Jamie Shulman is Co-Founder and Fund Manager at Meriwether Group Capital, a private commercial lending company focused on providing growth capital to lower middle market businesses. After 25+ years in banking and lending, Jamie has built a track record of delivering top tier results to businesses and their shareholders, and developed deep expertise in private credit.
In this episode, Jamie shares with us how Meriwether Group approaches private lending, what they look for in borrowers, how they structure their investments and the current environment for private credit from businesses seeking capital to investors looking for yield.
Please enjoy our conversation with Jamie Shulman.
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The Investipal Podcast is produced by www.investipal.co. Past guests include Peter Lazaroff, Douglas Boneparth, Jamie Hopkins, Tyrone Ross and many more.
Follow us on LinkedIn: www.linkedin.com/company/investipal | www.linkedin.com/in/cameronhowe/; Twitter: www.twitter.com/camhowe16 | www.twitter.com/investipal; Tiktok: www.tiktok.com/@camhowe16 | www.tiktok.com/@investipal; or Instagram: www.instagram.com/investipal/
Find Jamie Shulman at:
https://www.linkedin.com/in/shulmanjamie/
https://twitter.com/jamieshulmanpdx
https://meriwethergroup.com/
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00:00 Introduction and Background
02:25 Venture Debt and Screening Criteria
05:14 Facility and Investment Structure
06:47 Demand for Private Credit
08:56 Investor Demand for Private Credit
12:09 Accessing Private Credit
15:10 Interest Rate Environment
18:54 Private Credit Screening Criteria
21:01 Hands-On Approach and Borrower Support
22:32 Contact Information
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Cameron Howe: Hi everyone, welcome back to the Investipal podcast. My guest today is Jamie Schulman, the co-founder of Meriwether Group Capital, a private lending company focusing on growth capital to low and mid-market businesses. And prior to launching Meriwether, Jamie was actually the CEO of Northwest Bank. Jamie, thanks for coming on today.
Jamie Shulman: Thanks Cameron, really appreciate it.
Cameron Howe: Maybe just to kick things off, curious a little bit about, if you could provide a little bit about you and your background and why the need to launch Meriwether.
Jamie Shulman: Sure, so again, great to spend some time with you this morning. I'm a lifelong banker. That was my entire career. So prior to us launching our fund, I spent about 27 years in commercial banking with a couple large banks, a couple more community-sized smaller banks, and that's all I know how to do is lend money. So it's kind of been our family business and I've enjoyed doing that as a career.
I'm here in Portland, Oregon. I spent most of my life in the Pacific Northwest, so this is kind of my home. And so I've had a great banking career along the way. Just kind of saw this need for businesses who needed access to capital, but just kind of resided on the edges of what banks like to do. And by no means it made them a bad borrower. It just means, as most people know, banks have kind of their credit policy, the pricing policy, and that's intentional, and there's nothing at all wrong with that. And if you fit kind of within the box, so to speak, it's a great experience. If you don't, it's tough. And frankly, there's businesses out there with a story to be told, I need to kind of dig in deeper, and these are credit-worthy businesses in many cases, but just kind of weren't a fit for a bank.
So that's exactly what we set out to do, is to work with businesses that were, for the most part in high growth mode, were successful and that they were profitable or at least EBITDA cash flow positive, but just needed a little bit more access to capital and a bank wouldn't, it just wasn't a good fit. And I can dig in kind of deeper on that, but in a high level, that's what we set out to do.
Cameron Howe: I am curious, you know, I've spoke with actually a lot of venture debt companies in the past and I'm curious to hear what your screening criteria, especially around growth capitals that like the use of proceeds have to be centered around like marketing spend.
Jamie Shulman: Yeah, so kind of who is our borrower. So, you know, I'd start by saying, first of all, the kind of debt we offer, I try to be a little bit generic so we can be flexible around that. It's really private debt. The reality is we're kind of a hybrid between venture debt and mezzanine lending. That's kind of where we tend to fit in the best, and we're very flexible around that. So as long as we find a good deal, you know, we'll structure it the way it works for both us and for the borrower. So first of all, our borrowers are generally not start-up, pre-profit, pre-revenue companies. These are ones where the public has said yes already. So like I said, they're profitable or at least cashflow positive. Typically they're in high growth mode. So year over year revenue is growing at a significant clip. Not always, but in many cases, which is one of the reasons banks get a little bit more challenged when they see a company in high growth mode.
