0:00:00 - (Graham Conran): And we also identified sort of a huge gap in the market in terms of financing. There's just not enough financing available through traditional sources to underwrite the sort of the gray wave that we all see coming. We're just trying to catch it early and try to educate angel investors about a different kind of asset class which has a different return profile.

0:00:26 - (Andrew Kazlow): Welcome to the Diligent observer where we help angel investors see what most miss. I'm your host, Andrew, and every week we explore what works, what doesn't, and why through conversations with experienced startup investors and operators. My guest today is Graham Conran, managing director of Frontier angels, a nearly 20 year old Montana based angel network and managing partner of bizbuy Angels, a group of individuals focused on financing entrepreneurship through acquisition. In this episode, Graham walks me through why he believes angels should consider private credit, specifically in the ETA space, how structured exits keep zombies out of the portfolio, and why Montana is becoming a photonics and quantum hotspot.

0:01:09 - (Andrew Kazlow): I hope you enjoy learning from Graham as much as I did. Graham, thank you for being with me today.

0:01:22 - (Graham Conran): Andrew, thank you for having me.

0:01:24 - (Andrew Kazlow): Well, I usually ask what the guest is excited about, but today I'm going to start with what I'm excited about, which is this conversation is on such an interesting and different topic. You have essentially created an angel group focused on private credit, which is to me a very inverted way of thinking about angel investing. Tell me why you have done this and like walk me through this, this process.

0:01:51 - (Graham Conran): Yeah, yeah, it's sort of, it came out of the intersection of conversations with my members, the frustration they've had with not seeing returns, which is a problem across all of the angel world. Right. Because we tend to invest early and liquidity is hard to come by. It's just the nature of the asset class that you're dealing with. So, so thinking about that, seeing what's been happening in private credit and, and we can talk about it, but part of my history and, and work experience includes a version of private credit.

0:02:35 - (Graham Conran): And so I was familiar, I'm familiar with the space. And we also identified sort of a huge gap in the market in terms of financing. There's just not enough financing available through traditional sources to underwrite the sort of the gray wave. That's where we all see coming, which is the baby boomers who are, you know, small to medium sized business owners who are at the retirement age right now. And depending on the stats that you look at, you know, it's a trillion dollars or more of assets that need to trade hands in the next 10 years, huge wealth transfer. Right.

0:03:14 - (Graham Conran): So the asset management folks are going to win. Right. And we're just trying to catch it early and try to educate angel investors about a different kind of asset class which has a different return profile, but one I think that meets their needs and also can leverage the angel model. Because typically you have mid career folks who are tired of the rat race looking for businesses to buy those. That's our ideal partner, who understand workflow automation, who understand social media, who understand AI and understand it in a context that the prior owner, the baby boomer, never could. Right. Because they didn't grow up with it. Right. It wasn't part of their natural work flow.

0:04:04 - (Graham Conran): They kind of bolted it on and you know, had to have college kid help them out with stuff. Right. So if you, if you, as we look at it, we're always looking for businesses with the right things wrong with them. That's kind of our mantra and that's typically an older seller who you know, is under levered in social media, doesn't understand workflow automation and certainly has no idea how to implement AI.

0:04:30 - (Graham Conran): Right. And that's just getting more and more useful every day. And so our thesis is if we can find the right businesses that are under levered across those metrics and find somebody who gets it, you can, at least at a local level, really generate some greater revenue growth, better margins than the predecessor and in some cases that could be a platform for a rollup. And, and then we, we're just following a script of okay, we're going to support this entrepreneur who wants to buy a first business and maybe roll up two or three and then we would turn around and sell that to private equity.

0:05:14 - (Graham Conran): And so in, in some ways you can think of it as honey, I shrunk the PE game or the private equity game. Right. Because we, we're doing almost the same thing but with less zeros on the end. And the reason that's interesting to me in part is because a big part of my career was spent at J.P. morgan in the Financial sponsor group and the, and the leverage Finance group. So our clients were Apollo, tpg, kkr, all the global private equity shops. And we underwrote all those acquisitions.

0:05:46 - (Graham Conran): Not all of them. Obviously there was competition, but that's where I cut my teeth on private credit. We didn't call it private credit back then, it was syndicated finance. But the skill set, you know, you never, you never really forget it all. And so background complaining investors who wanted liquidity events kind of, kind of meshed into what became biz by Angels. And we're just at the very beginning stages of that.

