A lot of people put their career first over everything else for a long period of time, and there are consequences to that. Doug Robinson always wanted to have a more balanced life between work, family and community, and so when an opportunity presented itself, he made the choice to move to Colorado to have a shot at it. Gathering the right people, he formed a successful organization and started his own firm. He is now the managing partner of Dry Fly Capital, a private equity firm casting vision for legacy business operations to expand into growth. Doug talks about the tradeoffs of creating your own firm, closing transactions, bringing companies to market, the culture, vision, and core principles of his firm, and more.
We have Doug Robinson as our guest. He’s the Managing Partner of Dry Fly Capital. He’s an adjunct professor of Finance at the University of Colorado Boulder and he is a former candidate for the Governor of the State of Colorado. Doug, you have a deep and varied background. Let’s dive into your background and talk about the journey.
I’m a father of five and married to the same woman for many years. The kids turned out okay. Our oldest is 28. The youngest is a junior in high school. We have one at home still. That’s what I’m most proud of. Along the way, I’ve done a lot of things. I’ve been an entrepreneur. I started businesses. I’ve managed larger companies. I ran for political office. Now, we have an independent private equity firm and we have four portfolio companies. It looks like we’re about to have a fifth. We have purchased companies and installed management and running those companies as well. I’ve had a great life. I was born in Michigan. I got to New York out of college. I spent several years in New York and many years in Colorado.
When you came out of college, what was your skill set that you got in college that took you to New York City?
I discovered along the way in college that I liked numbers. I liked finance. I had an internship on the bond desk at First Interstate Bank in Los Angeles. I interviewed and found a way to get back to New York and took a job as an investment banker, as an analyst at Dean Witter in 2 World Trade Center. I didn’t realize at the time I was signing up for about 80 to 90-hour average weeks. That was quite an education.
As a credit analyst in the bond market, those guys go deep in the balance sheets to make sure the credit quality is sorted out. I think more about a company from their balance sheet than perhaps the equity side does, in my opinion.
The balance sheet tells you everything. Balance sheet, cashflow, income statement, that’s usually where people start. That’s the least important of the three statements, but they’re all important.
You were at Dean Witter, which is no longer with us.
Dean Witter is now part of Morgan Stanley. I went back to business school. I went to Columbia Business School in New York with an emphasis on finance. I came out and joined a media company in their corporate development group, Maxwell Macmillan, Macmillan Publishing. I was on a team where we brought 23 companies over a couple of years span. I was recruited and I joined a firm called Hambrecht & Quist, which was an early underwriter taking companies public technology companies based in San Francisco. I was in New York. There were lots of travel back and forth, but we were doing IPOs primarily for emerging internet and technology companies along the way. I was traveling so much my wife said, “Is this what we signed up for?”
You were married to her these days?
I was married. We just had our third child. Out of the blue, I had a new assignment in Colorado. I’d lived in Colorado as a kid for a couple of years. My wife grew up basically at the Air Force Academy. Her father was a professor at the Air Force Academy. We loved Colorado. She came out with me. It was one of those days in October where it was bluebird sky, 65 degrees and the snow on the mountains. We said, “We’ve got to move here.” Like it sometimes happens in life, literally a couple of days later, a friend of mine calls and said, “There’s a recruiter that called me and there’s a firm in Denver that wants to start a technology investment banking practice. Would you be interested?” My wife said, “Absolutely.” I was out the next week and I met with them. You’re figuring out is the glass half empty or half full? It’s not New York. It’s a different opportunity, but we decided to move. That was many years ago. I came out and I was running corporate finance and then all of the equity division of a firm here Hanifen Imhoff. Determined that the day of the regional investment bank, full-service investment bank was coming to an end and we sold that firm to Stifel Nicolaus.
I started my own company with a few other folks that I’ve met called St. Charles Capital. We grew that to be the leading independent investment bank in Denver, sold that to KPMG in 2014. I spent a few years with KPMG and then I decided it was time to try to do something in politics. Several months I spent running for governor. I lost in the June primary and then I joined up with a longtime friend of mine to start a private investment firm and to look at various companies that we think we could bring our expertise to improve. I got a teaching job at the University of Colorado. That’s my story.
