Why Founders Are Saying No to Buyouts — Hidden River’s Game-Changing Capital Strategy

🎙️ The Private Equity Podcast — Episode with Graham Bachman, Hidden River Strategic Capital

Guest: Graham Bachman, Managing Director & Head of Business Development at Hidden River Strategic Capital
Host: Alex Rawlings

In this episode of The Private Equity Podcast, Alex Rawlings is joined by Graham Bachman, who shares how Hidden River Strategic Capital is reshaping lower middle-market investing with structured capital—a hybrid approach that sits between debt and equity, allowing business owners to retain control while unlocking growth opportunities.

Graham unpacks how Hidden River’s capital solutions serve founders not looking for full buyouts or rigid debt structures and instead prioritizes long-term partnerships with existing management teams. He also offers valuable insights into deal origination, the firm's philosophy on professionalization, and why education and consistency are key in a fragmented funding landscape.

⏱️ Timestamps:

00:00 – Welcome and guest introduction
00:29 – Graham’s background and why he joined Hidden River
01:56 – Hidden River’s investment focus and fund status
02:52 – Gaps in the lower middle-market funding landscape
03:47 – What is structured capital and why it matters
06:08 – Use cases for Hidden River’s structured solutions
07:32 – Supporting founder-led businesses without taking control
09:08 – How hands-on is Hidden River in company operations?
11:33 – How does Hidden River help with leadership development?
12:59 – Differentiation through relationship-first deal sourcing
15:51 – Graham’s reading list and media recommendations
17:22 – How to contact Graham
17:51 – Final thoughts and episode close

💡 Episode Highlights:

• Structured Capital Defined: A tailored blend of debt and non-control equity designed to meet the needs of owners who don't want to sell or over-leverage.
• Flexible Approach: Hidden River typically backs existing management teams and helps them scale without stepping in to control day-to-day operations.
• Unique Deal Sourcing: In a buyout-dominated ecosystem, Hidden River differentiates through education, consistency, and relationship building.
• Founder-Friendly Philosophy: The firm supports founders who want capital to grow—not exit—and builds customized investment solutions to match.

📚 Graham’s Recommended Reads:

• Thinking in Bets by Annie Duke
• The Colossal Failure of Common Sense by Lawrence G. McDonald
• Good to Great by Jim Collins
• How to Win Friends and Influence People by Dale Carnegie
• Howard Marks' memos
• The Wall Street Journal

📨 Connect with Graham:
Email: gbachman@hiddenrivercap.com
Website: www.hiddenrivercap.com

Raw Selection partners with Private Equity firms and their portfolio companies to secure exceptional executive talent. We focus on de-risking executive recruitment through meticulous search and selection processes, ensuring top-tier performance and long-term success.

🔗 Connect with Alex Rawlings on LinkedIn: https://www.linkedin.com/in/alexrawlings/
🌐 Visit Raw Selection: www.raw-selection.com

Transcript

00:00
Welcome back to the Royal Selection Private Equity Podcast.  us today is Graham Backman, Head of Business Development at Hidden River Strategic Capital, a private equity firm with a different way of investing and therefore a different way of denomination.  Let's dive in.  Graham, if you can give us a 60 to 90 second breakdown of you, Sure.  And thanks so much for having me on, Alec.

00:29
I'm excited to be here. So I'm Graham Bachman, Managing Director and Head of Business Development at Hidden River Strategic Capital. We're based here in Radner, Pennsylvania, which is in the suburbs of Philadelphia. I joined the team here as we were doing our first close on our current and first bond back at the end of 2022. Before that,

00:57
I spent some time at a large alternative investment fund manager and then on the direct lending team at a large single family office, both here in town. Over time in my career, I've found myself gravitating more toward the lower middle market. It's a more fragmented and less institutionalized space, which creates unique opportunities for

01:26
flexible capital solutions.  At Hidden River, we really focus on providing creative structured capital. So kind of custom blends of debt and non-control equity to founder and management owned companies that tend to be in the two to $15 million EBITDA range  and  set across a wide set of industries. It's a space  where creativity and relationships

01:56
really matter  and where we believe the lack  of kind of an efficient capital market creates real opportunity. And that's what drew me here. It's  been a really great first two and a half, almost three years,  a thrill to have joined on the ground floor at the beginning of  a firm and beginning of a fund.  We're now fully staffed up.

02:23
And  about halfway invested in fund one,  which ended up right around $250 million  in size.  What's one mistake that you see either private equity firms or portfolio companies making? And what would you suggest to Greg? Yeah, I don't know if a mistake is the word I would use  that other funds are making, but more so a gap  in the funding landscape.

