Stop Building a Startup and Just Buy a Profitable Business

Sean Weisbrot: What do youth programs end of life care and private equity have in common? They're all part of the playbook for Neil Bava, founding partner of NB Group Investors, an entrepreneur reshaping how investment works and why it matters. In this episode, Neil unpacks the real differences between private equity and venture capital, how he raises capital deal by deal, and why AI is becoming essential to business strategy. He shares lessons on building relationships, spotting great deals, and staying persistent even when the market says no. It's sharp, it's thoughtful, and it might just change how you think about business. Of all the things you could do with your life, why did you choose to do this?

Neel: That's a good question. Well, my, there's probably other things I wanted to do, but I realized I couldn't do like, be a professional basketball player or, or be a, um, a manager of musical artists. Uh, those are, those are some passions I had at, at some point. But I think where I landed being, you know, an entrepreneurial private equity investor has been a really good spot. You know, I. Was trained in, in business and consulting and private equity, but realized somewhere along that path that I wanted to be more entrepreneurial, explore, doing a few other things, and ultimately landed back to start my own private equity firm where we have a much more entrepreneurial culture. I get to focus on things I like doing. Industries I enjoy and oftentimes am personally passionate about. I think mix of. You know, entrepreneurial desire, but doing something I really was trained and knew how to do in, in private equity investing. So I think it's, it's a, it's been a good landing spot.

Sean Weisbrot: Some people might consider that running a private equity firm isn't entrepreneurship. What would you say to that?

Neel: Starting and running any business is entrepreneurship. Uh, it's a different kind, right? It's, you're not running an operating business, but you are running a business. You know, we. Make investments that generate revenue for us. We have expenses with, you know, uh, a team. We have an infrastructure that we need to build to support all that we have processes, um, that we go through. So it's, it's a different type of business than probably many people are accustomed to when they think about. You know, a company, but we're, we're a business and you know, starting it is entrepreneurial in, in my mind.

Sean Weisbrot: How did you get started with raising funds for this?

Neel: So our model is that we raise capital specific to each deal. So when we make an investment, we. Have institutions that we will work with who will back that specific deal. We don't have a fund that we draw on for every investment. So that's how we capitalize each deal. In terms of our operating business, how we fund that, I mean, it's, it's bootstrapped. Um, you know, when I first started, I was doing other work on the side, uh, you know, to kind of get the bills paid. And then as we got up and running, that's gone away and, and we generate working capital to run our business from the, the investments we make.

Sean Weisbrot: But to start, it was bootstrap. What's the difference between private equity and venture capital in terms of your timeline to ROI? There's a,

Neel: a number of key differences between venture capital and private equity. One is the stage of the company that you invest in venture capital's early stage. You know, oftentimes it could just be, uh, at the earliest, earliest stage. It's, you know, a design on a napkin. The, the sort of fairy tale around that private equity we invest in established operating businesses generating cash flow, have. A product or service that they're selling and we're looking to come in, partner with the owner, uh, or founder, you know, founder, owner of the business, to accelerate that growth, really take it to the next level. In terms of the timeline, I think venture capital often has a longer time horizon. You know, you can invest in a company at the seed stage and take it through series CE, or to IPO that can take. And it's increasingly taking longer because companies don't want to go public. But you could be in a business for 10 plus years. Private equity typically has a five year timeframe. We have a flexible mandate where we can invest. We can hold businesses for longer than that, but generally you're targeting five years. And in venture capital, it could be much longer.

Sean Weisbrot: Do you ever do deals where the goal is to be able to have like a dividends or some percentage of profit share on a monthly basis or quarterly basis in order to help you with the capitalization of the actual operating business?

Neel: We, we do consider situations. Where we go into a deal and we say there are gonna be distributions on an ongoing basis because we don't have other uses for that cash flow, particularly if it's a longer term hold. That could make sense because most people don't wanna wait 10 years or more for any sort of liquidity. More often, we find that there are other uses for the cash than to make distributions or dividends on an annual basis. That could be growth initiatives, it could be acquisitions, it could be paying down debt. You know, we use debt in most of our transactions, though not all. So there's usually other uses for the cash that will help. The balance sheet of the business or the growth of the business going forward.

