Ep 31 – Shopping For Entrepreneurial Success




Allegra Stennett is co-founder of New Majority Capital, an impact investing firm that provides training and capital for BIPOC and women entrepreneurs to buy and scale existing small businesses. New Majority Capital’s mission is focused on attacking the racial and gender wealth gaps in the United States.

Prior to NMC, Allegra completed an MBA at MIT Sloan School of Management and an EdM in Education Policy & Management at Harvard Graduate School of Education. Following completion of her undergraduate studies at Andrews University, Allegra was a banker at J.P. Morgan for 5 years in New York, Houston, and London, with stints in their commercial and investment banks.

Allegra is a native New Yorker and is the proud daughter of Jamaican immigrants. 


What if you want to be your own boss but the whole founder thing isn’t your cup of tea?

What does it take to hit the ground running and take an already good business and make it great?

How do you find the money, the resources and the network to find and buy the right business for you?

In this episode, Allegra Stennett, cofounder of New Majority Capital, tells you everything you need to know about the “Buy Then Build” model of entrepreneurship.

Listen to her great insights on why the purchase path is attractive to many new majority entrepreneurs, how you can build your chops to become an entrepreneur through acquisition, what it takes to find and buy a high-potential business, and much more.

Episode Highlights

  1. NMC’s unique model and why it’s right, right now for underrepresented entrepreneurs
  2. How the ETA model multiplies success for women and underrepresented entrepreneurs 
  3. What makes a successful ETA entrepreneur
  4. How to get NMC funding when buying a business
  5. How to build your business chops prior to your business acquisition
  6. How to increase your odds of finding the best business for you to buy
  7. Insider tips and secrets in your business acquisition search
  8. The one thing you must master so you don’t overpay for your purchase
  9. How to improve your negotiating skills – in two steps
  10. How to use both head and heart for long-term negotiating success
  11. How to earn your way to full business ownership in the NMC model
  12. The one metric that signals success for entrepreneurship through acquisition
  13. How to make smart work/life choices when buying a business
  14. How to get the support and resources you need to succeed as an entrepreneur through acquisition

Links and Resources

New Majority Capital: Finance firm helping women and BIPOC individuals acquire and run companies

NMC Wefunder page: Crowdfunding campaign to enable anyone to participate in NMC’s mission and vision

Buy Then Build: Book that describes the acquisition path to entrepreneurship

HBR Guide to Buying a Small Business: Two professors provide the authoritative guide to buying a small business

Interview Transcript

Shubha Chakravarthy: Allegra, welcome to Invisible Ink! We are so excited to have you here today!

Allegra Stennett: Thank you Shubha! Glad to be here. Thank you for the invitation.

Shubha Chakravarthy: My pleasure. So, you’ve had a pretty interesting journey to where you are today. What brought you here? Tell us a little bit more about where you come from.

Allegra Stennettt: I’m a native New Yorker. I’m the daughter of Jamaican immigrants. I was born and raised in New York City. My background is in finance. I grew up thinking that I was going to go to law school and after doing a banking internship at JP Morgan, I realized that I would rather be a banker than a lawyer.

So, I did that for five years in New York, Houston, and London and throughout my journey there, particularly in my last role, I was in healthcare banking and I saw a lot of inefficiencies that made me question, “Could I make an impact in the US healthcare system?”

Then while doing that through digital health via entrepreneurship I decided I wanted to go to grad school. So, I applied, got in to do a Master’s in Education Policy at Harvard and then did the MBA at MIT with the focus in Entrepreneurship.

While I was at MIT, it was a friend of mine who called and told me that she was in between startups and she said, “You’d be a good search fund CEO.” I was like, “What is that? I’m interested, but what is that?”

She connected me with one of my now co-founders and we created New Majority Capital, which we will discuss today. So, that is a little bit about my winding journey from thinking I was going to be in law to finance to now – impact investing.

Shubha Chakravarthy: I love it. In fact, you are one of the few people who I think I’ll ever hear say that you preferred banking to anything else. But I’m a former banker myself and I love banking too, so don’t get me wrong. That was interesting.

Coming to New Majority Capital, what does the firm do?

Allegra Stennett: We are an impact investing firm focused on providing training and capital to BIPOC and women entrepreneurs to help them acquire existing small businesses and we do so with the mission in mind to address the gender and racial wealth gap in the United States. So, that is what we do.

We provide training and we also provide capital for individuals to acquire companies to do M&A acquisitions anywhere in the space of $1 to 10 million annual revenue  – companies of that size.