Our source of capital usually fits into kind of one or two buckets. It's either for permanent working capital to kind of spur organic growth or to do acquisitions. So we're not a long-term lender running against real estate or equipment or an asset-based lender. We're very, what I would call, opportunistic. So we try to help a borrower identify an opportunity, or they've already identified it, of, hey, we want to grow a client relationship or get into a new product or geography and need some help doing it. And we want to get in there and solve that problem and then get out as fast as possible. So we're really kind of a bridge type lender. The average duration of our loans are about 18 months. So we're there to be really a short term solution with really kind of our repayment being either a more traditional bank would refinance the whole balance sheet. Or maybe the company doesn't equity raise or maybe even sale company. Those are all kind of viable exits for us.
The businesses we work with, geographically we can really go anywhere, although we definitely have a focus on the West Coast just because I'm here and I have a lot of contacts in banking and other kind of referral sources here. From an industry perspective, we're pretty much general as we avoid businesses where we don't easily understand how they make money or ones where we just don't want to be on the front page of a newspaper.
Jamie Shulman: So you can kind of think about what kind of businesses we avoid. Frankly, we really like companies that make stuff. So think manufacturer, wholesale, distribution. And then we have some service-based businesses as well. That's kind of at a high level who we work with.
Cameron Howe: And on the actual facility side, is it a typical debt investment? Are you guys looking for warrants or any sort of other sweeteners on the deal?
Jamie Shulman: Yeah, so pretty much we're a one-trick pony. You know, I've always kind of learned like, figure out what you do well and do that and don't do things you don't do well. So we avoid, you know, things outside of really debt solutions. You know, from time to time we do seek warrants. You know, the average loan we do, I mean, we market that we do loans up to five million. And in reality, given kind of the nature of private credit, we're at the very lowest end of the spectrum, which we're very happy to be because I love working with these kinds of businesses and entrepreneurs frankly, and we just don't really have a lot of competitors. So you know that's a good space to be. The average loan on our books is about a million five. So our compensation and yield really comes from the coupon on the loan and then fees, which we typically get both as on the origination side and then the exit side. We typically don't have other sweeteners because a borrower is coming to us, there's really an alternative to raising equity. And so if we're going to take an equity position, they might as well just do an equity raise. And so we try to maximize our income there and keep it flexible for the borrower and be very consistent around how we structure our loans.
Cameron Howe: So taking a step back from this, obviously the credit space over the past three years has pivoted massively. Are you seeing that flow through on demand side where a lot of businesses aren't having access to traditional capital anymore and thus are coming to you looking for help?
Jamie Shulman: Yeah, so first of all, it's kind of like my golf game. Sometimes it's better to be lucky than good. We kind of got into private credit thinking intentionally that we wanted to do this, not because we saw a trend in the marketplace. And it seems like private credit is growing in popularity. Just based on the kind of the universe of private debt out there, I definitely see that. So borrowers are typically coming to us because they're wanting to grow.
Cameron Howe: I'm sorry.
Jamie Shulman: and they're contemplating one of three options. Well, how do you fund that growth? So number one, the first place typically a borrower would do that would be from redeploying recurring cash flow. And most borrowers are already doing that. So they're putting their income back into the business. So then they have really two choices. They could sell equity, which is more expensive in my opinion than debt and dilutive, meaning they're giving up control, or they could raise debt.
Cameron Howe: Mm-hmm.
Jamie ShulmanAnd if they've maybe maxed out their bank or their bank has maxed out them, then, you know, we're kind of a very viable option for businesses in that situation. For us, demand is really strong. We try to do maybe one or two loans a month, and for every one or two we do, we look at probably 20 to 25. So I get pretty much a call every day. And you know, I think that's somewhat a function of the environment, it's also somewhat a function of the kinds and sizes of loans we do. We do like to think we provide exceptional customer service, which brings borrowers to us as well. And so maybe you kind of mix all that stuff together and it's a really strong environment to be a private credit lender, especially at the end of the spectrum when we play.
Cameron Howe: And are you noticing that these companies looking to raise capital are coming to you because they can't raise equity or because, you know, the facilities available to them at a bank just aren't there anymore?
Jamie Shulman: Yeah, it's sometimes would be my answer to that. I mean, some could raise equity, although it's really hard, I think, to do a minority raise, which is kind of what a lot of borrowers are coming to us in lieu of. It's hard to do that. There's just not a lot of investment bankers that would take that on. And so then it's kind of a friends and family trying to raise it yourself. And most borrowers are not there to be, you know, raising equity. They have a product or service. And so that's kind of what brings them, you know, really to us. And so you know, that's why we tend to be a good fit is kind of in lieu of doing the equity raise.
Cameron Howe: Okay, and then I guess on the opposite end of the spectrum now on the investor side, are you seeing a big influx of demand in terms of investors looking for income and looking for yield as a result coming to you?
