Brent Beshore Returns – Private Equity, Venture Capital, and the Future of Money Management - [Invest Like the Best, EP.22]

Episode Summary

Executive Summary: Patrick O’Shaughnessy interviews Brent Beshore on private investing, arguing that durable returns come from moat, patience, and judgment—not hustle, hype, or forced exits. The conversation critiques traditional PE/VC incentives, explains why small businesses are hard to buy and manage, and highlights empathy, peer mentorship, and brand as long-term advantages.

Main Topics: The true size of the investable private-business universe (Priority: 5/5): Beshore estimates hundreds of thousands of transferable businesses worth diligence. What counts as a real moat (Priority: 5/5): He argues most small businesses rely on founder skill, not transferable advantage. Why traditional PE incentives can misfire (Priority: 5/5): Fee pressure and short hold periods can push value-destructive behavior. Venture capital as a brutal power-law game (Priority: 4/5): VC can work, but only for top funds and with extreme dilution and risk. Brand as trust plus surprise (Priority: 4/5): He frames brand as expected outcomes, consistency, and occasional delight. Peer mentorship and empathy (Priority: 5/5): Learning comes from high-truth peers and seeing others through their incentives. Charlie Munger and Buffett as models (Priority: 4/5): Their kindness, humility, and long-term philosophy deeply influenced Beshore.

Key Arguments: The investable U.S. private universe is ~500,000-800,000 transferable businesses. Most businesses' moat is the founder; that moat often does not transfer. PE returns improve with size because buy/sell execution skill and relationships matter. VC is a power-law: top funds do well; most funds and LPs do poorly after fees. A 7x multiple can still be risky in small private businesses because earnings are volatile. Brand is the distribution of likely outcomes, not just awareness or image. The best way to learn is from peers who tell hard truths and have unusual expertise. Empathy improves judgment: people act rationally given their incentives and information.

Data Points: Business tax returns in the United States: 33 million - Used to frame the broad private-company universe Actual number of companies in the United States: low 20 millions - Estimated after adjusting tax-return duplicates and shells Transferable investable entities: 500,000 and 800,000 - Beshore's estimate for businesses with transferable assets worth diligence Revenue threshold: 5 million plus dollars of revenue - Part of his rough filter for investable businesses Employee threshold: 30 plus employees - Another rough indicator of investable heft Deals reviewed at highest level in one morning: 14 or 15 deals - Illustrates the pace of initial diligence Deals pursued from that batch: 2 - He dug deeper on two of the morning's reviews Businesses reviewed last year: almost 2,600 - Shows scale of screening effort Businesses reviewed previous year: a little over 2,000 - Shows growing deal flow over time Historical growth of a company in diligence: 90% earnings growth - Example of unusually strong growth in one portfolio company Typical VC seed dilution: 15% at a minimum - He says seed rounds often dilute founders heavily Typical VC seed dilution range: 30% or even 40% - Higher-end dilution he said is common in seed rounds Typical Series A dilution: 20, 25%, 30% - He cited this as additional dilution after seed Burn rates in venture-backed companies: 2 times revenue or at least 1 times revenue - His example of how fast VC can accelerate spending PE return hurdle from illiquidity premium: 3% annualized higher return - The kind of premium often sold to LPs in alternatives Owner-earnings multiple seen in deals: seven or eight X - He said some deals are being done at these levels Starting return at 7x: 14% - Patrick noted this as the implied steady-state return Lower-end transaction multiple: two to three times seller discretionary earnings - Typical for very small businesses Higher-end normal range: five and a half or six times multiple - Typical for stronger businesses in their core market Stretch multiple for the right business: up to six - His practical ceiling for most acquisitions Minimum pre-tax earnings in their current search: 1 million - Their current lower threshold for looking at businesses Previous minimum pre-tax earnings: 400,000 or 500,000 - Shows how the search universe has shifted upward Typical deal size in their range: 2 to 2.5 million dollars of pre-tax earnings - He described their core target range Upper end of their search range: 10 - He said they may look up to $10 million of pre-tax earnings Best-case hold period for traditional PE: 5 years - He argued this is the longest healthy time horizon for a fund Public share turnover: 10, 20 times a year - Used to show how liquid markets have many more actors Coffin Foundation sample size: 100 - Referenced as their venture capital investment sample Public-market-equivalent hurdle: 3% or more - The benchmark the foundation sought to beat

Pivotal Quotes: "small businesses don't say small on purpose" — Brent Beshore: On why founder-dependent businesses often remain small "I call operating a company in many ways like the knife fight" — Brent Beshore: Describing the day-to-day stress of running businesses "Don't feel like you need to be impressive to people" — Charlie Munger: Advice Beshore said he took deeply to heart

Implications: The open question is whether Beshore can scale without losing discipline; listeners should watch how incentives, talent, and patience evolve as capital expands.