Patrick Donahue – Private Investment

On the Importance of Having a Vision: “The reason why I use the the ‘qualifier magnetic’ is because it’s one thing to have a vision, but it has to be a vision that can be articulated where it attracts others to it.

Businesses need cash to run.  Some from the founders, often some from banks or relatives and sometimes from investment funds.

Patrick Donohue, founder and CEO of Hill Capital Corporation, an investment fund targeting entrepreneurial-led businesses that packs a punch with a $25,000,000 fund size, tells us about working with investment funds to fund your business, as well as the opportunities to invest your own cash into other businesses.

Patrick dives into the world of business investing, dissecting the narratives that turn a company’s vision into a magnet for investment, from small businesses like high-end baby stores to giants like Amazon. Patrick shares his nearly 30 years of fundraising expertise, pointing out what sets successful startups apart, like those with magnetic leadership and innovative technology like GoRoute.

Ever wondered what it takes to prepare for raising funds, or the role that storytelling plays in captivating potential investors? Patrick casts light on these vital strategies, leaning on examples from his extensive experience and involvement with diverse businesses in Hill Capital Corporation’s portfolio.

Lastly, Patrick shares his deep-seated motivation – helping entrepreneurs bridge the gap between the compelling narratives of Wall Street and the heart of Main Street, providing them with the capital to flourish. It’s about building valuable businesses and navigating the turbulence of the industry, a mission far beyond the financial lures of investment banking.


Visit Patrick at:

Authentic Business Adventures Podcast

Podcast Overview:

00:00 Investors need to outperform S&P 500 for higher rewards.
05:25 Hill Capital trusts investors to be involved in company decisions.
07:37 Networking and referrals are key for business connections.
10:26 Unique fund structure with VC equity based note, avoids reliance on company sale for cash.
14:27 Hill Capital Corporation manages companies and funds, with a formal investment process and financial commitment.
17:35 Started Hill Capital in 2014, work unpaid 11000 hours, used own savings.
19:35 Young person disillusioned by Wall Street, starts Hill Capital to help entrepreneurs and small businesses.
23:20 Successful founders have a magnetic vision, like Bezos’ expansion plans for Amazon with logistics.
28:39 The speaker is motivated by helping entrepreneurs, not by money or glamour on Wall Street.
32:02 GoRoute enables faster athletic practice with updated technology.
33:37 Technology companies face challenges and risks amid rapid change and AI growth.
37:10 Building trust and rapport is crucial for gaining financial support and investments, requiring an emotional connection.
41:54 Focus on authenticity and vision when pitching, rather than tailoring to investors’ expectations.
42:55 Summarize: Discussing business needs and readiness, emphasizing financial and operational clarity.

Podcast Transcription:

Patrick Donohue [00:00:00]:
Could talk about companies like Amazon. You know, Bezos had a hard time raising money early on, but when he was able to start articulating that it was not just about selling a few books online, it was about understanding and having the logistics and cracking the code there so he could expand into other products, and why the word Amazon was used because it’s the jungle and there’s a lot there.

James [00:00:23]:

Patrick Donohue [00:00:24]:
That’s where people got attracted to that and started to sync up and provide the investment capital that Amazon needed to be what it is today.

James [00:00:32]:
You have found Authentic Business Adventures, the business program that brings you the struggle stories and triumphant successes of business owners across the land. We are locally underwritten by the Bank of Sun Prairie. Downloadable audio episodes can be found in the podcast link on a draw in Today, we’re welcoming slash preparing to learn from Patrick Donahue, the founder and CEO of Hill Capital Corporation. So, Patrick, how is it going today?

Patrick Donohue [00:00:58]:
It’s great. How are you doing, James?

James [00:01:00]:
I’m doing very well. So tell us for the listeners at home, viewers at home, what is Hill Capital Corporation?

Patrick Donohue [00:01:06]:
Hill Capital Corporation is an investment fund. We invest half a1000000 to a $1,000,000 directly in entrepreneurial led businesses. And we are investing out of fund 2 right now, which is $25,000,000 fund.

James [00:01:20]:
Wow. Is it just a bunch of investors, or is it government funded by any means or or anything like that? It is all No. They’re handing money out left and right. So

Patrick Donohue [00:01:31]:
No. Yeah. No. It’s it’s all individuals. It’s all hard earned money. And many of our investors are multi generational business owners. So that makes us very unique as well. So, we really, not only provide capital, but the community, you know, in a network for the entrepreneurs, the companies that we invest in and support them in their journey.

Patrick Donohue [00:01:53]:
Because what we really care about is that they have optionality, you know, whether they wanna build their business and hand it over to the next generation, or if they wanna sell it or whatever the case may be. So we’ve got some unique ways that we support and structure our portfolio companies.

James [00:02:07]:
Alright. Very cool. Yeah. So the the investors that you get, are they because you’re investing in small business. So are they looking for a return over the course of 1 or 3 years? Or is it longer term?

Patrick Donohue [00:02:21]:
Well, definitely longer term. And, you know, the golden standard is, any investment fund really needs to outperform the S and P 500. You know, what somebody could get in the stock market. And I talk about that with our, our stakeholders a lot. And so, they need a reward that, gives them the economic incentive to do something other than put their money in a mutual fund or an ETF. And so, you know, if you kinda think about big number big picture numbers, you know, one could expect 8, maybe 12% on an annualized basis from the S and P 500. So, our investors need to expect something, higher than that. And so Okay.

Patrick Donohue [00:03:01]:
That’s what we look to achieve is something that mid to high, teen returns, not to our investors.

James [00:03:07]:
Sure. So one thing I’ve always been curious about with investment funds like this. Yeah. Is if I’m an investor, I throw some money at this thing, is the idea that I’m contractually obligated to keep my money in there for a finite period of time? Because it’s not liquid.

