Alycia: If you don't pay a ton of attention to the small business investing space, which most people don't, you may have not heard of a company called TeamShares But I have been watching TeamShares for a number of years, basically since they I think it was midway into a funding round and I heard about them. So I've been watching them for the last few years, and they just went public in June. And the way they went public, I think tells us a lot about how the public markets are looking at the small business roll-up type of activities and type of hold holding companies. And I want to dive into what happened in that journey there and the reason that their stock went from $10 a share to now trading in the public market for $6 a share. So I'm Alycia, your host, of course, and welcome back to Fathom Now, TeamShares was founded in 2018, 2019 in New York by a couple of guys who worked in banking. So these are not people who necessarily were like small business enthusiasts. These were guys that were similar to Cody Sanchez, she's probably the one of the most famous small business acquisition people, started on something close to Wall Street or private equity or banking, and then moved into the small business play space to apply the same playbook. So they started, you know, 2018, 2019. And What they're focusing on buying, they didn't have a particular investment thesis. The first time that I heard about TeamShares their their main value proposition is that they're gonna buy small businesses. They don't necessarily care what what industry, whereas a lot of small business ac acquirers are stay away from certain things. They'll stay away from restaurants, they'll stay away from certain small, very small companies. And TeamShares seems like it was like at least their current proportion make up of the businesses that they own now are very spread across the board. So they're buying butcher butcher shops, cleaners, flooring companies, pizza chain, there was like a what do you call those subways sandwiches type of chain in there. So like they're very spread out in terms of what they were willing to acquire. And the original pitch, again, once when I heard about them, was that they were saying, Okay, we're gonna buy a bunch of businesses, a bunch of small businesses, and then we are going to build our own infrastructure on the back end of that. So we're build our own insurance company, our own payments processor, our own like whatever it was that they were that they were pitching, and implement that at the companies that we own. And they're from there then commercialize that for for other people, right? So that's what their original pitch was to VC investors. There is a bunch of funding. but long story short, so that was their original version of the company. I don't know what their pitch is now, if that's still something that they're trying to build towards. I suspect that it may have just kind of burnt itself out by the way that they went public. But The guys that that started it, so most of them were in banking. They had 134 people at at their head office. I think that's a now stat. That's like right now as they went public, that's how many people were operating. They own 90 companies, so they acquired 90 companies along the way. And the way that they were trying to incentivize small business owners was they had the reason the company is called team shares is because they were pitching an idea that the employees of the business, like we're gonna buy the business from you now, but we're gonna put in an employee ownership structure so that the employees can buy out the majority of the company over a period of like it was like 20 years, something very, very long. And and if you think about the way that small business owners work, a lot of them they care very deeply about their employees. They care very deeply about the legacy of the companies that they built. And so TeamShares with their pitch was like, okay, you need to sell now. That's fine. We'll buy it from you now, but we'll also put these structures in place so that the employees can benefit along the way. Now, I think that that is a really interesting ESOP's employee stock ownership plans are a really interesting thing to apply to the small business space. You the companies have to be big enough to do it effectively, in my opinion, because there's like it is really administrative and really complicated structurally. the idea of it is simple, like employees own the company, right? A co-op or something like that. Employees own the company. That is a functional outcome of an ESOP. And I think that is genuinely really valuable and a really something that we should push on in this day and age, call it 2026. But I I think that the way that they went about this may have backfired on them a little bit and some of the reviews that I've seen about the company that this has not been fully materialized and it didn't really work from a structure standpoint because these are very small companies. You know, that's just the nature of like trying something new. in a space, but that was also their value proposition to the sellers, right? So they had a value proposition to the VCs, the people they're raising funding from. And then they had a value proposition to the sellers of the companies to say, hey, in this market of people that might buy your company, you should choose us because we're gonna take care of the employees. Now I don't think that that vision has actually materialized largely from the ownership standpoint or from the kind of taking care of employees standpoint. I I read that a significant portion of their companies have now shut down. They've just kind of been rolled down because they didn't it didn't really work, right? but at the end of the