"The Stupidest Idea Ever," Strep Throat, and the Birth of Oak Stream

When I was young and getting serious about business, I fell for Warren Buffett and Charlie Munger. Not Berkshire Hathaway the giant, but Warren in the early days, running the Buffett Partnership with money from a handful of people who trusted him. How great would it be to get a few investors together and buy a good little business?

Another book kept pulling me back to that idea. I've read Monica Langley's Tearing Down the Walls several times. It follows Sandy Weill's whole career. He started as a runner on Wall Street, then opened a tiny brokerage with a few partners and built it, deal by deal, into Shearson. He sold Shearson to American Express, became its president, and was pushed out. With a young Jamie Dimon at his side, he bought Commercial Credit, a sleepy consumer-lending company in Baltimore, and started over. That led to Primerica, Travelers, Salomon and, finally, the merger with Citicorp that created Citigroup. The lesson I take every time: getting knocked down isn't the end of the story. It made me want to get back to building something meaningful, and a search fund was how I could get there.

By then I needed the reminder. I'd built the mortgage company and gotten off that ship in 2005. Then came Countrywide and the crisis, a bank layoff with a newborn son at home, and a stretch of consulting gigs and startups, including a stake in an upscale magazine and founding Titan Club at the Four Seasons. What I wanted was to run a lower-middle-market company again: big enough to have real resources, and small enough that I'd actually make the calls.

"That's the stupidest idea ever"

The first person I pitched was a respected local attorney. I offered to trade some work for office space so I could run my search from there. She listened, then said, "Let me get this straight. You're going to look for a business, buy it with a group of investors, and you don't have any experience in that industry?" Pause. "That's the stupidest idea ever."

I felt the same way about her comment. Mark Zuckerberg had never run a social media empire before he built Facebook. "You've never done that exact thing" is one of the most limiting beliefs in business.

Still, she had a point about one thing: I needed a path somebody had already blazed.

Finding the search fund

That path was the search fund model, and in particular Rich Kelley at Search Fund Partners. Rich has been backing searchers since 1994. He'd been a CFO and the CEO of the San Jose Giants, and he was an early investor in Coinstar.

Rich steered me away from the Buffett-style partnership I'd been sketching and toward the standard search fund framework, and he pointed me to Jon Herzog of Goodwin Procter. What a world of difference. These investors already believed in backing someone without industry experience to buy and run a small business. All I had to prove was why me.

That was the catch. Most of my peers were fresh out of Stanford or Harvard. I had a Pepperdine MBA and a mortgage operation I'd helped grow to $1.2 billion a year. I was betting that actually building something counted.

Jon is one of the smartest people I've ever worked with. He could do in a couple of minutes what took other lawyers hours, and he opened doors to investors. The right attorney, structure and lead investor made it easy for others to say yes, because these people co-invested with each other all the time.

No plan B

Around 2012, after being laid off from a bank, I made a decision. As I later wrote on LinkedIn, I'd learned "I've lost everything before and can come back from it," and that freed me. "I risked it all. There was no plan B. I would either succeed or spectacularly fail." I borrowed money just to pay for the travel to raise the fund.

I hit the road: Silicon Valley, Texas, New York. My first trip was two days of meetings in Northern California: Search Fund Partners on day one, Anacapa on day two. I couldn't sleep the night before because it felt like I was choking, and I left Los Angeles at 4 a.m. for the six-hour drive. I walked into Search Fund Partners half asleep. We chatted for a minute, and then it dawned on me that they were waiting to see if I'd take charge of the room. So I opened my mouth to start the pitch, and almost nothing came out.

I muscled through the entire presentation in a gravelly whisper. Back at the car, I realized I had sweated through my suit jacket. After about three hours of hunting, I found an urgent care. It was strep throat and a 104-degree fever. I got meds, slept a little and was in front of Anacapa the next morning, still croaking. Jeff Stevens of Anacapa Partners, who had run three search funds and three buyouts himself, was thankfully understanding. By the end of that first trip, nearly half the fund was committed.

The funeral and the red-eye

Summer slowed everything down, but eventually the fund was fully committed. Or so I thought. At the last minute, my anchor investor found out another institution was in and pulled back. They wanted a mix with more individuals. We reworked it, and they came back in.

The call came at 2 p.m. just as I was leaving the funeral of a friend's wife. "Great, we're back in. I need you in New Hampshire tomorrow at 7 a.m. Here are some cases to read first."

I lived in Westlake Village, and one of the few flights left was out of Long Beach, a long drive the wrong way. I caught the red-eye, read the cases overnight, landed in Boston, grabbed a rental car and drove to New Hampshire on zero sleep. I met many key people in the search fund world and drank so much coffee that I couldn't sleep for three days, another of my infamous 72-hour stretches.

Oak Stream

In 2013, Oak Stream Partners came together as a traditional search fund. Stanford's study of search funds counted just 32 searchers or partnerships still hunting for a company at year-end 2013. I was one of them. The space has grown enormously since.

The name Oak Stream comes from wine country. Reagan's Rancho del Cielo sits in the hills above the Santa Ynez Valley, and when a reporter asked whether he felt isolated up there, he answered with Scripture: "And I look to the hills from whence cometh my strength." I've always felt that way about those hills, with moss dripping from the oaks and quiet streams between them. It's a place that soothes the soul. I wanted Oak Stream to be that place of refuge for owners thinking about selling, fighting through a turnaround or hanging on through hypergrowth.

I shared a short-term office lease with an attorney (not the one who called me stupid), a friend contributed furniture, and we set up a bullpen for interns who helped with outreach, diligence and modeling. Several have gone on to careers in private equity. That path led me to run SCJ, a top non-standard auto insurance player.

The lesson from the trenches

Look at who said yes. Rich Kelley, Jeff Stevens and the rest of my backers weren't spreadsheet jockeys who'd never made payroll. They'd run ballclubs and buyouts and sweated through their own suits. They could look past a résumé and see whether someone could build the thing.

If you're selling your company, you deserve that kind of buyer. The first kind reads your numbers. The second kind knows what to do on Monday morning.

If you want a buyer who has built companies and can see where yours could go next, let's talk.