Navigating the transaction space with Matt Phimphavong

Welcome, Matt. Tell us a little bit about your background.

I was born and raised in St. Louis. The 2008 financial crisis happened when I was 12 years old, so I was old enough to understand that things were weird but didn’t know the details of what was going on. I saw a lot of my friend’s parents lose their jobs, and I guess subliminally decided then that I wanted to learn more about how business and markets interact with how the world works. 

I took that with me throughout high school and college, which led me to the University of Missouri to study finance and banking. I was lucky enough my junior year to join the Missouri Innovation Center, which was a small venture capital fund that made pre-seed investments to companies in Missouri. We were writing $50,000 checks to driven entrepreneurs, and I knew right then that was what I wanted to do long-term - which was to interact with smart, driven people that just need money to help launch their ideas. 

At the same time, it was going to be tough to break into that VC world right out of college since middle Missouri wasn’t a big tech hub like Silicon Valley, New York, or Austin. I decided to follow my other passion, which was finance, and that led me to start my career with Grant Thornton in their M&A Advisory practice.

The Transaction Advisory practice has picked up a lot of momentum in the public accounting world in the last 10 years. Can you explain what you did there? 

During my time we primarily helped clients through ASC 805 Valuations, which is basically a purchase price allocation. An acquiring company would want to know the value of what they actually bought, so we would go into the financial statements of the target company to determine the value of its tangible and intangible assets. We would determine the Delta between what they paid and the value of those assets, which was then considered Goodwill.

We did a lot of that. We valued pretty much anything and everything for PE firms and acquiring companies - a trademark, a business, oil terminals, you name it. We just tried to put a nominal price tag on anything that came through our door.

You spent two years there - what led to the move and where did you go?

That was a tough decision because I did really enjoy my time with Grant Thornton. I had an awesome boss, great team, and fun co-workers. What it came down to was that I didn’t see myself getting the satisfaction out of the actual work long-term. It was the middle of COVID and decided to just start passively seeing what was out there. That led me to take a role as a Strategy and Corporate Analyst at Spire.

Our team worked as the M&A arm for Spire. Anytime a banker or investor came to Spire with a deal opportunity, we were the ones who looked at it. We would run financial models to figure out if the numbers made sense and whether it was a good deal. We would also work on the strategy side of things, which during my time was centered around our renewable gas strategy (RNG) and trying to lower our carbon footprint. That consisted of understanding how the industry worked, determining the different kinds of carbon credits we could utilize, and where we wanted to be in that type of supply chain. 

It was a really interesting job because it was highly analytical and thought provoking. It kept me really engaged for my time there and I was making significant decisions at 24 years old within a public company.

What skills were transferable from your time at Grant Thornton to make an immediate impact at Spire? 

The financial modeling and valuation skills laid the groundwork since that’s the majority of M&A work and you have to figure out how much these companies are actually worth. Project management skills were also valuable since at GT, you are dealing with a lot of different clients every day, so you have to make sure that your deliverables are on time and all questions are being answered. At Spire, I might work with the head of HR early in the day and the head of accounting or CFO later in the day, so I had to stay on top of what analysis needed to be done for each specific group and deliver on those separate expectations.

You then left Spire to explore other opportunities. Can you tell us more about the reasoning behind that transition?

What it came down to was that working in corporate development and the industry I was in wasn’t of huge interest to me. The job can demand 75-80 hour weeks consistently and I had lost that excitement that helped alleviate the struggle of working those longer hours. 

I had a friend tell me about Venture for America, which is a two-year fellowship program looking to empower recent college graduates who want to become entrepreneurs. I made it through the extensive application process and when it came time to start the training camp, I decided to make the leap and quit my job at Spire. Through that process I made the connection with Cultivation Capital which is where I am now. 

What is Cultivation Capital and what’s your role there?

Cultivation Capital is a St. Louis based venture capital firm. We have five different investment theses which our funds are focused on - Life Sciences & Health Tech, Software & IT, Agriculture & Food Tech, Geospatial Tech, and then Midwest Seed Stage. The first four are our primary verticals where we are investing in Series A funding. 

I’m focused on the Midwest Seed stage where, as the name states, we are making smaller checks to early-stage companies primarily located in the St. Louis or overarching Midwest area. On the operational side, I’m making sure that all of our fund reports get out to our Limited Partner (LP) investors. Since a lot of our LP’s are banks, and we’re an SBIC fund, I help ensure that the banks get what they need to claim Community Reinvestment Act (CRA) credits.