We think it is a unique opportunity right now because we are undergoing this concept called the silver tsunami wherein, about 10 to 12 million Baby Boomer owned businesses will be up for sale in the next 25 years. We desire to see some of that get into the hands of underrepresented entrepreneurs.

Right now, in the United States, over 84% of small businesses are owned by White males. And we want our entrepreneurs, these women, these people of color to participate equitably in that population. So, that is what we are about.

Shubha Chakravarthy: I love the 84% number. I hadn’t heard it before, so that’s a new thing that I picked up. I know that New Majority Capital is pioneering this ETA or Entrepreneurship Through Acquisition Model. Please talk to us about what led the whole firm towards this ETA model versus just being a typical start-from-scratch funding vehicle.

Allegra Stennett: When we look at typical VC, the goal of a venture fund is to invest in a wide variety of startups with the assumption that one or two will hit it big. That is great for the VC firm, but not so great for the eight or nine entrepreneurs that don’t hit it big. What happens to them? The majority of venture backed startups fail.

So, when you are looking at addressing the gender and racial wealth gap, you want to put entrepreneurs in a place where they are able to succeed. So, we know that if we had 10 underrepresented entrepreneurs and we funded a startup, the majority of those entrepreneurs are going to fail.

Whereas in the ETA – which is Entrepreneurship Through Acquisition model, the majority of entrepreneurs succeed. So, that is not only great for investors, but it is also great for these entrepreneurs.

That is where we are telling our entrepreneurs and our stakeholders that it is better to buy and then build than to build from scratch. In the ETA model, you are acquiring an existing company that has steady cash flows to profitable company. These are not turnaround. So, it already has cash flow, it already has customers, a reputation, a team of employees, and all the things that startups do not have. So, it is better and easier for an entrepreneur to come in having some of the groundwork already done for them by the seller or the previous owner.

It is also appealing for investors that are investing in a cash flowing asset. Typically, VC investors are so used to doing Series-A, seed, or pre-seed. They are investing into companies that haven’t turned a dollar in profit and this is a win-win for all the stakeholders involved in this model.

Shubha Chakravarthy: I’m sure we are going to dive into that in a moment. Before we go into that, let’s say that I’m an entrepreneur, and I know I want to do something on my own.

What are the markers of someone who is a good fit for the ETA model versus a start from scratch model? Are there those that are definitely not a good fit that you’d ask to stay away from that and know from the beginning that this is not the right place for them?

Allegra Stennett: Yes, I think that generally if you want to be an entrepreneur, then the ETA model can work for you. If you don’t have the desire to actually run a company, then this is not the role for you. So, ETA is also known as Search Funds. This concept came out of Stanford in the 1980s and it has historically been gate-kept at institutions like Stanford, like top MBA programs.

So, the typical person who decides to go on this ETA path and become a searcher as we call our MBA students post MBAs, the ones that heard about ETA during their two years in business school and decided they want to actually buy a company instead of either going back into the corporate sector or finding a typical corporate job.

So, that is a typical profile – late twenties, early thirties individual with an MBA.

We are challenging that model because the majority of successful small business in the United States are run by individuals who do not have MBAs. They have never graced the halls of Stanford and Harvard and all of that. We are challenging this notion that you need an MBA because we believe that you don’t need an MBA to run a small business. That is where our accelerator comes in.

We have an eight-week accelerator program that gives individuals the tools and the skills they need to not only assess his ETA right for them but then also gain the understanding to get through the process to actually close on an acquisition and scale a company post-acquisition.

That is our model. We are attempting to change the notion of you needing an MBA and having gone to the fancy school in order to acquire and run a small business successfully.

Shubha Chakravarthy: What is the typical profile of a successful ETA route entrepreneur, especially when it comes to women and diverse women?

Allegra Stennett: In terms of like the industry or just the individual overall?

Shubha Chakravarthy: Just the individual overall. Also, do you see tilts or slants in terms of the industry when it comes to women?

Allegra Stennett: So, I’d say in terms of a successful, searcher, it is someone who has a bit of tenacity. The traditional search fund model is this, where you graduate from business school and you raise a fund, you go out to investors, you raise anywhere around $400,000 and that is going to fund your search for a company for the next two years.

Once you find a company that you would like to acquire, you go back to that same pool of investors that have funded your search. Then they have the first right of refusal to invest in your deal in the actual company. In that model the entrepreneur at some point is left with about 30% of the company.