day, they were able to go public and they went public through something called a SPAC So let's talk a little bit about specs because I personally, even being in the investment space, didn't know a ton about how they worked. I knew that they popped up in 2021 and were very active for a number of reasons. But they still they're still here. so going back to TeamShares and how they did this, TeamShares had a number of different funding rounds. I think they total raised 245 million wiggle room on either end, because I don't know if my my stats are exact relative to their press releases versus the press and the news and how they picked it up. But 245 million, $75 million debt facility release. And that was over a number of rounds. So I think they did like a series A, Series B, Series C, Series D, and then the debt facility. So this is like a a lot of funding over that period of time. And that's because they're acquiring companies. And to acquire companies, you need to raise quite a bit of cash. let's talk about SPACs. SPACs are special purpose acquisition companies. This is where a sponsor or a group of sponsors, they set up this functionally a shell company, right? It doesn't have revenue, it doesn't have customers, it's just an entity. They list it publicly and then they sell shares. And the intention of this company is to be, okay, it's a shell now, but we're gonna take this pool of cash and then we're gonna go acquire something with it. It is similar, like to me, as as I read what SPACs are, it's similar to what a search fund is. And I'm sure the the mechanics are not going to be exact, but the if you look think about the purpose of a search fund, that's where MBAs are coming out of MBA school. They raise a pool of money and then they go acquire a company, right? A SPAC is the same idea but a different mechanism to do that and in a much larger amounts. when you list this back, you and you raise the funding, that has to sit in a restricted trust. So the the whole purpose of the money is to acquire a company. It's gated by time. So you have, I think it's I wanna say 18 or 24 months to be able to actually deploy that capital. And within that time period, the money is just sitting there, right? And you can't do anything else with that money because it's a special purpose acquisition company, right? That is the whole meaning for the entity in the first place. There are a couple of thresholds that are meant to protect investors. I think with the original version of SPACs, we're like back in the 80s or 70s, and these were just kind of fraudulent entities, right? Like they raise the money and then they don't really do anything with it or some some nature of that, right? But then after that fraudulent type of activity happened, we put in place regulations. And the regulations around the SPAC mean that you have a certain time period that you have to buy a company in. You also have a redemption right, meaning that the investors, say you find a company. So if I am a sponsor and I set up a SPAC, I raise a hundred million dollars, and then call it month 12, I'm like, hey, I we really like this company. This is the company we want to acquire, or like merge with, quote unquote, into the SPAC. Investors at that point can decide to take their money back out. They can say, Hey, Alicia, I don't like the company that you actually found. I'm gonna pull my money back and just deploy it elsewhere. And they are able to do that. Now, sponsors know. That there is risk, right, in setting up a SPAC because you might have a scenario where the investors originally committed at $10 a share, you raised $100 million, and most of them decide they don't like the company that you found, right? Out of desperation, whatever it was, they don't like it. Now, that is actually what did happen here. so team shares, the SPAC that they merged with is called Live Oak Acquisition Corp. So the trust that was set up by that SPAC held $241 million in March of 2026. At the vote, they had 80% of investors say that, hey, we actually don't want to acquire this company, right? So 80% of that money fled out the door. They were left with $48 million in in the trust. So people that were like committed to investing and actually moving forward with the team shares acquisition in this in this SPAC. Now it sponsors know. Theoretically, sponsors know that this is a risk that they are taking. So they set up separate financing called a pipe, private investment in public equity. And this one I know almost nothing about, so I'm just reading from my notes for you guys. and really what happens is that institutions commit pri privately before the vote, and they they're committing at a fixed amount. So the SPAC went public at $10 a share. The pipe investors went bought in at $9.20 a share, which was a discount, but that is their discount for being more committed. So what's happened here is that you've convinced people originally, okay, we're gonna sell this the shares at ten dollars a share and then go acquire something. And on the backup of that, those those people can get out. The pipe investors, it's unclear to me whether or not they can get out of that agreement once they decide to invest in a spAC or or put up their money for a spAC like that. Now the the total deal to acquire team shares needed $120 million total. And the pipe amount, the one that was committed through this private investment in public equity structure, that covered the vast majority of that because again, the mass the vast majority of the other investors in the SPAC decided to pull back at the last minute. and where this brings us now is that team shares, they were able to go public. They merged with the SPAC, they went public at $10 a share. Their price now is down to roughly $6 a share, which is, you know, quite a significant discount from from when they went public. And this is something that continues to happen in the SPAC. I don't even know if I want to call it an industry, but people that have been setting up SPACs in in 2021. and in twenty twenty one, just to add numerical context for you, there were six hundred and thirteen SPACs that were set up and went public for a total of a hundred and sixty two billion dollars. The tracking index for SPACs is down 75% since 2022. So it's one of those that you saw. I think they popped up around 2021 because people were trying to get really aggressive with their capital. And they're trying to get aggressive with capital off the back of 2020, because 2020 was like a a down year for everybody, for all businesses. And that's because of COVID, right? If you remember back to COVID way back in the day, everything shut down, right? So everybody was on lockdown. We came out of that with like a very kind of aggressive economy. Like when you lock down a somewhat aggressive economy economy, and America is an aggressive economy, especially in venture, especially in tech, everybody was like, Okay, what what can we do here, right? Like how do we deploy some capital? So you had record high valuations, you had people that were like raising huge fundraising rounds, huge funds off the back of like some of it was culturally driven, some of it was just people didn't like lockdown. So we as a people. And they, you know, and when you're in the investing space, particularly venture investing, that's why I'm somewhat critical of venture, is that it's a lot of it is sentimentally driven, right? It's just sentiment and people trying to convince other folks of doing stuff without actually having the proof of that, right? That is the nature of venture. It's high risk, it's high growth, it's kind of high payoff if it if it works. So that was 2021. Now we can bring it back to today. Spec activity has slowed down quite a bit. Theoretically, the quality of the spacks are are better because you have a lot of the ones that got washed out, right? That shouldn't have they didn't play out well. And now people are again going back to the original version of what a spAC was, you know, they're again skeptical of the model. So with team shares, right? So they they listed at 10, they're down to six. They do still they've got operating companies, they've got profits to to show. I I think that as a company it's kind of unclear what they're gonna end up doing. I think the way that they went public is intelligent from a from the standpoint of trying to be permanent capital. And when you raise from venture, so if you raise rent venture funding, the mechanics of this, even if you are not on a specific timeline to give cash back to your investors. So if I'm I set up team shares, I take money from venture funds. Those funds have timelines to give money back to their investors, right? Regardless of the fact that I I do not. I don't even If I could just hold on to it. I don't have to, well, I say don't have to. It depends on how your board is structured, right? Sometimes they take board seats and then if they want to do distributions, they want to try to get the company to go public, they or do they want to replace you as CEO for not doing those things? That's what will happen. But say I had full control and I don't wanna give my I don't wanna give cash back to my investors. Like theoretically, there's a world in which that doesn't happen. With the venture funds, though, they have a 10-year actual timeline to the fund shutting down. And so you end up on this weird. you have a weird conflict, right, in terms of permanent capital. And permanent capital is meant to be permanent, not have to like go through a five to seven year hold period, five to seven year cycle. And with team shares, this was a way to get more permanent capital in theory, right? Because you're listed on a public exchange, which means people can can like buy and sell as they wish. And you're not beholden to a certain to the VC fund cycle, which is very problematic. in in my opinion, for something that is meant to be permanent capital. So that is The story of TeamShares Where it goes from here, I do not know. It's kind of, it's kind of hard to say. I think they're they're starting to shut down a couple of companies that are not working. The employees are starting to complain a little bit about the stock ownership plan and how that's playing out. But I really, the company is still active. They've provided solutions to sellers as far as acquiring their companies and and running them and trying to give people an option, or if I give them benefit of the doubt, trying to give people options, employees options in in the companies. And from here, it's kind of a question. I don't think their original thesis of building their own tech may materialize at ninety companies. That's not really enough to do something like that. But, you know, I I think it's yet to be seen. There's a lot of interesting activity in the long term hold space. and and a lot of big players coming in to deploy billions of dollars into trying to acquire small companies, roll up small companies, apply AI to small companies, all all of that kind of stuff. So we're in an interesting time now in in twenty twenty six. And I'm very excited to see how this continues to play out over the rest of the decade. and with that, thank you for spending a little bit of your time with me to learn about spacks, to learn about team shares as a company and this kind of small business acquisition roll up thing that they've got going on. And please subscribe or share this with a friend if you feel compelled to do so. Thanks for joining me on Fathom.