Summary

William Frye, CEO of MainShares and Bison Brokerage, discusses how MainShares helps SMB buyers close the gap in equity funding. MainShares provides a network of credit investors interested in owning a piece of SMBs, allowing searchers to find additional equity infusion to complete acquisitions. MainShares assists in structuring the deal, providing standardized investment documents, and facilitating compliance. The platform also offers tools to manage the capital raise and access to investors. Frye advises entrepreneurs to start early, build relationships with investors, and create a cohesive narrative for the capital raise. He emphasizes the importance of transparency, momentum, and prioritizing anchor investors. The conversation explores various aspects of raising capital and working with a broker dealer. It also discusses compensation for referrals and the trend of all equity deals in the future.

Takeaways

MainShares helps SMB buyers close the gap in equity funding by providing a network of credit investors interested in owning a piece of SMBs.
The platform assists in structuring the deal, providing standardized investment documents, and facilitating compliance.
Entrepreneurs should start early, build relationships with investors, and create a cohesive narrative for the capital raise.
Transparency, momentum, and prioritizing anchor investors are key to successfully closing the capital raise. Working with a broker dealer can supercharge a capital raise and provide expertise in due diligence.
Referral fees can be paid for self-directed raises, but not for broker dealer raises.
Raising capital with a combination of debt and equity is common, but all equity deals are becoming more popular.
The SBA can be a hindrance for searchers with real estate portfolios, leading to a preference for all equity deals.

 

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Transcript:

Jon Stoddard (00:00.979)
Welcome to Top M&A Entrepreneurs. Today, my guest is William Frye. William is the CEO of MainShares and Bison Brokerage. MainShares is a solution to help SMB buyers close the gap with equity funding. And we're going to talk about how that's done. So William, welcome to the show.

William Fry (00:22.466)
Thank you for having me, John. As a quick note, it's Beacon. Bison is Clint.

Jon Stoddard (00:27.683)
Freaking, yeah, sorry about that. You wanna do it again? Yeah, okay, so.

William Fry (00:30.654)
No, sure. Yeah, we can do it again.

Jon Stoddard (00:36.159)
Welcome to Top M&A Entrepreneurs. Today, my guest is William Frye. William is CEO of MainChairs, which is a company and a solution to help SMB buyers close the gap with equity funding to close the acquisition. And William is here to talk about that. He's also the CEO of Beacon Business Brokerage too. So welcome to the show.

William Fry (01:00.162)
Thanks for having me, John. Excited chat.

Jon Stoddard (01:02.147)
All right, so William, you got to tell me exactly what this is. Uh, and here I know what the problem is because I help, uh, students buy businesses and they'll come to me and they say, great, it's a $2 million business. Uh, SBA is only going to fund me 80%. So I need 20% here. I got 10% from seller financing or 15%, but I need two to $300,000. I don't have.

William Fry (01:07.022)
Thanks for watching!

Jon Stoddard (01:32.279)
How do I close the gap? You're gonna show me how that's done with main shares.

William Fry (01:37.01)
Yeah, that's exactly what we do. We have a network of a bunch of different credit investors who are really interested in owning a piece of SMBs, not looking to operate full-time. They're the perfect partner for these searchers who find great businesses, get them under contract but need an additional equity infusion to get over the finish line. That's what we do. We will help people.

kind of set up their capital raise in terms of how they structure the deal, what the standard governance packages are, so the rights of the investors and the rights of the searcher, and then run the capital raise. And then as part of that, we're also helping them with some of the things that need to get done to close actual deals. So there's kind of a lot of moving parts when you're in the final 30, 45 days of an acquisition, especially when the SBA is involved. So we like to get involved there and help out how we can.

Jon Stoddard (02:32.163)
So if I brought a good deal to you, and let's say this is day one, it's in the SBA was gonna finance it, I need two to $300,000. So let's say I'm a coach and the buyer is, he's a one and done, he's probably not gonna do it again, he's just doing this, I need to raise $200,000. So what's the first thing they do? They go to main shares, they fill it out, and you're gonna start asking for financial information,

William Fry (03:01.086)
Yeah, that's exactly it. Yeah. So we'll work with them to dial in a model of their acquisition. So the classic like sources and uses, how they want to structure their investment offering. And so there's kind of two or three schools of thought on how you can approach it. We're not out here pushing you into one bucket or another. It really gets down to what does the structure of the transaction look like, how much money you're trying to raise, and then kind of what you alluded to before is what is your game plan as a searcher?

Are you looking to buy and operate this business for the next 20 years? Is this a trade that you spent the past decade in? Are you looking to grow it and then sell it in five to seven years to a strategic or a P shop or something in between? And so I think that the right approach in terms of the equity structure really depends a lot on both the business you're buying, but then also what you're looking for as a searcher.

Jon Stoddard (03:55.747)
So if I came in and said I wanted to buy a CPA firm and CPA are typically very profitable if they're doing $2 million top line, one million bottom line, I would suggest they do a revenue share agreement because they'd get a cash on cash return very fast. You're leaving that open, but just giving me access to those investors that could put that $200,000.

William Fry (04:20.522)
Right, right. To the investors and then we also, you know, we've done a lot of work to try to standardize these transactions as much as we can. Like if you chat with investors, a lot of their fear is, hey, look, every single investment is different in terms of the rights of the investors. I don't know how much I'm going to get in terms of split of the cash flow of the business. I don't know what due diligence the operator has done. And that's really where we come in. We have standardized investment docs you can use.

