Today I'm chatting with Peter Bell and Justin Turner from Traction Capital Partners in Tacoma, WA, just south of Seattle. Peter and Justin both reached out over Twitter and the more I learned about their firm, the more interesting to me it became. Traction is a small private equity firm that blurs the lines between a private equity fund and a permanent capital vehicle, which is what made them so interesting to me. They have a handful of long-term investors and seek to buy and hold great companies indefinitely, which gives them the unique ability to make long-term oriented decisions and wait for great opportunities.
We begin with Peter telling me about a content idea he has for Traction and move through the topics of starting a private equity fund, lessons learned, what they look for in both businesses and owners, and a few stories. Peter and Justin are both deep thinkers and have been fun to get to know, and I hope that shows in the episode.
Every podcast episode is available on iTunes, Spotify, Google Play, Stitcher, TuneIn, and Breaker.
1:25 Peter's video/audio content idea
2:50 Firms using content to attract deal flow and find business owners
4:28 Backgrounds and early days of Traction Capital
6:10 Justin's jump to private equity and general views on investment banking
6:45 Founding of Traction in April 2017
7:26 Peter's background and work in investment banking and BlackRock
8:38 Team at Traction, division of labor
9:28 Balance between using Traction as an investment firm and offering a service to the seller
10:20 Traction's operating philosophy compared to traditional private equity's perception
10:50 Group of investors and their philosophy
12:26 Evolution of Traction's source of capital
13:43 Benefits of being a permanent capital vehicle with closing deals
15:10 General discussion on current valuations
16:06 GF Data
16:44 Lessons learned in starting Traction
18:40 Lessons learned in operating companies in that first year after acquisition
19:25 Importance of people in small companies
20:20 Perception of private equity
21:34 Growth of Peter at Traction
22:22 Looking for intellectually curious people, private equity is designed for insatiably curious people
23:49 Frustration with deals not closing
25:38 How small can private equity funds invest?, Economics of investing in small deals
28:18 Traction fits between private equity and search funds
29:16 Backgrounds of Traction partners and benefits of having operating backgrounds
30:29 Differentiation of Traction
31:25 Optimum business owner and ideal characteristics
32:33 Finding passionate business owners who are focused on their people and business, rather than the highest price
33:50 Looking for businesses where the owners has effectively has taken themselves out of the day-to-day
34:41 Questions to ask during due diligence
35:03 Red flags that come up during research and due diligence
40:09 Importance of background checks on management
41:02 Relationships with intermediaries and the evolution of those relationships
42:29 Establishing credibility and a reputation at Traction
44:40 Will Traction go upmarket or remain in micro PE size?
44:57 What class in college would you teach?
47:30 Mental models used in private equity
50:09 Most fortunate event to have happened to you by chance
54:02 Best business you've ever seen