How Storytelling Meets Strategy Niklas James’ Media-Driven Investment Approach

🎙️ The Private Equity Podcast — Niklas James, Founder of Minds Capital
Host: Alex Rawlings | Guest: Niklas James

In this episode, Alex is joined by Niklas James, Founder of Minds Capital, an independent sponsor investment platform. They explore what sets successful sponsors apart, why industry specialization matters, and how media can supercharge inbound deal flow.

🕒 Episode Highlights

00:00 – Niklas’ background: Bain, VC, HBS, and independent sponsor journey
 01:17 – Founding Minds Capital: investing $1–$3M in sponsor-led platforms
 01:42 – The biggest PE mistake: poor self-marketing and lack of differentiation
 02:34 – Why “founder-friendly” isn’t enough — real differentiation is key
 04:24 – Using podcasting and LinkedIn for inbound deal flow
 05:21 – Why niche expertise drives better deals and exits
 06:20 – Case study: investing in an eyewear veteran
 07:14 – Why Minds Capital favors independent sponsors over traditional funds
 10:03 – Value creation via EBITDA growth and multiple expansion
 11:59 – Deal evaluation: downside protection, upside, and conviction
 13:53 – Red flags, realistic base cases, and what sets great deals apart
 16:17 – How Minds Capital assesses sponsors: 5 key criteria
 18:07 – Sponsors need transparency, gravitas, and skin in the game
 19:53 – Becoming a media-first PE firm: lessons from podcast success
 22:13 – Content strategy: LinkedIn cadence and community building
 23:10 – How media enhances deal flow and selectivity
 24:32 – Niklas’ reading picks: The Compounders in Private Equity, Alex Hormozi’s books
25:58 – Connect with Niklas on LinkedIn

🔑 Key Takeaways

• Stand Out: With 19,000 PE firms in the U.S., a generic pitch won’t cut it. Sponsors must articulate clear differentiation.
• Media = Inbounds: Minds Capital uses podcasting and LinkedIn to generate proprietary deal flow and investor interest.
• Industry Fit Wins: Deep sector knowledge translates into better deals, stronger exits, and investor confidence.
• Diligence Matters: Every deal is vetted through a rigorous process of risk checks, valuation analysis, and sponsor alignment.
• People First: The sponsor’s experience, character, and skin in the game are just as important as the numbers.

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Transcript

00:00
Welcome back to the Royal Selection Private Equity Podcast.  Joining us today is Niklas James, founder of Minds Capital, an independent sponsor investment vehicle out of the US.  Let's dive in.  Niklas, if you can share a brief insight into you, please.  Yes. Thank you, Alex, for having me here on the podcast.  I'm Niklas James.  My accent is Norwegian. I grew up there.

00:27
And I live in Florida now. been in the States since 2011. um Before I moved to the States, I started my career at Bain and company in Europe. And I was mostly in their private equity due diligence group where we would do due diligence projects for the mid-size and large cap private equity groups, mostly in Northern Europe. um After Bain, I had a quick stint in venture capital.

00:50
Before I moved to the States, did my MBA at the HBS. And since HBS, I've been mostly in what we call the independent sponsor ecosystem. So this is where you do private equity in the lower middle market on a deal by deal basis.  And I've done this as an operator, as a sponsor myself. As a sponsor, I have done three platforms m over the last 10 years or so. I've been pretty hands-on with those.

01:17
And then more recently I got in on the capital side. formed Minds Capital, where we invest one to $3 million into platforms led by other independent sponsors. So I'm now effectively investing in people who are like myself and our cadence is to do roughly one commitment per month. Was one mistake that you see private equity or portfolio companies making and what would you suggest to correct

01:42
The biggest thing and the biggest opportunity I see for people in finance and private equity is  the ability to market themselves. They're pretty savvy on business and marketing in general, and they will be able to implement strong sales marketing in their portfolio companies. But I think in general, they hold back when it comes to articulating their own differentiation.

02:05
In the United States, know, Bloomberg just came out with this uh report or article a week or two ago where it says there are 19,000 private equity firms in the United States.  They compared it to 14,000 McDonald's, right? So it puts it really in perspective. And for me, I've seen a pattern that when you ask people in private equity, how are you different? How is your pitch different to business owners and to bankers? Their standard response will be something like, well, we really care.

02:34
Or we take care of the people, or we build strong relationships, or we are founder friendly, or we are hand-thumbed. And all of these are probably true, but out of 19,000 groups, they're hardly differentiated. And so for me, what excites me when we work with independent sponsors and people who do private equity on a deal-by-deal basis is when they truly can articulate, here is how we're different. This is how we add value in a differentiated way.