Sean Weisbrot: So when I say that, I'm, I'm referring to your, because you were saying in the very beginning you were doing consulting and stuff to generate money for you to be able to operate this. So that, that, that's what I'm referring to, is taking distributions on a quarterly basis from the companies you're investing in in order to keep your team fed.

Neel: So we do, in most cases. Take a advisory fee from the companies, which is, you know, in exchange for the support we give, we give our businesses and we are active hands-on investors. You know, I've gone down into the lease taking on interim CFO roles for, for, um, our companies or taking on running m and a for a company for two years. So we're, we're quite involved. And in exchange for that, we do take management or advisory fees that are paid, uh, often monthly or, or, or quarterly. If the business has the means to support it, there could be situations where the cashflow is better used for other purposes, and we'll defer our fee for for a point of time. But that does help, you know, keep the lights on.

Sean Weisbrot: I've spoken to hundreds of founders. I. And what I've found is the ones that are the most successful are able to separate themselves from the need to do things inside of the business on a daily basis. You just said that sometimes you'll go into one of the businesses you've invested in and take on an interim role. Do you feel like doing that prohibits you from being able to grow the firm as a whole and wouldn't it be better for you to find someone who could do that for you?

Neel: It does, you know, all the time you spend, especially with a small team, you know, we're two partners. There's only so many, uh, hours in the day. So the more time you spend on the. Portfolio companies, the less time you have to make new investments and grow the firm overall, but sometimes it's necessary. You know, you, you, you have to do what you have to do. If you know your CFO or another executive were to depart a company, it would take time to find someone else. You might just need to step into that role out of necessity and, and grow that business, right? It's also important to grow your portfolio companies and make sure that you're on track to generate the returns that you want. So we always weigh, you know, where we're spending our time and, and what's the best use of time. But sometimes that is the best use of time. There's also a cost component. Getting a consultant, CFO, an interim executive, it's usually quite expensive and that can burden a company. So if we have the time and we feel like we're the best, we'll take the role. In other situations, we'll, we'll slot someone in.

Sean Weisbrot: So say that there's two partners. What's the size of your actual team though?

Neel: Four people. So we've got two partners and two analysts, small team.

Sean Weisbrot: So if both of you were involved inside of the business, then the analysts are kind of running things on their own at the moment?

Neel: Well, they, we just wouldn't be really pursuing new investments, so we would be on hold for that time. But that hasn't happened. Uh, and I don't think we'd. We would really, uh, try to avoid that situation because we do want at least one of us to be actively hunting for new investments or pursuing new themes. That's part of our approach is to be thematic and research new areas we wanna invest in, you know, network, build up our relationships. So I think we would really try to avoid the situation where both of us were knee deep in, in operating companies.

Sean Weisbrot: So what is your current theme and how often do you reassess that theme?

Neel: We will usually generate and pursue two to three new themes per year. Currently we are, we just launched a theme around youth enrichment and early childhood education, which are two separate but adjacent markets. So youth enrichment is, you know, afterschool activities, sports leagues, summer camps. It's a really fragmented market with tons of demand, not enough supply, and. A lot of positive market forces behind it. Uh, education, similar, um, you know, similar drivers, uh, and both have, you know, can, can have pretty attractive business models that fit within our multi-location theme. So that's one area we're pursuing, uh, on this sort of very different side of things. We are looking at a couple things related to end of life. So, um. The quote, death care industry, funeral homes, uh, crematoriums. This is, you know, the far end of the spectrum from early childhood education. But what we look for are, uh, industries that we believe there's an opportunity to build market leaders where there's not so many to date where there are, um. It's a fragmented market where there's a lot of willing owners to sell where we don't have to pay too much for businesses and we can generate, you know, strong returns. So those are a couple we're pursuing right now. Over the years, you know, there's, there's been dozens that we've pursued.

