Founder of Genaesis on GovCon M&A

Will Bachman 00:01
Hello and welcome to Unleashed. I’m your host. Will Bachman, and I’m delighted to be here today with Erin-Michael Gill who has a fascinating background. We’re going to get into it. Erin-Michael, welcome to the show.

Erin-Michael Gill 00:14
Hey, Will. Thank you very much. Glad to be here.

Will Bachman 00:17
All right, so, patent office, IP, Trade Commission. You’re in, involved in a lot of things, which Why don’t you just give us a little bit of chronology? Tell us about how you got from where you started to where you are today?

Erin-Michael Gill 00:32
Sure, I’ll try to do the abbreviated version best I can. So grew up in place called Middletown, Maryland, and up in Frederick County there, and went to school out at a place called Benedictine College in Atchison, Kansas, and studied astronomy and physics. So I was an astrophysics major out there. And, you know, sort of first job out of college. I was going to graduate school at Johns Hopkins University in Applied Physics. And wanted to, you know, sort of getting that paid for at the US patent trademark office, they would pay for you to go back to grad school. So I was in grad school simultaneously with working at the patent office, learning about all sorts of, sort of Applied Physics, sort of a very broad set of arts. And I learned in those couple of years that I was at the PTO that the stuff I was learning about intellectual property law was far more valuable than what I was learning in technology in grad school.

Will Bachman 01:36
So, tell us a little bit more. Like, what was your actual job? I thought, I don’t know. To be in the patent office, you have to be an attorney or something. So, what does a fresh college graduate with a physics degree? What it’s, what is your role? What do you get to do?

Erin-Michael Gill 01:50
Very weird job. So a patent examiner is, it’s an odd position. So, imagine somebody spent their whole life, right? Working to, you know, create some breakthrough, right? So, some brilliant, genius, whatever. And they said, Oh, my God, I’ve got it. I’ve discovered whatever it is. They write it up. They go to a patent lawyer, they write it all up. And I don’t know if your listeners have had the, you know, either pleasure or have been forced to read a patent. All right, so life’s work, 50 pages of description. This is all the things that have come before it, and it’s all summed up in this thing at the end. And that thing at the end is called a claim, right? And it’s something along the lines of the thing that I’ve invented that’s never has existed in the history of the world. Is and then you have one sentence to sum up this life’s work, and then you write additional claims to kind of give it more detail. But it’s this amazing thing where you’re claiming that in the history of the world, one, no one’s ever thought of it before, so it’s novel. But then two, and this is where it gets tricky. It’s inventive. And the way they describe inventiveness in patent terms is that it’s not obvious to one having ordinary skill in the art. So, imagine a guy is 23 24 he just graduated from college. He’s not an expert, yet he’s got sort of ordinary skill. And they teach you what ordinary skill is at the patent office. And what that means is, by having ordinary skill, if you read this description the nature of the problem, and then you see their solution, you say, Wow, I wouldn’t have thought of that. The prior art wouldn’t have the things that have come before. It wouldn’t imply that this is an obvious, like, you know improvement over the things that you know that exist. And so over the couple years that I was there, I realized that my technical skill wasn’t really, I mean, it was fine, but it wasn’t as important or interesting as my ability to sort of understand these hundreds of inventions that were coming to me in all sorts of different areas, and saying, This is the unique thing. This is the fundamental improvement that’s going to change the world, or whatever it is. And I realized that it wasn’t just inventions. This is entire companies, entire industries, are built on that one sentence, that one in marketing, they call it a value proposition, right? What is the one thing that’s different, special, unique about what you do? And so that was my job. It was saying yes or no to somebody’s life work at 22 you know, that’s a crazy job for someone to have.

Will Bachman 04:41
So in that entry level role, you are actually reviewing patent applications and making the yes or no recommendation