03:03
And that's not only exciting for me as an investor, but also for business owners that they will meet and intermediaries and other investors that they will encounter. just think it's so, so important. Talk to us a little bit about that because the differentiation side is an interesting question that we get a lot from an executive search, professional services perspective, lawyers have the same problems and kind of trying to differentiate beyond that kind of service level of, try us and find out, which from an investment perspective seems a little bit daunting.

03:33
As you want to embed, you're in bed. So what are the things that you would say to other sponsors? What are the things that you guys use personally to try and create that level of differentiation beyond the usual kind of caveat of X, Y, Z? Yeah, you're right. A lot of white collar professions struggle with this. You mentioned the lawyers, think marketing and accounting strangely are also struggling with the same.

03:58
Um, because their offering is often fairly standardized. So it's not about what you offer, but how you offer it. Right. And the ultimate commodity out there is capital. And so when you're in the capital game, how are you differentiated beyond just having a check? kept asking people what differentiates you. And I was generally underwhelmed by the response for many years as an investor into the independent sponsor ecosystem.

04:24
And this was actually the genesis of us starting our own podcast. We started the,  mind's capital podcast and we have weekly episodes every Wednesday where we ask that very question. That's the crux of every episode is to try to peel the onion  on what makes you different. And,  before I dig deeper into that for us at minds capital, we invest in independent sponsor and our pitch to our investors is.

04:53
Just that actually, hey, we have a good reach to independent sponsors because we interview them  and they listen to our podcast. So we get inbound deal flow because we have reached with LinkedIn and podcasting. And as you know, the Holy grail of any business  is inbound. I don't care if you're a doctor or a gas station or a private equity firm. What you want at the end of the day is inbound leads. That's where you get to scale.

05:21
your sales and marketing and business development. And so that's how we do it. As far as independent sponsors and actual private equity practitioners who deal with business owners, I think the biggest one that I will hear is industry specialization. If you have a niche that you own, you will not only be in a position to generate in-bounds, but you will also be in a position to add more value than others. And that translates into a series of benefits.

05:51
As an example here on this, we, six months ago, we invested in a sponsor and this is a sponsor who has 20 years of being an executive in the eyewear industry. So I think about glasses or lenses or products in that vein.  And when he started searching for businesses to buy, he was specifically looking only for eyewear businesses, not consumer goods, not, you know, e-commerce or whatever it would be.

06:20
eyewear, specifically what he has done. And they closed a deal on this six months ago. We participated because the sponsor Target Fifth, as we call it, is so strong. So he knows all the big deals that have happened in this space. He knows all the big board members who frequent boards in this space. He knows all the big buyers when he's exiting in five years who would buy his company. And of course he knows all about running these businesses in terms of

06:47
What are the modes? How are you defensible? How do you develop new products? What are the channels that work and so forth? So that level of granularity, he has it and he's able to articulate it because he is effectively creating a narrative and a brand around himself that is so singularly focused that people can easily remember it. Just saying. So talk to us about the kind of independent sponsor model and also why you are.

07:14
investing in that space as opposed to, for ease of term, the traditional private equity model.  know that's probably a bit loose. Right. So the traditional private equity model, as we all know it, of course, started 40 years ago, probably back in the  1980s for real.  And so these are large funds and they will  raise money, committed capital and do eight, 10, 20 deals within a given fund. um

07:40
They operate today in large caps, so billion dollar deals, middle cap, which is hundreds of millions of dollars of deals. And also into the lower middle market, which we would say is something in the eight digits, you know, below a hundred million. However,  increasingly you see deal by deal, um operators and buyers  in that lower middle market. And why is that? Well, I think for funds for them, it's an AUN game. So they want to grow big.

08:09
And  their model, which is less hands-on, works better for bigger companies. These companies are institutionalized. They have a full management team. And for that reason, they can sell at higher multiples. uh For low middle market businesses, and now we're talking enterprise value, 10 to 50 million, these are usually still owned by the founder. Often the founder is the only person in the executive team.

08:35
They're usually weak on sales and marketing or on IT implementation and technology enablement. And so this is the work that the first buyer actually needs to do. So funds can do it, but it's hard to scale. It's much easier to buy bigger companies where you already have this and you have a good management teams. It's  less risky because bigger companies have more multiple streams or more revenue streams. So these smaller businesses.