Jamie Shulman: Yeah, I mean, I'd say yes and no. I'd say we have a good portfolio of limited partners in our fund, mostly individuals and families looking for really kind of a yield upside. I mean, we really structured our fund as really an income strategy. So we're all about preservation of capital and then a consistent recurring income stream. So we have a target return to our investors of 10% annually.
We're super proud that we've beaten that return every quarter since inception of the fund, and we pay a distribution every quarter. And so, you know, it can be good for those who are looking to complement maybe another, you know, a fixed income portfolio that's maybe a little bit more conservative or just a diversification tool away from another asset class. And we see a lot of people who come to us maybe moving away from real estate as an example or maybe a business venture. And so, you know, I think demand is good for our product and I think we have a good track record. You know the reality is we're a young business too. We launched our fund two years ago. You know I definitely get the kind of too new, too small, you know, response and you know I have a very thick skin about this. I mean we're, the irony is not lost on me that our borrowers are kind of in the same position that we are and that they're trying to raise capital and well so are we so we can say yes you know more often.
So, you know, we do have to compete with much larger players. I mean, we're 15 million in assets under management, which, you know, in the world of private credit, I like to say jokingly, you know, we're the smallest pebble in a big and growing ocean, but we're, you know, we're super proud of what we do. We're very boutique and I think roll out the red carpet for both our investors and our borrowers. So I think we have a good offering for our investors and it's just kind of continuing to get the name out and make sure we're partnering with the right types of investors who are interested in understanding what we do.
Cameron Howe: Yeah, I mean, I chat with a lot of advisors, a lot of people in the space. And it seems like there's a big channel towards the alternative market now away from just the traditional equity and fixed income market, especially since things have started to be highly correlated with one another, you know, like supposed to be inversely correlated. And then that ended up bridging together during COVID. So I am seeing a lot of, especially like investment advisors, interested in access to alternatives now. So with that, is there, you know, someone looking to get access to the private credit space? Just some tips on what like an advisor, what a retail investor could look for when scanning for different private credit vehicles?
Jamie Shulman: Sure, sure. So I have several thoughts on this. First of all, I think for any advisor that's wanting to work with a credit fund, or frankly even another kind of alternative investment, I think it really starts by understanding the fund philosophy, the risk profile, and then it's really the fund manager. I think that's where most decisions get made, and I'm not putting myself on a pedestal, but I'm primarily the one who's picking the loans we do, and that's the greatest point of risk for our business. And so understanding, hey, what kind of loans are you doing? What could go wrong? How are you collateralizing or securing these positions? That's really important for an advisor who's looking to get into this space. Kind of taking a little bit of a step back, I do talk to a lot of advisors. Frankly, we've made a number of investments from a technology standpoint to make it easier for advisors to have access to funds like ours, especially, you know, we're a small one. We're not blasted all over the Wall Street Journal, you know, etc. And so, you know, making it easier is really important. And so for advisors to find us, it's becoming a little bit easier. And that's when I say us, it's not just me, but other kind of smaller credit funds or other smaller alternatives, frankly. We partner, for example, with a company called Banrion Capital based in Chicago, which is a fantastic company. They basically bring together advisors and alternative fund managers like us in kind of a card catalog presentation where they've done due diligence on us and can advocate for us. We work with another partner called Mammoth Technology, which is really a fintech partner of ours, where we make it really easy for advisors to recommend our fund and then for the client to go online and do really a sub doc process all electronically through DocuSign, and not have to fill out a hundred page tomb of paper. And so that's kind of the stuff we're doing that I think are making it easier for advisors to be able to get access to research and then to fulfill their client's goals through us.
Cameron Howe: Okay, very interesting. Yeah, we had a conversation with Shana. She's a very interesting individual. On the macro lens, there's the market sentiment right now that interest rates are going to be cut at least a few times in the second half of this year. I'm curious on your opinion on that. Do you think we're in for higher rates for longer or that the Fed's going to start cutting?
Jamie Shulman: Yeah, you know, we try to really operate our business kind of independent of where rates are going and I'm not an economist. I think if I knew exactly the answer to that, we'd probably be having this conversation on my yacht. But I'm not. So, you know, here we are. Now, having said that, I think intuitively it seems like we're in a flat to likely falling rate environment probably beginning this year. Just seems that's kind of the market data I see.
Cameron Howe: Hahaha
Jamie Shulman: We really set our pricing independent of the rate environment and based it solely on supply and demand. And right now, we have very limited supply, very high demand, and so you can get a sense of where we price our loans, which we've seen steadily go up over the last two years. And even in a falling rate environment, we would only change our pricing philosophy if demand.
Cameron Howe: Mm-hmm.