Erin-Michael Gill 04:49
Exactly. We would give the determination of the patentability. It would go to a supervisor who’d sort of sign off and say yes, and that was the nature of my job. And so that comes back later, by the way, because just like any, I mean, anybody that works at a job, you know, it’s like, they don’t say, like, I’ve never met somebody that likes their boss. You know what I mean, like, I tolerate their boss, but you’re there because they pay you. You know what I mean, like, you’re there because it’s work, right? And so you’re in this job, and there’s all these things that you don’t like about it, and things like that that comes back later. And so after a couple years of work at the patent office, I got my first opportunity to do a job in patent strategy, IP strategy, right, which was a weird sort of field, but it was building companies around people’s inventions. It was down in Richmond, Virginia, at DuPont in the Kevlar and Nomex division, those guys making bulletproof vests, right? So you got the guys that are doing all this great stuff with Kevlar and fireman’s jackets and life protection, and it was awesome. And I got to work in a group that was developing new technologies and new entirely new materials. And so great opportunity to learn. And my job could not be more — it could not have been more bottom of the rung. It was intellectual property specialist. I was the most entry level guy. Where somebody invents something, they bring it to you, help us write a patent and file the patent office. That was my job. And so and so. The reason this, and I don’t want to go, you know, 90 minutes on my on my career, but no. But the interesting thing about that job was, you know, they had these venture groups. And the venture groups job was to identify, amongst 1000s and 1000s of inventions, the one or two that would eventually be breakthroughs that would become these amazing new products. And so we — there was a new material that was being developed at DuPont, and I got this assignment, and they had this big brainstorming session with all these big brain PhDs, and they said, we’ve got 1800 ideas, and we want you, the patent guy, to vet them right, go through and get rid of half of them, three quarters of them, because everybody wants to start a product, everybody wants to do an idea. We want you to get rid of a bunch of these ideas that don’t make sense. So, I’m doing this patent search, and I’m just going through and saying, Well, it’s already been thought of, and this isn’t, you know, whatever. And I come to the — I come to my boss’s boss, whoever it was, and this woman is amazing. And I say to her, I think I found the idea you should go forward with. Just, like, What are you talking about? That’s not your job. Like, what are you talking — like, no, no, that’s not your job at all. He’s like, no, no, this one’s going to be the one. This is the breakthrough. This is this amazing thing that this new material is going to be able to do. And I wrote up a business case, and I sent it to her, and I had that one sentence. I said, this is the reason. This is the thing that’s going to be amazing. And she goes, All right, well, if you can do your day job like helping file patents, and you can devote time to try to push this forward, I’ll make you a IP and New Venture Development Manager. We’re going to put a whole team around you, and you know, we’ll push this forward to commercialization. So we’ll put to prototyping, and if you’re right, your career will be made at DuPont. You’re going to, you know, this is going to be an amazing thing, because a new material this is the biggest thing you could have. And if you’re wrong, you’re most likely going to be rated at the lowest part of your sort of your grade, and your category for your job level, and you’ll be dismissed, right? You’re going to lose your job, you’ll be fired. Like, do you want to really take this on? I was like, Absolutely. This is the greatest thing ever. And so of the 1800 ideas they had for this material, four of them were selected for development, and of the four, two made it to commercialization. And mine was one of the two. And so the idea that you could go from this crazy, messy, you know, unstructured set of data about inventions, and then distill it down to something that’s going to be potentially amazing for somebody, was the thing that kind of put rocket fuel in my background, because I started giving talks about it. People was like, Oh, my God. How did you do this? Where? And so I start at, you know, 25 26 years old, talking about how you can analyze this data and try to figure out what the unique things were and apply that to market needs. So that was the big thing that kind of got me known in the field of intellectual property.

So from there, I start giving talks. I go out to California. I’m working with this amazing tech startup called OQ, and this amazing stuff happens there, and then the election happens in 2008 and I’m in San Francisco, I’m in the most hope and change area you could imagine, and Obama won, right? Well, at the time, you know, Obama wasn’t really meant to win, right? It was meant to be, you know, the Clintons, and they had, you know, their whole infrastructure of the Clinton people and all advisors and everybody that would come in when the Clintons won. Or when President Obama won, well, they had a transition team, and the transition team needed people that understood IP and specifically to help you fix the patent office, because the backlog and the wait time it took to get the patents granted was overwhelming. And so this person who knew me — and again, IP is an insanely small world — like, even for like, lawyers, it’s one of the only fields where I passed the patent bar. So, I’m allowed to practice before the PTO, but I’m not a lawyer. It’s because there’s, yeah, I know, I know it’s insane. It’s like, there’s like, a million lawyers United States, and there’s only a fraction of a fraction that can actually write patents, because they also have to have technical backgrounds and pass a special bar exam, and the pass rate on that one is the lowest of whatever. It’s a nightmare. And so, yeah, so I passed the patent bar so that I could be better as, like, a strategy guy and all this stuff, and so I get a call.

Will Bachman 11:05
That’s so cool. I don’t think I’ve ever — you’re the first person I’ve ever met in the United States who’s passed the bar and didn’t go to law school, so that’s pretty neat.

Erin-Michael Gill 11:13
Oh yeah, no. Well, yeah, it’s specialized, like, yeah, no, it’s cool. So I definitely not a patent lawyer, but I’m something called a Patent Agent. So, I can practice before the PTO. So, like, I can’t go, like, yeah. Like, I’m not, like, sitting around at night watching episodes of Suits or whatever. So, um, like, no, but. But the cool thing about when Obama won is that they needed a transition team that was helping to fix the operations of the patent office. The patent office at the time had this huge backlog. There was all these issues, like labor issues, operations issues, financial issues, sustainable funding issues, and the people that were advising the president, in many cases, were people that were just like any transition team — people that were highly trusted, that he knew. Like, hey, I went to law school with this person, or I know this person — and that’s normal, right? Like, you know, for all these transition teams, trust is the big thing, right? And so somebody called me and said, Hey, Erin-Michael, what do you think of the election? And I was like, I didn’t know what to say to that. I was like, Well, you know, it’s right after Chicago and the big, you know, acceptance speech. And I was like — and I’m in San Francisco — so I’m like, well, it’s pretty clear, like, the right guy won, right? Like, that’s the very, like, delicate way to say that, right? And they go, well, do you think you could help out in the transition team? I was like, do what? And they’re like, we don’t know how to — there’s all these problems at the patent office. We don’t know what to do. And there’s all these, like, professors and stuff that are giving different ideas, and we’re not sure how to vet them. I was like, Yeah, sure. And so, like, I end up on the transition team as a subject matter expert, not as a political person at all, and I write a bunch of stuff about how to fix the patent office, which to me, was not that long ago that I worked there. And so, like this — it’s imagine, like you work at a place and like to see — and you’re buried in the bowels of the organization. And then somebody comes and says, well, what would you do to fix this place? And you say, well, this doesn’t work, right? And this is a problem. This is how you fix it. You invest in this, and this, that, and the other. And it all sounds very like, oh my god, amazing. But at the end of the day, if you work there, it’s very normal. And so every —

Will Bachman 13:19
it’s like, and you’re like, the most junior guy, it’s like, asking, you know, a second-class petty officer, hey, how do we fix the Navy? Right?

