Weekly Thoughts

The trade-offs of building on your own terms

We talk to a lot of highly ambitious, bright people building various iterations of a “holdco”—German accounting holdcos, Brazilian utilities holdcos, Scandinavian fisheries holdcos, Mexican tourism holdcos. You get the point. We wish all these new ventures well, and we clearly like the format; 99% of our net worth is tied to one.

When we started Chenmark in 2015, the holdco funding ecosystem was essentially non-existent. We know this because we tried to raise money for our idea, which was a fairly futile endeavor! We had no relevant experience. We wanted an indefinite time horizon. We wanted to reinvest cash flows instead of prioritizing distributions. That’s at least three strikes. We got some polite nos and a lot of unanswered emails. Fair enough.

The reality is that the first couple of years operating Chenmark were a bit of a grind. More capital would have solved a lot of problems. Watching savings dwindle creates a special kind of anxiety, particularly with a baby on the way.  Perhaps more importantly, we would have had the capital to hire talent, which would have helped us better evaluate opportunities and grow our companies. Finally, we would have had more dry powder for deals, allowing us to grow faster and turbocharge the symbiotic relationship between scale and talent.

Reflecting on it, if someone had offered us $20+ million on standard holdco terms at any point between 2015 and 2019, we likely would have taken it. It would have been nearly impossible to turn down. And if we had partnered with external capital providers, Chenmark would likely be much larger today.

But we’re happy we were never offered that choice. Not that it’s a bad deal, it’s just that we’re quite happy with the present state of affairs.

So why no FOMO? First, struggle is not necessarily bad (particularly in retrospect). While the early days were a grind, as the saying goes, pressure makes diamonds. The lessons we learned were invaluable, and Chenmark wouldn’t be where it is today without them. Yes, we might be bigger, but we’d have less soul. For us, that matters.

Also, having a lot of capital to hire a team from day one isn’t necessarily a positive. It can mean people join for the wrong reasons. In the early days, people joined because they believed. Our hope is they still do.  A significant number of our team members take initial pay cuts to help us build something, which is humbling. That alignment is invaluable. It also means we work with an incredible group of people who are awesome to be around. 

Finally, we’re playing the game on our own terms. We are trying to compound equity capital over decades, which sometimes means moving slower and exercising patience… so much patience. We’ll admit, we have occasional bouts of FOMO and wonder if we should raise a large fund, go all-in, and try to dominate the SMB market. But then we remember we have a good thing going and remain comfortable with the inherent trade-offs of our chosen model.

In hindsight, the early-day constraints weren’t just something we had to endure, they were formative. Not having capital forced us to be disciplined. Not having money for talent forced us to learn by doing. Not having an easy path forced us to build a team that actually wants to be here. So, while we didn’t neccessarily choose the path we’re now on, we choose it now, every day, in a hundred different ways.

Have a great week,

Your Chenmark Team

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