And obviously you can redline them with your own counsels. We're not shoving them down your throat, or we're giving you kind of a jumping off point of docs to use for the transaction. We'll help you set up all of the different compliance pieces you need to do in order to execute well. So whether that's, you know, blue sky filings in the state that you're raising capital, or reg D filings once the transaction is closed. And then we're gonna give you some tools and access to investors to really manage your capital raise.

And that can mean different things for different people. Some people may want transactional capital. So they're looking for people who are going to come in for a 100k check and just be along for the ride. They don't want to have any involvement in the business. Other people are looking for someone who can add more strategic value. Maybe they're looking for one or two investors who have deep experience in that industry. Maybe they own a business in the industry themselves. And really, we're kind of giving them the tools to manage that capital raise, meet those investors, and close the deal.

Jon Stoddard (05:42.443)
Yeah. And is that somewhere I declare, hey, I'm looking for smart money and I'm looking for just hands off money? How do we know that? Yeah.

William Fry (05:49.698)
So you don't declare outright, but when investors request access to your capital raise, you'll be able to see a profile on them on what they're looking for and what their ideal involvement in an investment is. And from there, you can kind of weed apart, okay, what is my ideal cap table? What are the investors that I wanna work with? And really give that control to the entrepreneur. Because I think like one misconception of our platform is you come on and you have to only work with our investors and we're gonna pick the investors.

and you kind of just take the money and run. It's much more of a platform that enables entrepreneurs to execute on their capital raise. So even if you already have investors, you can invite them to your round, and then obviously you'll be able to meet additional investors on the main shares platform.

Jon Stoddard (06:29.603)
All right, so you don't have to be exclusive on this. I could be working on the side and raising capital and accepting monies from other investors. It doesn't have to go through there. Just I got parallel.

William Fry (06:40.318)
Yeah, exactly. And so the kind of pricing options that we have for entrepreneurs is on the one end. We have kind of a flat fee to streamline your capital raise through the main shares platform. Additionally, if you want a more hands on partner to help you go through due diligence, structure the term sheets, get more in the weeds of your capital raise, we have an affiliated broker dealer. And that entity does charge a percentage of capital raise and operates in a more exclusive agreement of, hey, look, if they're involved,

they want to be meeting the investors so that they can really do their diligence and satisfy their compliance obligations. But the kind of happy path is if you're looking to just raise a hundred, 200, 300 K, you can sign up on the platform and get started right away.

Jon Stoddard (07:20.899)
So I started on the platform. What does it cost to the entrepreneur that starts off on main shares?

William Fry (07:27.294)
Yeah, so we have two offerings on the capital raise side. We have one basic offering that's 2,500 bucks. We're gonna give you the tools to manage investor accreditation. You'll bring your own docs, you'll bring your own investors. We'll help set up the SPV. On the second end, we have what we call our standard offering and that's for entrepreneurs who don't have all of their cap table identified. They don't know all the investors are gonna work with and they probably don't have investment docs. And so there you kind of get a capital raise in a box. We'll provide you with a form.

agreement. So that's a term sheet equity commitment letter, your subscription agreement, your operating agreement will provide access to the main shares investor network. And so you can really grow your top of funnel in terms of people you're speaking with. And that price is an $8,000 flat fee.

Jon Stoddard (08:13.411)
Alright, this sounds more like an Angel Lisp than a start engine, is that right?

William Fry (08:16.818)
Yeah, yeah, that's exactly right.

Jon Stoddard (08:18.935)
Yeah. And what if they come to you and it looks like they're overvaluing it? No, first, maybe rewind a little bit. Do they already need a commitment from SBA to do this or can you do it afterwards? Or it has to be.

William Fry (08:35.594)
You can do it afterwards or before. Our preference is get the business under contract and have an SBA term sheet. We don't want you wasting time or money. We also don't want to go through the work of setting up a capital raise and then the deal doesn't even pan out at all. And we'll work with entrepreneurs. So we're typically digging in six, nine, 12 months before they have a business under contract because that's kind of the average search duration for your self-funded searcher.

And through that process, we're looking at deals with you. We're helping you understand, okay, this one has a bit more customer concentration. The SBA is probably not gonna lend their typical 80, 90%. They're gonna lend closer to 60, 70%. You're gonna have to bridge that gap with either equity or you're gonna have to go to the seller and figure out an equity role or forgivable seller note. And so we do like to get in early. That ensures better outcomes for the entrepreneurs and the investors if it does get to a capital raise and it gives us a better chance of making sure that good deals are coming to the platform.

Jon Stoddard (09:34.067)
Yeah. So if they already have SBA, there's probably a reasonable multiple because they're just not going to overpay for this. They're just not going to give you a loan. So, uh, what other advice do you give to them about how to structure, uh, an equity raise from a guy like, for example, if a guy's, uh, you know, just doesn't have a college degree, just went through the trades, but he's an HVAC guy that's bought and sold his business. He's a millionaire, but he's

William Fry (09:41.258)
Exactly.

Jon Stoddard (10:04.179)
not very savvy on equity terms. Or, yeah.

William Fry (10:08.926)
Yeah, I would say a few things. I would say one, start early is our advice. Start to build your relationships with prospective investors before you have a deal under contract. That's the best chance of having the shortest capital raise that hits all of your criteria and your objectives because you're able to allow them to invest in lines and not dots. So if you just bring them a deal under contract, you're not super savvy with the terms, you're raising and you're meeting them for the first time.