We also don’t necessarily believe you need two years to find a company. Our model is a little different, but in terms of the entrepreneur, it needs to be someone who has tenacity and discipline because in order to do a search you have to be very disciplined. You don’t have a boss that’s telling you, “Hey, did you find a company today? How many companies have you done due diligence for? Did you send out that LOI?” It is all on you.

You need to have a level of discipline, tenacity, and of understanding of the industry. Some of these industries are highly technical. They are more technical than others.

So, if it is an industry that is technical, you need to have that expertise to go in and run it and be successful in it. Those are just a few characteristics that I think are important for individuals to have.

Shubha Chakravarthy: One question before we get into the process of how this works for an entrepreneur and also for a seller. What is your funding model because if you look at a VC, you are looking at institutional investors who are looking for a certain asset class with specific return expectations.

How does that funding model work for New Majority Capital? What does it mean in terms of the types of businesses you would pick as well as how much follow on funding there is – if there is even a need for follow on funding you do for the entrepreneurs that you support?

Allegra Stennett: So, we are raising a fund right now. It is a $50 million fund and with that fund we are providing up to a hundred percent of the capital necessary to acquire these businesses. Say for example, it is a company that is doing $750,000 or a million in EBITDA and selling for $3 million sales price.

So, we would be providing the capital necessary. We do have some capital partners, including a major bank that has signed off on a partnership with us to provide 50% in debt financing for the deal, which would allow our fund to expand beyond the acquisitions where we’d have to put up the entirety of the sale price.

How our model works is that we have a revenue-based financing model and also an entrepreneur’s equity in the company is growing over time. So, it is a progressive equity model where within five years an entrepreneur can have 100% ownership of a company such that New Majority Capital is no longer on the cap table.

We are doing that because we desire to be non-extractive. Our goal is not to have the traditional model where we own the majority of the company for perpetuity. We want these entrepreneurs to have generational wealth. We also want them to put themselves and their employees on a path of generational wealth. That is our model where the cash flows of the business would be paying back the acquisition with some return, obviously, for the fund.

Shubha Chakravarthy: Now I want to jump to the juicy parts, which is, what does the process look like? How do you find entrepreneurs or how do they find you? Then what is the process that happens within the sausage grinder, in terms of evaluating entrepreneurs and what you do in this eight-week accelerator program.

Allegra Stennett: We have a pipeline right now of 80 entrepreneurs and all of that has been inbound and the inbound intake of entrepreneurs has shown us and has been some level of validation to that for our model.

The majority of entrepreneurs have come to us for help with due diligence and then also financing. They have come to us by word of mouth or through seeing us at conferences we’ve participated in. We have been to the Harvard ETA conference. I went to the Booth conference. We were participating in the MIT conference.

We have a presence on searchfunder.com, which is like the LinkedIn for search and for ETA. So, our entrepreneurs have heard through some of those channels. We have five target cities with the foundation to run our programming in and through that we would be doing some on the ground recruiting in those specific cities, which are Atlanta, DC, Baltimore, Oakland, and Minneapolis. Those would serve as our regional hubs for all of our programming nation.

Shubha Chakravarthy:  I assume that you are going to get more applicants than you can accommodate at all of these places. So, if there is a competitive aspect to it or if there is a chance that somebody can’t get in, what are the criteria you look for to make sure that somebody actually does get in?

Allegra Stennett: We have a partnership with an organization that is helping us with the rubric, the criteria, and the application process of getting into the accelerator. The things we are looking for are some of the same things that you would need to run a small business.

So, tenacity, discipline, grit, ability to overcome obstacles, and interest in running a small business are necessary. You don’t want people to just sign up for an accelerator. You actually have to put in the work once you are in the accelerator and be committed to your cohort.

Our accelerator has a stipend at the end of it. So, assuming you get through, you get a stipend and then in the accelerator we have partnered with Babson College to design the curriculum. There will be some testing components, which one of our lending partners has said would rubber stamp our entrepreneurs and pre-approve them for financing, which is, huge.

To talk about the accelerator a little bit – some of the things that they are learning about is “What is ETA?” You obviously don’t need to know what ETA is to participate. What is the process? Why do you do some self-reflection? Then going into it, how do I do this? What is valuation? What is due diligence industry nuances, what is the difference between running a manufacturing company versus a service-based company versus a SaaS company?

How to establish broker relationships, negotiating, or scaling your company. What are the tools you need to operate, to run the operations, to run marketing, and sales? What does a successful exit look like once you have scaled the company to a level where you are interested in moving on and doing other things? How do you exit the company successfully?

Those are some of the things that we ensure our entrepreneurs are aware of through the accelerator and we also ensure that they gain tangible experience during their time in the accelerator.