Patrick Donohue [00:03:23]:
Correct. It’s not liquid. And so how how funds work generally speaking is that somebody commits $1,000,000, but there’s a drawdown period. So, and it’s usually 2 to 4 years and the fund life is usually 10 years. So, you know, somebody commits a $1,000,000, they might have a couple $100,000 a year drawn down. And then that money is fully invested. And then there’s a harvest period where they’re getting a return on that money that they invested.

James [00:03:51]:
So when you say drawn down, you mean it’s going from essentially their bank to investment?

Patrick Donohue [00:03:56]:
Yeah. So let’s just say you committed a $1,000,000, then, you’re not putting that $1,000,000 in that fund day 1 like you would buy a mutual fund per se. Uh-huh. They would basically do a capital call and say, hey, James. You know, we’ve got a deal we’re buying and so on and so forth. We need to draw down 250,000 of your $1,000,000 commitment. And then Alright. And then there is if somebody can’t move up to that commitment, then there’s, you know, there’s basically penalties or or things like that that would dissuade somebody from doing that.

James [00:04:28]:
Sure. And then, yeah, you said a 10 year life. But I imagine is that from this point in time or 10 years from the time that the investor committed?

Patrick Donohue [00:04:38]:
It can actually be both, but a lot of times it’s from once the first drawdown happens is when the clock starts ticking.

James [00:04:45]:

Patrick Donohue [00:04:45]:
It all depends on the fund docs. And there’s, I I I have a very good friend that’s in real estate, and I was chatting with him while we were in Denver the other week. And, he was sharing insights on various structures and, you know, like real estate, they’ve got a lot of different ways they they do things. So it all depends on the structure and and how they put it together. And those are very important points for any investors that are looking to invest in, you know, a private fund, to understand what the mechanics are and how that all works.

James [00:05:16]:
And do the investors get any say into what you’re investing in, or they’re just essentially investing your fund to trust you to do or you and your team, I imagine.

Patrick Donohue [00:05:25]:
It’s a it’s a combination. There’s a high level of trust, of course, by default. But we do have a an investment committee, and LPs are investors are part of that investment committee. And we also have our investors who are just part of, our community. And in our community, we call them ambassadors. They are advisors to us and to our portfolio companies. And so they can really be as involved as they want to be. We love and encourage people to be involved in Hill Capital because that’s what makes us special is when those individuals are connecting with the founders and entrepreneurs of our portfolio companies, that’s where, frankly, the magic happens.

James [00:06:02]:

Patrick Donohue [00:06:03]:
You know, where they’re sharing expertise and insights and other connections. That’s where it really gets fun.

James [00:06:09]:

Patrick Donohue [00:06:10]:

James [00:06:10]:
So tell me, as far as finding the businesses to invest in, what are the ground rules for what you’re looking for? I imagine it’s not food trucks or something like that.

Patrick Donohue [00:06:19]:
Well, we are investing, in diverse businesses and intentionally doing so. We wanna have a diverse portfolio. So, in fund 1, we have everything from a, a company that is creating human liver cells. And that’s called Cytotherix and, Mayo and others are investors and that’s based out of Rochester, Minnesota. And so that’s a very complicated biotechnology company. And we’ve also invested in a, baby store, on Broadway in Little Falls, Minnesota, and it’s called Babies on Broadway. And Adele built up that business in Little Falls, expanded to another location, but has built a, a heck of an ecommerce store. And she has customers all over, especially in Naples and California because, her customers she has very high end baby, baby products.

Patrick Donohue [00:07:14]:
And her customers love to buy from babies on Broadway in Little Falls, Minnesota. And and a lot of them will talk to Adele directly. So she’s very high touch customer service.

James [00:07:25]:

Patrick Donohue [00:07:25]:
it has been, very diverse in, in the companies we’ve invested in. That’s what we love, and that’s what makes it fun.

James [00:07:32]:
How do you find them? Because there’s small businesses everywhere starting, coming and going.

Patrick Donohue [00:07:37]:
Exactly. Well, that is why, you know, like in your your hometown and area, like in Madison, Wisconsin, I’ve I’ve come in and given talks and have connected with, you know, economic development and the small business development center. So we, over the years have done things to make personal connections with events and have sponsored events and so forth. But at the end of the day, James, it’s word-of-mouth, it’s referrals. So, you know, you may bounce into a company and say, Hey, you should know Patrick and give him a call at Hill Capital. And that’s the vast majority of the companies that we’re interfacing with on a weekly basis. We do get, we show up on lists, of course, and so forth, and we will get entrepreneurs that come to us cold and we’ll, hit the apply button on our website. And what’s nice about us is we’ve built out our team where, we will take meetings with everybody.

Patrick Donohue [00:08:26]:
We get to know businesses because our thesis is that, it may not be a fit for both parties today, but over time it may be. And so we’re not hesitant to get to know an entrepreneur, you know, wherever they are in their journey.

James [00:08:42]:

Patrick Donohue [00:08:42]:
And so that’s important part of it is word-of-mouth and really being respectful of the entrepreneurs and where they are in their journey. So we try to help them wherever we possibly can.

James [00:08:53]:
So you talk about where the entrepreneurs are in their journey. Is the idea that you’re investing in in businesses that are start ups as well as, I mean, some form of growth mode of some kind

Patrick Donohue [00:09:04]:
of business. Majority of our companies are doing 2 to 5,000,000 of revenue when we invest and are looking to get to 10 to 20,000,000 of revenue. That’s our bread and butter. Cytotheryx, when we invested, was pre revenue. We invested in a number of companies that were well below $1,000,000 when we invested. Like GoRoute out of Rochester, Minnesota. He had a few $100,000 in revenue, but he clearly had a product that was being purchased and used in the marketplace. And it was crystal clear that our money could be utilized for sales and marketing to help him get GoRoute to the next level.

Patrick Donohue [00:09:39]:
And that’s exactly what has happened. What we like to say, James, is that we will take execution risk. We don’t take concept risk. So if something is really early stage in startup phase, we would point them to generator, which started in, you know, in in Milwaukee, Madison area. Mhmm. And we’d point them to accelerators like that, because that’s a much better starting point if somebody is really at the concept phase than than we would be.