0:06:16 - (Andrew Kazlow): So this is a community of investors who are focused on essentially finance like directly financing entrepreneurship through acquisition alongside, you know, traditional sources. So there's whatever the, the existing government supported financing structures, plus this private investment to support these entrepreneurs, it's going to

0:06:37 - (Graham Conran): replace because one, it's going to replace completely. Yeah, because there is, because of regulatory changes recently in the last six months, if you are not a U.S. citizen, you're no longer eligible for SBA loans. And 25% of the ETA of typical business buyers don't have U.S. citizenship. They're, they're, they're foreign nationals who are have green cards, they're hard working, great credit profile, but they have no access to SBA any longer.

0:07:14 - (Andrew Kazlow): And so which just articulate like why is that so important?

0:07:19 - (Graham Conran): Well, because historically the SBA 7 loans have been a really important tool, financing tool for folks who are looking to buy businesses. Because basically the SBA is backstopping the commercial loan because all these loans go out through a traditional bank, but they're backstopped or guaranteed by the government based on, you know, if you qualify. And so that encourages the local banks to lend to these buyers where perhaps they otherwise wouldn't have.

0:07:57 - (Graham Conran): And so that's been always a great source of financing for folks who want to buy businesses. And it's still available, but there's certain swath of the population now that's not eligible anymore. So that's one part of it. And the other part of it is just the absolute need in the marketplace that's coming. Even if you put all the traditional lenders together and their capacity and their balance sheet capacity today, it's not enough, some would argue it's not enough to actually support the transition, the 1 trillion of asset transition that's going to take place.

0:08:36 - (Graham Conran): So it's a huge market. What we love about it is it's not easy to do. Right. The back end of unlike in Frontier Angels where we make an equity investment and then we'll report on the company, but we don't really have to worry about it until there's a liquidity event. Right. In private credit, it's a loan, it has to be monitored and serviced every month. Right. And so that takes a pretty substantial backend in order to actually execute this. And so that's why Biz by Angels is a partnership between Frontier Angels, Jumpstart Finance, who provide all the underwriting and loan servicing, and a little horn bank in Billings, Montana which currently we have access to a portion of their balance sheet.

0:09:28 - (Graham Conran): But the reason we're want to bring in angel investors who want to exposure to private credit and we're raising a fund for it is because we have more demand than we can service. So as an example, we started accepting just to see what the appetite was, we started accepting applications on our website and within three months we had at a run rate about almost 400 million of demand from buyers like you had.

0:10:02 - (Andrew Kazlow): So you have people that are looking to buy businesses that are asking for $400 million in loans to go buy

0:10:08 - (Graham Conran): those companies across, across all of the inquiries. Yeah. So you know, so I'm extrapolating, right? So we got, I don't know, 100, almost 100 million in the three month window. So if you extrapolate that out, you know, you're, you're, you're approaching 400 million on an annualized basis. And we think that's just scratching the surface. And so as you're talking, all of

0:10:37 - (Andrew Kazlow): this sounds like this is a bank, this is later stage stuff. Why form this as an angel group? What is the pathway, what is the logic there? Help me understand.

0:10:49 - (Graham Conran): Yeah, so look, my view is that what we do in angel, traditional angel world, where get folks together, we pool capital, we support an entrepreneur and where appropriate, you know, some of those members may join the board, they may open their network, they may have experience that can benefit, right? The, the un, the founder who's looking for capital. And that's what's made that model so interesting certainly for angels is that, you know, yeah, I like the company, I like the founder. But hey, I, you know, I have a network, I can actually help you guys grow faster, which helps me. Right? So it's a win win.

0:11:30 - (Graham Conran): We think those same dynamics actually work in baby private credit world.

0:11:39 - (Andrew Kazlow): Baby private credit, that's amazing.

0:11:41 - (Graham Conran): Probably materialize much more quickly than they do in traditional angel investing because great, you may have a network, great, you may have advice for the early stage founder, but it could take years before any of that input can be monetized. Right, because it's such a long road for startups who are starting from scratch. Whereas if you have a Rolodex or you have advice or you have connectivity that might be of value to the entrepreneurship through acquisition founder that can roll up to the top line, you know, within a year.

0:12:18 - (Graham Conran): So, so there's lots of things to like about at least looking at and trying to understand this asset class. Because if you do invest and you, you can add value, you can see, you can monetize that much more quickly than you could in equity investing. The other thing that we think angels will like is that the, the exit is structured, right, It's a five year loan. So no matter what, your investment gets crystallized in five years when that loan matures and, and you know, good or bad, right, because you can have failures obviously, but you're unlikely to end up with zombies in your portfolio.