Sean Weisbrot: Do you have any emphasis on the use of artificial intelligence in these themes, or do you avoid them because you wanna avoid hype and overpaying?

Neel: I think anyone in any industry has to be thinking about AI right now. We have increasingly been using it in our own firm operations and and our workflows. And when we look at a business right now, I think you have to think about, you know, how will AI shape this business over time? There are certainly private equity investors who are pursuing strategies that incorporate AI as a cost cutting tool to. Improve profitability of invest, you know, in businesses that they invest in. That's not something we've. Really pursued. But I do, we do think about how will AI impact this? Like if it's a service business, can AI replace that service over time? Or how can AI enhance this business over time? How can it let the company generate more revenue or be more efficient? So we're, we are thinking about it in, in our own firm situations and in, in investments we pursue.

Sean Weisbrot: When talking about end of life, are you thinking about euthanasia? I know it's, it's illegal in the us but maybe you're looking at. Opportunities outside the US as well, where maybe euthanasia is not

Neel: No, no, that's not, uh, no, we're not talking about that. We're just talking about, uh, you know, I mentioned funeral homes, you know, that's just a, a business that, uh, has a morbid connotation, but it's, it's a business like any other, um, hospice care, which is a really, I think, compelling, uh, proposition for patients. You know, it's a, it's a better way to, to end your life, uh, or to, to. Experience of the final, you know, months of your life. And it's also a positive for the healthcare system. It's, it's lower cost. So, you know, I don't love talking about these areas all the time, but, um, you know, they're, they're pretty interesting themes to, to invest behind.

Sean Weisbrot: It's something I've heard about recently is the use of psilocybin mushrooms to give people in hospice. Opportunity to experience something outside of themselves that makes them, that, that the result is, it makes them not afraid of death anymore.

Neel: Yeah. I just read a couple months ago how to Change Your Mind by Michael Poland. He talks, the book talks quite a bit about different, I mean, the, the whole book is about. The effects of psychedelic substances on the mind and, you know, different use cases and benefits. And one of them is about, uh, the use for patients who are, you know, facing terminal illness. And it, it tends to open their minds to not being afraid of, of that and, and having a relieved. From that so that they can really enjoy the last chapters of their life. So yeah, I, I've, it was a fascinating book. Definitely recommend the read. Uh, and he, he discusses that.

Sean Weisbrot: So does anyone you're looking at have that kind of concept, or are you just ignoring that right now?

Neel: No, it's not. I mean, they might, you know, we're, we haven't really probed on that. I'm not sure we have, you know, there are other. Related opportunities. You know, there's some here, I'm, I'm, I'm in Brooklyn. There's, there's a couple concepts that have popped out that are focused on, you know, ketamine therapy or other alternative, you know, therapies for mental health issues, and which there's a lot of science behind that, that, that they can be pretty effective. So we have at the surface level, looked at some things like that, but it's not an area we've gone deep from an investment perspective.

Sean Weisbrot: Okay. Now, how have you had to change yourself as a result of running this kind of a company?

Neel: Well, I think there's, I think building relationships is a key part of what you need to do to be successful in establishing and running. An investment firm, you need to have relationships, particularly in private equity. You need to have, build strong relationships with the sellers of businesses. You need to have strong relationships with capital sources. And you know, a lot of, I spent a good amount of time on, on those two things. Right. Maintaining and, and building relationships with capital sources. And when we really are pursuing investment, we spend a lot of time, you know, really demonstrating our ability to. Be, uh, value added to the company and also, but just building that relationship one-on-one at a personal level with, with business owners. So that's not something that I think you need to do as much. If you are at a large established, you know, for 30 years private equity firm and you're one of, you know. 15 partners, it's, it's much more important for us, you know, 'cause we're kind of doing everything and, and we're, we're on the front lines, both on the capital and, and the selling side. So that's an area that I've needed to. Spend more time on and efforts,

Sean Weisbrot: what are some things you're thinking about for your firm now that you're working on changing for the next quarter or two?