James [00:10:09]:
Sure. Okay. That makes sense. That makes sense. Tell me when you’re looking at the 10 year fund versus the business investment, I’m trying to think even all the businesses that I’ve been involved in, 10 year plans are just you don’t know what’s gonna happen in 10 years.

Patrick Donohue [00:10:26]:
Well and that’s just as the fund. I mean, a lot of times, the the the time of our investment is 5 to 7 years. Okay. And we’re really and what’s unique about us, James, is that we have a proprietary structure that we use, it’s called a VC equity based note. This equity based note is structured so we can get paid back over time, so we don’t have to wait for and hope and pray for the company to sell for cash someday. Because that’s the elephant in the room. And it’s a big reason why I wrote the book, breakout valuation, is to start to shed light on this. But once somebody sells stock to an investor like an angel or a VC, they’re on a path to have to sell that business for cash.

James [00:11:07]:

Patrick Donohue [00:11:09]:
that has its own set of challenges, especially because time is no one’s friends when you’re calculating annualized rate of return.

James [00:11:19]:

Patrick Donohue [00:11:19]:
So that’s where some, you know, some odd things can happen where people are making decisions based on trying to, you know, repay or provide liquidation to their early shareholders versus what they may have wanted to do, which is actually build a lifestyle business or a business that’s multi generation and hand it over to their to their kids someday. So that’s why we think very differently than traditional investors about how to invest in and support, founder entrepreneurial led businesses.

James [00:11:54]:
Yeah. That is interesting as far as the exit strategy or the exit goal for a business when you have investors versus when you’re just on your own.

Patrick Donohue [00:12:01]:

James [00:12:02]:
I imagine when you’re talking about the was it liver cell business?

Patrick Donohue [00:12:06]:
Yes. Okay.

James [00:12:07]:
I imagine something like that. They probably I don’t know what’s all involved with that, but I imagine it’s expensive.

Patrick Donohue [00:12:13]:
It is very expensive, but it that’s also very different too. They have very sophisticated investors involved like the Mayo Clinic, and they have a professional board of directors, people who’ve been there, done that. So that’s kind of on the far end of the spectrum for us, in terms of like companies that are truly, you know, venture backable and and could be very big companies. Most of our portfolio are companies like Adele with Babies on Broadway and and, Mercedes Austin, who founded Mercury Mosaic that makes custom made handmade tile

James [00:12:50]:

Patrick Donohue [00:12:51]:
And beautiful mosaic kits. So, again, that’s us though. We love a diverse portfolio. We love to support the entrepreneurs. John Swart and, and Anna Haugel at, Cytotherix are some of the best, in Mercedes and so forth. And so for us, it really comes down to the people. It’s really the people, because they’re our partners at the end of the day. That’s, that’s what we look at and what we think a lot about is, you know, how can we, you know, support these entrepreneurs and their journey building their business and a company like Cytotheryx is going to get really big and sell someday.

Patrick Donohue [00:13:31]:
That path is known. It’s not going to be a multi generational business. Wouldn’t make sense for them. It’s a very, in need medical, technology company that’s literally going to save lives someday. But you’ve got on the other spectrum companies like Mercury Mosaic, and Babies on Broadway, and Foreverance, where maybe they don’t wanna sell for cash someday.

James [00:13:53]:
Sure. I suppose eventually. Alright?

Patrick Donohue [00:13:56]:
Well, eventually. Right. Right. It it could it it for the vast majority of them, it that would happen. But they don’t they’re not time constrained where it has to be the next 3 to 5 years or whatever the case may be. Oh, okay. I see what you’re

James [00:14:08]:

Patrick Donohue [00:14:09]:
20 years or whatever fits their time frame.

James [00:14:11]:
Yeah. So these businesses that you’re you’re coming across, do you have to sell them essentially to the investors or the investors picking and choosing which companies that you have that they’re interested in investing in? Or

Patrick Donohue [00:14:27]:
Hill Capital Corporation is the management company, and then Hill Capital Fund is the fund. But as the management company, we’re identifying companies to invest in and underwriting that. And so by the time we bring it to an investment committee meeting, the investment committee is very aware of our pipeline companies we’re looking at. But by the time we bring into an investment committee, they’re really just making sure we’ve done our work, like background checks and have done the financial model and that everything makes sense, for kind of like a final check and a final vote. But when we make a commitment and we give someone to term sheet, we’re good for that half a1000000 to a $1,000,000, you know, absent some red flag that would come up in due diligence.

James [00:15:08]:
Sure. Fair.

Patrick Donohue [00:15:09]:

James [00:15:10]:
Tell me you know, you raised interesting, segue here about paperwork. I imagine putting together an investment fund from a SEC point of view and all that jazz is not as easy as just sticking your shingle out there saying, hey. I’m in investment fund. Throw me some money. We’ll throw it at some businesses. We’ll make some cash together. It’ll be easy. Right? I mentioned there’s some red tape you gotta deal with.

James [00:15:34]:
Can you tell us about that?

Patrick Donohue [00:15:36]:
Yeah. So Hill Capital Corporation actually started, we are in generation 1 of hill capital corporation. We started as a business development company, a BDC, and we filed with the sec, It’s a story onto itself, but it is difficult. It’s expensive. There’s, very detailed reporting to be a publicly filing company with the SEC. And so it’s it’s very few can really do it and especially do it well. So that’s a whole world onto itself. And then the vast majority of capital in the private space are private funds.

Patrick Donohue [00:16:14]:
You know, you think about kinda like the venture funds and, you know, the fund that, like, generator has and others, that’s just all, you know, private fund, and they don’t have to do, you know, the traditional filings with the SEC, like, some of the big the big funds do, like BlackRock and KKR and so on and so forth.

James [00:16:32]:
They do not. Okay. I wasn’t aware of that. Okay.