0:12:58 - (Graham Conran): You know, companies that just chug along, do nothing, don't really grow, but don't, you know, haven't failed enough to write them off. Whereas in biz by angels, in a private credit asset class, because there's a loan maturity, everybody's back at the table to refinance the loan. And our thesis is if we structure it correctly and have the right buyer, all things being equal, that company should be eligible for more traditional financing because all the metrics will be better, the growth rate will be better, the margins will be better.

0:13:36 - (Graham Conran): And so even if there's a stub of our loan remaining easy to refinance and we're out, so we're out in five years and folks can recycle that capital if they still like the game. If not, they take their chips and go home.

0:13:53 - (Andrew Kazlow): So let's say I'm listening to this, I'm an angel, I'm a part of a traditional couple, traditional angel groups and I'm writing 25k checks, 510 year horizon. Great. I'm hearing you talk, I'm like, yeah, I've heard about private credit. I should think about this a little bit more. Walk me through Graham's diligence framework for evaluating a direct private credit deal. I don't want the deep dive version. That's a separate conversation. But give me the, what are the three bullet points that need to think about as someone considering lending directly? Because that's a totally different investment decision, totally different risk profile than these typical startups which are very early stage, high vision, low traction typically.

0:14:39 - (Graham Conran): Yeah, great question. And the way to think about it, the way to diligence is you actually take some of the skillset you might have developed and as an equity investor, in terms of discounting future projections, trying to be very thoughtful about what the a, the milestones and the risks to achieve a certain outcome are, right. As well as understanding the ability of that company to repay. Right. So cash flow analysis becomes very important. And cash flow analysis is not something you have to worry about when you're investing in a company that has no revenue yet. Right. So, so understand.

0:15:20 - (Graham Conran): So, so really you have to have a fair Degree of comfort with understanding balance sheets, cash flow statements and P Ls. You have to know how to read them in order to understand not only historically what's happened, but in terms of the new buyer. You want to see a five year projection and you want to stress test that projections. Right?

0:15:40 - (Andrew Kazlow): Right.

0:15:40 - (Graham Conran): You want to see where that model breaks, where the vulnerabilities are so that you can dilig the, diligence them further. And so those are probably the two key, key things. And certainly cash flow analysis is, will be something that, you know, traditional angels never had to deal with before because

0:16:00 - (Andrew Kazlow): in this, in this decision I'm effectively playing at being the bank for this individual. Right. It's, it's a literal loan. And so I have to think about this similar to how a bank might underwrite the deal.

0:16:10 - (Graham Conran): Yes and no. So explain the other reason. The other reason why we think there's an opportunity here is because traditional and, and I live this. So I kind of speak from experience. Traditional commercial lenders are all mostly backward looking. Right. And certainly the sba, it's based on, you know, your credit score, do you give a personal guarantee? And, and you know, are there any assets associated with the business you're buying?

0:16:40 - (Graham Conran): In traditional private credit. Sorry, in traditional private equity, when we would underwrite a deal, we're only looking. Yeah, we look at the historical, but we're very focused on the sponsors, the equity sponsors, five year model and stress testing and most, there's no real commercial banks who will go to underwriting and get approval based on a set of projections. They're going to get approval based on the asset value, the credit worthiness and oh, based on the last 12 months of performance, what on a pro forma basis do we have enough, you know, debt service coverage? DSCR is the term.

0:17:20 - (Graham Conran): So, so it's very different in that sense. And you know, at, at the moment the only banks that really underwrite forward looking projections are the investment banks supporting their private equity clients. Everybody else, it's all backward looking, asset based, credit based lens through which they, they evaluate a credit. So that's why I say, you know, you have to bring some of the equity skills in terms of forward looking stuff and learn some new skills in terms of understanding cash flow and how that kind of flows through over the years and where the company could get pinched as they grow.

0:18:01 - (Andrew Kazlow): What do you think the most common misunderstandings are for angel investors who are interested in this world and are contemplating perhaps their first private credit investment?