09:04
fewer revenue streams and a  smaller management team. So there's more work that goes into it.  And that has been a good match, I think, with what we today call independent sponsors. these are  usually they have, they will have really strong credentials. They'll come from banking or private equity or  consulting, predominantly males between 30 and 50. And they want to do entrepreneurship through acquisition.

09:32
and maybe even build a portfolio of deals that they oversee. And when they buy a company, a company with 2 million of EBITDA or 4 million, or some of them are even bigger, 10, 15 million of EBITDA, the whole idea is to go in, buy them at four, five, six X EBITDA, transition them over a five year period, not only to grow them, which is the private equity model, but also professionalize the business, right? So how do you solve, how do you build out the management team?

10:03
How do you add revenue lines? How do you make it the less risky business? And so then when they sell it, they can sell it for a higher multiple. Um, and that's where you get both the growth of EBITDA and the multiple arbitrage. As an example with Minds Capital, our fund, uh, fund one,  our  average entry multiple across 20 platforms was  5X. And that was on an average EBITDA of 4 million.

10:33
And so what we hope will transpire with this portfolio of 20 companies is that they will be able to not only grow the EBITDA of these companies, but through professionalizing these businesses, they will also grow the multiple. So from  5X, hopefully it'll come up to 6, 7,  8X on average. And therein lies the really, really strong returns because you get this kind of exponential growth in enterprise value. We often call it zone skipping where

11:01
There are multiple zones  in valuations and we are in the lower middle market where valuations are single digit. And then as you grow, you get into the high single digits and then the double digits. And eventually, of course, you get to the public markets for really large companies where I think the S &P 500 is trading at the 29X right now.  So that's kind of when it has gone through the whole private life cycle. Sorry to interrupt. Just a quick mention of a longstanding partnership with Grata.

11:31
As you all probably know, the private equity scene is constantly evolving and deal flow is moving now to proprietary and data-driven processes. Grata provides you with the data and information of over 7 million private companies. So if you're looking to improve your proprietary deal flow and improve the data access, then reach out to Grata today. Now back to the podcast. Beyond the kind of standard criteria.

11:59
What do you look for before you invest?  by standard criteria, I take it you mean, know, no car numbers, et cetera. Yeah. No customer concentration, no people risk, you know, the list is endless, right? Well, let me answer it in two, two different ways. think for us, we have a three step process in Mines Capital for how we evaluate deals. First, we look at downside protection. So we have an 89 point checklist, which founds excessive

12:28
probably, but we use that. And that's split into four categories. So we look at the market of the target company. We look at the target company itself, you know, as a differentiated, well-run.  We look at the sponsor who is bringing the deals to us and will govern and oversee this particular investment. And then we look at the deal terms.  What's the valuation? Do we like the balance sheet to open in together and so forth. And so across these four sections and 89 checkpoints,

12:56
We identify whether there are any red flags and red flags will typically be deal killers. So that will be, oh, just excessive concentration or, or one deal we did actually, had very bad seasonality. was a red flag. We actually ended up doing the deal regardless in that particular case.  Um, the checklist also uncovers yellow flags and for yellow flags, I would say every deal has yellow flags, big and large. all do.

13:24
It's just inherent in business that there are some weaknesses. And so then it really comes down to are we comfortable with these yellow flags? What's the mitigation place,  mitigation plan in place for these yellow flags? Do we feel like this particular sponsor  has what it takes to uh manage those risks? um So that's the downside protection.  Once we are comfortable with the downside, we look at the upside potential. So this is now the second stage of our analysis  and uh

13:53
In the second stage of analysis, we will take the base case pro forma. This is a spreadsheet, right?  The sponsor is going to project, we're going to do four times  Mojt in five years of holding this. And here are the assumptions that go into it. And I would say the more a base case resembles the past, the better. It's just easier to believe in it. So if the exit multiple is the same as the entry, if the revenue growth is going to be the same as it was pre-closing.

14:23
Um, if you have continuity in the management team, this is pretty easy to believe in as opposed to, we're going to double our EBITDA margin. We're going to expand the multiple from five to 10. We're going to do a lot of M and A. We're going to open three more locations. We're going to, uh, pivot the business model. Uh, we're changing out the entire management team. All of this is possible, especially if you have a strong sponsor, but it just gives you more contingencies.