Patrick Donohue [00:16:35]:
It all it all depends on the regulatory framework in which they’ve chosen to operate. So we could spend a whole hour talking about that, but it it really depends on the framework of what’s the what they are choosing to operate. If it’s a very closely held, investment fund, you know, some friends and so forth like you described, I mean, that can be very informal. They can kinda do what they want. But if you start bringing in outside investors and people you don’t know very well, that gets into a whole different realm of legal and regulatory compliance that one needs to abide by.

James [00:17:10]:
Alright. Where do you guys fit in there?

Patrick Donohue [00:17:13]:
We are very closely and privately held.

James [00:17:15]:
Okay. Yes. Gotcha. So the investors, you’re not just putting out a newspaper ad there.

Patrick Donohue [00:17:19]:
Gosh. No.

James [00:17:20]:
Or I don’t know. We are not newspaper ad, but you know what I mean? This is a big billboard saying, hey. Throw some money at us. No.

Patrick Donohue [00:17:25]:
It’s it’s very closely held. It’s it’s a very small group. So

James [00:17:31]:
Gotcha. How or when did you start this?

Patrick Donohue [00:17:35]:
So my journey with Hill Capital, started in, 2014, and it really got off the ground in 2018. So I have a heck of a founder story myself for that first 4 years. It, you know, it it’s tough. It’s a slog. I mean, Hill Capital Corporation was a startup no different than any other startup. You know, there was a handful of us who put in our own cash and, I I worked over 11000 hours, basically uncompensated pulling things together. You know, I put a lot of time and effort into it and, you know, use my savings to be able to to to do that and to fund this to kinda get it going. So, it’s it’s a journey onto itself.

Patrick Donohue [00:18:16]:
It’s it’s not easy to start a fund, and there’s a lot of reasons why there aren’t more funds like this, and I I wish there were. And I hope that we are an inspiration for more funds to become available because there’s a lot of need in the private for private businesses to get more access to capital. And that was our driving motivation to launch O Capital. So, so what made you found this? Did you exit a different business or or just

James [00:18:41]:
fell into a bag of cash?

Patrick Donohue [00:18:44]:
I did not fall into a bag of cash.

James [00:18:46]:
So let’s see. You never know. Right?

Patrick Donohue [00:18:47]:
Yeah. No. That’s all good. I had I have done well, without a doubt, but I did not fall into a bag of cash. That sounds fun.

James [00:18:55]:
Yeah. Right?

Patrick Donohue [00:18:56]:
So my whole entrepreneurial journey started when I left investment banking. And so I had been around deal making, the start of my career. That started with writing Wall Street research, doing investment models, switching to the investment banking and advisory side. So doing fairness opinions, valuations for companies, IPOs, mergers, acquisitions, and just, capital formation, broadly speaking. So I had all that background. And my founder story, James, was really around seeing how disconnected Wall Street is from Main Street. Mhmm. And it really bothered me.

Patrick Donohue [00:19:35]:
Because as a young person coming out of college, you kinda have this feeling like everything in the world is already kind of figured out, and, you know, Wall Street is probably well suited to help all companies wherever they are. And to see firsthand how Wall Street has really become only available to companies that are doing over a 100,000,000 in revenue and, you know, could be a $1,000,000,000 public company someday. It just was jarring, to say the least. And so through my, call it, formation period, when I was a young person kind of, you know, cutting my teeth in the world of finance, I just realized, like, how broken the world was for entrepreneurs and small businesses. And that was really the underlying fire and motivation that I had to start what became Hill Capital Corporation.

James [00:20:25]:
Got it. So is that so it sounds like you had some experience as far as looking at the back end of the businesses and

Patrick Donohue [00:20:31]:
Very much so. Yeah.

James [00:20:32]:
Things like that. So that had to help quite a bit. Yes. And then was it tough getting investors into your into the I don’t the portfolio? I don’t know what you call it.

Patrick Donohue [00:20:43]:
Yeah. Bringing in what most would call LPs because a lot of funds have a LPGP structure, limited partners. But, yeah, it was really hard. You know, that’s a lot of networking, a lot of connecting, a lot of, you know, sharing the vision and the story and so forth. And so I resonate with all founders that, you know, have to fundraise and bring money in. You literally have to have 100 and 100 of conversations to bring together the handful that are ultimately going to be investors. And that’s been my experience. It’s it’s very tough.

Patrick Donohue [00:21:15]:
It’s It’s painful. It’s scary. It takes a heck of a lot of work and a lot of trust and faith that it’s all gonna work out in the end. And so, some companies are extremely lucky. And, of course, those are the ones that grab the headlines. You know, somebody, you know, has a hot idea and they, you know, get investors in a heartbeat. But that’s that’s the fraction of 1%. Everybody else, 99 plus percent, they have to grind it out and scrape up their knees, you know, crawling around, begging for people to listen, and ultimately, hopefully, to invest.

Patrick Donohue [00:21:48]:
So it’s tough to fundraise. That’s why I spend a good chunk of the book talking about fundraising strategy because I’ve lived it and and I’ve helped people do it. And that’s kind of my what I’ve been doing for pushing 30 years now.

James [00:22:01]:
Nice. You know, it’s interesting here in Madison. I imagine just like a lot of other places. Yep. They have, the startups, the generators of the world kind of thing, bringing some of these businesses together and educating the founders, all that jazz. And I have seen some crazy money get thrown at some companies that did not have a revenue model. And I am not in a position where I can throw 1,000,000 of dollars at an investment, especially at a company that doesn’t have a revenue model. And I’ve seen it first well, maybe not firsthand necessarily, but at least watched it unfold over the course of years where, hey.

James [00:22:39]:
This company raised $5,000,000. Yep. And then 3 to 5 years later, that company folded. And it blew my mind that there were investors that made that much money somewhere else that were throwing money in a business that didn’t have a revenue model. So can you talk to me? I don’t necessarily know what you guys are investing in, but why would a company or why would an investment people with money like that throw at a business that doesn’t have a revenue model at all?

Patrick Donohue [00:23:09]:
James, I I’m I’m in the same boat. It it took me 2 decades to look at and study and to figure out why that is. Okay. I figured it out and I wrote about in the book.