Shubha Chakravarthy: I just love the broad-based nature of the curriculum. While somebody is going through this accelerator, do they typically get to say, “Okay, I think I looked at all these industries. I think I’m more of a tech person versus a manufacturing person”, or is that something that you are seeing – that they develop an understanding and a preference as they go through the accelerator?

Allegra Stennett: The goal of the accelerator is to help an entrepreneur develop their investment thesis. It has to help them understand why a specific industry, or why they are in that industry? What are the tools and skills they need to be successful? What are they seeing in the marketplace that they think this is the right industry to fill a gap?

So yes, a part of the accelerator is to help an entrepreneur come up with their investment thesis, an understanding, and to help them to craft how they are going to be searching. You want to leave the accelerator knowing, “Hey, I’m looking for manufacturing companies. I want to look in this specific region of the country and my reason, my rationale for doing so is X, or the reason I want to have this hold core structure is Y”.

The goal of the accelerator is to let entrepreneurs have a level of certainty and clarity as they go through their search.

Shubha Chakravarthy: I come out of the accelerator. I have a pretty clear picture. I want to acquire a manufacturing company in the Midwest with X million dollars or whatever in revenue. What happens next? How do I go about finding the right candidate to purchase and what is New Majority Capital’s role in supporting that search process?

Allegra Stennett: One of the last portions of our accelerator is establishing broker relationships. So, I should mention this for the audience that brokers are akin to real estate agents. When you are looking to buy a house, you employ a real estate agent whose job it is to find a house that is based on the specifications you need – three bedrooms, a backyard, et cetera.

The same thing applies to a business. There are brokers and they are called business brokers that are actually also licensed to sell real estate because of the commercial real estate component of these businesses.

These brokers are hired by the sellers to sell the business and get a commission, typically 10% of the sale price. So, it is a broker’s job to get the business ready for sale in the same way a real estate agent would get the home ready for sale. You need to do some painting. You need to fix the fence. It is the business broker’s job to get the business ready for sale in the same manner and present it to the market.

So, as an entrepreneur, say that I went through the accelerator. I want to buy this manufacturing company in the Midwest. I would then reach out to brokers in the Midwest and tell them that this is what I’m looking to do and to let me know what the deals are that they have available.

Then, for example, they show you 5-10 deals, or you go through a few and you find one that you really think is the one. After doing some initial due diligence, getting what is called a CIM – a Confidential Information Memorandum, which pretty much lists a variety of information about the business, how many employees they have, what their finance look like, what is the history of the company, et cetera.

Once you have done that, you would then submit an LOI – a letter of intent, which pretty much gives you an exclusivity period to do further due diligence into the deal. At that point, throughout the entire process, New Majority Capital will be supporting you.

So, we have a pre-acquisition fund which provides a 0% interest loan for entrepreneurs to cover some of the pre-acquisition costs, like quality of earnings, to hire a CPA, and to go through the company’s financials. Make sure what you see on paper is actually there in the bank through that process of due diligence.

We have weekly office hours with our entrepreneurs and we go through that process of due diligence and they present the company to us and we say, “Hey, you should think about that.” Sometimes we say, “Is that a red flag? Is that a green flag in terms of moving forward?” We also have a partnership with Lawyers for Civil Rights that provides pro bono legal services to all of our entrepreneurs throughout the process because you will need legal counsel and that will help you get through the process there.

So, once you are ready to close the deal, we would come in and help out with the financing. After you close the deal, we have what is called the NMC concierge, which is a suite of back-office support that every business needs. It has accounting, IT, marketing, HR, and a package deal, so to speak, for the entrepreneurs to help you scale the business and run it successfully after the acquisition.

Shubha Chakravarthy: I love the business model that you have at New Majority. One thing I want to ask you about is the whole process of deal making and the whole process of due diligence.

Making sure that you are getting a good deal for your money has been an area of potential blind spots, lack of knowledge, lack of exposure, because it requires access to insider networks, right? The lawyer, the good banker, and such.

Now clearly you guys are providing a lot of that support, but there is a part that the entrepreneur needs to bring to the table in terms of street smartness, some kind of savvy, which they may not have just because they’ve not been exposed to that by virtue of who they are or where they come from.

How do you address that innate part, especially for women and diverse women in terms of learning to become smarter negotiators or learning to spot a good deal from the bad, and all of those basic things that are so critical to making a good deal?

