Started as SBA Searcher, Built to a PE Fund

So, yeah, which, which sounds great, but just to press on this because I'm sure you, you know, had to sit down and sketch all this out. There's always the argument of if cash is returned to an investor, is that the, that is implying that that's the best use of that cash as opposed to reinvesting in the business that generated said cash.

And so sometimes it can be either considered a bad capital allocation decision to make a distribution as opposed to reinvestment, or it, it says of the business that it doesn't have a lot of reinvestment potential. And so that, that, that's kind of a. It doesn't speak highly of the business's potential.

And then the the idea is after those first two or three years of curing it within our ownership, that investments are coming off of that company's balance sheet or out of its operations. But we have obviously the discretion not to do distributions if we believe that there's a better use for it within our portfolio companies.

So far we've been able to make distributions to at least pay our preferred return current, which is I think a pretty unique thing.

And can we get into the exact structure here that you had walked me through the pref, the split, the waterfall and how all of that plays Sal?

Sure, yeah. So there's a couple of different ways that the investor earns money back. One of them, there's a 10% preferred return, meaning that the first dollars that get distributed out of the fund, which is a collection of the performance of those each individual portfolio companies go to paying the preferred return for the investors. So 10%. So if you put a 100 grand in, we owe you $10,000 on…

So the first 10% that comes out goes towards paying that pref. After that it goes to 80, 20 split 80% to the investor that pays down their capital contribution, 20% to the GP. Once all capital and pref is returned on the initial investment, which we forecast to be somewhere in the year five timeline.

So you've been getting quarterly distributions. By the time the end of year five comes along, we expect you've gotten all of your pref plus your principal back. Then that's that split goes to 60, 40, 60% to the investor, 40% to the GP.

So you've been de risked as an investor the whole way through because you've been getting your money back. And then at the end of it you still own 60% of the portfolio as a as just getting that those distributions or if we sell it the dispositions there are a couple of different share classes so that it could be it's anywhere from 60% to 70%. So larger checks get a little bit better split on the…

But you know, when we designed it we wanted it to be a investor friendly so that there was, you know, good cash flow and the returns over the projected, that projected time were really positive. But also just have people be part of that. That same theory of being able to do awesome stuff with awesome people and just be long term owners of these portfolios. So great.

And the after paying the pref every year the remaining distributions are split 80, 20, 80 to the investors 20 to you, the GPS. And that 20% is where does that.