Erin-Michael Gill 13:27
Yeah. And he said, the food sucks, the morale is terrible, the boats don’t work. Everything’s leaking. And you say all this stuff that, when the senior, senior guys investigate, hey, wait, is this guy right? Everything I said was true because it happened to me. It wasn’t some theoretical, whatever. I was like, the legal support’s not working. The libraries are a thing. We don’t have access to the right tools. The tools suck — this, that — and like, we go into like, the nuances of, like, the really nitty gritty of how to fix something like how the examiners were being compensated, their bonus structure, everything, right? And so we write this, like three page, five page document up about how to fix the patent office. All the big brain people get it, all these very smart people who are very earnest and trying to, like, fix it. And they start asking questions, investigating. And of course, everything I told them was true. So it wasn’t like I was BS-ing, and there wasn’t like some “oh well, on the other hand.” It was like, Oh no, yeah, no, we need to do that too. And suddenly it’s like a house that had a bunch of deferred maintenance, you know, and like, somebody just walks through and says, fix all this stuff. And someone’s like, oh yeah, that’s correct.

So suddenly, this non-political guy in San Francisco who was not on the campaign, I get an offer to be what’s called a Schedule C appointee, which is like a special advisor to come in and fix the U.S. Patent and Trademark Office. I was like, What do you mean? It’s like, just do all the stuff that was on that five pager and create a strategic plan. Well, for the people running those agencies, that’s a nightmare, because I’m supposed to be like some, you know, political guy that they can just manipulate and say, Oh, this is really how it is. And this is, you know, you don’t understand examination. There’s a 12,000 person, $3 billion fee funded federally — there’s so much complexity. That’s how they’re supposed to be able to manage the politicals. Well, I came in there, I was like, Dude, come on — like, I know how this is supposed to go. Like, you gotta — this is how we should fix it. And I don’t know if people necessarily liked it, because nobody likes it when you try to cut somebody’s budget. Like they hate that. That’s a good way to lose friends and influence is spend less money — like nobody likes that. That’s a nightmare. But that’s what we did.

And so we were reasonably successful. We got a strategic plan out. I got a bunch of positive feedback because, you know, even though the planning process was kind of a nightmare, we redid the entire patent prosecution end-to-end process. That was amazing. And now, like, people that were waiting five, six years to get a patent grant were able to get it in nine to 12 months. And so, like, we were able to do a bunch of stuff.

And so now I’m like, 30 and — yeah, exactly. It’s like, this is all very odd. Like, the whole thing was odd. And I ended up joining a startup in Canada, and it was going well. And then I meet an investment bank that takes companies public based on the strength of their IP, and they’re like, Hey, you understand, like, this IP stuff and the value of IP, and we want you to be our chief IP officer and help take tech companies public. And I said, All right, I’m happy to do that, and it was the most amazing job in the world, because the owner of that firm was half Nicaraguan, and he spent a lot of time in Nicaragua. And he said, I’m going to invest down here. There’s human capital down here, and I want you to turn this into a sort of a factory where we have insights nobody else has. And so he bought the former U.S. Embassy in Nicaragua. We staffed it with English-speaking — you know, they made a call center. He did an intellectual property analysis group. He did all this stuff where he took every single U.S. patent document and re-analyzed it so we knew inventorship, citations, everything you could imagine, right? That allowed us to have better insights into patents, and I could use that tool to assess patent portfolios, so we could make decisions and recommendations to people that nobody else had had.

And so that was back in, you know, 2011 2012 when something crazy called the patent wars happened. And so there was this big thing where, like — and the kickoff for the patent wars. So this guy calls me — I’m at this investment bank, I’m at this boutique — and this guy calls me up, and he’s this analyst, and he goes, Hey, what do you think of Yahoo’s patent portfolio? I said, All right, just give me 24 hours. And I take a look at it, and I say, yeah, it’s gonna be valuable. He’s like, really? He’s like, Yeah, when Facebook goes public, Yahoo’s gonna sue them for patent infringement. He’s like, what? He’s like, Oh, yeah, for sure. Like, there’s no question about it. Facebook built a bunch of their IP around Yahoo. Like, it’s very obvious. And then when Google went public, yeah, we did the same thing. It’s definitely gonna happen. He was like, Can I put that on my blog? And I’m like, Well, yeah, but like, cite me. Like, say my name.