Allegra Stennett: Thank you for asking that. Those things are addressed in our accelerator. We have a section where we talk about negotiation and what does that look like and how to ensure that you are getting a fair deal.

A part of that is having some data to arm you. If you understand that multiples in this specific industry are companies that are going for six times ebitda, then you know, “Okay, I offer a deal where I’m offering a sales price as three times then the seller’s going to laugh at me.”

So, you need to understand what the marketplace is. If this company should go for 3X because of the size or because of some complexities internally then you shouldn’t be offering 5X.

These are some of the nuances that we teach in the accelerator. Understanding if there is a real estate component then how does that change the deal? Those are some of the things that we want to make sure we arm our entrepreneurs and our fellows with information that then they can employ.

They workshop case studies and scenarios through the accelerator just to give them some more practical experience as they go through.

Shubha Chakravarthy: Excellent. Are you providing additional programming or some kind of support for women entrepreneurs because in my experience, this negotiation and financing part tends to be a sticking point.

While I’m all in favor of a co-ed model, I do think that there is a case to be made for a safe space where you can feel more comfortable getting familiar or getting confident with that negotiating aspect.

Allegra Stennett: In our program we don’t separate out women and have a component for that but typically in office hours it easily becomes therapy for our entrepreneurs – men and women alike. So, that’s a safe space for them to come and I have entrepreneurs – women that’ll ask me questions and they just want to speak to me and tell me what’s going on with their search, et cetera.

So, we view that as a safe space where they can come to us and ask any questions. They can ask us things that they would be afraid to ask investors. That is where we want to have that safe space.

Then also in the accelerator, we’ve designed it where it is partially in person because we want our entrepreneurs to build a community and be able to rely on each other and to see what is going on in each other’s deals.

How are they navigating some of the challenges? What are some questions that they had during due diligence that they think would be beneficial for the group to know and be aware of and whether they are industry nuances or regional nuances, et cetera.

Shubha Chakravarthy: Based on all of the mentoring or office hour conversations you have had, particularly with women, are there three or four observations that just pop to mind when it comes to women entrepreneurs.

Allegra Stennett: I think it’s interesting because I don’t have this characteristic, thankfully, but I’ve noticed across the board that women tend to be more afraid to negotiate and that does not help them. Right?

We can’t be afraid to negotiate because we are either leaving money on the table or leaving a good deal on the table because we are hesitant to do so. I think we need to inform ourselves and arm ourselves with data and then move forward confidently whether it is in our skills or in our abilities in terms of getting the deal done.

That is something I’ve definitely noticed over the last few years and there is a lot of research that is done on that and women negotiating – particularly if they are negotiating, particularly if you have a woman of color on one side negotiating against a white male owner on the other side, it may be daunting for them.

However, I’d say don’t let the fear stop you from moving forward and that is kind of why we are here. We are here to help you get through that process and to hopefully make you a more confident negotiator and leader because the negotiation skills don’t stop once you close the deal.

You are going to have to be doing negotiations forever with customers, with employees, with local partners, and the government.

This negotiation doesn’t stop, so you might as well get comfortable with it. Particularly as a CEO, you are going to be the company’s Chief Negotiation Officer, so you need to be informed and develop a level of comfort around that.

Shubha Chakravarthy: Two questions. One, I have to ask you this – what makes you different? What do you think is the cause of you not being daunted by negotiation? Maybe we can pick up a tip from you.

Allegra Stennett:, I don’t know. Honestly, I’ve noticed that since I was a kid, I’ve always had an affinity for getting a deal. Whether it was the smallest thing, like a shirt in a store or a coupon that I could use.

Then I grew up watching my mom run a small business. She baked and sold cakes. So, I’ve witnessed that, and I’ve had business savvy to some degree.

Then in elementary school we’d have fundraisers and selling those boxes of oranges every year or things like that, and we’d sell cupcakes almost every year, me and my mom. We would win a prize for the kid and the family that brought in the most money. It would almost always be so just because we had these little tactics, and it was just fun.

It was just, wasn’t like it was something light. The stakes were super low, but it was just fun and so I grew up not being afraid to negotiate because I think I’m deeply practical and I just realized, “Okay, me negotiating equals X, Y, Z and whatever success that is, and because I wanted that thing I was willing to do that.”

For me if the means was negotiation that justified the ends of accomplishing whatever. So, for me, I just haven’t been afraid. I then went to grad school and was a teaching assistant for the negotiation workshop at Harvard. I don’t know, it was fun for me.