James [00:23:18]:
Oh, tell me the cliff notes version.

Patrick Donohue [00:23:20]:
Yeah. It it boils down to the magnetic vision. So the founder of that company that attracted a lot of money had a vision. And the reason why I use the the qualifier magnetic is because it’s one thing to have a vision, but it has to be a vision that can be articulated where it attracts others to it. And so the really good founders, the ones that raise a lot of money and grab a lot of headlines have a strong magnetic vision. You know, they’re talking about, like, if you think about, like, we could we could talk about companies like Amazon. You know, Bezos had a hard time raising money early on, but when he was able to start articulating that it was not just about selling a few books online, it was about understanding and having the logistics and cracking the code there, so we could expand into other products, and why the word Amazon was used because it’s the jungle and there’s a lot there.

James [00:24:16]:

Patrick Donohue [00:24:17]:
That’s where people got attracted to that and started to sync up and provide the investment capital that Amazon needed to be what it is today. That’s that’s the difference. That’s why you see and Amazon, again, we could keep talking about because it’s a great case study, even as a public company. For many, many, many years up until recently, was never profitable.

James [00:24:37]:
Right. It got

Patrick Donohue [00:24:38]:
a lot of flack. And one of my you know, one of the the the the godfathers of of the top of ground valuation, Demodaran, he talked a lot about Amazon. And, you know, why is it that they have these huge valuations, multibillion dollars when they had no, you know, nothing inside to be profitable? Well, it’s because of Bezos and the magnetic vision that they had to keep building this. And that’s what you’re seeing with today. You know, you think about some of the biotechnology companies that this happens with, the technology now AI. But they have a vision of what all of this could be someday, and that’s what people are buying into. That’s why they get monstrous, valuations and big money.

James [00:25:22]:
Gotcha. Okay. Yeah. I suppose things like Uber that I think they’re profitable, and they weren’t for a very long time.

Patrick Donohue [00:25:30]:
Right. But in the early days of Uber, you know, they to think about, like, that business model, like, really, people are gonna drive around their own cars and pick it up. And, you know, there’s a great story about Airbnb. Like, really, people are gonna have people in their houses and so forth. But

James [00:25:42]:

Patrick Donohue [00:25:43]:
Those founders did a really nice job of being able to weave the story and say, look at this is what the world can look like with this business model. And people start to buy into that.

James [00:25:52]:

Patrick Donohue [00:25:53]:
That’s where evaluate that’s what I talk about in the book, because that’s where kind of valuation goes out the door in terms of, like, traditional valuation multiples or anything you wanna, you know be worthless? Well, it could be. It’s either gonna be worth a lot or nothing. Right. So that’s where people are willing to make that bet.

James [00:26:11]:
Yeah. It’s just it reminded me or has reminded me of the whole dotcom bubble back in the Yeah. Early 2000 when people would throw money at anything that mentioned the word Internet. Yep. And And there’s always something thing and all that kind of stuff. Yeah. Yeah.

Patrick Donohue [00:26:28]:
Yeah. I mean, yeah, in the eighties, it was the telecoms. You know, you go back through history, everything through history. Back in, back in, you know, you know, back a 100 years ago, you know what? The stats are ridiculous. There’s 1,000, if not tens of thousands of car companies. Oh, yeah. I happen to know a few of the survivors, you know, Chrysler, Ford, you know, Pontiac, so on and so forth, that became GM and not in Ford and so forth. But there were a bazillion car companies that were, you know, that people were putting money into, and they were going public and on the stock exchange.

James [00:27:02]:
So Sure. That’s fair. That’s fair. I imagine back then it was easier to start. Easier, not necessarily easy, easy to start a car company, and it was the new exciting thing. Yeah. Horses were going away. Right? Yeah.

James [00:27:17]:
So interesting.

Patrick Donohue [00:27:19]:
I think it’s always hard to start a business. People I I I think about that a lot because people say, oh, it’s easier today because you have the Internet. And it’s like, well, yes, maybe some of the access to things is easier. But on the flip side, it’s as hard as it is as ever to get in front of, you know, potential customers. You know? Yeah. It’s Yeah. What there if you have got an unlimited amount of money, you can solve a lot with, you know, buying marketing and stuff like that. But if one’s bootstrapping, it’s really hard.

James [00:27:48]:
Yeah. It reminds me of the movie, catch me if you can.

Patrick Donohue [00:27:52]:
Oh, sure. Yeah.

James [00:27:54]:
When Leonardo DiCaprio’s character was talking about how, it’s easier to do essentially what he did now with the Internet and stuff like that. But then I was thinking, well, it’s also easier for them to catch you because there’s way more bread crumbs that you have to leave behind just with all the technology that we have. Sure. Exactly. Know where you are, when you are, and what you’re doing kinda thing. So instead of just taking stickers off of airplanes

Patrick Donohue [00:28:20]:

James [00:28:21]:
Slap them on a check, whatever.

Patrick Donohue [00:28:23]:

James [00:28:24]:
So you I guess, you were in the the Wall Street world. Now you’re in this world. Do you miss the Wall Street world?

Patrick Donohue [00:28:32]:
No. Not at all.

James [00:28:33]:
Not even a little bit? No. Okay. That’s alright. That’s alright.

Patrick Donohue [00:28:39]:
You know, I mean, the only reason I pause is because I think one is always tempted by there’s a lot of money to be made on Wall Street. You know what I mean? Like, there’s you know, those are some of the highest paying jobs in the world, and they can come with glamour if one cares about traveling a lot and eating at the finest restaurants. But if that’s not what motivates somebody like me, it’s there’s nothing to miss. You know, what I what motivates me and why I get up every morning is because I’m very motivated to speak with and help entrepreneurs. Okay. And and that’s that’s what I I love to do. And I love to do this this type of stuff where it’s sharing insights and being able to talk about entrepreneurship and helping people really think about like how to create and build valuable businesses. And not get snookered out of them along the way.