You come out of school and you go into the credit world and start doing the analysis. You’re working for major corporations. There’s a point where that changes where you’re not interested in doing the corporate gig anymore. You’re more interested in getting regional and getting more into details. At some point, you decide to start your own business. What was that like when you go home and you go, “I know I’ve got a good job and doing this, that and the other and I’m progressing. I want to leave that behind and I want to start my own firm?”
A couple of things play into that. Some of that transition was driven by a desire that I grew up with to have a balanced life. To have corporate success but also a family and personal success and community involvement and to give back to the community. I found in New York that it was too difficult for me. I couldn’t make all of that happen. I’m not saying that people can’t in New York, but I was in a great firm where everyone that I respected above me had put their career first over everything else for a long period of time. There are consequences to that. They were almost all divorced or mistresses or the kids off to boarding school. I didn’t want those things.
I made a choice to move to Colorado where I thought I could have a more balanced life. It showed up for me in the first week. I’ll tell you the anecdotal story. In New York, when you meet somebody out at a social gathering, somebody will introduce themselves and will say, “What do you do?” You know exactly what they mean and that, “Are you in investment banking or on the credit desk or the derivatives or public finance?” You talk about that. I’m out here in Denver the first week and we are at a social gathering. Somebody says, “What do you do?” I said, “I’m in corporate finances,” and they’re like, “No, what do you do?” I said, “What do you mean?” He says, “Do you fly fish? Do you ski? Do you rock climb? Do you bike?” It was a more balanced life and that’s what I wanted. I found it was a trade-off. I wasn’t doing those deals that were being written about on the front page of the Wall Street Journal as I had, but ones that were impacting people.
The value of my career being an investment banker is getting to know the CEOs of these companies and when they’re going through a transaction, either selling their business or raising capital. This is the most important thing to them at that time and you get to know them intimately well. Often, as you get towards the closing of a transaction, you’re talking to them three or four times a day around details of these transactions. I learned that, “That would be fun to be running your own firm. It takes some risks to do that, but with higher risks, there’s a higher reward as well.” I thought that if I gathered myself with the right people around me to start, we could have a successful organization and we did. I made that transition.
You’ve seen many businesses come to market over and form and sell. There are a number of those transactions that didn’t finish. They came to the table for one reason or another and failed to go through. If you were to look back over those businesses that didn’t transact, what would you say the one or two key reasons that they don’t transact?
With higher risks, there's higher reward as well.
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By far, the overall reason is that people are unwilling at the end of the day to compromise or to make trade-offs over things. There are some things that you don’t compromise, but when you’re in a business transaction sometimes the attorneys get involved and you get mired in the what if scenarios. It’s a risk allocation discussion and you can’t see a way through that. People get tired of the process. They underestimate the extent of due diligence that a buyer wants to do. At the end of the day, they’re not willing to compromise and they walk away from it. Usually, that’s what happens. Sometimes you see a buyer that will re-trade a deal at the last minute or something like that and that’ll cause a deal not to happen. One of the things that we were the proudest of at our firm, St. Charles Capital, which we started in 2004 was that over the several years that we operated it and sold it to KPMG, our closing ratio was 84%.
For the people that don’t know, what is that ratio compared to the norm?
The norm is probably less than 50%.
For the folks that are going like, “I have a business or I’m concerned.” When you were bringing companies to market and when you’re looking at them, what were the key things that you would either find or train them in to get ready to sell?
Before I answer that, the 84% we were successful and closed. The difference at 16%, about half of it was financials deteriorated through the sales process where they took their eye off the ball. The numbers went south. Of that 8% that was the difference, half of it was we couldn’t find the right buyer or something. People get their egos in the way and they can’t seem to get to yes basically, but most of the time we were successful. The key things for a smaller business if they’re thinking about going to market are starting to prepare ahead of time. Preparation is everything. Prepare not only the financials and the information that’s going to be in a data room, but most importantly prepare to have a management team or a group around you that can follow. If you’re the CEO and you’re used to doing everything, maybe you shouldn’t be doing everything. You need to be able to say, “If I’m out of this business a year after the sale, it can continue and grow without my presence.” Those are the key things.