02:52
particularly in the lower middle market. Most private equity  and credit capital is designed around M &A, the buying and selling  majority stakes  and leveraging up those deals. But not every founder wants to sell or take on a rigid debt structure. There's  a whole universe of business owners who are looking for capital to grow.

03:21
recapitalize  or take some liquidity without giving up control.  And yet there's no clear,  well-defined path for them to find flexible options. And that's where structured capital comes in. It kind of fills the white space  between traditional debt and equity,  offering kind of a more tailored solution.

03:47
for businesses that don't fit the standard private equity mold. So the opportunity that we see and the reason Hidden River exists  is to serve that unmet need. We're really focused on helping founders access capital that's aligned with their goals, not someone else's ownership timeline.

04:13
So talk to us more about how that works, what that structure looks like. And you mentioned obviously the someone else's timeline. Are you guys there for a long haul? Just give us a better picture of what this structured capital means and looks like. Yeah. Someone else's timeline, more referring to the business owners being able to retain control. We are a traditional five to seven year target.

04:42
hold period ourselves, the securities we invest makes it, you know, such that they don't have to sell their company at the end of that timeframe necessarily.  But to dive in more  on the definition of structured capital,  it's  capital that contains structured features such as, you know, a fixed return, a maturity date.

05:10
a mechanism for liquidation, et cetera, as compared to unstructured capital being just  plain common stock or common equity.  Structured capital came into being as a term probably around 2010 or so, early 2010s when  some credit firms started investing meaningful amounts of preferred equity alongside their debt investments. So the term was coined as a way to wrap

05:39
the whole strategy sort of under  one label.  I would think of it as the overlap between  traditional buyout equity on one side  and mezzanine debt or cashflow lending on the other. And we try to operate in that middle zone, providing the best of both worlds. That allows  us to support  management-owned companies

06:08
across a variety of situations,  whether they're trying to fund organic growth, fund add-on acquisitions  or shareholder recapitalizations like partner buyouts or dividend recaps. So often  we're stepping in  as a partner to these businesses when a pure debt solution is

06:33
overly restrictive  or unavailable because  maybe there's a lack of collateral or cash flow on one hand,  and then on the other where traditional equity might be too dilutive  or require giving up control. So by combining debt instruments with less dilutive preferred equity, we can structure a solution that protects our downside while maximizing the upside.

07:02
for the existing owners. So we try to flex up and down the capital structure. We'll range  from senior debt to significant minority equity ownership.  And in doing so, we try to give founders the flexibility they need to execute on their plans without giving up control of the business that they've built.

07:32
Lomino market businesses, founder-led, founder-owned, are you typically retaining the founder in the business and then beginning to what you got as the  atypical private equity professionalization?

07:46
Do you repeat that question? Sorry, are you typically retaining the founder in the business as the chief exec and then supporting them on the journey of kind of privacy backed professionalization of that company? Yes. Yeah. I think our preference is to back the existing management team at a business.  So oftentimes it's the current owner or current CEO are one in the same  and they

08:16
have gotten to this business to a great place where it is today. They're a manager that we can diligence and back and be comfortable with. And they just need some sort of structured capital, flexible capital solution to achieve the growth or the transaction dynamic they're looking for.  Sometimes we'll engage  with  management.

08:40
buyouts as well, maybe a management team that owns a minority stake in a founder owned business and the founder, the family is ready to sell and we can support the existing ownership team or the existing management team become the majority ownership in that business. But it's really about trying to back the existing management group, the existing ownership group with sort of flexible capital.  We're not going in.

09:08
taking majority control position, putting in our own CEO and ripping out the C-suite like some private equity funds do. How was that? I assume it was also the attraction on that, that limits the kind of investment. If we look at a lot of the firms that we support and executive search, a little bit of market businesses, they'll do a roll up type of deals. They'll do a investment in a business, take it on organic growth strategy and

09:38
nine times out of 10, probably 19 times out of 20, probably going up. The chief exec's not quite at the level they needed to be at. So no doubt, selective nature of your investments. But how hands-on are you with regards to that professionalization where being a minority holder? Yeah, well, let's go with that. How hands-on are you guys with the minority of ownership in the professionalization of the business and growth of the business, you said?

10:07
Yeah. If the question is around, um, how involved are we operationally in the business?  I would say it's limited  and it's, it's kind of a selling point for us. We spend a lot of time, not only underwriting and understanding the business itself, but also  ensuring that we can trust and support the existing management team.

10:36
They've built a great business to date, but they need a little extra gasoline and they want to stay in control. They want to double down on their business. So  we'll help professionalize. We take board seats  and we are in constant communication and building a great relationship directly with the ownership of the business.  And we'll help prepare potentially for a larger exit in the future.