Patrick Donohue [00:29:31]:
Because there’s a lot of bad actors, out there. And so that’s the stuff that motivates me day in and day out because I’ve for for, my little career so far, I’ve seen a lot. And most of it sends shivers down my spine. But, you know, when you see an entrepreneur like Mercedes Austin with Mercury Mosaic, who’s been grinding it out now for over 20 years and built a very successful business, There’s nothing better in the world than that, you know? And that’s what I love to be around because that’s what inspires me. And that’s also why I’m a member of entrepreneurs organization. EO and and EO Minnesota. I love being around entrepreneurs and and and seeing and sharing in their journeys.

James [00:30:12]:
You know, it is I love it as well. I mean, obviously, we’re on a podcast about it. Yes. It is interesting when you talk to an entrepreneur versus when you talk someone that is not an entrepreneur or doesn’t even a lot of james, you run into people that just don’t even understand. Nope. Why would you start a business? Why don’t you just get a day job kinda thing? It’s it makes for very interesting conversations either at a coffee shop or bar, whatever. Entrepreneurs, you can talk for hours because there’s everybody’s got stories

Patrick Donohue [00:30:41]:

James [00:30:41]:
In that realm.

Patrick Donohue [00:30:42]:

James [00:30:43]:
And I don’t know if I mean, day job people, it’s not to say they don’t have stories, but they’re not as cool, I guess, from my perspective, anyways.

Patrick Donohue [00:30:51]:
Yeah. Yeah. I agree.

James [00:30:54]:
Tell me the biggest success that you’ve had so far since you started this. I mean, you’ve been going you said 20 2010 or 2014. I apologize. You started 2014.

Patrick Donohue [00:31:04]:
2014. And so and the fund and everything got off the ground in 2018.

James [00:31:08]:
Okay. So you’re talking decades since you started it, but you still got, whatever, quite a few years under your belt as far as, what investments turned into good investments. So do you have any wins that are pretty cool?

Patrick Donohue [00:31:21]:
I would point to GoRoute. That’s one of them that is top of mind. You know, Mike has been very successful selling his sports technology company, technology to, football teams.

James [00:31:32]:
Yeah. So help me with what what is GoRoute?

Patrick Donohue [00:31:35]:
GoRoute, basically has a, basically, a smartphone that is utilized by players to study a route for practices. That’s where the the original idea was. And so the big idea and where it’s very successful is that the teams can run 2 to 3 times the amount of practice routes during their practice than they would if they’re still using paper and whiteboards.

James [00:32:01]:

Patrick Donohue [00:32:02]:
And so it saves people from huddling up and spending all that extra time, so they can keep practicing, you know, the various routes. And so that’s where he started. And then now that technology is literally expanding rapidly into softball and baseball and basketball, because there’s now, a lot of new rules that have been updated around the use of technology and communications in athletics. And so Alright. GoRoute is doing exceptionally well right now. So that’s been a really fun one because, like almost entrepreneurs, Mike Rowley had to pivot his business model several times. You know, he started off being dependent on a Wi Fi system and, was able to work out deals with, the providers of, you know, the 5 g networks, the cellular, and broadband networks, and, be able to make it so, you know, he could reduce and eliminate latency and issues around Wi Fi. And so his journey, is quite inspiring.

Patrick Donohue [00:33:05]:
So it’ll be fun to see what, where go route, ultimately lands, but it’s doing very well right now, and it’ll be fun when Mike can really share his story someday.

James [00:33:16]:
That is cool. I look forward to having him. It’s interesting you mentioned the Wi Fi thing. Because I’m thinking, Mike, putting together this business plan and the cool thing, knowing the routes for football and finding the problem. And then his biggest issue is the technology thing like, oh gosh. Come on. I gotta learn about 5 g now.

Patrick Donohue [00:33:37]:
Well, yeah. That that’s a whole story onto itself. I mean, all of our companies that have, you know, a decent amount of technology within their product or service has some story like that because it’s always been updated and changed and so on and so forth. And so, that’s, there’s always stuff coming out of left field and I think it is and gonna accelerate now with AI. And so that that’s a part of the that’s part of the risk. I mean, people think, like, software businesses are the best businesses to be in. From, you know, from a upside potential, they definitely are. But they’re they’re not without their pitfalls and, you know, and challenges.

Patrick Donohue [00:34:16]:
And a lot of software businesses go under. Especially if they have to spend money on sales and marketing. You know that’s that’s that’s a big one because, you know, I’m I’m now talking to a lot of people about, like, any pay per click advertising people are doing. I mean, the the numbers have gotten bonkers. People, you know, are now paying multidollars per click and that that economics doesn’t work as like they did.

James [00:34:40]:
Yeah. Really quick story there. I had a online flower ordering business for a hot minute. Yes. And pay per click advertising, I thought was gonna be the only way that we could get enough volume to make it worthwhile. And I think it was $18 a click or something like that. It was stupid.

Patrick Donohue [00:34:58]:
Oh, man.

James [00:34:59]:
So we stopped that business before we even got off the ground because I was and I talked to different flower shops, and I’m trying to figure out how are you making any money if you’re paying $20 each time somebody clicks, not even necessarily buys. That’s that’s insane. It’s bizarre.

Patrick Donohue [00:35:17]:
It it is very I

James [00:35:18]:
don’t know what they are.

Patrick Donohue [00:35:18]:
I re yeah. It’s it it worked really well when it was 15¢ a click and so forth and got hard at a couple bucks. And now, you know, being in the teens and $20 a click, I mean, that’s just ridiculous.

James [00:35:30]:
Yeah. It’s not not worth even going down that road. Yes. That’s why we’re more channels.

Patrick Donohue [00:35:35]:
Yeah. That’s why we’re seeing companies like Foreverance that are, you know, very successful with, you know, like social media posts because they make custom made urns. So they got really popular in a lot of national media attention when they made the ceramic urn for, Prince’s estate when he died. They they built it of, Paisley Park.