When we finished the workshop, they asked us, “What is our dream job?” I told them that I’d love to negotiate part-time for the government on an international scale. My professor was like, “Well, you can do that. Why don’t you do that?” I’m like, “I have no idea how to get started, but maybe in another life I’ll do that.”

Shubha Chakravarthy: I know that is a great program. What are some of the mental flips or tricks or things that you’ve seen women do or that you’ve counseled women do to get over that hurdle, that fear of negotiation that have been effective?

Allegra Stennett: I’m trying to think because some of our women are in the thick of it right now. So, it is to be determined how they’ll come out on the other side. I assume and I expect them to come out well, but I think the first thing goes back to informing themselves and arming themselves with data. So, if you understand, I think that helps to frame it.

So, for example, this is the same with salary negotiations. If you are making $60,000 now, and you are applying for this role and you believe that you would like a bump in pay, you say, “Okay, I want to bump, and I’m going to ask for $80,000. But the actual job market rate of the job is $120,000. Asking for $80,000 is selling yourself short by $40,000, almost 50% of the salary that you want. Right? Getting that data in visualizing helps the individual, the woman to see, “Oh, this is a huge deal and I really need this!” The market kind of protects you, right?

You are not going in with just random facts. You are talking about data that is verifiable.

Then also it is roleplaying. I’ve role played with women before about how to ask for things and negotiation tactics. So, I think that those two things, arming yourself with data and then preparing for the negotiation one, that’s something we’d always talk about in the workshop.

Before you go into a negotiation, you need to understand the facts and put yourself in the other person’s shoes, and then think – how do you walk from this with both people being happy at the end of the day? That is the thing too.

This is something I learned in my younger days. It is like you want to leave a negotiation with your counterpart being willing to negotiate with you in the future, right? That is a win. It is not only like, “Okay, you got this great deal but the other person hates your guts.” So, it is about managing all of that. It is like a psychological thing in addition to just a financial thing.

Shubha Chakravarthy: Excellent, lovely tips. I like them all. Coming back, hopefully our entrepreneur has negotiated a great deal. She has a good business. What happens next?

Do you have financial milestones or goals that she has to meet? What happens to the relationship after that? You mentioned the five-year horizon where you want her to own it on her own behalf, but what happens during those five years? How does New Majority stay involved and how does she ensure that she is being disciplined and productive in terms of how she is managing this business?

Allegra Stennett: Yes, so the goal post acquisition is to successfully run the company and scale it as evidenced by growth and customers and revenue, et cetera. That is one thing.

New Majority Capital would remain a partial owner up until the point where we have left the cap table, hopefully in five years. So, through that we would have a voice in managing the company with them and obviously we are not doing the day-to-day but there are major decisions that come up if there are any questions.

We serve as advisors for these entrepreneurs to run the company, putting them in a position to succeed. We arm all of our entrepreneurs with mentors in that specific industry so that they can have someone who has gone through this process, who has negotiated a specific government contract that can give them the expertise and the advice, and also has the network to put them in front of individuals they should.

So, those are some of the ways we stand in close proximity with our entrepreneurs in addition to the concierge and them leveraging the concierge for support as they scale.

Shubha Chakravarthy: Is there some kind of a dashboard or scorecard, like the investor report that you would provide if you were venture funded?

For example, that you have standardized across your portfolio companies, or is it something that each entrepreneur develops on her own? How does that part work?

Allegra Stennett: One of the main KPIs obviously is growth in EBITDA because this is the search phone model. It is a cash flow dependent business. So that is the main goal. Are you growing EBITDA.

That obviously has governance around that such that would already have been in the legal framework of how the deal was done, but to make sure that an entrepreneur doesn’t acquire a company with a million dollars of EBITDA and then you run off with all the cash flow.

You make sure that stays in place and that the company has reserves to grow, et cetera, and to invest in whatever, whether it is capital improvements or technology that would make the company further successful. So, that is like the main criteria, to see that EBITDA is growing.

Shubha Chakravarthy: Do you have typically board representation? Is that part of your operating model where, for example, if you get money from a venture capital, they negotiate board seats? How does that work within the context of your model?

Allegra Stennett: We would have representation of the company, but what is more important than even the board representation is that on day one, New Majority Capital, assuming we have put up a hundred percent capital for the acquisition on day one, we own a hundred percent of the company.

So, the CEO, the management team, isn’t allowed to just run off and do whatever they want to do. We would be owners of the company up until the entrepreneur reaches that point where they’ve bought out their equity, so to speak.

So, that gives us an ability to make sure they have policies and procedures in place and that they have a governance structure of the company in place so that things don’t run amok. So, that’s the most important part of that.