0:18:11 - (Graham Conran): It's a great question, Andrew, and I think probably the biggest misconception is, can you really make any money? What am I going to get? Am I going to get 8%, 9%? No. The way a traditional loan. Yeah, maybe 10%. Right. But acquisition loans tend to be priced higher and we take equity. Like part of our structure is, yeah, we're gonna loan, we're gonna, we'll supply the loan. Well, if we get, if you're approved, fine. But you know, we're gonna, we're gonna give you a million bucks to help buy the business, but we're gonna take 10% of the company as well.

0:18:50 - (Graham Conran): And, and that's where you can go from, you know, 10 to 12% returns to 20% returns if you're right about the value of the equity. Right. And so in that sense, too, you're playing a little bit of the angel. Traditional angel game is trying to figure out, okay, you know, can a dollar I put in today be worth $5, you know, five years from now, or $3, you know, whatever the case may be. So that's where, you know, there are some parallels to traditional angel, but you have to look at some other metrics in order to get comfortable with underwriting alone because there are other considerations as we talked about.

0:19:35 - (Andrew Kazlow): A quick note before we continue the conversation. Alongside the Diligent observer podcast and newsletter, I also run an outsourced operations service specifically built to, to serve angel networks. My team handles things like initial screening, social media, newsletter prep, platform management, and a whole lot more. The kinds of things that either aren't getting done or shouldn't be done by busy community leaders.

0:19:56 - (Andrew Kazlow): If that sounds interesting to you, send me a note. Now back to it. I have seven questions in my brain right now. I'm trying to pick which one say more about how the, the team diligence changes in this scenario. In angel investing, evaluating the team is deeply important. But here you effectively have two teams. You've got the existing management team and then the acquiring management team. How does your diligence work on, on the people involved in these transactions?

0:20:26 - (Graham Conran): Yeah, it's a great question. And, and it's

0:20:33 - (Andrew Kazlow): maybe just compare limits.

0:20:35 - (Graham Conran): There are limits in terms of what you can actually do. You know, depending, again, depending on the size of the business and the sensitivity of the seller. Because look, we're dealing with, these are not institutional sellers. These are not, see like where a management meeting and yeah, come look over the books, no problem. Right. We're dealing with smaller sellers who are less experienced. You know, this is the one and only time they're selling their business. They've never been through this process before. Right.

0:21:04 - (Andrew Kazlow): And.

0:21:05 - (Graham Conran): And so you have to be cognizant and sensitive to the, the fact that if you are going to support your buyer, everybody wants to, yeah. You know, turn over all the rocks. You have to do it sensitively. And you have to know, you know, you have to stop pushing where you get some negative feedback, so to speak. So, you know, you may not be able to go and interview like, you know, the team on the ground. You know, it may be talking to the seller, trying to divine, you know, why he or she is selling and what were some of the issues that they encountered in the past, stuff like that. But it's.

0:21:43 - (Graham Conran): You're right, because it's, it's. There's more than one party. It gets a little more challenging in terms of the buyer look. We're looking for folks who have a vision. Right. We want to support just like we would in. In equity land, like traditional angel world. You want someone who's dynamic, who kind of understands the industry, understands operations and has an operational capability because that's where the money's made. Right. Is really landing and fixing the stuff that was not optimized for the last 20 or 30 years under the old ownership.

0:22:22 - (Graham Conran): And so on the buyer side, that's what we're looking for, a vision and an ability to operate ideally proven in a prior career. Right. Because a lot of these folks are coming out of careers and you want. That's what we're looking for. If it's someone who's just. Just looking for a job, which a lot of nothing wrong with it, that's not our ideal candidate. We're not just trying to help finance a different kind of job for somebody.

0:22:51 - (Graham Conran): We really want somebody with a vision who understand how this game is played and how to create value. Right. Because you have to be willing to sort of push operations, be aggressive in terms of, okay, what could this be in the next five years? And it may mean, hey, we have to acquire, you know, the guy down the street and the guy in the next county or the gal in order to get to a scale at which we.

0:23:20 - (Graham Conran): The value multi, the premium multiple actually takes a step up. Right? Right. So we may go in because of the size at, I don't know, three to four times cash flow. But if we can grow it a couple of times through some acquisitions, all of a sudden now you're at a six times multiple of cash flow. Right. On top of just an absolute larger cash flow bucket to look at. That's how you create value in this Game and, and there's you know, there look, there's a lot of.

0:23:52 - (Graham Conran): Because the size of these loans and these deals tend to be on the smaller side which is still have to do the same diligence. Right. You still have to do. And, and honestly, two years ago this model would not have been possible. The ability for us as you know, biz by angels and, and sort of the orchestrator of, of this, you know, our use of AI Claude and and chat GPT has really fundamentally for underwriting for dil.