There's a higher barrier that you have to clear in the eyes of the investors because they haven't had the chance to get to know you, to understand how you think, to show that you're diligent. You've looked at deals you've passed on deals. This is a deal that you really think is great. And that's why you're bringing it to the table. So I'd say like number one is, is meet investors early, start to build your kind of network and maybe have an email distribution list, keep them updated on your search, and these are things that we'll actively encourage on the

We're not trying to hold the investors behind a locked door and only allow them out after you pay us. We're trying to be a platform here. So we'll more than happy connect people when they're looking to kind of build out their Rolodex, if you will. The second thing that I would say is don't over-engineer the deal. The best chance of getting a deal done is to follow two or three different approaches to structuring that the investors are already familiar with. Then you're not having to educate them on a new investment structure that they haven't seen before. And we see a few different kind of templates, if you will.

So one very common one, if there's SBA involved, is a preferred participating approach, which has like the step up, which allows the investors to have a slight sweetener after there's been a return of capital. If you're looking at a deal that has a seller note, no SBA loan, or it's a majority equity, typically what we'll see is you'll have cashflow splits to get more and more entrepreneur friendly as you get more money back to the investors. And then I would say the third thing is like, have a narrative in mind of how do you exit this business for the investors?

And there are a few ways to do that. You can achieve it through buying out the investors at like the year five, year seven mark. You can achieve it through having a sale to, another strategic, a competitor or private equity fund. But you do wanna have some amount of narrative prepared so that you're walking through the investors, a story that makes sense, that's realistic, and they can really buy into that. And they can buy into the journey that they're gonna go on with you. So those are kind of like the highlights, if I will.

Jon Stoddard (12:28.028)
Yeah, let me ask you a question because I've been through the VC model a long time ago and we took venture capital money. There was a pretty big step up because they thought in every VC portfolio, they think one or two is just going to be a unicorn and the rest are kind of dogs and they get rid of. But these dogs, sometimes they're making a lot of money or just barely making any money. And then when that term comes up.

William Fry (12:31.799)
Sure.

William Fry (12:43.884)
Right.

William Fry (12:49.783)
Totally.

Jon Stoddard (12:54.679)
where the VC has a call option to say, I want my shares back, you gotta buy me back at fair market value. That's a lot of money. And then if you took those models to, and put it on top of an HVAC company that's only going 5% a year, how does that work? I'm kinda, need some explanation on that.

William Fry (13:11.751)
Yep. No, yeah, that's very fair. So I would say that there's kind of two things at play here. One is setting up the investment structure to protect the company and protect the entrepreneur. And so there are a few ways that we do that through kind of like standardized rights and governance packages of like when do you need the approval of investors to do something, when do you not? And then additionally, making sure that there's a minimum cash reserve in the business. You don't want a scenario.

where either the entrepreneurs being their own worst enemy and making distributions when there's not enough cash in the bank, or when the investors are being needy, maybe they have something in their personal lives that has nothing to do with the business and is pounding the table asking for distributions. And so like you wanna put in those kind of like sandbox parameters from day one, so that everyone's on the same page with the same expectations. I would say the second thing is understanding, who has a call option, who has a put option.

For us, typically what we see is the entrepreneur has a call option at year five. That means the entrepreneur has the right but not the obligation to start buying out investors after a certain amount of time has passed. Rarely will we see a scenario where investors have a put option and they're the only ones with an option. Typically, if that's the case, it's kind of unilateral. But that's where it gets back to what I was saying earlier. You really want to line up front on what is your goal with this acquisition? How do you want to use the cash in the business?

Do you want to be reinvesting and growing aggressively? Or is it more of a cashflow play where you're going to make distributions to yourself and the investors? And it gets down to, you know, what are your personal financial goals as a searcher? What can the business support? Is this a business that can grow really aggressively? Or is this more of a cashflow play? So like a classic example is an auto shop. With an auto shop, you're not going to magically have more bays appear out of nowhere. You're not going to be able to grow that 20% year over year.

Sure, you can probably optimize it. Maybe you can increase pricing so that you have better gross profit, but that's more of a business where it makes sense to have a cash flow distribution, where every quarter, every year, you're distributing to yourself and your investors, and then at some point, you buy them out when they want liquidity. It doesn't make sense to be a business where you're saying, hey, look, I'm gonna reinvest aggressively and sell it in five years. It just doesn't make sense. It's not practical. So I think, yeah, totally. So there's some considerations to get in on a deal-by-deal basis where it's hard for us to say,

Jon Stoddard (15:18.327)
Yeah, it's not scalable. Yeah.

William Fry (15:25.366)
generics but that's one thing that we love to do with entrepreneurs.

Jon Stoddard (15:28.515)
So you've kind of that future story, you say, hey, look, you gotta be prepared for this because at some point the investor's gonna want the money and we gotta figure out how to get their money back. The best way with the economics of the business.

William Fry (15:37.89)
Exactly. Yeah. And you have to do it eyes wide open. A hundred percent. So like, you know, a common thing is nowadays you have seller notes that have a balloon payment. That balloon payment typically can't be paid in the same year of the cash flow of the business. So it's going to cut into the cash reserves, which means there may not be distributions to the investors, or you're going to refinance it into an SBA loan as well. And, and like you want to get ahead of that. You want to make that clear in the model that you show to investors of, Hey, I know this balloon is coming due and this is how I, how I plan to handle it.

because investors are looking for people who are going to be good stewards of the business. You don't need to be a financial engineer or financial wizard, but you do need to kind of think through, okay, what's going to happen in your two, three, four, five?