14:51
And the more contingencies, the harder it is to have conviction around that upside potential. And then the third step for us, at least, is we see a lot of great deals.  We see a lot of deals in general. That's our whole concept and why we're media first. um But even when a deal is good enough, we still ask ourselves, does this rank as the best deal of the month? Sometimes we more do more than one deal a month.  Some months we don't do a deal at all. So this is not a hard mandate.

15:19
But by asking ourselves this question at the end of a diligence, we also effectively force ourselves to kind of have that conviction or not behind the deal. Back to your original question. I would say the three biggies when we look at the deal is first of all, we want the good valuation. Nothing beats value creation like buying right. Secondly, we like to see good sponsor target fit. And an example would be our sponsor in the eyewear industry.

15:49
And then thirdly will be how is the target company differentiated? If they disappeared overnight, how bad would that be for their customers? And the worse it is for the customers, the better it is. It just shows they have a real defensible business model.  that. I've not thought of it like that actually previously.  So given this deal by deal work here, what criteria assessment do you look for? For example, your eyewear  business on the actual individual who's going to lead.

16:17
the business and take that through obviously its rounds and its acquisition strategies, whatever the business is. What's your kind of process on that front? When we evaluate independent sponsors to partner with, and especially when it's a sponsor that we don't know from before, I'd say there are five things that we look at. First of all is what we've already discussed,  niche expertise. Do they have knowledge? Do they have a network in this industry?

16:45
Uh, do they have a perspective that is nuanced? Do they have a thesis behind what they're going to build?  Um, and  how is that sponsor target fit? And sometimes, you know, it'll be a generalist sponsor and they find a  deal in an industry where they haven't been before. And that can be okay. But of course the narrative is stronger when you can back it by extensive experience in that particular vertical. The second thing we look for is skin in the game.

17:14
And so what evidence do we have that they are kind of on the hook to make this a success? The biggest investing will be if they put their own hard earned dollars into the deal. Now, many independent sponsors are not that liquid yet. They're in the early stages of their career. Uh, but even if they are in that situation, are they putting in a hundred K? Cause that can be meaningful.  You know, you have to look at them, look at a case by case basis.  Um,

17:43
Some people take a personal guarantee  that skin in the game, but not necessarily 100 % aligned with investors. um But there are various forms, know, is that their only deal is their career reputation on the line. So we try to look at the skin in the game. Thirdly, in presenting their deal to me, are they coming across more as reflected or salesy?

18:07
And some independent sponsors are pretty desperate to get a deal done. They've maybe been without a salary since they started for two years and they just want to get a win on the board so that they can get the management fee going.  Um,  I don't like that. What I really like is when the first slide in the deck is like, Oh, here are the five risks. And here's how we're thinking about it. Like they're proactively telling you effectively why you should not do the deal or what you should dislike about it. It's just extremely transparent. And, uh, there is an inherent conflict there.

18:37
Because on one side, independent sponsors are negotiating with a business owner and trying to screen this deal the best they can by diligencing it hardcore. And then on the other side, they're pitching it and selling it to capital providers such as us at Minds Capital. And so it's a hard job for them. They need to balance this throughout every day when they're leading up to closing the difference and conflict between selling the deal and diligencing it.

19:04
The fourth thing I look for is gravitas. So is this someone who has the right energy? Are they switched on? Are they in command? Do they have conviction? You know, do they have good people skills? Cause as a sponsor, you're not only selling to me as the investor on the line here, you're also selling to business owner, to investment bankers. You're going to try to do add-on acquisitions down the road. And then of course you have a whole.

19:28
a series of customers and vendors and employees within any given portfolio company. And then of course, integrity would also be within gravitas, upon which we will typically do  reference checks and try to have secondhand sources on that as well. And that really is also point number five. What are the references? If we didn't know them from before, who  do we have in common on LinkedIn? I'll call them up to see if I can get  some points on them. um

19:53
If they have a track record and they've done deals before, especially if they've exited deals before that'll of course uh weigh very heavily in favor of them. And so that will be the fifth thing is just, what's their background and the references. I've been banging on on podcasts now for quite some time about what I call the professionalization of private equity. You mentioned something about being media first. So I'm interested to know what you guys, you've obviously got the podcast. I'm interested to explore your drivers behind that.

20:21
no doubt similar to ours potentially, but  what is it you're doing around that to create the interest and the awareness  for MindCapital? Yeah. So the way we got started and we're pretty young.  We founded in early 2024. We just finished deploying Fund One. We're fundraising for Fund Two right now. And our investor base is largely retail, actually. People who listen to our podcast and so forth. Anyway.

