What does enterprise investor Armond Davis look for in a startup founder?

Transcription:

Mark Collier:
Welcome into The Playbook, Armond.

Armond Davis:
Thank you so much for having me. It’s great to be here.

Mark Collier:
All right. It is no secret that minority and women-owned businesses have difficulties accessing capital. So you are in a space, man, that is going to be in very high demand. All right.

Armond Davis:
Absolutely.

Mark Collier:
Before we get into that though, tell me a little bit about your background, man, and how you got into the investment business.

Armond Davis:
Well, I really think it was fate that I ended up here. My education is in finance, and I graduated from Florida A&M University. MBA in finance. Worked at a big Wall Street investment bank, then worked for a large Southeast regional commercial bank. But then decided I wanted to start my entrepreneurial journey. I’ve always wanted to be an entrepreneur.

Mark Collier:
Fantastic.

Armond Davis:
And so did my first M&A deal. Bought a small construction business, stucco repair business actually based out of Kennesaw in Georgia, and grew that business and really took that business to another level of full service-

Mark Collier:
Phenomenal.

Armond Davis:
… general contracting business. But where that really came into play was I did this in 2006, at the end of 2006.

Mark Collier:
Wow. That was on the cusp of the Great Recession.

Armond Davis:
That’s right, that’s right. 2007 I thought I was the smartest guy in the world, 2008 I was really brought down to earth.

Mark Collier:
Came down to earth.

Armond Davis:
Right. By 2009, 2010, was on the verge of bankruptcy.

Mark Collier:
Wow.

Armond Davis:
And really was struggling to survive and keep the lights on. And really at that point had to make some very, very difficult choices, and really batten down the hatches and utilize all of the knowledge and experience that I gained.

Mark Collier:
Sure.

Armond Davis:
And not only survive that time, but then converted the business and grew the business into a really thriving business. And so I’ve done that with more than one, with multiple businesses since that time.
And always wanting to get back to investments, I decided that where my strength lie is in working with founders, helping them to grow their business, helping them to scale their business. I’m able to look at things through the lens of an investor-

Mark Collier:
Absolutely.

Armond Davis:
… but with the empathy of a founder.

Mark Collier:
Right. I mean, serving in that role as a business owner was invaluable experience because you walked a mile in their shoes.

Armond Davis:
Yes.

Mark Collier:
Whereas a lot of banking folks, they’ve never owned a business before, so they don’t really have that empathetic perspective that you have.

Armond Davis:
Yeah. I think that all decisions, particularly when you’re in early stage as a founder, all the decisions you make for the business are personal.

Mark Collier:
Absolutely, they are. Absolutely.

Armond Davis:
And so I mean, these businesses, they are like your children, they are like your kids. And so when you work with a founder, you have to understand that it’s not always X’s and O’s.

Mark Collier:
No, it’s not. It’s not.

Armond Davis:
And that there is a emotional, and really I would even venture as far as to say there’s a spiritual component.

Mark Collier:
Yeah, absolutely.

Armond Davis:
In terms of the choices that are made-

Mark Collier:
Absolutely.

Armond Davis:
… in the direction that you go with the business.

Mark Collier:
Absolutely. All right. In the investment banking vernacular there are a number of terms out here. I’ve heard the term venture capital firm, angel investor, traditional lending source, equity partner. Talk to me about what role you guys at Paragon Group play within that spectrum?

Armond Davis:
Well, we would be considered to be in a venture capital space. We’re typically investing in businesses that are in what would be considered to be late to pre-seed, seed stage, series A stage of growth. So early growth stage. We’re not investing in extremely mature companies.

Mark Collier:
Sure.

Armond Davis:
But we do like to see that there’s been at least some demonstration of demand for the product or the service.

Mark Collier:
Got it.

Armond Davis:
We are not angel investors where you come in and you say, “Hey, I’ve got a great idea and you give me a million dollars and I can make it happen.” We want to see that you’ve put that idea to work.

Mark Collier:
There you go.

Armond Davis:
Like I said, you’ve at least got your product or you’ve got your service that you’re offering. And that you’ve demonstrated that there’s some demand there for it.

Mark Collier:
Sure. Proof of concept, man.

Armond Davis:
Yes.

Mark Collier:
It all comes down to that.

Armond Davis:
Yes.

Mark Collier:
No, you’re absolutely right. So what type of businesses does your firm invest in? Is there particular sectors that you’re more friendly to, or you kind of look at any opportunity that would make natural sense?