Jon Stoddard (16:18.743)
So a lot of these companies are not going to sell unless there's a proof of funds on this business that I can actually buy the business. So you have a solution for that.

William Fry (16:32.222)
Yeah, that's exactly right. So we'll write pre-qualification letters for entrepreneurs as well as for deals that they're looking at. And that's really trying to show credibility and confidence that the entrepreneur can transact even if they don't have all the cash on hand when they're chatting with the broker. Because the big thing that we've seen over the past two or three years is buying a business is kind of going through a meme moment. You have a ton of institutional players coming down market.

You see lower middle market funds buying platform acquisitions that are worth $2 million, whereas before they'd only buy platform acquisitions that are maybe $5 or $10 million. So they're competing against the individual buyer more than ever. You also have a lot more high net worth family office types that are joining the game as well. And so if you're going after your stereotypical kind of million dollar EBITDA cashflow business, you're getting compared to all of these buyers who have all the funds ready. Sure, they may not be the dream buyer from the owner, but they don't have any question on whether that party can transact.

whereas they do for an individual. The other thing that people forget is when you issue an LOI or you issue an indication of interest, everyone looks the same on the piece of paper. They don't know that you're different from the other individuals, that you're not a tire kicker, that you've spent six months searching, that you've really understand what it takes to pull off a transaction. You look like every other individual buyer and what's clear is you're not a P.E. shop, you're not a fund, you're not a family office. And so what we're trying to do is, okay, let's work with entrepreneurs who are serious, who we believe in.

we can write pre-qualification letters to really back them up and show that, hey, there's been a third party that's looked at this entrepreneur, similar to how the SBA lenders were write letters of support and feel as confident that if given the opportunity, you know, there could be an equity raise done for that entrepreneur.

Jon Stoddard (18:11.551)
And that's before the SBA gives you a term sheet. You just say, you show some kind of confidence in the ability to raise capital. Okay.

William Fry (18:14.988)
Exactly.

William Fry (18:19.722)
Yep, yep, that's exactly it. And help you kind of stand out as you've thought through what it takes to pull off this transaction compared to potential other individual buyers.

Jon Stoddard (18:31.063)
So it looks like you can enter a couple different ways. One, you just like, even before you have a deal on an LOI, you could start with the platform and you're looking at a company and you say, hey, they're not gonna show me the financial report cards unless I send them a portfolio of funds. You'll do that. And then if I've already got a deal and I've got a term sheet with SBA will do it, I enter the program because I gotta make up the gap. Now,

Tell me about the timeline there because usually if I have a term sheet already, time has already ticked off the clock of the 90 day letter.

William Fry (19:10.506)
Yeah, that's exactly right. So typically, you know, by the time that we get involved on the main shares platform, it's probably around like 60 to 70 days before closing. If you want to work with our affiliated broker dealer, our recommendation is to get involved with the broker dealer as soon as you go under contract because the broker dealer has a lot more compliance obligations to, you know, FINRA and the SEC and so the due diligence process is a lot more intense because there's a broker dealer involved in the transaction.

So, if you're just using the self-serve platform where you're going to run the capital raise yourself using our tools, yeah, you typically get involved 60, 70 days before the deal is set to close. And then during that time, you need to put together your offering documents, put together your investing deck, make sure that you take the data room that you've gathered while you're doing due diligence on the business and get it ready to be presented to investors. And then you want to start inviting investors in.

and really start to get some momentum behind the capital raise. Fundraising, regardless of what business or regardless of who your investors are, it's all a momentum game. You really want to make sure you have your ducks in a row so you can get investors far enough along on the underwriting or confidence spectrum so that you can get them to ultimately commit to investing in you. Once you have a few, you can use that momentum to close out the rest of the round. What the fail mode looks like for entrepreneurs.

and we hear about this for people who are going off platform or maybe they're just using an attorney to help them with the capital raise, is they don't have everything buttoned up from day one. So they meet an investor, then they go find their NDA, they send it to DocuSign, they don't have the data room ready, so they're just sending over the files that they got from the business broker via email. And it's hard as the investor to quickly get to yes or no. And the thing you have to keep in mind is most of these investors are not full-time SMB investors. There are actually very few of those.

Most of these investors have a day job. Maybe they own a company in your industry. Maybe they work at Thang. Maybe they're financial advisors or something like that. And they have a lot of fires that come up in their own lives. And if you're not making it really streamlined for them to kind of walk through your deal, walk through your diligence, walk through the terms, it's gonna be hard to get them over the line to commit.

Jon Stoddard (21:20.683)
Yeah. So who helps fill out the, I used to do pitch tech. So it's that's telling a story in a short document. It's either a PDF document or it's, or a 12 thing pitch deck. Who helps them tell that story.

William Fry (21:33.854)
Yeah, so our internal team at MainChairs ends up digging in both on the pitch deck, but then also the diligence and kind of the full set of fundraising materials. So Judd, who's a member of our team, typically runs point on that. And you don't have to over-engineer it, is another thing I'd say. There's kind of a straightforward narrative that a lot of investors want to see. And it starts with who are you and why do you want to buy a business? And then it goes to what are your criteria?