Well, he didn’t tell me that his blog was on Forbes.com and like, his article made it to the front page of Forbes.com. And I’m like, What the hell is this? It was like, you know, Yahoo sitting on a gold mine, whatever, right? And I was like, Okay, well, thanks for that. But, like, I didn’t know it’s gonna be that big of a deal. But then it disappeared, right? You know, whatever. Well, six months later, Facebook files to go public, and Yahoo sues them for patent infringement. And so everybody’s like, Oh my God, who could have possibly predicted this? I was like, Oh yeah, that guy — that analyst — definitely predicted it. And it’s the Holy Grail for an analyst, right? The analyst’s only job is their ability to predict the future, right? It predicted, you know, what was going to happen, who it was going to happen to, and when, right? It’s the holy trinity of being an analyst, right? And so everyone starts asking me, oh, well, who else has got valuable IP and what’s going to happen? And so they’re asking me things that, again, in my very, very narrow niche world, are predictable. And so I keep telling them, yeah, Apple and Samsung — this is what’s probably going to happen. And, you know, Microsoft and — there were all of these, sort of, like huge Microsoft and Google — all these patent wars that were happening where I was sort of the analyst that would predict what was going to happen. And, you know, it was just — it was one of those weird times where.

Erin-Michael Gill 20:00
You know, we’re at the meantime, we’re taking tech companies public based on the strength of their IP, and they’re all like venture type companies, so it’s high risk, high reward based on the strength the IP being an underlying asset. And so I end up getting this phone call from one of our clients, and he says, Well, we have some IP that we’re selling some technology, we’re selling into the intelligence community. I was like, Oh, that’s interesting. They’re based in Reston, Virginia, outside of DC. And I said, Well, what you know, what do you want to do is, if we think this is the most amazing technology, it deals with big data, it deals with AI, it’s really, really impressive. It’s the best in its class. And we want to spin it out. We spin out the IP to do something amazing. And we want you to be — we want you to come and take a look at it. And they say, We want you to be CEO. And every banker, that’s their dream, right? Not just not be the guy getting the fee on the deal is to, like, be the guy taking the tech company for the big exit.

And so we take a look at it, and it looks amazing. And he said, Well, how are we going to finance this? Right? He said, Well, we’re going to sell off our government contracts. I said, Oh, that’s great. I don’t know anything about government contracting. You know? How are you going to do that? Well, we’ve hired a blue chip investment bank, and they’re going to sell off these contracts, and we’re going to do the spin out based on this. We do the announcement; we do all this stuff. Well, this big blue chip investment bank comes in, and they’re amazing, and they run their process like normal. They come back and say, hey, we can’t sell some of these contracts. And I’m like — and I don’t remember, I hadn’t even looked at the government contracts. I didn’t know anything about it. And I was like, what do you mean? Why not? They’re like, we have something called small business set asides. I was like, I don’t, I don’t know what you’re talking about. What is that? They said, Look, nobody — nobody can buy them. There’s no market for them. You got a company over here. You got these contracts. You got $5 million of EBITDA, and nobody can buy them. I was like, Wait a minute. You’re telling me that you’ve got the same company doing the same work for the same customer at the same margin, and one set of contracts is going to sell for a 10x multiple, and the other one is worth zero. And they go, Well, it’s not really worth zero, but there’s no market for capital. Nobody can buy them. And, you know, it’s better to just keep them and run them. And so the spin out was going to get pushed for years. They weren’t going to do the spin out for this long time.

And I’m sitting here saying, wait a second, wait a second. I just heard a very blue chip investment bank tell me that these contracts that are generating $5 million a year of EBITDA can’t be sold. And so I said, That’s the craziest thing I ever heard.

And so I called my buddy who was the Deputy Chief of Staff at the SBA, and he was leaving. Either the election had happened, Trump was coming in, and it was, you know, his term was ending. And I said, Look, man, I need you to join a bank. He’s like, what? I was like, I need you to join a bank, and I’m going to start an M&A broker, and all I’m going to do is I’m going to find these government contracts that are incredibly cash rich, and you’re going to start an SBA lending division. And what we’re going to do is I’m going to bring you clients, and you’re going to fund them, and we’re going to buy these government contractors, because this is the most ridiculous thing I’ve ever heard of.

And it turns out these contracts — I learned more about them than you could ever imagine — and that’s what happened. This guy — and this is all public information. Left his job. He went to go work in a bank in Wilson, North Carolina, called Live Oak Bank. They’re the largest lender of SBA loans in the country, and in my living room, we started — he started the government contracting lending division at that bank, and I started Genaesis, which is the firm that I have now, and within three years, they went from $0 of loans — and this is all publicly traded, so this is all public information — within the first three years, they went from $0 of loans to $800 million of loans to do small government contractor M&A, and Genaesis at the time was about $150 million of that.

And so that was how we started this buy side M&A firm that it does — we do both buy and sell side now, which is a little different, mostly buy side still, but now with a focus on government contracting. And it’s one of the most interesting verticals you could imagine. And it’s because it’s so unbelievably boring and not sexy and not like, you know, these tech companies and these bio and these — whatever. You don’t realize the size and the scale and, like, just how awesome — and I mean that in like, the not the colloquial, I mean, like, this is, like, it is almost overwhelming, the scale of what the federal government is and does, and being able to help support and service like the firms that are in that world is so unlike anything else that it’s been amazing.