Armond Davis:
Well, we’re agnostic in terms of the specific industry. What we’re really looking for, because at this stage the businesses are really founder-dependent.

Mark Collier:
They are, they are.

Armond Davis:
And so we are really looking for a certain profile of a founder in terms of their mindset, in terms of having what we call a mindset of abundance, versus a lack mindset. And I say that, in that we don’t tend to come from a background where we come from a lot of money, where we grew up we had a lot of money.

Mark Collier:
That’s true.

Armond Davis:
And I think about, what did they tell you when you were 10-years-old and somebody gave you a birthday card with $10 in it? And they said, “Well, don’t spend that. Put that away. Keep that. Hide that somewhere.”

Mark Collier:
“Keep it safe.”

Armond Davis:
Right. “Keep it safe.” And so, but if you think about it, that’s the antithesis of what the wealthiest people in our country actually do with their money.

Mark Collier:
No, you’re absolutely right.

Armond Davis:
And so really what you need to learn to be is a vessel for your money. Money’s a tool, just like a hammer.

Mark Collier:
It is. It is.

Armond Davis:
It can come in, but then you need to then deploy it out. And I always like to say, I get up and go to work every day, I want my money to get up and go to work every day for me, just like I do.

Mark Collier:
I like that, man. I like that a lot. How do you identify the companies you invest in? What’s your vetting process for looking at companies? Because I’m sure you get a lot of opportunities come your way.

Armond Davis:
Yeah, we get quite a few. The easiest way is you go to our website, which is paragoninvestmentfund.com. And you can fill out the form that we have to actually apply. We get many applications-

Mark Collier:
I’m sure you do.

Armond Davis:
… for funding through that platform, through that channel. We also have relationships with accelerators, generators, other investors that will feed us access to founders, provide us access to founders who they believe are a good fit. And we go through that process of having conversations, getting to know people. It’s not a, first conversation, “Yes, here we go. Where do we sign?” We really do want to take time because, again, what I’m really looking for is a certain mindset in terms of how the founder approaches things-

Mark Collier:
Absolutely.

Armond Davis:
… how they approach life. And are they really in a position to where they may have a half a million dollar business today, but I could see them running a $50 million business at some point in the future.

Mark Collier:
I like it. From what I’m hearing, you’re more focused on relationship building than a transactional-

Armond Davis:
Yeah, we are not transactional, transaction-based at all.

Mark Collier:
Sure.

Armond Davis:
In fact, we are not the type of firm that we’re going to give you a check to fund, and then expect you to call us every three months and just give us an update every quarter on what’s happening. We really do roll up our sleeves and get involved with you. And this is why I really like companies that are at this stage of growth, because we’re actually going to help to formulate and execute on that growth strategy.

Mark Collier:
Got it. Got it.

Armond Davis:
And so we’re in the trenches with you here as a founder.

Mark Collier:
All right.

Armond Davis:
And so that’s very important to me as someone who has been a founder and been an operator for multiple businesses.

Mark Collier:
Sure.

Armond Davis:
That it can be frustrating when you have someone who’s an investor in the company, but really doesn’t quite get in and understand what you’re dealing with and what you’re going through.

Mark Collier:
Absolutely, man. So you have a very unique business model, and part of that unique business model is you don’t take the traditional passive approach to investments as you alluded to. Tell me more about that, peel back some layers on that, if you don’t mind.

Armond Davis:
Well, I think that’s kind of what I was talking about in the last question, in that we really are going to roll up our sleeves. And so we offer a variety of access to expertise. So we leverage our own relationships, whether it be access to branding and marketing expertise, public relations, expertise, media training, or whether it be legal advice, financial arrangements in terms of structuring the finance, structuring debt, structuring even the cap table on the equity side.
So we offer those kind of services and that kind of insight and advice to founders, in addition to simply just providing capital or life expertise or knowledge.

Mark Collier:
All right. All right, Armond, I’m going to ask you to put on your hat and look into the crystal ball here. Been a lot of talk recently about an impending recession.

Armond Davis:
Yeah.

Mark Collier:
So what are your thoughts on the the state of the economy today and how it would affect small business owners, if we do in fact move to a recessionary environment?

Armond Davis:
Well, this is a very fascinating question because six months ago there would’ve been a different answer.

Mark Collier:
Yeah, absolutely.