Shubha Chakravarthy: I assume that this would also involve some kind of milestones that they have to meet. It is like an earnout, right? You accomplish these milestones in terms of EBITDA growth or cash position, whatever the case might be.

You hit them, you draw back, you earn some of the equity back, or you earn it for the first time, and then you keep meeting those successive goals and you increase your share of ownership. Is that pretty much how it works?

Allegra Stennett: Yes, exactly. It is a vesting schedule for all the entrepreneurs, assuming certain that these milestones are hit up until five years, if it takes them longer then that’s fine, but that is our gut target.

Shubha Chakravarthy: Just in terms of the universe of companies that get acquired by your entrepreneurs, you mentioned that you have relationships with the brokers.

Do you have a specific thesis or do you even care? Are you industry agnostic? Region agnostic? Do you have any thesis in front of any of those dimensions of what businesses get?

Allegra Stennett: We have opinions of different companies based on our own experiences and frankly, biases. However, we don’t let that drive the entrepreneur’s decision. From perspective of the fund, we are industry agnostic, with the exception of retail and restaurants. We don’t really touch those too much for a variety of reasons. Besides that, we are industry agnostic.

We are location agnostic, and our 80 entrepreneurs are all over the country. Our furthest entrepreneurs are in Los Angeles, and then our closest entrepreneurs are in our backyard here in Boston. We are all over.

Then obviously with the regional hubs, we have a cohort of entrepreneurs. Our largest cohort is in Atlanta. It is an entrepreneur’s decision on where they want to acquire. That may be driven by family reasons, personal reasons, wanting to go back to their hometown and we don’t see that there are businesses for sale. So, as long as you find the right deal, then that is great. We think having some level of specificity is actually helpful.

If you think about a woman, for example, we’ve talked about women entrepreneurs like this. These are some of the conversations and the questions that I ask when we have a woman entrepreneur, I’m like, “You want to acquire a manufacturing company in. Let’s say it is in Chicago, but you are from Atlanta and it is like this is not only an individual decision.” Say you went to your MBA at Kellogg, and you want to move back to the Chicago area. Okay! Great!

Then what does your life look like in the next five years? Not only your professional life but also your personal life in the next five years.

“I just got married last year. I want to have a kid in the next two-three years.”

Then, is your partner working?

“Yes, my husband is working.”

What does childcare look like?

“We’d want to be close to family. My husband’s family is also from Atlanta.”

Okay. Then why are you acquiring a company in Chicago unless you are going to fly in childcare every week? These are some of the decisions that we walk through.

You are the CEO of this company. If this company is not relocatable, which some companies are, then you need to be living in close proximity to the company. That means you have to work your life such that it is able to live and be successful in this area wherever you acquire the company.

So, I think these are some of the decisions that it is not just an individual decision. It becomes a whole family decision.

We actually have searches that are a husband-and-wife team that are acquiring a company together. So, obviously they’ve had conversations. They are aligned on the same page of whether this is where you want to acquire and if this is why you are going to do this. “If we acquire, I’m going to do that.”

These are some of the things that even if your partner is not involved, or even if you are single, you need to think about. What does my life for the next 5-10 years look like because you are going to be running this company for at least 5 years. What is framing your life to fit that?

Shubha Chakravarthy: Assume that I’m an entrepreneur, I know I want to do something on my own, but I’m not sure whether, I want to go down the ETA route. What are the four or five things that you’d suggest I do while just starting out to give myself the best shot I can at becoming a successful entrepreneur through acquisition?

Allegra Stennett: I’d say that if you are starting out, you can read a lot of books, “Buy Then Build”, the HBR Guide to Buying a Small Business, just to understand the industry and then start to just look around. You can just poke around  all these different platforms, like if you were buying a house, maybe even before you find a real estate agent, you’d look at Zillow just to see what’s out there, what’s available where, and you know it’ll help you.

It will bring some sanity and bring you back down to earth. If you are thinking, “Hey, I can get a five-bedroom house for $300,000,” then it will bring you back to reality when you see the prices. It is the same thing with businesses.

So, look and see what’s in the marketplace in the areas that you can search. You can filter by cashflow and by location, just so you see what is available. That will help you in framing and determining, “Hey, this is what I want to do.”

Then obviously, apply to our accelerator, and come and do the accelerator and learn some of the tangible skills to go through the process.

There is a lot of free information online. Attending conferences is super helpful because you meet people that are in that space. You form connections and you form a network that you can then lean on.