I’ve got a little bit of background as a business owner as well. There’s that key difference between having a job and having a business. For you, you built this business. When you first started St. Charles, how many people did you have?
When we sold it to KPMG, we had 35 investment bankers. A little under 40 total.
When you started, how many did you have?
There were four of us.
I think about the progression, adding staff and passing through the vision and culture. For the folks that are in a growth curve, what advice would you offer to them about culture and vision and core principles of your firm?
To answer that, I probably need to step back and tell you about an experience that I had after I first came to Denver that changed the way I thought about leadership in business. I was always highly motivated to get things done. I’d start my day with a to-do list of things that I wanted to accomplish. I was a running aside of this firm, Hanifen Imhoff. The equity side had about 75 employees. I remember one day in particular where I had this list of things that I needed to do accomplish. Three times I got interrupted by people knocking on my door saying, “I’ve got this issue with a client or with this other guy on the sales desk or other things.” I was aggravated like, “They’re taking time away from what I need to get done.”
I was stewing on that over the weekend and I happened to run into an experienced executive. He mentored me a little bit and I was sharing with this and he says, “You got it all wrong. That’s the most important time of your day is when you are leading and listening and lifting up other people. Your job as a leader is not to get that entire task done. It is to inspire other people to reach their potential.” A light went off in my mind that, “True leadership is not how many things did you get done, but how do I help other people get inspired about the vision, where we’re going and reach their potential. That we’re going to be better off with lots of people doing it than the energy that I can put into it.” That was a critical event for me.
When we started St. Charles Capital, one I made sure that I had partners that I was with, the four of us that we had a common belief around people. That we had two things: we had trust in each other’s competence and trust in each other’s integrity. That we wanted to build a culture and a firm that was based on doing the right thing and no conflicts and serving our clients. We had a vision and we were to empower people to achieve those things. Those are the things that helped us to be successful where we had a clear vision as to what we wanted to be, the leading independent investment bank in Denver. A roadmap as to how we were going to get there, which was different than the others.
At the time, there were regional bankers that were industry agnostic, but more experts on the M&A process or raising capital. We said, “We’re going to be experts in that but we’re also going to bring deep industry expertise as you got from New York.” When you went to New York as the CEO of Boeing, you didn’t talk to a generalist. You talked to transportation, the airline guy who’s following all the other airlines. That industry expertise allows you to know what’s going on in that particular industry. Who’s buying? Who’s selling? What are the key metrics? How are the valuations? We brought that to the lower middle market and the first ones to do that. Those things combined with our focus on people allowed us to have success and to grow and scale our business. Eventually, we felt the right thing to do was to put that in the hands of a larger firm who could take it from where we had it.
What I think about is business development. If you’re bringing in niche market experts, this is not New York City. This is not LA and not San Francisco. You have to go in order to support that higher and that expertise. You have to find a business. What did you guys do to try business development?
We would task people. We would say when they got to a certain level, “We’re going to give you this particular area.” I was in charge of the technology practice at our firm, which was a bigger area. We would drill it down even further than that. I would say, “You’re going to take human resources software and you’re going to become the expert in that area.” Usually, we built it off of a success that we had with a particular client where we had basically gotten into something and we’ve been able to sell successfully that business. We’d been out talking to people and we leveraged that as a way to go and talk. For example, if you’re the CEO of a human resources software company and the competitor of yours that you know and you’ve been at trade shows and competed against. You know that he sold his business. Are you going to take a call from the adviser that completed that transaction? You probably will. We wouldn’t share any confidential information that we were required not to under NDA, but you could certainly share about how much interest there was in the marketplace? What were the key metrics and the key factors? You had some real expertise that CEO benefited from. We would leverage that expanding into a new area.