Peak has done some preferred equity transactions in the past, Beau's current hyper-focus is on the bridge debt side of the business. He explains that this area of private credit particularly appeals to him due to the downside protection and consistent returns it can offer investors. Beau also emphasizes the importance of being transparent about the investments and tailoring reporting to different investor preferences.
References Discussed: Elon Musk, Steve Jobs and Facebook
Elon Musk
Elon Musk, the visionary behind Tesla and SpaceX, is cited by Beau Hale as someone who has spoken candidly about the realities of entrepreneurship. Musk's perspective on the glamorized perception of starting a company versus the challenges involved resonates with Beau, who has faced his own "dark nights of the soul" in building Pine Peak Partners. Beau seems to draw inspiration from Musk's willingness to openly discuss the less romanticized aspects of the entrepreneur's journey.
The social media giant Facebook is referenced by Beau as a pivotal moment in the early days of his first company, AdBoom Group. When Facebook went public in 2012, the company struggled to effectively monetize its mobile platform, a challenge that Beau and his team navigated by building their own tools and strategies. This experience laid the foundation for Beau's later venture, Mitigator, which tackled the complex problem of credit card chargebacks. Beau's ability to identify and capitalize on industry shifts seems to be a key factor in his entrepreneurial success.
Steve Jobs
While not explicitly mentioned by Beau Hale, the influence of Steve Jobs and Apple's product design philosophy is important in the discussion. Bhavesh Naik draws a parallel between Beau's approach and the iPhone's user experience, noting that true simplicity often requires substantial complexity behind the scenes. This insight seems to shape Beau's strategies for educating investors and making Pine Peak's offerings accessible, even when dealing with the inherent complexities of the financial services industry. Bhavesh's reference to Steve Jobs highlights Beau's recognition that simplicity and intuitiveness are key to engaging investors, much like Apple's iconic products have done for consumers.
22:57 Building a Legacy Business at Pine Peak Partners
Beau shares that his vision for Pine Peak Partners is to create a legacy business that he can potentially pass down to his children. He has two young sons and, while he's unsure if they'll have any interest in the business, he wants to build something that the family can work on together.
Beyond the personal legacy aspect, Beau discusses his broader ambitions for Pine Peak. He wants to eventually have both a lending division and a private equity division, as he believes this will allow the firm to appeal to a wider range of investors. Beau is passionate about both the debt and equity sides of the business, and he feels having this flexibility will be a competitive advantage.
Critically, Beau notes that in order for Pine Peak to grow, he'll need to raise more capital from investors, as he can't continue to fund 50% of each deal with his own personal capital. Building an engaged investor community and providing excellent reporting and transparency will be key to achieving this goal.
"There's a lot of decision-making that happens when something's not going right. So we do a really good job in my opinion on the reporting, going granular into the reporting, the consistency of the reporting."
~ Beau Hale
Founder & Managing Partner, Pine Peak Partners
41:54 Applying Lessons Learned to Pine Peak Partners' Culture and Strategy
Reflecting on his experiences, Beau discusses how he's applying lessons from his past entrepreneurial ventures to the culture and strategy at Pine Peak Partners. He emphasizes the importance of leveraging technology to optimize internal processes and improve reporting for investors.
Beau also highlights the shift he made at Midigator, transitioning from an office-centric "hip and cool" culture to a fully remote model. He found this allowed Midigator to expand its talent pool and saw employees become more productive without the distractions of an office environment.
At Pine Peak, Beau is focused on building a transparent, metrics-driven culture, with customized reporting to cater to different investor preferences. He's learned the hard way that overreporting is just as problematic as underreporting, and finding the right balance is key.
"Being able to have that transparency into what my money is doing, that really spoke to me and that's what I wanted to bring to Pine Peak."
~ Beau Hale
Founder & Managing Partner, Pine Peak Partners
47:14 Navigating the Ups and Downs of Entrepreneurship
Beau acknowledges that the entrepreneurial journey is not always easy, and there have been many dark moments where he's questioned his decisions. He shares a recent example from just a few months ago, where he felt the two core pillars of Pine Peak's business - origination and fundraising - were "broken."
During this challenging period, Beau experienced extreme self-doubt and anxiety. He had to step in and fix the issues himself, even telling his team to "get the F out of my way." This experience made Beau realize the depth of his own self-doubt, which he thought he had overcome. However, it also reminded him of a key skill he had developed earlier in his career - the ability to "trick" his mind into believing in and pursuing tasks that didn't come naturally to him.
"Take risks, but be conservative in planning for the future."
~ Beau Hale
Founder & Managing Partner, Pine Peak Partners
54:33 Advice for Entrepreneurs Considering an Investor Transition
For entrepreneurs considering a transition to investing, Beau's top advice is to ensure the product or investment offering is something people genuinely want and believe in. He stresses the importance of extensive testing and validation, not just relying on personal preferences or assumptions.
Additionally, Beau emphasizes the need to prioritize education and making the offering easy to understand and digest for potential investors. He learned this lesson the hard way when his first fundraising efforts for Pine Peak fell flat due to overly complex messaging.
Beau encourages aspiring investor-entrepreneurs to be willing to adapt and pivot their approach based on feedback and data, rather than stubbornly adhering to their initial ideas. Building a transparent, thoughtful investor experience is crucial for success in the transition from entrepreneurship to investing.
"The vision for Point Peak is that it's going to be my legacy business. I want it to be something that I can pass down to my children."
~ Beau Hale
Founder & Managing Partner, Pine Peak Partners
01:00:14 Connecting with Beau Hale: Sharing Insights and Experiences
In closing, Beau expresses his openness to connect with a wide range of individuals, whether they're aspiring entrepreneurs, established founders, or intrigued by the Pine Peak investing model. He's eager to share his insights and experiences to help inform others' business journeys.
Beau emphasizes that he's happy to discuss both his entrepreneurial path and his transition into the world of private credit and preferred equity investing. He sees value in these conversations, as they allow him to further refine his messaging and strategy for Pine Peak Partners.
By offering his time and expertise, Beau aims to provide guidance and support to those navigating similar challenges and decisions that he has faced throughout his varied career as both a founder and an investor.
"If I was to look at the performance or just my risk level of all my greatest different investments over the course of over a decade, the private debt and credit space always excited me."
~ Beau Hale
Founder & Managing Partner, Pine Peak Partners
Take-Aways in Transitioning from Entrepreneurship to Investing
Here are some takeaways from the conversation between Bhavesh Naik and Beau Hale:
- Be open to transitioning from entrepreneurship to investing and explore new opportunities.
- Take calculated risks and be willing to test ideas.
- Build strong relationships and avoid burning bridges.
- Create a legacy business that aligns with your values and can be passed on to future generations.
- Testing and data are crucial in building a successful business. It's important to gather objective data and feedback to ensure that your product or service is meeting the needs of your target audience.
- Hiring the right people and building a strong team is essential for the success of a business. Surround yourself with talented individuals who share your vision and can contribute to the growth of the company.
- Culture plays a significant role in creating a positive work environment. Foster a culture that values innovation, collaboration, and employee well-being.
- Entrepreneurship is not always glamorous and comes with its fair share of challenges. It's important to persevere through difficult times and have a support system to lean on.
- Simplicity and intuitive user experiences are key in product development. Make sure your product offering is easy to understand and use, and focus on delivering value to your customers.