And then you want to naturally lead into this business met my criteria and my criteria makes sense for my background. And at that point, there's kind of like business searcher fit of like, okay, it makes sense why this person wants to buy this business and why this business should be bought. Then you want to kind of drill down a level deeper on, okay, at what price does it make sense to buy the business? What are the risks of buying the business? How does it make sense to structure the deal? So at that point, you want to kind of step into, okay.

What's the org chart of the business? Who's staying or who's leaving as a result of the transaction? What are the financials associated with the business? Is there a customer concentration that needs to be guarded against? How are you gonna get the seller to bear that risk? And then kind of once you've stepped through the operations, you have a deal structure. And once you have that deal structure, then kind of the last kind of pieces of the narrative are okay, what's the upside downside? What happens if things don't go great? What happens if things go really well? And what's the base case that you're assuming?

how are you planning to work with investors? So to get back to what we were chatting about earlier, are you gonna be making quarterly distributions? Are you gonna be reinvesting and growing this thing aggressively? And based on what you say, you're gonna have to back up that narrative. And then it kind of ends with, okay, you know, this is the investment structure, this is the government's terms that I'm gonna use so that you know that I'm running the business well, and you have insight into what's happening at the business, and then you can have an appendix if you want more supporting information. But I would say like,

Very rarely do you have to start from scratch on what's the ideal capital raising narrative for buying a business. Most of the time, it's pretty straightforward and what we find is it's people either not putting the right information in or missing sections or not telling a cohesive narrative and it feels like you have 20 different slides in a deck that have no relationship to one another. And really the goal is for that to be a cohesive narrative.

Jon Stoddard (23:47.155)
Yeah, I just think what will happen a lot of guys is just, uh, there's some momentum and a down slide that just like, Hey, I've got to raise 300,000. I don't really care how it's raised or what it looks like or how I got to pay back because I just got to close the deal and they don't look at the consequences two to three years down.

William Fry (23:57.677)
Lovely.

William Fry (24:02.766)
Exactly. And that's where to your question about timing, it gets really hard for us to do a good job and to have a great outcome for entrepreneurs if we're getting involved in the last 30 days that you're under contract. Because what's happening there is you're behind the eight ball, you're going to blitz through all the materials, you're not going to have time for the investors to review all of them. And then meanwhile, you're going to start getting into negotiations with the seller and the broker because they're like, hey, man, what the heck, where's the capital?

You said you're going to be able to fund this transaction. I've heard crickets on the investor front or I've heard crickets on the SBA front because often what will happen is the SBA lenders will start underwriting. Once, once you sign your, you know, your, your term sheet and you probably make a good faith deposit or like a packaging, uh, fee deposit, and then they'll stop at some point and they'll say, Hey, look, we don't want our credit committee to spend more time underwriting this until we have some amount of proof that you're going to be able to pull off the capital raise. So you need to start bringing us term sheets.

that add up to maybe 25, 50, 60% of your total capital raise before we're going to go the last mile in terms of our underwriting. So if you're at the 30-day mark, typically they have pencils down for the last week or two. It's going to be really hard to go from no term sheets to a bunch of term sheets in a week and a half in order for them to be able to underwrite the loan and close the deal

Jon Stoddard (25:20.035)
unless you're really good at raising. And before they write that SBA number. Yeah. So how many does that go to? So if I say I got a good deal, it's a fair price, SBA is committed, it's in underwriting and I got a great pitch deck or whatever. And then how many people does that go out to right now before it goes to the broker dealer?

William Fry (25:22.246)
Yeah. Yeah, yeah, yeah. Exactly.

William Fry (25:40.714)
Yeah, so it will only go to the broker dealer network if you've signed an engagement letter with the broker dealer. So we try to segregate those two entities pretty well. If you're sending out on the main shares platform, the first question is, do you want it public or private? My recommendation for most entrepreneurs is start private, start reaching out to investors that you met or investors on the main shares platform before you make your capital raise public. That'll allow you to get a little momentum, but also get feedback from investors because chances are,

Jon Stoddard (25:46.382)
Oh, okay, okay.

William Fry (26:08.726)
You don't have everything buttoned up on day one, and there are things that are missing that investors are gonna wanna see, and you wanna give yourself a little bit of a grace period to get some feedback from the initial investors before really kind of hitting gas. Once you do go live, I would say we probably have 90 to 100 credit investors on the platform right now, and they're from a mix of different investor personas, if you will, or investor types in terms of are they looking for value appreciation, are they looking for cash flow distributions.

What is their check size? Are they more of a small check, a 25K check, that's just gonna help you fill out the round? Or they more of an anchor investor who's looking at 250K, 500K checks? And then obviously, what is their ideal involvement with the business? Some are looking to make few investments, so they wanna be relatively concentrated, and they wanna figure out how they can dig in. So for instance, there's an investor who is deep in the IT services space. And so for IT services capital raises, what he wants to do is really help connect to other clients.

Think about how you can streamline delivery. He's not gonna be a fit if you're buying an HVAC business. He's not gonna have any interest into that. That doesn't meet his investment criteria. And so, my recommendation is to be eyes wide open on what you want and what your investor composition should be. So for instance, typically what I see is maybe you have half of the round just be silent partners. So they're just looking to get a return on their investment. They're not looking to be involved. And then,

have the other half of the round or a quarter of the round be more strategic value at people who can really help you out. And a great example of that, Mainshares wasn't involved in this transaction, but Beacon was, is an entrepreneur raised capital from an investor buying a, it was a mixed commercial and residential landscaping company. He wanted to grow the commercial landscaping accounts. He got an investor who was really plugged into the HOA and commercial.

kind of real estate world in the city that he bought it in, that investor is immediately able to go to some of the commercial properties that he owned and switch their landscaping contracts to the business he just invested in. So I think there could be like really cool win-win stories of when the investor can really unlock revenue growth or help you achieve your growth goals. And so as an entrepreneur, I'd want to kind of think about that when you're meeting with investors.