On the investment side, my time is split between interacting with VC’s across the Midwest to try to build out potential deal-flow pipelines and taking care of the due diligence work and investment analysis on companies.

Can you describe what a typical day looks like?

As the months have gone by, I’m getting more responsibility and things seem to be ever changing - which I like. We just finished one investment and are now currently working on two investments simultaneously, one of which we are leading the round on. A lot of my time has been spent conducting research on our potential investments and modeling out pro forma cap tables. When building a pro forma, you spend a lot of time figuring out the different players already invested in the company, the ones that will be investing during this round, and how much of the company each investor and employee owns.

From a research standpoint, I am trying to understand the markets for all the companies we are looking at - understanding the customer problem, the company’s solution, their competition, details on the team and their backgrounds, etc. The rest of my time is spent either on intro calls with founders that are looking for funding or just general administrative meetings with partners keeping them up to speed.

What are traits of someone that would like to work in VC? 

The number one thing is you have to like variety. That was one of the main reasons I ended up leaving Grant Thornton. Not every day was 100% the same, but they were similar and the type of work I was doing didn’t change much. At Cultivation Capital, my responsibilities have changed quite a bit since I started, so every day is a little different. I really enjoy that, and I think someone in this role would have to embrace that factor. 

You also have to be a team player. I’ve had the benefit of enjoying the people I’ve worked with at each job I’ve had, but in VC you’re constantly working as a team, and everyone will support you as long as they see that you are putting in your best effort. Lastly, you have to be intellectually curious. I’ve had the opportunity to talk to founders behind cutting edge technology that I never even heard of, so that curiosity has to drive you to learn everything you can about it.

One key difference between VC and PE firms is the lack of historical financial information available when making investment decisions. How do you handle that with your analysis?

Yeah, it’s a completely different mindset from my time spent at Spire since I’m no longer looking at hundred-year-old gas companies but instead 10 month old startups. You’re not looking at financial statements as much, you’re more worried about the macro elements like potential market size of the opportunity and the company’s growth rate. 

You also place a lot more value on the people behind these startups. It’s about analyzing that human element; whether the founders are truly motivated and ready to take their company to the next level.

Last key difference would be the valuation. In VC you can’t invest at an EBITDA multiple when it is negative, so we look at revenue multiples instead. There is a broad spectrum of what that multiple can be. Some startups have revenue multiples as low as 2 or 3x, and then there are companies like Rivian, which has a $100 billion valuation but has $0 revenue which just blows my mind.

You’ve spent most of your early career working with investments - do you do any personal investing outside of work? 

I run my own personal investment account. I took a class in college called ‘The Investment Strategies of Warren Buffett’, so although I work in VC, I’m still old-school when it comes to investing. I stay away from all the Crypto and NFT stuff. I have started to learn about NFT companies since we now have one in our firm’s portfolio, but I’m not looking to dive into it on a personal side just yet. I’ve seen the stories on Twitter of those people that have made hundreds of million dollars on Crypto, but knowing me I would have been the person that sold when Bitcoin was like $10,000, I just can’t stomach that kind of volatility.

My main mentality is that if I don’t understand it, I’m not going to invest in it. I focus on basic stuff, which is investing in good, quality companies with strong balance sheets and credible management. If it’s a company that I enjoy shopping for and can identify with, then those are the companies I try to invest in.

Any podcasts or newsletters that you’re currently following? 

Podcast wise I absolutely love ‘Invest Like the Best with Patrick O’Shaughnessy’. I enjoy it because he is more of a traditional investor, which aligns with my personal views, but he’ll invite a broad range of guests from the PE, VC, and Hedge Fund worlds to interview. It’s fascinating to see some of the common themes as well as differences between the different areas of investments.

From a newsletter standpoint, I receive ‘The 10-Point’ from the Wall Street Journal and ‘Axios AM/PM’, where I can scroll to the bottom to see all the different VC deals that have happened and at least pretend that I’m in the loop.

Last question - where do you see yourself 10 to 15 years from now?

I like to keep things extremely fluid. I don’t have a laid-out vision or anything because I really don’t want to close any doors. Currently, I’d see myself way down the road either starting my own startup or a VC fund. More than anything, I would love to be my own boss in some aspect in the future - how that happens is still to be determined.