We’ve had this incredible growth and Genaesis has been able to, you know, make it through, you know, the hard times with, you know, COVID and, yeah, that’s sort of, you know, how the firm came to be, and kind of who we serve, and all that good stuff now. So that was a 30-minute answer to, why don’t you tell me about yourself? So I don’t know if all this is going to make the podcast, but hopefully that was interesting for you. Okay, so —

Will Bachman 26:01
some follow ups on that. When you say that you’re an M A broker, what does that mean? Exactly? So, oh, your firm is actually buying these companies, or you’re sorry, yeah, you’re helping, like, pe firms buy, find companies to buy, or due diligence, like, what are you guys doing?

Erin-Michael Gill 26:20
Great, great, great point. So in the world of investment bank — so I used to work for an investment bank, so I was a registered broker, and I passed the exams and all this stuff — in the M&A world, it’s a little different kind of, like, you know, when I was a Patent Agent, you know, it’s like, I’m not a lawyer, you know, although I passed the patent bar — we’re not an investment bank. There’s a category of things called M&A brokers, and what they do is they basically do all the work to facilitate deals between, you know, company strategics that are going to buy and operate a business. And that goes — and so, yes, our clients are — we’ve got strategics that are multi-billion-dollar corporations. We’ve got private equity funds that are, you know, everything from $500 million to multi-billion-dollar private equity funds, to individuals who are putting together shell companies to buy a company that they run, to small federal contractors that have got, you know, between five and, you know, 200 million in revenue. So, it’s a spectrum of who we support, but the idea is, to some extent, we find them opportunities. So, there’s a deal making aspect where we’re just kind of helping them with deal flow, but we’re also modeling the deals. So our financial models and valuation models are unlike anybody else’s. I would put our valuation model against any sophisticated investment bank in the world on that respect — again, in our narrow niche of, you know, government contracting. I would say that our ability to value and understand the value of a lot of these companies is unique, and that’s a differentiator that we think is important. And then, sort of, on the buy side, the idea is, we’re like, you know, we’re finding that a needle in a haystack isn’t the right analogy, but we’re finding that strategic fit, where the theory of the deal is. Once you transition this operating business, whatever it is, to a new, hopefully sophisticated, well capitalized, you know, sort of growth-oriented buyer, that the resulting company will end up growing. It’s not some sort of, oh, we’re going to, you know, roll up 15 companies and strip out all the back office. And it’s not like some weird kind of convoluted, oh, we’re going to move operations offshore, then we’re going to incorporate in Cyprus — it’s none of that stuff. It’s basically taking solid companies at a good valuation and either doing a CEO swap or adding capital to grow so that they can continue doing what they’re good at. Like, that’s kind of the investment thesis on most of our, if not all of our, our buy side opportunities.

Will Bachman 29:20
Now, when we spoke before, you explained to me, kind of a broad segmentation of the world of government contractors, why don’t you, oh, yeah, walk through that and talk to me about the segments that you don’t play in, and some examples, types of types of government contractors that you that you have sure helped firms

Erin-Michael Gill 29:41
purchase absolutely so. So again, it’s sort of a buy and sell side thing, but I would say that. So just to give you some idea of the scope of how big the federal government is as a as an entity that spends money. So if you were to add up all of the revenue, okay, from every sport league on earth, all right. So, NFL, baseball, Premier League, you know, cricket, like every sports league on Earth, right? And you add up all the annual revenue that they generate worldwide, okay, that number would be roughly $40 billion less than the federal government spends on government contracting goods and services every year, right? So the size of this market is overwhelming, and again, just people don’t really pay attention to it. What they spend money on, generally speaking, falls into three — it changes a little bit each year — roughly equal buckets, right? So about a third of their spending goes into kind of what you might expect: munitions, right? So, you know, buying and selling companies that deal with making the things that support the military on that side of the house. It’s very specialized. It’s somewhat concentrated. We don’t really help people do that. So we’re not buying and selling folks that do munitions.

The second big category, about a third of all that spending, is in construction. So they are building things all over the country, all over the world. It’s the scale and scope. Again, would be mind blowing to most people. Again, this is what they spend every year. So like just as an engine for producing this sort of revenue, you know, into industry, but also into the economies. Now, construction is like —

Will Bachman 31:29
government buildings, or is that roads and bridges and ports and you

Erin-Michael Gill 31:34
name it. I mean, we’re talking — we’re talking so any federal road, bridge, military bases, like, you know, the government has to build, like, hotels. They have to build quarters. They have to build, you know. And you think about, oh, we’re, you know, building roads in, you know, in Afghanistan, you know, or we’re building the wall — but like, and yes, those things you know, are certainly part of it. But, you know, just operating a military base where you’ve got, you know, landing strips and warehouses and you name it, there are construction companies that are building it. The reason we don’t do a lot of M&A in that space, and we haven’t closed a transaction dealing with construction, is there are certain requirements for those types of companies that have to deal with something called bonding. It’s like a type of an insurance policy that allows these big projects to sort of go forward, and especially when doing small government contracting, understanding the bonding issues and how you’re going to be able to get access to capital is not insignificant, and it makes it very difficult for the capital providers to do deals where the value of these companies is: Oh, they got these great contracts. The downside is they have bonding, which makes their ability to transact them not impossible, but just somewhat more difficult, and in some cases less predictable, and that makes it harder for us to do those deals.