Jon Stoddard (28:26.375)
Yeah, I think I know what you're talking about with that guy. So how do you make sure, you know, if there's a hundred investors on the platform and I got a great deal that they see it, they know they see it. Um, because I, if I was going to do this by myself and I say, Oh, I've got a big social network out there and I want to put my deal in front of them. I want to make sure that, you know, if I sent them a LinkedIn deal, Hey man, I got my deal. If you're interested in investing, let me know.

William Fry (28:28.754)
Yeah, yeah, yeah.

Jon Stoddard (28:54.807)
Click right here, I got all the docs and presentation.

William Fry (28:58.638)
Totally. So as soon as you mark your capital raises public, the investor network will be notified and then they will start requesting access to your deal. So you'll have a portal on the main shares website where you can see all the investors, what their stage in the kind of the pipeline is. You can invite investors to check out your deal that aren't on main shares right now, as well as see all the active investors on main shares that have requested access. Once you grant access, they'll then be able to see the data room. They'll be able to look at.

all the materials that you've kind of assembled for your capital raise. And then at that point, oftentimes they'll reach out with a few questions. Once their questions are answered pretty quickly, they'll either pass on the deal because it's not a good fit or they'll go through and sign a commitment letter through the platform. Um, the one caveat is in order to do that, the investors need to go through a quick accreditation process because all of the, you know, private placements that we're doing on the platform right now are five Oh six C and that means that it's only for accredited investors. Um, and so there's a quick accreditation check.

Once they're signed and committed, then you're able to start tracking, okay, I'm 10% of the way there. I'm 20% of the way there. I'm 40% of the way there. Once the round is then closed, you'll market off so additional investors aren't coming through and you'll have your preliminary cap table. Our operations team will then help you go through that fund seasoning capital call workflow. Based on the SBA lender, they'll either want the investors to wire money to your operating account. So your new, you know, business's checking account.

Or they'll say, hey, send it directly to the bank escrow and we'll keep the money there until the deal closes. And this ends up being kind of deal by deal or rather bank by bank. And so we'll help do some of the legwork because what a lot of people forget, they're like, oh, I'll raise capital by myself. My attorney will help me draft the docs. I'll reach out to some people and get the deal done. It ends up being a lot more work than they think. And it's at a time where they're getting completely overwhelmed with a transition plan or the seller hasn't cleared the liens on the vehicle so the transaction can't close.

or they need to go get life insurance and get a physical. And so we're trying to help them really focus on like, okay, you focus on getting the deal to close and making sure that the transition is a success and that the transaction is a success. Let us work on some of the back office compliance and operational tasks to get the deal financed from the investor side.

Jon Stoddard (31:13.483)
Let me ask you about this, how you create FOMO with the investors, because you'll be able to see like, hey, this is my LOI is going to only last 90 days. I'm already 30 days down, still going through underwriting. And the investor, somebody took interest, but all these investors are different. So one of them can be a real estate agent, somebody could be an ex Facebook engineer, and the other guys just sold his company and sitting back and going, you know, what?

to help other entrepreneurs. They're asking different types of questions. How do you get them to get off their butt and go, hey, write a check? Ha ha.

William Fry (31:47.062)
Yeah.

William Fry (31:50.962)
Yeah, so I think there are a few kind of tactics here and obviously this is something that a lot of first time fundraisers kind of have to learn. But I would say on the one end, you want to make it feel like you're selecting the investors as much as they are selecting you and you want to come across as picky on who you're working with and what your expectations of your investors are. People hate what they can't have and they want to be thought of as meeting all the criteria. So that's thing number one.

Be upfront on this is my ideal investor. Ask questions about that. Ask about other investments they've made. Ask if you can get references to those investments. So there's some things you can do on that front on make sure that it's not just you answering the questions. Make sure that you're also asking the questions because not only does it kind of create a sense of selectiveness with your capitolries, you should probably also know the answers to that if you're gonna get in bed with this investor crew for the next five, seven years and whatnot. So I'd say that's number one. Number two is share updates.

of all the work that you're doing behind the scenes. If you just announce a capital raise to investors and then you're slowly getting commitment letters and no one hears from you, they're gonna wonder, oh, are they struggling to raise capital? Is this deal still on? Typically, while the capital raise is happening, you're going through due diligence. You may be doing a Q of E. You may be negotiating on the purchase agreement. Maybe you're negotiating on the consulting agreement with the seller. Keep people updated on those developments.

because they feel like, okay, it's actually going to close at the target date. They're getting everything in place to pull this transaction off. I should make a question, an answer pretty quickly. So I'd say that's kind of thing number two. And then thing number three is I would prioritize your investors. First, go after the more anchor checks. You obviously want your friendlies involved. So maybe you have a couple of friends and family who are going to be putting in, you know, 10, 15, 25 K checks. Make sure you get those locked down. But then the next order of business is.

go find the 100, 200, 300, 400K checks because they're gonna help leap you along the capital raise and you'll be able to kind of herd the rest of the cats relatively quickly. If you got it from the opposite angle and you have a bunch of 15, 20, 25K checks, A, you haven't made that much progress to the actual angle of the capital raise, but B, savvy investors wanna see that other people have diligence to the deal and have signed off with a decent size check. If they see this as just a bunch of small checks, they're worried, wait,

William Fry (34:14.73)
Have the other larger investors seen this in past? Are they not interested in this for some reason? And it gets back to your question, the FOMO, it's all some amount of sheep psychology that happens with humans and investors are no different and they're gonna get worried, wait, am I the only one jumping on this deal? So I'll tell you, those are kind of three ways that you can kind of drive on the FOMO front, but it ends up varying by both how the entrepreneur wants to run their capital raise, what the deal is, all of that sort of stuff.

