1. Until recently, Bank Street has been primarily a boutique investment bank and an advisory firm. Yet you were hired recently to help launch Bank Street Capital Partners and launch its debut private equity fund. Does this signal a new direction for Bank Street?
It is a new effort, which will be separate from Bank Street’s advisory business. I’ve known the two founders of Bank Street, James Henry and Richard Lukaj, since the early 1990s, working on telecom deals. We all feel there’s a compelling opportunity right now at the small end of the market for a fund that’s very focused in the telecom infrastructure space. When you have people who have been in this space for 20 years, and who have invested through all these cycles, coupled with your network and Rolodex, you can build a firm that has the resources to take advantage of the inefficiencies at the small end of the market.
2. Is being affiliated with an investment helpful in starting a new private equity fund?
It’s been really helpful for me. Besides having good partners who have seen it all and have a wealth of transaction experience, the one thing I find really beneficial is that (in my previous roles), partners would say to me, “Ted, what are your comps for this deal?” And comps are always driven by the deals that actually get done. But the comps you really need to focus on are the deals that didn’t get done, because for every deal that gets done, there are 10 that didn’t. What were buyers willing to pay in those deals? The answer is what’s really going to tell you where most people are right now as far as pricing transactions. So, now that I’m part of Bank Street, I’m really plugged-in to the deals that are out there and aren’t getting done.
3. How much money are you trying to raise, and is your specialized focus on small market telecom going to help you get to your target?
Our target is $150 million. That is the right number if you want to have 10 to 15 portfolio companies. We’ve actually already done four deals. We tell investors our typical investment will be about $5 million to $10 million up front, and that we want to leave a little dry powder to do some add-on acquisitions. We feel the economics are sufficient. We like our approach, and we’re going to put up $5 million to $10 million of our own money into the fund.
That said, the current market is a tough environment to raise money in, and we don’t make this decision arbitrarily. It’s difficult out there. Even name brands are not finding it as easy as they did before. On the other hand, though, I hear a lot of people say, “We like specialization, and we like to play at the small end of the market.” Well, if you’re going to play in the small end of the market, and you want to invest in an industry sector that’s still growing at 10 to 20 percent a year, like telecom infrastructure is, where else do you look? It seems like there could be some receptivity to what we’re doing.
4. Who do you see as your likely LPs?
With our strategy, I think we’ll raise money from funds of funds that have a targeted approach to find newer managers in specialized areas. I also family offices would like our approach, as well as endowments. I think that our fund is probably too small for public pensions.
5. What funds will you be competing with in the small to mid-market telecom buyout space?
There are some funds that do what we do, but most of it do it on a bigger scale. There are two great funds, Columbia Capital and MC Ventures, but they are looking for bigger deals than we are. There are some guys doing what we do in the small end of the market, such as Meritage Funds and Catalyst Capital. But given the fragmentation of the space, there should be more funds doing this.