So that’s about another third of the spend of the federal government every year. But the final third is what you would call professional services — and it’s a catch all, maybe professional, I mean, just general services — but that’s everything from people doing, you know, cyber security for the intelligence community, down to somebody has the contract to empty all the, you know, waste baskets on a military base. You know, like the size and scope of all what they call professional services. All of the front desk people at, you know, the State Department, you know, all the people managing IT operations for, you know, the Department of Energy, right? And they have to have something called a Q clearance, which is different than a top secret security clearance, which is different than XYZ. Like having those specialized people doing all these functions allows the government to run.

So in that huge bucket of that third, that’s where we identify these companies that have some amazing contracts, amazing capabilities, and we’re able to buy and sell. One of the most interesting companies — and we, this is all again, public information — we were able to sell a company, and then they actually sold again, bought again. We actually did three transactions with them. They were building what was essentially like a real life Iron Man suit, like they were doing drone technologies and high energy lasers that could shoot from miles away and potentially in space, and amazing stuff, like incredible next generation stuff, but it was involving contractors and engineering firms that were supporting these types of, you know, next generation national security operations. So we’ve done that all the way to facilities management, where somebody needs to just run a temporary housing facility, or a couple of them, for military bases. So big gamut there.

Will Bachman 35:13
Now, early on, you mentioned that you kind of discovered this whole world with this point about small business set asides, and that was the contracts of this company you’re involved in. So tell us a little bit about that. A lot of the deals that you get involved with have some kind of small business set aside. And if so, how did these large companies buy them? Talk to us about that. Absolutely.

Erin-Michael Gill 35:38
So it it’s a weird dynamic in that we do something, our tagline is investing in rapid expansion. And so there, if you have these small business set aside contracts — up until January of this year, a large company could potentially buy that company and then run out the contracts, right? And then just get the benefit of those years. And today that’s changed — the rules changed, the SBA rules changed — where you have to do something called recertification, right? So, but let me take a half a step back on what these small business contracts are and why they’re so insane and potentially valuable.

So the federal government understands that, like when you have the world’s largest spender or consumer of goods and services, there’s a natural kind of tendency where large companies would just dominate the market for all everything, and that small businesses wouldn’t really be able to compete for almost anything in that market. And so they require a certain amount of spending go to these small businesses. And that’s — you know — it’s every year, it’s, I think it’s 20% of all federal spending. The numbers fluctuate. And within that, there are directed spending where a certain percentage is 3% and 5% — the numbers have changed — that would go to, for example, service disabled veteran owned businesses or women owned businesses, right? There was another program that was called the 8(a) program that was for historically disadvantaged groups — so like Alaska Natives or Hawaiian organizations, things like that. And so these sort of categories allow, to some extent, less competition, so that every time you’re going after any sort of new opportunity, you’re not having to bid against Lockheed Martin and Raytheon every time, you know. And so it’s a little bit more fair.

Okay, well, in order to be a small business, you have levels, right? So, let’s say that you’re a small, I don’t know, law firm. Right? To be a small law firm, according the SBA rules, you’re going to be maybe $6 million in revenue. That’s a good size — that’s a but still small law firm. You know, sort of law firm. If you’re an IT services firm. Well, you could be a 40 plus million-dollar firm and still be small. And that’s sort of the dynamic there is that, let’s say that you’ve grown to be a $30 million revenue business — like anyone else. You’ve succeeded. You’ve been a small business owner and you want to sell it, right? You’ve succeeded. You’ve American dream, right? Well, you can’t sell to Lockheed Martin. You can’t sell to Raytheon. They don’t — your contracts would go away. And so, who can you sell to? Well, you can sell to an entrepreneur who’s going to do a CEO swap, who basically you ride off into the sunset. They buy your company and you get your retirement.

But these entrepreneurs, they don’t have access to capital. So what we do is we partner them up with banks or private equity firms or whomever. And, you know, these are unaffiliated, third party — like, we’re not, like, you know, we’re not JP Morgan. We’re not doing the financing for these guys, right? And they provide the financing. We put the deal together. We figure out the valuation. We figure out the cash flow. And we put together a deal for these companies that allow them to hit their growth objectives, and these sellers to get the retirement that they probably couldn’t get any other way, because these large companies can’t acquire those contracts. Which is what happened to my company all those years ago, when I — you know, over 10 years ago — when I first started Genaesis.

Okay, all right —

Will Bachman 39:38
before we wrap up, I want to hear about your service on this federal advisory board?

Erin-Michael Gill 39:43
Oh, absolutely. Well, before we do that, before we do that, I’d love to — and I’ll definitely go to the stuff — I want to say something that if you, if you’d allow me two seconds for a pitch. All right, here’s a pitch.

Will Bachman 39:54
Oh, pitch away. This is, all right. This show is self-promotional. No. All right. So, all right. So, for everybody listening, give us your website. Give us your pitch.

