Building a Capital Marketplace for Mid-Market Businesses: Axial CEO Peter Lehrman (Part 2)

Sramana Mitra: In the event that you’re using equity as a financial instrument, is the expectation exit or do you also do dividend style financing?

Peter Lehrman: We don’t do any of it. We’re the platform that connects the entrepreneurs with the investors. Those decisions are determined by the investors in partnership with the entrepreneurs that they back.

Sramana Mitra: If you were to look at that 30% of equity deals that happen on your platform, what percentage of those are exit expectation versus dividend expectation?

Peter Lehrman: We don’t track that specifically. The majority of companies on Axial are profitable so they have the ability to pay dividends but we don’t track the dividend data that comes from those companies. We’re just not part of those conversations. I think, in a lot of cases, those companies are already paying dividends. I think, in many cases, they continue to pay those dividends. The dividend doesn’t exclude the decision to exit. Usually, those two are related to one another. It’s just that the dividends are more frequent and the exit is usually longer term.

Sramana Mitra: Not every company can exit. The number of exits in the industry is much smaller than the number of companies. That’s part of the dichotomy of this market, right?

Peter Lehrman: In any given year, there’s only a certain percent of the companies that want to exit. Then there’s a percent that can exit. I totally agree with you. Part of what we try to do is make it easier to find a navigable exit path. My point is sometimes, a business owner will raise capital. Maybe they’ll pay out a dividend as part of a capital raise. They still will plan on exiting the business in three to five years. The two don’t necessarily exclude one another.

A lot of the investors that are on Axial are private equity firms. A lot of them are corporations that are making acquisitions. If it’s a corporation making an acquisition, they typically plan to integrate the business, so there are no subsequent dividend. If the company is soliciting an investment from something other than a corporate acquirer, I think that in a lot of cases, they do plan to pay dividends but they also plan, at some point, to sell the company.

Sramana Mitra: Let’s go to 2009. You are thinking of starting this company. What’s the immediate next step that you took?

Peter Lehrman: After I thought about starting the company?

Sramana Mitra: Yes. Did you get it going with your own funds? Did you have to raise money to get it going? What was the way to get this thing off the ground, and what was that minimum entity that you got off the ground with?

Peter Lehrman: I financed the business partially with my own savings and I financed with some friends and family and also from a lot of my colleagues at GLG. I contributed some capital myself as well.

This segment is part 2 in the series : Building a Capital Marketplace for Mid-Market Businesses: Axial CEO Peter Lehrman
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