I’d recommend for individuals who are new to this to have a SearchFunder presence. Get a profile on SearchFunder.com. This is a community exclusively of individuals that are buying and selling companies. I think that is very helpful.

Shubha Chakravarthy: Is it helpful to have communities of other women who are also on the same path to give you a little extra bump in terms of whether it is confidence or exchanging tips? Are you aware of any of such communities?

Allegra Stennett: I think it is helpful to have such communities. There have been women only events or location specific events on SearchFunder. I know there was a New York event and so forth. They go around the country doing these sorts of different events and I think that is definitely helpful.

When you meet women in the space, ask them what communities they are connected to or what are some of the challenges they’ve had to overcome? If they know anyone who is doing deals in this industry or “Hey, is there a bank they would recommend for the SBA loan if they’re going that route?”

So, I think definitely building those networks is important because particularly for women, the search fund space is majority white male. As a woman, you are going to stand out and if you are a woman of color then you will be standing out even more. It is definitely important for you to have a network and for you to meet people across all demographics that are in this.

Shubha Chakravarthy: So, let’s say that I do all of these things but let’s say I come from a place where neither one of my parents have had a business. Let’s say I just had a regular job or maybe I didn’t. Maybe I was a homemaker.

Are there things I should be doing? Would you recommend that I take a job for a couple years, work for a business of whatever size? What are some of the things I can do before I take this big step that can help me better prepare for being a CEO?

Allegra Stennett: I don’t think you necessarily need to take a job unless there are some financial reasons to do so. I think if you have the time, it would be beneficial to just have informational interviews with small business CEOs.

But if you have time on your hands, go and talk to individuals that are running companies, whether it is a local company like your local HVAC company, your local manufacturing. Access the CEO, what does their life look like? What are their challenges, how many hours are they spending in the business?

What is the most difficult negotiation they ever had? What are their plans? How do they build strategic plans for the next three to five years? You can just go around and ask CEOs questions about some things they wish they knew before they bought this company or started this company or whatever the case may be.

Get that information because each one of those informational interviews will help you. It will give you points of things. “Hey, I need to learn that!” or “I really need to make sure I have this down before I start.”

Shubha Chakravarthy: Excellent and personally for you, just before we conclude, what keeps you the most excited and involved in the work that you are doing? Are there moments that pop up in your mind that say, “This is why I’m doing this work,” or “This is what makes it worth everything?”

Allegra Stennett: I had a moment like that when I went to the US Black Chambers Conference a few months ago. I met a woman there who runs like a event business. I don’t know if you’ve seen these Paint and Sips Events in different areas, they do those. It is where a group of individuals will go and they’ll paint a painting and sip wine or something like that.

She runs these different events, and it is very popular around the country. There are lots of different mom and pop owners of these sorts of companies and she was having a big challenge with finding space because she didn’t have her own space.

I told her, “You are having the challenge finding space. Why don’t you buy an event space? Then you have the space to yourself. You own the space to run your events out of it. You don’t always have to run your own events. You can also just rent out the space for weddings, for corporate events, et cetera.” She literally was almost bursting into tears when I was telling her this is possible.

I said, “Find an event space company. NMC would provide capital because you are already running your small business, you already have a track record of being a successful business owner. You are just coming upon this challenge and here is a solution that you could go for.”

So, I think that those are the moments where seeing this lady start to tear up is one of those moments where I’m just like, “I’m glad I’m doing what I am doing.”

Shubha Chakravarthy: Fantastic. Is there any question that I should have asked you about this whole topic or about yourself that I didn’t?

Allegra Stennett: Well, I’d say this. There are people watching that really want to be involved. You are interested in our mission. You like what we do but you don’t want to own a company. You are more than willing to invest in New Majority Capital. Our smallest check size on the management company side, we’re raising on Wefunder, our smallest check size is $200 and our largest check size is over $200,000. That is not for the fund, it is for our crowdfunding campaign.

So, you can be involved by investing and being an investor and following us. If you want to donate, our nonprofit is grant seeking. You can donate to our nonprofit and that allows us to run our programs in the community to get more individuals into this ETA space.

We welcome you to be a part and you can find us on all the different social media platforms, Instagram, LinkedIn, et cetera, at New Majority Capital and we’d love to have you on board.

Shubha Chakravarthy: Thank you so much, Allegra. This has been a very informative conversation, certainly for me and I know for many other women who may not have considered this option. A whole new avenue now opens up to freedom, more flexibility, and control over their own economic lives. So, thank you very much for the time.

Allegra Stennett: My pleasure. Thanks for having me!