Jon Stoddard (34:41.602)
How are you coaching these entrepreneurs that run an HVAC or buy an HVAC company? This never closed money before. Ask them for money from investors. How do you coach them on closing $50,000 or $200,000 from an investor? What do you...

William Fry (34:57.546)
Yeah, so I think you have to lean into your sweet spot. And a lot of investors actually love that searcher. They have high confidence that this person knows what they're signing up for and is gonna be able to execute. And I think you want to lean into that. And so your goal shouldn't be, let me try to sound smart on the financial terms to this investor. Your goal should be, I know what a great A-Track business looks like. This is what it looks like. This is how I know that.

and this business meets all those criteria. I also know exactly what needs to happen on a jobs per day basis, on field visits, whatever the terminology is of the industry that you're looking at, show that you really understand the operational side and lean into that. Typically the lenders will also help those types of operators and searchers a lot because they love them as well. Sure, there are a lot of guys out there who are high net worth, maybe they're putting in 250K of their own money and they're looking for 100K of gap equity.

There are a lot of investors who like those searchers. They're not gonna struggle as much to get a deal done. And the question mark for those people are, are they actually gonna be able to operate the business and are they even gonna like operating the business? Because like it or not, corporate America is very different from running these blue collar businesses. And guess what happens when your crew lead gets a DUI? You're the one plumbing the toilets. And it's just sometimes it's a little bit of a culture shock for those searchers. So I would say like for the blue collar operator who really understands the trade,

passionate about owning their own business, I wouldn't let the investors scare you away from buying an SMB and going through the search process. My advice would actually be there are a lot of investors who prefer working with buyers like that and to really lean in to the skills that you bring to the table.

Jon Stoddard (36:40.579)
Yeah. And how long does that process take to, you know, you start having these conversations, go, are you letting them know that, hey, man, we got to close this in 90 days and say, are you in or yeah.

William Fry (36:53.462)
Yeah, yeah, yeah. And the entrepreneur is as well. You know, the whole goal here is like, let's standardize all the information so it's a lot easier to go through the diligence piece as an investor for these deals. And so it's very clear, like, okay, this is the target close date, or if the target close date needs to get updated for some reason, this is the updated date and this is why it was updated. And typically what you want is two weeks before then you want pencils down. Because what they're gonna have to do is fill out, I believe it's form 1919 with a SBA lender, you know,

declare their background, how much ownership of the company they're going to have. Also go through the fund seasoning. Typically the SBA lenders want to see at least one month, some of them want two months of the funds in the bank account to avoid the retiring owner doing some sketchy equity role on the side that skims past their PG thresholds. And so we really want two to three weeks before the actual close to have the round committed. The other piece for searchers to keep in mind is...

you're going to want to give people an update before you even call the capital, before the deal closes. Some people may be investing out of their 401k. They need to go through a process to access those funds. Other people may be needing to withdraw money from their money market accounts so they can get it in their bank account to fund the deal. And you need to give those people heads up as well. So there's a lot of nuts and bolts to get these transactions pulled off. And so being very transparent upfront about the timelines is crucial for getting these deals done.

Jon Stoddard (38:19.315)
Yeah. So how many deals have successfully raised? Uh, I know you just started, so I'm not like expecting a huge resume, but.

William Fry (38:31.813)
Yeah. So we got started over this past year, really got kind of the ball rolling this fall. So we're in the middle of our first full capital raise right now. We had another one for an auto shop in December and then we're ramping up raises every month. So it looks like we'll have another one in January. It looks like we have like two or three slated in February. And so the goal is like...

Let's keep on growing our investor universe to match the requirements of the entrepreneurs that we're bringing on board, make sure that we have the right types of investors for them and keep on iterating on the experience for the entrepreneur in the method.

Jon Stoddard (39:05.279)
Yeah. And how are you doing that? Bringing investors to the, to sign up. I mean, cause like, if you look at it, it goes on how many people want to invest in a auto shop. It's done a lot of people buy in auto shops or understand the economics of the auto shop.

William Fry (39:10.303)
Yeah.

William Fry (39:20.37)
Yeah, there aren't. So a lot of what we're doing is kind of word of mouth. So SBA lenders are some of our best friends. They meet great buyers who need access to equity capital. And they also meet investors who are trying to reach out to understand like, is it possible to passively own these businesses? What does it look like to kind of be an owner of one of these SMBs? So we get a lot of referrals from there. We also meet people through Beacon, who maybe they come in looking at a business, they realize they don't want to actively own a business and they're better fit for passive investors.