Armond Davis:
But what we are seeing now with inflation being where it is, yes, the price of gas has come down, but it’s still something that is really affecting, particularly small business owners.

Mark Collier:
Absolutely, it is.

Armond Davis:
I would submit that when it comes to the lower and middle class, and particularly most small business owners, that we’re already in a recession.

Mark Collier:
Okay.

Armond Davis:
I know they say a recession is coming and I think they announced that we had the second consecutive or quarter-

Mark Collier:
Quarter of GDP decline. Yeah.

Armond Davis:
… of GDP decline.

Mark Collier:
That’s the academic definition of recession.

Armond Davis:
Right, right. And yes, there are businesses that are still going strong, but I think that we are at a point where the majority of the people … Because the majority of the consumption comes from the lower and middle class.

Mark Collier:
Yes, it does. Yes, it does.

Armond Davis:
And so I think those people are already feeling the effect of this and are already in a recession. What we’ve seen from the VC side, on the investment side, is that after George Floyd was murdered there was an influx of capital for minority, particularly black-owned businesses. And I was beginning to see, even last year, some weirdness on the part of Corporate America at large in terms of getting money, just solely for that cause.
And that’s part of the reason why I make a business case for funding minority and women-owned businesses. And the business case is that when given access to capital and given access to proper guidance, that they’ll outperform the market as whole. So if you aren’t investing in these businesses and you’re a institutional investor, then effectively you’re underperforming in relation to your peers.

Mark Collier:
You make an important distinction about you’re showcasing your clients as making a business case, as opposed to a philanthropic effort that was a legacy of the George Floyd event. And that’s important.

Armond Davis:
Yes, I think it’s necessary if you want to have sustainable change in a way these large institutions approach investing.

Mark Collier:
Absolutely, absolutely.

Armond Davis:
And so yes, we could certainly say there’s always a moral reason, yes, to invest in minority and women-owned businesses. But there is a strong business case to be made. And I think a lot of the founders that are out here every day, working hard, they’re making that case. And so it’s really our job to help to magnify what they’re doing and their story, and continue to build that.

Mark Collier:
Okay. Well, fantastic. Let’s talk about forward looking, where do you see The Paragon Group going in the next five to 10 years? What are some of your long-term strategic goals for your company?

Armond Davis:
Well, it’s very simple. I believe my purpose here is to help founders to achieve their highest potential.

Mark Collier:
All right, I like it.

Armond Davis:
And so in the next five years we want to work with dozens, if given the opportunity, hundreds of founders, and help each of them to achieve their highest potential.

Mark Collier:
All right.

Armond Davis:
And so I don’t take credit. I didn’t conceive the business, it’s not my idea. My approach is to help to magnify what it is that you’re doing as a founder.

Mark Collier:
Got it, got it.

Armond Davis:
And to be a real augmentor of the talent that you bring to the table. And so if you’re very product focused, if you’re very service focused, then we can come in and we help on the business side in terms of getting things structured. And really helping to keep the gears turning in terms of being able to grow and scale that business.
And I did want to address kind of in conclusion, when you asked about going into the recession, what we’ve seen is that the institutions have begun to revert to the norm.

Mark Collier:
They have, yeah. Yes.

Armond Davis:
And say, “Well, we have to have … Now we have a flight-to-quality. And so we only want to invest in founders that have had two or three exits.” Or, “We only want to invest in fund managers that have raised two or three funds.”

Mark Collier:
Got it.

Armond Davis:
And it’s become much more difficult for minority founders to raise capital, and for minority fund managers to raise funds as well.

Mark Collier:
Sure, sure.

Armond Davis:
And so I think that what we’ll see … I think we’re going to see over the next couple of years that that will continue. And so we’re going to have to really come up with creative ways in terms of really getting funding into the hands of these founders that are really deserving of this, very much so.

Mark Collier:
Yeah. Well, I think your business model is going to do just that. I mean, you drive home the point of value. Our clients, the businesses that you choose to invest in, are going to deliver value on a business case basis, period. And that’s, I think, is the differentiator in why your company is going to start to accelerate.

Armond Davis:
Yes, yeah.

Mark Collier:
All right. Armond Davis, managing partner at The Paragon Group. I want to thank you for taking time out of your busy day to come in and just detail the very important work that you’re doing in terms of getting capital into the hands of businesses so they can soar.

Armond Davis:
Thank you so much for having me. It’s been a pleasure.

Mark Collier:
All right. All right.