Erin-Michael Gill 40:03
So well, the website’s Genaesis — G, E, N, A, E, S, I, S — dot com. So definitely go to the website. But the more important thing, and I want to — for the people that listen this podcast, who are independent advisors, consultants, all that stuff, right? That’s some of our best deal flow. So some of the people that are looking to sell their companies, a lot of them don’t want to hire investment banks, they don’t want to hire brokers. They don’t want to do these things. And when we hear, you know, consultants, advisors, strategy guys working on projects, and we’ll get a phone call that says, Hey, I just had this great engagement with this really interesting company, and they’re doing really good work. We think they’re really valuable, but the guy just doesn’t want to sell. He just wants to know what his company’s worth if he was going to sell. We’ve got any given time, 20 to 50 buy side clients. And the way that we work with independent advisors, independent consultants, better than anyone else, is to say, look, if you bring us a client that says we don’t want to hire you, right? Which is fine, we were fine with that, but they would want to know if they were going to sell, what would the number be? Right? Realistically? What would the number be? And we would say, Yeah, we will do that for free, and give your clients an assessment. Say, Hey, look, here’s if you wanted to sell, this is what we would almost certainly be able to get you as a valuation. And that goes in from the private equity firms, from the strategics, from, you know, from whomever. And then when we get our fee, we pay referral fees to independent advisors.

So in terms of the economics of a transaction and things like that, a lot of times, I’d say probably 50% of our deals did not have a sell side. We love sell side. By the way, we love sell side brokers, okay? They bring us deal flow. We love them. They’re helpful. They are useful, and they are worth what they get paid, right? So, like, oh, they had to pay 6% or whatever it is, 10% — yes, in general, they are worth it because of the headache they had. Not necessarily — I don’t know if the valuation is higher or lower than they would have gotten otherwise — but in terms of the certainty of closing and then preparing you for closing, they are valuable, right? Because once a buyer gets in there and they find something that could have been fixed beforehand, you could end up killing a deal. Those guys that prepare you and get you ready are worth their weight in gold, in my opinion.

Now that I’ve said that, if you have a CEO that will not for love or money hire a sell side broker, and they just want to know what the number is going to be and what the valuation is, we love working with those types of people, because there’s no stress. You’re not meeting with the buyer, you’re meeting with the intermediary, and we’re going to be able to tell you what it is, and we can tell you these are the types of buyers. And if you tell me, I want to sell to, you know, a small business, or I want to sell to a large corporation, I want to sell to a private equity firm — you tell us that. We make the connection and we get the deal done in that sort of seamless way without having that huge organizational overhead of having to run a process, 57 management meetings, all the rest with, you know, a bunch of looky-loos. So that’s my two minute pitch to say we love working with folks like you have there at Umbrex. We love working with you guys. And to the extent that we can be helpful and, you know, add some value to some of these engagements, we’re absolutely happy to do so. Okay?

Will Bachman 43:47
And we will include that. We’ll include your link in the show notes.

Erin-Michael Gill 43:52
Thank you so much. Yeah, I definitely appreciate that. And you know, the happiest check we’ve written — or, you know, writing somebody, you know, $100,000 check for a two second introduction — we are happy to do it. So, okay, so now on the federal advisory side. So, yeah. So after I had my political appointment, something, you know, that was important to me was being able to continue to advise. And so after I left the Obama administration, I got asked to be on something called the Industry Trade Advisory Committee, which Congress — whenever the U.S. government wants to enter into any sort of trade agreement, they’re very complicated. They’re very technical, and there needs to be a group of people who sort of advise Congress to say, look, on balance, is this good or not for America’s interests? Knowing that America has very complex interests across every industry you can imagine, right? So, it’s a very complicated thing to say, yes, we should enter this because in every trade agreement, usually somebody’s getting screwed, right? Somebody’s not getting what they want. Nobody’s fully happy. Somebody else is usually fully unhappy, right?

So you have these trade industry groups where you’ve got, like, the aviation industry, the steel industry, forestry products — got all these different industries, right? And then you have these cross-cutting issues that are in almost every trade agreement, and one of them is intellectual property. So intellectual property hits and touches — if you look around whoever’s listening to this podcast, if you look around pretty, pretty much wherever you are, almost everything you can see, touch, feel, what you’re wearing is almost certainly covered by IP, right? Somebody got a patent for the design of the zipper on your pants. Somebody got a patent for the technology in your phone. There’s 1000s of patents in the communication protocols and everything else. Almost everything you interact with day to day deals with IP.

So the fact that there’s an IP committee ends up being very important. So I was appointed in the Obama administration onto this trade committee, and the Trump administration came in, and there was some turnover, as you might imagine, in any political organization. And I was one of the few that ended up getting asked to stay, and I was elected chairman of the committee, which was fantastic, but very unusual, because I was appointed in the Obama administration. Like, they were like, Well, are you a Trump guy? I was like, Well, no, I’m not a — I’m a technical expert. Like, I’m a subject matter expert. In this thing, there’s not a lot of experts, right?

