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.

Links

• Hodinkee

• GF Data

Show notes

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

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