0:24:23 - (Graham Conran): Right. For follow up for portfolio reviews and portfolio updates. It's, it's, it's lowered the cost and the bar of what we can underwrite. You know because a traditional saying is look, takes us as much manpower to underwrite a $500,000 loan as it does a 5 million. Which is true. Right. You want to be prudent. And that's because that comment came out of an old cost structure which we're not living in anymore.

0:24:53 - (Graham Conran): And so we're also taking advantage of the technological changes that have happened where we can now underwrite smaller deals smarter in a much more smarter and efficient way. We can make money, our angels can make money and we can deliver a competitive financing product in the marketplace at the same time.

0:25:14 - (Andrew Kazlow): So essentially where existing financing structures wouldn't look at a deal under X size, you're able to because of these tools and the you know, novelty so to speak of this approach.

0:25:26 - (Graham Conran): Yeah.

0:25:26 - (Andrew Kazlow): And just to give me context, like

0:25:28 - (Graham Conran): the only ones I. Look, I know there's a couple, there's a one fintech here and we can talk about Montana in a second. But credit as a service is coming. I see it already.

0:25:40 - (Andrew Kazlow): What does that mean?

0:25:40 - (Graham Conran): There's a couple of companies. Well, sorry, what does that mean? It means, it means if you do not have the capacity, platform and metrics to evaluate a credit risk. Right. You can now sign up for a platform, put in the borrower details and the platform will pull all the, the bank accounts, the credit reports, the everything a traditional bank would do and more Actually many more data points now are available and give you a score based on its historical analysis of all the credits that it's underwritten on that platform.

0:26:28 - (Graham Conran): So think about the thousands of data points and not only just the inputs but also the outcomes. Right. Because if you're monitored from origination of the loan all the way to repayment or not, you can, there's a whole data stream, right. That, that you can analyze and then start to apply metrics to, to understand. Okay. Based on what we've seen before. Is this person or is this business a good credit risk or not?

0:26:58 - (Graham Conran): And so those platforms exist today. You haven't heard a lot about them, but more of them are coming and so we don't use that at the moment. But I can see where we might avail ourselves of those platforms just because they have data pipes that we don't have access to.

0:27:20 - (Andrew Kazlow): Okay, Graham, I do want to talk more about Montana. This is a fascinating ecosystem that you have really gotten to know well over the last few years and are in fact profiling on a regular basis. For those of us who aren't in town, walk me through what is Frontier Angels. Who's doing cool work in and around Montana? Where are the startup hubs? Who's doing great work that we should know about if we're not around often enough?

0:27:46 - (Graham Conran): Yeah, it's a great question. And it's funny because I came out here for the first time in 2018 and you could immediately feel the buzz like it's a hustle culture. There's a lot of folks who are, you know, doing their own thing. And it. That trend has only continued. Certainly covet helped more and more people were able to remote from here. And those folks eventually who didn't want to go back to the office had to figure out, you know, well, if I want to stay here, maybe I'll start up my own business.

0:28:23 - (Graham Conran): And, and we've had some, we've had some very, a few big exits early on. Right. Networks was one of our early, almost unicorn exits. And what people don't understand, I think about Montana is that there's a huge and growing photonics business here. Quantum. There's, there's quantum sensing, quantum materials. We just got $40 million from the feds to be. We were, we were named a strategic hub. And so this entity called Headwaters Tech Hub, it was a recipient of 40 million bucks to help stand up all the quantum and the, and the optics industries because they kind of, they're interrelated in some ways.

0:29:17 - (Graham Conran): We also have. We're the first right to try

0:29:21 - (Andrew Kazlow): state.

0:29:22 - (Graham Conran): So if you are developing medicines or you know, things of that nature and you need, you need to get some human trials and human like we're attract, we're starting to attract those kinds of startups because of the, the right to try. And right to try just means it doesn't have to be FDA approved before you actually, it doesn't have to be part of a traditional study like the right to try shortcuts, the access to actually end users.

0:29:52 - (Graham Conran): And that's Attracting some folks. We've always, we've always. Well, I mean, the outdoor space, you know, that has, has created some startups, but the whole outside of that, I think we're finally being recognized, you know, on either coast that, oh, you know, wow, there's some startups there. Oh, MSU. Oh, who knew? Top 50 engineers in school in the country. Like, people don't know that, right? Okay. It's not top 10.