And so we — in the Trump administration, that came and went, and then in the Biden administration, I got reappointed. Again, there was a lot of turnover, but I got reappointed and reelected chairman. And so now again, in this new Trump administration, the rechartering actually begins in a couple of days. And so I’ve been able to serve four administrations, and what we talk about is basically every trade agreement — every bilateral — I mean, just you name it — that impacts the U.S. economy. And it’s our job to work closely with the Secretary of Commerce and USTR to advise the White House on every strategy, every agenda item, every priority you could imagine, with respect to intellectual property.

Well, the problem — like with my committee, as opposed to other committees — is that there’s a whole hell of a lot less uniformity in what different people want, all right? So, like the tech industry wants one set of things, the bio industry wants another set. The pharma industry wants a similar set. The copyright industry is very different. The agriculture industry is very different. What they care about will blow you away, right? And you got some of these incredibly technical, incredibly smart people that are negotiating things down to the littlest comma to try to advance U.S. industry and U.S. interests worldwide, right?

So my job as chairman is to understand what all those issues are and balance them for these letters that go to Congress. And before they go to Congress, we should be working with our counterparts in the government to kind of say, hey, look, this is going to be good for America. This is going to be bad for America. Here’s why. And try to be useful in a confidential and in a cleared environment. So they can be candid. They can tell us what the issues are. They can explain things with a greater level of fidelity, and it’s not going to get out into the world. That is the huge benefit of being on these advisory committees.

But the unusual thing about my job is I have clients that are in — well, a lot of clients that are impacted by all these trade agreements, right? But my clients don’t pay me to carry a particular message into a committee meeting. You know what I mean? Like, I’m not a lobbyist. I’m not an industry guy that is specific for a trade group, or anything like that, right? I’m able to say I’m representing the financial services industry, private equity, foreign direct investment, small business, you know, because we have folks that are exporters, all this stuff that we represent. But they’re not saying, Hey, man, I need you to carry the water for me, and I need you to advocate for this particular position in a closed door meeting. No one’s ever done that. So that allows me to be candid with my advice when we’re talking about cross-cutting issues and things that matter to the entire U.S. economy.

So, like, you know, if you go to the White House website, go to the USTR website, you’ll see letters that, you know, I had to sign to say, this is like our opinion on when we did the new NAFTA, the USMCA. We needed to say, Well, is this good for America? Does this — you know — and this was a bunch of Obama people, potentially, you know, weighing in on a Trump signature trade agreement, and you’re expecting, oh, well, this is bad for — and it turned out it was on balance pretty good. Like we got some things that we didn’t have before. On balance, it didn’t get everything we wanted and whatever. But like, the idea that you can be in a technical meeting of objective people doing objective assessments, saying, Yeah, you know, this is probably going to be pretty good. And you know, if you take a step back and you say, well, does this help or hurt a particular administration — to some extent, nobody cares. Like the idea is, is it good for the country, and can you put together things that allow the country to move forward? It was kind of crazy.

And I know we’re getting to the balance of our time; you’re going to lose another two hours if I go too far on this. But, you know, with all of the trade things that have been in the news recently, when I talk to people that are my clients, and they say, what are the biggest, craziest things? Of course, they all say, tariffs, right? That’s, of course, the biggest number one.

But do you have any idea how unsettling it was when we talked about Denmark and Greenland? You know, we talk about, like, the mechanisms if Greenland was going to suddenly become a U.S. territory, a U.S. state — like, the idea that these advisory committees are talking about things that are impacting U.S. industry globally — like the scale and the scope of what we have to suddenly start worrying about with this, whether whatever administration, is much broader than just, hey, you know, what are we doing about geographic indicators in France or, you know — like, those are the kinds of things where you’re just like, Wait a second. Everybody cares about stability and predictability. I’m worried we don’t have it when you have these other things that there’s no mechanism for, and we have no idea.

Because if they ask a trade advisor, hey, what’s going to happen? You know if we actually move forward with some of these things, there’s like the amount of infrastructure that needs to be put in place to kind of vet and do these things on a technical level, just would blow your mind. And that’s the kind of thing where you sit there and you say, the scale and the scope of what the U.S. government is able to do worldwide is almost unfathomable. And being able to advise on that, and be able to pick out the signal from the noise, and say, this is going to be helpful. This isn’t. This is what matters. This doesn’t. This is what you can concede — like, that’s the exciting part.

And being able to do that for the last whatever — it’s been roughly 10 years, more than that, I guess most 15 years now — has been one of the most exciting things that I don’t get paid for, right? Aside from, you know, my family and stuff, the things that I think is the most exciting, you know, the things I think I enjoy the most. And I love my clients. I love my company. But being able to help and serve and do those kinds of bigger things has been pretty, pretty amazing.

And, you know, I’m excited to see what the rechartering process brings us next year, you know, in terms of like the upcoming process, but —

Erin-Michael Gill 53:53
but, yeah, that’s another thing that I do and I work on that has been very, very rewarding. And, you know, hopefully has done some — you know — hopefully done some good for the country there.

Will Bachman 54:05
Erin Michael Gill, fascinating career, very cool firm that you have built and grown. We’ll include a link in the show notes. Thank you so much for joining today.

Erin-Michael Gill 54:18
It was a pleasure. Thank you so much for having me, Will.