11:02
Um, you know, whether it's helping to build out the C-suite or the finance function or, um, you know, work with other intermediaries to understand what would help increase value of the business in the long run. But the day-to-day operations and management of the business, we are entrusting that the CEOs and the management teams we back are going to continue to do a good job and we're there to support them.

11:33
Does that come with  a...  Where do those guys go to get that kind of development? Do you offer that internally or is that kind of, that's not our structure, that's not what we do.  If they do need help in scaling and becoming that kind of trusted advisor within the portfolio. No, we're absolutely there to support them and help them  if they would like or if they need the help for growth. I think what a lot of...

12:03
private equity firms pitch  is that they're going to come in and take your business to the next level because they're so smart in XYZ industry.  We take kind of the opposite side of that coin. We think that there's plenty of very capable  managers  and CEOs  that own businesses today that are more than capable of

12:31
growing their company  if they had a flexible capital partner who  can be a starting board for them.  We can provide our thoughts and some level of expertise, especially on the finance function, obviously.  But we'd all go into a situation  with  a business or a process and say, hey, you need to work with Hidden River because  we're the best in...

12:59
XYZ industry, we're going to take you to the next level. You're going to have to listen to what we have to say. It's the opposite. It's, we think that you've built a great business and you're in market today because you capital to achieve X, Y, and Z. We can provide you that capital. We can support you. You can maintain control.  And I think that  resonates really well with business owners.

13:28
Perfect. So from it, you obviously focus on the deal origination. Tell us about what you're doing on that side to differentiate yourself as an innovative to generate new deals into the firm. Yeah. One of the most consistent reactions I get from business owners is surprise and excitement, frankly, that private equity firm like ours does not require that

13:57
control ownership.  There are a lot of motivated owner operators out there who do want to double down and grow and not cash out, not give up control. But as we talked about a little bit,  most of the capital in the lower middle market is geared toward full buyouts. the challenge on sourcing  is that the ecosystem  isn't really built for structure and capital. Most intermediaries

14:26
whether it's investment banks, lenders, other GPs are set up to transact in majority control M &A. So there's no well-defined network helping owners find flexible minority capital solutions like ours. So that creates both a sourcing challenge, but also a huge opportunity. So a big part of our differentiation

14:54
is really education  and consistency. We spend a lot of time helping intermediaries and other GPs understand how we're different from traditional buyout or credit shops. We're not doing cookie cutter outreach  or chasing industry feces. We are,  we're very relationship driven. We try to be creative and consistent.

15:22
with how we show up in the ecosystem. You know, sometimes it can feel like we're trying to boil the ocean at times, but by building trust with the right centers of influence and being top of mind when a flexible capital need arises, you know, we're carving out a space that most other funds just don't plan.

15:51
So interesting. So what do you read, what do you watch, what do you listen to, Graham, that you should recommend that others check out? Well, obviously everyone should be listening to the Private Equity podcast. But beyond that, I keep up with the usual suspects, the Wall Street Journal or other industry publications. I never miss a Howard Marks memo. He just released a really interesting one about government intervention.

16:21
which is timely. On the book side, I have a few go-to classics, whether it's Good to Great or How to Win Friends. One that not everyone knows is The Colossal Failure of Common Sense, which is sort of an inside look at the Lehman Brothers collapse. But one book that I always recommend, because it really stuck with me, is Thinking in Bets.

16:51
by Annie Duke. It is not an investing or finance book per se, but it's incredibly relevant.  It's about improving decision-making when you don't have perfect information, which is basically what we do every day in investing.  It helped me think more probabilistically  and also  to separate outcomes from the decision quality, which is crucial in postmortems and strategy conversations.

17:22
And if anybody wishes to reach out to you post this podcast, how best today getting such a place.  Yeah. I'd love to speak with anyone. If they, if they like to reach out, my email is  gbachman  at hidden river cap.com.  Um, and you know, every one of our contact information is listed on our website as well. Hidden river cap.com.  Um,  you can find our information there. Well, thank you very much for coming on the podcast.

17:51
Graham, I know you're listener, so thank you very much for being a listener as well. If you can stand listening to your own voice, unlike me,  you'll be able to  listen to your own self on it. But really appreciate coming on, sharing this with you,  your deal origination strategies and what you guys are doing to differentiate, but also dive into your  terms, structured capital and how you're leveraging that with being a minority investor and servicing an area of the market which maybe private equity misses  because of its  ownership and...

18:18
of accountability, maybe not accountability, its ownership structure have really taken all its control structure, probably the right thing. So thank you very much for coming on the podcast. Thanks for having me, Alex. It was a pleasure. And as always, thank you very much for all listeners tuning in yet again to the Private Equity podcast. Till the next time, keep smashing it. And thank you very much for listening.