1. Nick, you recently launched what could be a game-changing online exchange for sourcing private equity deals. If you’re a private equity firm, how does CapitalSphere work?
Once a firm’s application process is complete, they are matched with their acquisition criteria through our algorithm with the assets that we have in our database. To call it a database is really to undervalue what it is. These are vetted, qualified proprietary deals where we’ve talked to an owner who has expressed interest in selling, or the owner has approached us. If the variables we’ve identified match with a qualified investor, the algorithm tells us who the highest match is. There still is a people component, and so we basically trigger an introduction if we believe it’s a good match. This way, we’re protecting the interests of the investor, and we protect the interests of the seller. By contrast, the traditional people-based model would require lots of people to just do the matching process. This eliminates that entirely.
2. How do you find sellers of assets?
Number one, we’re going out to the sellers. We’re getting a lot of proprietary deal flow, not just from Bainbridge Capital, but from other proprietary sources that are bringing their deal flow to us as well. The second way is to directly market and pitch owners of assets for all layers of the capital structure. It could be equity. It could be minority equity. It could be mezzanine or debt. So it’s direct to the principals of the asset.
3. And how do you get paid?
We’re paid strictly from the buyers. We’re remaining true to our roots. Our professional focus has always been with the investor. The real revenue generation is when there’s a deal closing.
4. Are traditional investment banks your competition, or are they partners?
Probably, a little bit of both. Our system is geared toward an owner of an asset who doesn’t want a long sales process—we cut down what is usually a months long process down to seconds. Owners are probably also earlier in their decision to divest. And we’re less invasive than the traditional process. But, yes, there could be direct competition—no question. If our system is more effective in reducing some of the costs, the hassles and invasiveness of the process, then hopefully our system is a better alternative.
5. Coming out of the gate, how many investors do you have?
Right now, we have about 300 investors that I would say are the top percentile. We’re looking for quality investors, not quantity. And, once we have first mover advantage, that’s it. Nobody’s going to catch up because it’s a learning algorithm. The more it’s used, the more we have a head start, and our hope is that we can get this thing to evolve [to include] the entire industry.
Edited for clarity