James [00:35:54]:
Oh, wow. And so

Patrick Donohue [00:35:56]:
they’ve got a lot of stories that, you know, people share about the custom earns. You know, a lot of it is the the classic car that dad or grandpa had that, you know, they they get made into an urn or, the, you know, like their dog, their favorite dog, or something like that. And so those really pull on the heartstrings and work really well for for social media. But when you buy clicks to sell and earn, extremely difficult.

James [00:36:23]:
I bet. So yeah. Interesting website search there.

Patrick Donohue [00:36:29]:
Yeah. Exactly.

James [00:36:31]:
So tell me when you first put this together just to figure out the chicken and egg scenario, you’re putting together Hill Capital. Yep. You gotta get some investors, but I imagine you’re talking to everyone, not necessarily knowing where their net worth is at. And you’re gonna find some investors that are like, hey. I got, whatever, $500 to throw at you, and you’re like, we’re not quite there. Yep. Or how did you navigate those conversations? Because that had to be challenging right there.

Patrick Donohue [00:36:59]:
Yes. It is. But, you know, there’s 2 things that move money, James. It’s trust and respect. And, and, and, or excuse me, trust and emotion. So

James [00:37:09]:
you have to

Patrick Donohue [00:37:10]:
build trust and you have to build rapport, but there has to be an, an emotional hook to, to, to get people to, you know, to be able to write a check, whether it’s in a fund or, you know, getting an investor in a business, or a donation to a nonprofit. So it’s really about that trust piece, you know, is the ability to build trust, and and to get them comfortable about what and how they think about where they’re allocating capital. And so, you know, there’s an art to it. You know, I’ve been around finance and money my whole career. And so, you know, it’s never easy, but you do just build that trust and have people share insights about what they’re looking to achieve and how, you know, you can be a solution set to to what they’re looking to do.

James [00:37:58]:
So Sure. Tell me, when you started this fund, how did your family react to you quitting your day job, so to speak, to starting this thing?

Patrick Donohue [00:38:07]:
Well, I’m very blessed because, my my wife, Anne, and our kids were very young at the time, so they didn’t know any different. But my, my wife, Anne, has been very, very supportive and she’s the opposite of me. Like, she does not like, working for small businesses. She loves to work for big corporations. She works for Fortune 500, Fortune 5 companies. Mhmm. You know, like around the Twin Cities. And so, but as an entrepreneur, you know, your your most important cofounder is often your your spouse or your loved one.

Patrick Donohue [00:38:40]:
And and for me, Anne was definitely, you know, my most important cofounder and be frank about it. You know, it was her her income and definitely her health care that allowed me to go try these things and to try to get them off the ground. Because if I didn’t have that as an entrepreneur, it’s nearly impossible. I mean, the health care alone, I was talking to an entrepreneur today. You know, it’s always the same thing, but getting health care insurance for for somebody that doesn’t have w two income is extremely difficult and expensive. And it’s a real problem in in in our society. So

James [00:39:14]:
that’s funny that you say that. I just heard a stand up comic talking about this yesterday, and he’s like, hey. I forget he was starting his bit, and he said, hey. I don’t have health insurance because I’m an American. Yeah. It was kinda funny. And even my wife, when I first started my business in 2006, on her LinkedIn profile, she put, chief health insurance provider or something like that.

Patrick Donohue [00:39:39]:
That’s good.

James [00:39:40]:
Yeah. She’s a teacher, so she didn’t her LinkedIn was useless to her, I think, or all but useless. So it’s funny. They might still be there.

Patrick Donohue [00:39:48]:
Well, teachers get great healthcare, coverage and, largely speaking. So that’s good. We’ve got a company we invested in called Salarte Health that provides health insurance and their biggest customer base are, is, teachers because they provide much more affordable access to healthcare than, traditional plans. It’s usually about 50% less because they have a network of independent providers.

James [00:40:12]:
So Oh,

Patrick Donohue [00:40:12]:
wow. I get it. I yeah. I mean, it’s we’ve seen a lot. And actually in your hometown, Madison, we invest in Beam Healthcare that provides Oh,

James [00:40:20]:
really? Okay.

Patrick Donohue [00:40:23]:
And they actually have a service, that you can purchase as an individual or as a small business where you can get telemedicine services, and we utilize that at Hill Capital.

James [00:40:33]:
I you know, it’s funny. I met them oh, man. That’s been a few years. Yes. I’ve I always think, like, was it pre pandemic?

Patrick Donohue [00:40:41]:
Doctor. Patel. Yeah. Wonderful, wonderful entrepreneur.

James [00:40:46]:
Yeah. That’s interesting. I was trying to get them on the podcast, but that was, I mean, probably when we first started Yes. Years ago. So yeah. Interesting.

Patrick Donohue [00:40:54]:
Yeah. Sir, Drew is is is worth, talking about and are talking with and getting to know and sharing insights because that’s a whole topic onto itself that, you know, how to navigate health care, especially for small businesses and entrepreneurs. So Oh, it’s

James [00:41:09]:
a huge deal. Yeah. You kinda take it for granted if you’re healthy or you’re just running by the seat of the pants with your business. So you can’t really think about, or you’re not focusing on anything else Yep. Until something happens from the health point of view and, things get expensive, I guess, often fast.

Patrick Donohue [00:41:27]:
Yeah. So I would I would encourage people to, you know, take a look at those things and get to know them because that’s a big part of the entrepreneurial journey.

James [00:41:35]:
Fair. Totally fair.

Patrick Donohue [00:41:36]:
Unfortunately, but it’s just the reality.

James [00:41:39]:
No. Patrick, I know we don’t have a ton of time left, but I wanna talk to you or ask you if I’m a small business and I wanna reach out to a company like yours to raise money Yes. What are some of the things that I should have prepared when I reach out to you? Or what are the things that you are looking for in a business?