0:30:27 - (Graham Conran): But I will tell you, one of the companies that I invested in when I first came out here, our engineers were poached by Facebook and Amazon. Like, we lost people who wanted to trade money for lifestyle. That's the only reason we got to keep them. We're like, look, if you want to ski on a Friday, don't worry, right? We're not going to pay you at market. You'll pay, we'll pay you less. But you know, if you want to ski on Friday, we don't care.

0:30:56 - (Graham Conran): But, but I think people are starting to understand that the quality of the engineering talent that's coming out of our MSU and, and University of Montana, even up in Missoula, can hold its own and that. And then, okay, so now you marry that engineer to Claude or to chat GPT. I mean, the, the, the difference is the competitive, the, the field's gotten much more level in terms of engineering talent, you know, so those are probably the industries people would never think about Montana for. And what we're keeping a close eye on, it's still a little bit early. Certainly on the quantum side, we're still very early stages, but there's a lot of momentum in photonics and quantum.

0:31:47 - (Andrew Kazlow): And tell me about the startup scene. I mean, are there hubs of startup activity who are the main kind of investors? The accelerator, you know, what does that scene look like in Montana?

0:31:59 - (Graham Conran): It's a good question. It's. Look, it's a bit of a hodgepodge to be honest. Certainly Boseman is a center of activity for startups. Missoula, again, because University of Montana is. There tends to be a, a hub Billings as well. Billings is history in, in, in gas, oil and gas. Right. So. So A, there's some money in that town, but B, they've got things like Rock 31, which is a co working space. Big Sky Development, which is a EDA Economic development agency is down there and there's some activity down there, but most of it is in Bozeman for sure.

0:32:42 - (Graham Conran): We have 9.8 collective is a startup studio that's been around for about two years and, but it's, it's. Honestly, it's a little disjointed. There's no overarching entity that's stitching it all together. In part because as much as I love Montana, the legislature here has really shied away from putting any public money into any real economic development where we live, I. E. Early stage. Right. In part because, you know, a lot of the state is, has bootstrapped their whole life. Right. You know, they're cattle ranchers. They're, you know, they're, they're folks who have, who have done it on their own and don't understand necessarily why we have to be throwing money at startups per se.

0:33:34 - (Graham Conran): We're trying to change that view. You know, we try to point to all our neighbors who are throwing money at economic development at the, at the early stage and the successes they've had and we'll, we'll change some minds eventually. But that's. If you ask me what, what's my one frustration? It's, it's that, it's, it's, you know, as I tell people, look, Idaho and Utah have pretty mountains too. Like, you know, we're going to lose people because capital is going to go where it's treated well. Right. And founders are going to go where they can get, if they can get a grant.

0:34:07 - (Graham Conran): And the mountain I can ski. I can, you know, I can ski in Wyoming, by the way. I can hang out in Jackson Hole and I can also get government grants and investment. Yeah, I'll go there. So that's my one big frustration with Montana.

0:34:26 - (Andrew Kazlow): Opportunity for growth is what I just heard say more about Frontier Angels and how this community has evolved. I know you took the helm a few years back, but the group's been going for about a decade now. Tell me the story. Two decades.

0:34:43 - (Graham Conran): Yeah, yeah. So we were founded in, in 2007. So Liz Markey, who founded it, also raised Frontier Fund 1 and 2. And we've averaged between 60 and 80 members. You know, members filter in and filter out. They kind of hit their bogey in terms of what they want, the capital they wanted to allocate to this space and, or move out of state or, you know, any number of things can happen and it's majority, as you would expect, Montana based. But we have folks from Florida, Ohio, New York, California.

0:35:20 - (Graham Conran): A lot of people who have homes here, second or third homes here. Will. Will who, you know, like I did, just fall in love with the place and want to give back in some way, want to be supportive of all the great things that are happening here. And so, and then Pat, the, the gentleman I took over from, you know, he, he ran it until yeah about two years ago and he, he started fund three, four and five.

0:35:47 - (Graham Conran): We closed just recently a different kind of fund and I didn't want to do Fund 6 principally because as I mentioned before, returns have been so scarce in our, in those three funds 3, 4 and 5 that it's hard to get people, it's hard to justify people opening their wallet again when nothing's or very little has come back. So we had an opportunity to raise about a five million dollar dedicated fund for hardware pre revenue hardware companies, the absolute hardest space you can invest in.

