Emerging Manager Spotlight: Kevin Condon Of Hidden River Strategic Capital – Corporate and Company Law – Corporate/Commercial Law

Q: What led to the decision to raise your initial fund? What
were the indicators that you were ready?

Kevin Condon: I took the entrepreneurial plunge
of starting a new investment firm along with my co-founders —
Steve Gord and Todd Morrissey — in late 2020. We saw an
opportunity to fill a void in the market by providing flexible
capital to management-owned small businesses.

Throughout our careers, we’ve found that these founder-owned
companies are too often ignored by traditional capital providers
who are unwilling to tailor their offerings to the unique needs of
these companies.

While raising a fund in the early days of the pandemic may have
seemed crazy, we were confident that our differentiated investment
strategy and prior success in senior roles at other private equity
firms would allow us to raise our inaugural fund. But it would be
disingenuous to say we knew it would all work out. Raising a first
fund requires a leap of faith. Thankfully, we generated support
from an amazing investor base and raised an approximately $250
million fund.

Beyond the foundational criteria we had in place, one of the
biggest personal indicators that I should take that leap was the
support and encouragement from my network and family, particularly
my wife.

Q: What did you consider and prioritize when developing an
investment strategy for your initial fund?

KC: Over the course of our careers, my partners
and I had each identified and focused on an underserved niche in
the market — a funding gap between the often-rigid investment
approaches of traditional credit funds and the overly dilutive,
controlling approaches of growth equity and buyout funds. We felt
that a new firm would need to differ from the standard options
already in the market. The world did not need another traditional
credit platform or middle-market buyout fund. We formed Hidden
River to be different from — and in between — those two
bookends.

Our hybrid debt-equity investing approach is targeted to small
business owner-operators looking for a supportive capital partner.
We strive to structure our investments in ways that create more
alignment and flexibility than one would get from a traditional
lender while being less dilutive than equity-only alternatives.
This typically results in management and founders continuing to own
and run their companies alongside a relationship-based capital
partner who has bought into and supports management’s vision
for future growth and value creation.

When crafting our investment strategy, it was important to us
that our approach remain relevant across economic and credit
cycles. Our experience has been that small, owner-operated
companies have capital needs for growth, add-on acquisitions and
internal recapitalizations that don’t necessarily cycle up and
down with the typical drivers of the mergers and acquisitions and
financing markets, such as purchase price multiples and interest
rates.

Q: How did you think about assembling your team?

KC: My partners and I bring different and
complimentary skill sets to our organization. Steve and I worked
together at a prior firm, and, before that, had co-invested in
deals together. The continuity of having worked together, combined
with Steve and Todd’s longstanding relationship, gave us a
strong cultural foundation as we built out our broader team.

We’ve grown to nine people and are proud of the team
we’ve assembled. Our goal in hiring was to find talented
individuals who could work independently and collaboratively in an
entrepreneurial, team-driven environment.

Our first hire was Graham Bachman who runs business development
with a focus on building our brand in the market and sourcing
investment opportunities. We knew our success would in part be
contingent on our ability to find our type of hybrid debt-equity
deals, which are less common than control buyout deals or
traditional debt financings. We also added three investment
professionals focused on new deal assessment, transaction execution
and portfolio management and a back-office team that supports
everything we do.

Q: What were the most important considerations when choosing
limited partners (LPs) to pursue for partnership?

KC: Given our approach of investing debt and
equity, it was important to target LPs who could get comfortable
with a hybrid strategy. Many LPs bucket fund managers into distinct
categories — for example, senior debt, mezzanine debt and
control buyouts. When fund managers don’t neatly fit into one
of these allocation buckets, LPs sometimes struggle with what to do
with them. These dynamics create roadblocks and resistance with
some prospective LPs.

Those that were able to step back and understand the appeal of
our strategy found the return profile we are targeting compelling,
especially considering the risk profile of our investments.
Ultimately, we generated interest from an attractive cross section
of LPs, including university endowments, fund of funds, banks,
family offices and high-net-worth individuals. We are grateful for
their trust in us and what we are building at Hidden River.

Q: What is the best advice you received when raising your first
fund?

KC: The best advice I received when launching
Hidden River was to be persistent and patient. Raising your first
fund is not for the faint of heart. The process will take longer
than you expect, and more people will say “no” or not
respond than you can imagine. Having the persistence to keep
pushing forward without getting frustrated is key to getting your
fund off the ground.

The best advice I could give those thinking about raising their
own first fund would be to build a career’s worth of goodwill
and strong relationships to tap into when the time comes. Whether
it is for a warm introduction to a potential investor or advice and
guidance, one’s network and reputation will play an outsized
role.

About Kevin Condon

Kevin Condon is a co-founder and partner of Hidden River
Strategic Capital. Hidden River typically invests between $7.5
million and $20 million into U.S.-based small businesses generating
at least $2 million of EBITDA. The fund provides flexible,
partnership-oriented debt and equity to support the growth needs
and strategic initiatives of management-owned companies.

Condon has spent 15-plus years investing in lower middle-market
businesses. Prior to starting Hidden River, he held senior
positions at Boathouse Capital and OFS Capital where he similarly
focused on structured capital investing. Earlier in his career,
Condon worked at private equity firm The Edgewater Funds and
investment banking firm Robert W. Baird. He has an MBA from the
University of Chicago Booth School of Business and a BBA from the
University of Wisconsin.

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