Patrick Donohue [00:41:54]:
Well, one of the biggest things, you know, we chatted about this is really having that vision, understood and be able to articulate that and truly being genuine to what you want to achieve as a founder. And I say that because, unfortunately, in my opinion, a lot of accelerators and other experts out there in this world will coach entrepreneurs to really speak about the business as it could pertain to that investor. We really like to hear what is the interest of the founder and what they’re looking to do. Because for us, you know, if an entrepreneur wants to build a business and, you know, have it be a lifestyle business and maybe hand it over the next generation, that’s fine. And we, we embrace those stories, but a VC would shut that conversation down in a few minutes. Okay. So what’s important to us is that the founder be really genuine in who they are and what they’re looking to do. That goes a long way for us.

Patrick Donohue [00:42:55]:
And then of course, we wanna know the things about, you know, where’s the business today? What is it you know, how much money does it need? It doesn’t need to be precise, but have a sense of like, hey. You know, this business probably needs a $1,000,000 to get to profitability, or it needs $40,000,000 because, you know, they have to do all these complicated expensive things. But having kind of a pulse on what that looks like is very beneficial. And then really just kind of cutting to the chase of, like, you know, the economic engine, it was what I call it, is, you know, really articulate. Like, we sell a widget. It costs us this to make. We sell it for this, and we have to spend some money in sales and marketing to get out in the marketplace. But cutting to the point, kinda like, I think, you know, people have a love hate with Shark Tank, and I think that’s actually a from the standpoint of hearing those entrepreneurs come in and and and answering the types of questions that the sharks have, I think is a is a pretty good, indicator of what’s important to kinda be ready for.

James [00:44:00]:
Yeah. Yeah. Yeah. I mean, I’m a fan of Shark Tank. I think there’s unnecessary drama, but I think maybe they just do that to make the show more entertaining.

Patrick Donohue [00:44:09]:

James [00:44:10]:
Or something. But no. For the most part, I think that’s really for the most part, all you really need to know, I guess as long as the numbers that they’re giving are legit.

Patrick Donohue [00:44:19]:
Yeah. And the other thing I would say, James, I’d I’d I’d love and appreciate your question because, I think it’s really important that entrepreneurs not get too hung up on making things perfect.

James [00:44:31]:

Patrick Donohue [00:44:31]:
Because perfect gets in the way of execution. And when it comes to talking to investors, they need to get going. So if somebody wants to, you know I don’t mind if somebody is a little bit early and reaches out to us. We’ll get to know them and talk to them and say, hey. Figure these things out and let’s, you know, reconnect in 6 months or whatever. Completely fine with us. Yeah. If somebody waits too long to have everything perfect and all their talking points perfect, that’s gonna get in the way.

Patrick Donohue [00:44:58]:
And, actually, we would see that as a red flag that they’re overanalyzing things. It’s I call it analysis paralysis. Oh, that’s fair. Entrepreneur needs to execute and move. So

James [00:45:08]:
Yeah. Fast decisions. Fast decisions. When you have invested in a company, I guess we we touched on this with the exit a little bit. Do you advise companies about when it’s time to pull the chute or sell, or do you more or less just leave that in their hands?

Patrick Donohue [00:45:24]:
We leave it in their hands, but we meet with our portfolio companies on a monthly basis. So we don’t take

James [00:45:29]:
Oh, you do? Okay.

Patrick Donohue [00:45:30]:
Yep. We don’t take board seats. We don’t dictate strategy. We’re not overseeing And we’ve had a number of companies that said, hey, we’re starting to think about an exit, and we’d really like, you know, some help thinking about this. Now we have 56 ambassadors today, and a couple of them have very strong M and A background, we can provide them with access to people that can share insights on, hey, here’s what the things you want to think about as you you know, prepare the company for a sale. You want to have your, you know, processes in place and documented and so on and so forth. And we also host events where we help educate and provide those insights. But it’s when our portfolio companies come to us and ask for it.

Patrick Donohue [00:46:29]:
We’re we’ll we’ll give them all the help that they need.

James [00:46:33]:
Nice. I love it. Well, Patrick, thank you so much for being on the show.

Patrick Donohue [00:46:37]:
Yeah. Thank you, James. It’s really fun to to share the insights and then have the conversation with you.

James [00:46:42]:
Yeah. Absolutely. Where can people find you?

Patrick Donohue [00:46:45]:
Yes. I’m easy to find on LinkedIn. So Patrick E. Donahue, Hill Capital Corporation. And anybody can reach out to me directly, patrickhillcapitallcorp.comhillcap a, So, and, I promise we’ll get back to you, especially you mentioned that is on the podcast. So have it be helpful to anybody in your audience.

James [00:47:11]:
I love it. I appreciate it. Thank you so much, Patrick.

Patrick Donohue [00:47:14]:
Yeah. Thank you, James.

James [00:47:16]:
This has been Authentic Business Adventures, the business program that brings you the struggle stories, a, and triumph and successes. Business owners across the land, We are locally underwritten by the Bank of Sun Prairie. If you’re listening or watching this on the web, if you could do us a huge favor, keep the algorithms happy. Right? That’s thumbs up. Subscribe, and of course, share it with your entrepreneurial friends, especially those that may need a little extra cash to get their business growing. My name is James Kademan, and Authentic Business Adventures is brought to you by Callsoncallcom, offering call answering and receptionist services for service businesses across the country on the web at callsoncallcom. And, of course, the Bold Business Book, a book for the entrepreneur, and all of us available Patrick, can you tell us that website one more time? Patrick, can you tell us that website one more time?

Patrick Donohue [00:48:08]:
Yes., and they can also find me at

James [00:48:15]: That’s right. You have the book. So where can the book be found?

Patrick Donohue [00:48:20]:
The book is, on Amazon. It’s on Audible. I recorded it. I narrated it myself, which was a fun experience. But Nice. On, Amazon and Barnes and Noble and everywhere, books are found.

James [00:48:33]:
I love it. I appreciate it. Past episodes can be found morning, noon, and night. Podcast link fun at drawincustomerscom. Thank you for listening. We will see you next week. I want you to stay awesome. And if you do nothing else, enjoy your business.

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