0:36:24 - (Graham Conran): But we had some folks in town who had successful exits in hardware related businesses who want to do expressive view very singularly. Right. As opposed to being part of our group where we look at a whole range of things right from across the country. They really wanted to be focused on the Rockies west hardware, difficult problems, you know, as we call it, from paper to prototype type of support. And so we just stood that up two months ago and we're taking applications and we're vetting stuff and we haven't made an investment yet.

0:37:01 - (Graham Conran): So yeah, Frontier Fund 6 is probably another year or two away.

0:37:06 - (Andrew Kazlow): Get a couple exits, get some, some liquidity.

0:37:09 - (Graham Conran): We've had some exits, yeah, we've had some exits but, but no like you know, no 10 baggers. Nothing that you know like gets people really excited. And that's just in part the nature of the, the asset class, you know, that we're living with. Across all three funds. We've made some changes over the years. We're later stage, we're not so early anymore. We really want to play in the pre series A space. So like a bridge to a series A where we can see product market fit.

0:37:39 - (Graham Conran): We can kind of discern is the second derivative of growth growing. Right. So is there an embedded KPI that we can pick out to give us some confidence that wow, yeah, okay, there's something here, right? Customers are responding and they're coming back for more. And we've seen that in a couple of, a couple of recent investments where we were like the growth rate, not only is it consistent but it seems to be accelerating.

0:38:17 - (Graham Conran): And so we want to get in now. You know, sure, they could hit, you know, get run over by a train. Any one of them could. But it's rare, it's rare to see those kind of KPIs at the stage at where we typically invest, even pre series A. So we're we get super excited when we see opportunities where there's real acceleration embedded in the numbers.

0:38:40 - (Andrew Kazlow): Love it. Graham, final thoughts for me or our audience?

0:38:45 - (Graham Conran): Final thoughts? Yeah, I think, well, don't be discouraged. I know a lot of people out there are discouraged. You know, returns will come and, and you know, it's, it's a numbers game at the end of the day, you know, every, every one of our new members, the first thing we tell them is don't make any investments in year one. Make sure we're not a bunch of idiots. And if you are going to invest whatever amount you have to put to work, divide it by 20, because you need at least 20 investments in order for the probabilities to play out in your favor.

0:39:20 - (Graham Conran): And so we, you know, we try to do that for the funds. We try to encourage folks to be prudent. No one ever listens to me. By the way, everybody, you know, they see a deal, they've been sitting around for, say, oh, no, I really, I really like this one. I know it hasn't been a year yet, but no, I really like this one. So we try to discourage that, but we're not often successful. And, and look, here's my last thought and why it's important for angels to stay engaged.

0:39:53 - (Graham Conran): You know, one of the things this country has done better than any country in the world and why we're where we're at is because we're the greatest capital allocators there are in the world. Like we just by, if you look at the institutions that we've developed, the innovation that occurs here, that's because we've developed a skill set and some expertise. Not with everybody, but certainly enough that we've allocated capital in really smart ways. And that's part of the reason why we're here and allocating capital, being a smart allocator of capital is one of the most important things you can do, right? Because you're helping the next generation. You're, you, you want to pay it forward in a smart way. Well, like make smart bets with early stage companies that, that can help change the world, right? So that's on angel side and then on the biz by angel side. Look, our, our, my pitch here is we don't want to let businesses go out of business just because the financing wasn't there.

0:41:00 - (Graham Conran): Um, that doesn't help anybody, right? And equally so we don't want some out of state company like buying it and ripping it apart or whatever. Like, so, so there's, there's a real local there are there is with Frontier Angels, but there's also a real kind of local driver to to biz by Angels as well, to help keep jobs in the community, companies in the community. So that's probably more than you wanted, but those are my closing thoughts.

0:41:31 - (Andrew Kazlow): Fantastic. Well, Graham, thank you for taking the time to share with us today. I look forward very much to our next conversation.

0:41:37 - (Graham Conran): Yeah, thank you, Andrew. Really enjoyed it and love to do it again if. If you want.

0:41:45 - (Andrew Kazlow): Thanks for listening to this episode of the Diligent Observer. I'm your host, Andrew, and if you're an angel investor looking for essential angel intel in five minutes every week, I think you'd enjoy my newsletter. I send my best stuff, interesting deals and more straight to your inbox, so you never miss a thing. Subscribe today@thediligentobserver.com.