20:47
Your question is how do we differentiate and the media, what role does it play? And so I was thinking about with my other partner, Max, about starting a fund to invest in independent sponsors. We like this asset class. has historically generated very strong returns. And so we saw an opportunity because I was already so entrenched as a sponsor in the ecosystem. um So this plan was already in place.

21:14
Coincidentally, I went on a podcast in the summer of 2023 called acquiring minds. Acquiring minds really focuses on the search fund ecosystem  and entrepreneurship through acquisition. It's hosted by  Will, who is now our partner in Minds Capital. And so I went on there,  two hour episode. had a really good chemistry with Will before, during, and after the recording.  And the day my episode aired, I got

21:44
hundreds of inbounds on LinkedIn.  got probably a hundred emails  of which I invested in two deals personally. And I wasn't even looking for such opportunities. It was just coming inbound from putting myself out there. Now, prior to this podcast episode, I had been, I like to say I used to be dignified. I never put myself out there. I left my credentials, which are strong, kind of give people the trust. But of course that doesn't create

22:13
create in-bounds. And we talked about that earlier, the value of having an engine to create in-bounds. So it was a light switch moment for me. And so after that episode, the first thing I did was to call Will and ask if he had ever considered investing in his audience. And so that's how he got involved in Minds Capital and Maxwell and I are the three founding partners. um And then after that, I started posting twice a week on LinkedIn.

22:40
The most important thing if you want to do media is to commit to a cadence. don't care if it's once a quarter or five times a day, just commit to whatever it is because then it becomes something that you have to  fill  a pipeline of commitments that you need to fill.  So for me, I post on LinkedIn every Monday and Thursday. And then we now also started another podcast more focused on independent sponsors called the Minds Capital podcast, which airs every Wednesday. So I'll post about that as well.

23:10
And the  media has just been incredible for us.  It's not only good for generating in-bounds, but it's also great for developing thought leadership and to make us smarter. On a weekly basis, I interview some of the best private equity practitioners in the world  within the independent sponsor ecosystem. And so I learned so much from that. And then after we have built that relationship with them, they're now sending us their deal flow. They refer us to others.

23:39
And so creates this really great flywheel or for us at least, it generates in-bounds. And to our investors, we simply say the more deals we, the more deal flow we have, the more selective we can be, the more selective we can be, the better returns we should generate.  And that's what's in it for our investor.  And the thesis, if you take it one layer back is really the more value we can add to the independent sponsor community, which we do.

24:07
predominantly through media, but also of course, for having capital, the more deal flow we will get in exchange. So we are constantly looking for ways, how can we add value to this ecosystem? And then we know that the long game for that is that we get deal flow back, which is foundational for our business model. Absolutely. What do you  read, watch, listen to that you recommend others to check out?

24:32
I will obviously have to plug our own podcast on that one, mine's capital podcast. Um, I'm an avid reader. like to read a book I read here a few weeks ago, actually by some Norwegian authors is called the compounders in private equity. do the standard five year hold. That book is about what happens if you become an aggregator of business acquisitions and what it looks like if you do that for 30 years, super interesting, well-written, well-researched.

25:00
And  a nice kind of contrast to, our own business model. So I thought that was super interesting. You know, more tactically speaking, I've actually quite liked Alex Formosi's books.  He's a big influencer. It's one of those books I opened and expected it to be a fluff piece that probably should have been a blog post. But as I read  the first book, it was just really, really full of tactical advice on how to generate leads.

25:29
And then his second book was also really good, had a very similar name. can't remember her top of my head.  Um, million, million offers.  they would reverse that each since our models, the recent ones models. Yeah, that's right. So offers and leads, those were really good. The third one that just came out,  um, money models, I think something like that. I also read it. was fine. It wasn't quite as good as the two others. So, uh, those two first ones really sharp for anyone who's trying to generate leads or  put the.

25:58
put together persuasive offers. I could go on, but those are some quick recommendations for your audience. Yeah. When we look at someone building a media, he's also building a private equity firm who's just got enormous amounts of inbound and thousands of people. He's definitely done that. If somebody wants to reach out to you, post this podcast, Nicholas, how best do they do that, please? Yeah. Please find me on LinkedIn,  Nicholas James,  Nicholas has spelled the Scandinavian way and would love to hear from you. Just send me a message there as well. Perfect. Well, thank you very much for.

26:26
joining us and coming onto the Private XD podcast. Thanks for having me, Alex. Great to be here. And thank you very much for everybody tuning in. Till the next time, keep smashing it, and thank you for listening.