So right now we're not doing any big advertising or sponsorships or anything like that. The focus really is on like quality and execution. And then once we really have things dialed in, then we'll scale up our marketing efforts. The other thing to keep in mind is, the average transaction period is around 12 months. And I would say around 50% of self-funded searchers transact. That's probably an optimistic stat, but that's the recent one that I've seen. And so a lot of our focus is, let's go meet.

great searchers out there, build a relationship with them, help them look at deals. If they need a prequel, they can request one from the broker dealer to make sure that, you know, they can really transact and then give them time to find the ideal deal for them. And then we will have earned the right to help them on their capital raise versus, you know, aggressively spending advertising money, getting a bunch of people who are 30 days away from closing. You don't have the success stories that you're looking for because you're trying to kind of like cheat and skip ahead in the process. So our philosophy has been, you know,

Focus on quality and doing it right and then going a little bit slow so that we can go faster later.

Jon Stoddard (40:51.575)
Yeah. What happens if you start a campaign and it's kind of slow to get off? You know, the, the HVAC guy doesn't have a lot of people to bring to it. And, you know, the a hundred people you have right now are tapped out and say, we've got to deploy the broker dealer network. And that supercharges your raise.

William Fry (41:12.746)
Yeah, it does. It does. So we try not to have, and we've yet to have a scenario where we've done it that way. Typically, the broker dealer will get involved on the front end. And it's really a question of how many investors do you already know and how much help do you need getting your raise off the ground? And if the answer is you have zero, you haven't fundraised before, and you're not very savvy on the financial side, my personal recommendation would be like, go work with...

Jon Stoddard (41:29.043)
If you have zero, let's say you bring in zero.

William Fry (41:40.826)
some party who can really dig in with you and can aggressively make sure that your deal happens and be focused on you. And for us, our broker dealers and affiliate, they can help in that regard. And the reason for that is that there's just so many unknown unknowns for the first time fundraiser that it's worth it to pay a little bit extra money to get it done right. And the thing about a broker dealer is they can have performance-based

William Fry (42:10.574)
investors, they can get involved in really digging in on the due diligence side. So the due diligence checklist for broker-dealers is very thorough because they have an obligation to make sure that investors are investing in good investments. In that case, I would say get involved early because what will happen is if you wait until – let's say that the capital raise isn't going really well, you're not getting the momentum you want and you want a partner to dig in a bit deeper with you.

The broker dealer probably has more due diligence requirements than you've done yourself on the seller. And so what you're going to have to do is double back to the seller for additional DD requests, which are going to kind of chip away at the finite goodwill in the tank, if you will, that a seller has. A lot of times you want to make sure that you hit the 80 20 of DD. The broker dealer, you know, there is no such thing as an 80 20. You have to go all the way. So I'd say that's kind of a consideration with working with a, with a broker dealer.

Jon Stoddard (43:04.087)
Yeah, so how does somebody go, okay, I know a guy he's trying to raise. Do they get compensated for referring him to you or how would that work?

William Fry (43:13.57)
Yeah, so if you know any entrepreneurs looking to raise, so for kind of like self-directed product which has the flat fee pricing and we're just giving you the tools and the resources executed to raise, we can pay referral fees from that. On the broker dealer side, unfortunately, we can't unless you're also registered with a broker dealer. We can't share the success based fees there, but we can if it's someone who's looking to do a self-directed raise.

Jon Stoddard (43:36.871)
Unless the refer was on the cap table from the origin. Yeah. Interesting. William, that sounds like you're solving a problem with a lot of these guys. First of all is a lot of these guys don't have a big proof of funds to show, get a look inside a deal and you're offering that if you start early, and then you're going to help them raise the capital to make up the gap as long as they can get SBAs. Also, have you done anywhere? Uh,

William Fry (43:40.542)
Right. Right, right, right.

Jon Stoddard (44:07.283)
you know, raises where it raises the majority of it to be able to purchase it from just debt or equity.

William Fry (44:14.139)
Yeah, so we haven't done any yet. That being said, one of the other things that we do at Main Shares is provide tools for managing your investors. So a big question that investors have is, are the books and records being kept appropriately? Or is the new searcher doing the same song and dance that the seller did in terms of running personal expenses through it? They also want to know, okay, how much cash is on hand? Are there going to be distributions this quarter? And they just want a little bit of insight into the business so they don't

bug the searcher themselves, especially for the first time buyer that increases their kind of trust and competence in a capital raise and acquisition, so on and so forth. So he built some tools there. One of the recent clients has onboarded his investors to the platform to use our investment management tools, did execute an all equity raise that had more of kind of like the moe hurdles, which is a way of structuring the investment. And so I anticipate, you know,

We learned a lot by talking with him about how he approached that capital raise. And we're interested in doing that because one thing that we've seen is for a lot of searchers who may have a real estate portfolio on the side, they hate the SBA because the SBA is going to go around and attach liens to every single real estate project they have on the side, even if in their mind, it has nothing to do with the business. And so a lot of those searchers are looking more at, okay, let's get a 20, 30% seller note and let's do the rest with equity, either cash that they have on the sidelines or from investors.

And so I think you'll see over the next handful of years, more and more all equity deals getting done, especially as more of these investors kind of come down into them.

Jon Stoddard (45:44.839)
I believe so, because I tell you, if people are moving up, I mean, my wife will divorce me if I sign another personal guarantee. Hey, William, that was fantastic. I appreciate the intro to main shares and I wish you the best of success.

William Fry (45:52.234)
You're not the only one. I think I heard that earlier this morning.

William Fry (45:59.646)
Yeah. Thanks, John. Thanks for having us on.