Neel: I, so I think you, you mentioned ai, we're definitely trying to find ways to use it more effectively. I think we're just scratching the surface of what we could be doing. I can, I can think of several different ways that if we. Had someone internally or we knew how to be more effective at, at using or, or potentially building tools using machine learning and ai. We could differentiate, you know, could be on the sourcing of new investment sides, just being able to very efficiently generate lists of target companies and. Have a more systematized and automatic flow for reaching out to them. It could be generating content that we can use to market ourselves. It could be just in our own diligence process, you know, which we have definitely started to, to embrace a lot more using AI to research industries or run specific analyses for us. But there's a lot more I think we could be doing. So that's something that, you know, I'm spending more time on exploring and, and. You know, really trying to learn how to, how to re our firm to take advantage of all that. So that's something that's, that's top of mind.

Sean Weisbrot: Do you think New York is the right place to run this kind of a firm? Do you think you have access to a lot of great businesses or are they other places and you have to just work anywhere?

Neel: Well, they're, yeah. I mean, we, we invest across the country. We've got a business in Oregon, one in the Northeast, one in, in, in the southeast. So we're. Geography doesn't really, um, limit where we can invest. And I'm in New York. My partner's actually based in Miami, so we, we are in a couple different places, but, but across the, the East coast, um, I think you can, you can run this type of business, uh, from any, you know, decent sized city. It doesn't have to be New York. Um, but, you know, there are, there is an ecosystem here that is beneficial, but it exists in other cities as well. Being close to. Companies you invest has advantages for sure. You know, getting on a flight to Oregon where one of. You know, it's more of a commitment than if the company was, you know, I could drive two hours and to, to New Jersey. So there are advantages, and people do, there are firms that have strategies around investing, but I also think you, you limit your opportunity set with that. So I, I think it's, it's, it's a good place to be, but it could be somewhere else.

Sean Weisbrot: Have you ever looked outside the country or you're not considering that? Right now

Neel: we've pursued investments in Canada and the uk. We haven't, you know. Those are probably the closest markets structurally, uh, to, to the us. So it's not, I don't think we would go beyond that unless we had a really strong angle, like potentially someone we were partnering with, like an investor we were partnering with who had a presence in that state. I think it becomes challenging for, for multiple reasons, but we have looked in Canada and the uk.

Sean Weisbrot: What is the hardest thing for you about. Running this business,

Neel: finding good investment opportunities at prices we feel comfortable with. The market is very efficient. The, the, the US private equity market is, you know, very and increasingly efficient. Even at the lower middle market, as we call it, the sort of small, medium sized businesses that we invest in, increasing number of investors, sellers are increasingly sophisticated. There's tons of intermediaries who will. Tell sellers that their business is worth, you know, 10 times EBITDA when we think it's worth six times ebitda. So it's, it's hard to find good deals at good prices. We're not looking to buy something cheaply. I mean, we're growth oriented investors. We're comfortable paying appropriate prices for businesses, but we don't wanna stretch so far that our ability to hit our returns targets is, is, is, is imperiled. So I think that's. That's the hardest part about this job, I would say. And how do you get around that? I mean, you being thematic is one approach that's been effective for us. You know, we really generate a knowledge base in an industry that helps us differentiate among other prospective buyers We get to know. A lot of people in the industry that leads to referrals. You know, we've done two of our deals have come as a result of that process. So that's one area. But I think there could be, you know, other ways, like really having a more automated approach to outreach that lets you, you know, have more leads at the top of the funnel. But that's, that's the most challenging part at the moment.

Sean Weisbrot: What's the most important thing you've learned in your life so far?

Neel: In my life so far? That's, uh, that's, I mean, I. I'm 40 years old, so there's been a lot of lessons I think that you have to learn to ha to, to deal with setbacks and, and failures. You know, there are things that you really can work hard on that are not gonna go your way or you can, uh, have failures and you just have to be able to, you know, absorb those and, and, and. Learn from those, but also, you know, just be persistent. I think you have to be persistent in anything if you want to be successful. So that's an important lesson.