Jamie Shulman: reduce, which I don't see happening. And frankly, in a falling rate environment, that's frankly more conducive to borrowing, which would likely only spur a greater demand.
Cameron Howe: Right. So you would be of the view that a falling interest rate environment would actually be more beneficial to the private credit space.
Jamie Shulman: I think across the whole spectrum, yes, to the extent that the lender is doing fixed rate loans. So intuitively, if they price a loan at a fixed rate and then during the duration of that loan rates fall, then that's beneficial because they're getting the benefit of that even though because they fixed it. In a floating rate environment, that would not be as beneficial when rates are going down. So it kind of depends on structure of each of these loans and every lender's a little bit different.
Cameron Howe: Yeah, I'd be curious to see even on like the equity piece. Like I'm not sure what percentage of your on the demand side were customers who would have gone the equity road. Um, but you know, I know now even firsthand how difficult the equity markets are in general, where if we do see that trail off, it should be, it should bode well for the equity markets. And I wonder if you'd see like what percentage of the private credit customers going back to pursuing an equity raise instead of a debt facility.
Jamie Shulman: Yeah, I think probably, I would just guess that probably 25% of the inquiries we get are wanting to do debt in lieu of equity. And that would be kind of right now. I think there's, especially for growing borrowers, I think intuitively they know that, hey, we can't sell equity right now because we're in high growth mode. We haven't kind of fit the characteristics of what an investment banker wants.
But if we continue on this path, which debt will help us get to, then we're going to be very conducive for an equity raise in one to two years. That's a pretty common scenario. Either that or, hey, we're looking to sell the company in one to two years. And that's, again, kind of why we structure our loans pretty short is because those are pretty common conversations we have with our borrowers.
Cameron Howe: And would you say that your screening criteria, I know you are affiliated with a private equity business as well, not direct, but it is affiliated. Is there an overlap in terms of how you qualify an investment versus how a traditional private equity fund would qualify an investment?
Jamie Shulman: Yeah, you know, I've never run a PE firm, so I don't know what they would look at. I mean, I can kind of guess. You know, I think they're looking for probably some similar characteristics in that, you know, they want to get into a long or, you know, a borrower or a business where there's a viable exit strategy, a good management team, recurring cash flow, you know, diversified stream of revenue, et cetera. And they can see kind of how they get out of it. You know, private equity, those are pretty much, you know, structured, you know, terms of five to seven years, things like that. Our fund is actually evergreen, so it's open-ended, so we don't really have kind of an end date because we expect to continue to recycle the dollars as loans repay, then we just make a new loan. And we have a lot of loan demand, so it's no problem doing that. So I guess we do look at things probably in a similar lens as an equity investor would. It's all about kind of the timeframe and then the risk profile.
Cameron Howe: Mm-hmm.
Jamie Shulman: We take a pretty holistic approach to credit that includes really traditional credit analysis. So we're looking at financial statements, balance sheets, looking at their receivables, payables, et cetera. But then we're partnering that with really kind of the art of the business and less the science, which is meeting on site with the management team, talking to the owners and most of our borrowers, we're talking to individual guarantors and making sure they understand what they're doing, frankly, and how we're gonna get repaid.
Cameron Howe: Right. I wonder, you know, I, I'm not a private equity investor myself. Um, but I do know, I feel like they take like a hands-on approach. And is that like an area you take a hands-on approach to, or is it more a sudden forget?
Jamie Shulman: No, it's absolutely, well first of all, it's very hands-on. We dive pretty deep with the borrower. I mean, we're kind of locking arms with them. And I like to say, you know, our underwriting doesn't stop when we book a loan. It goes all the way through until maturity the loan. So we stay really close to these borrowers. You know, kind of on the side, we really try to fit within that circle of trusted advisors. So they're really leaning into us as someone who can help them, you know, get to where they're going on their entrepreneurial path.
So we collect financials from the most part monthly with each of our borrowers. We actually look at them so we don't just file them away. And so we know how the business is doing all the way until our last payment with them.
Cameron Howe: Okay, very good. Yeah, I could imagine how beneficial that would be to the operator of that business.
Jamie Shulman: Yeah, I mean, I think considering the types of businesses we work with, a lot of times there may be, for example, someone has had a controller kind of helping with the finances, they're starting to grow, really needed to kind of upgrade that position to more of a CFO, but didn't really know where to go. And we have lots of contacts and kind of that space with temporary to full-time solutions and we're able to make a recommendation. I mean, this isn't things that generate revenue for me.
But I know it's the right thing to do. I know our borrowers appreciate it. And these things kind of all come full circle in life. And so if we can help with those kinds of things, then I think it's a win-win for both the borrower and ourselves.
Cameron Howe: Yeah, very good. Yeah, well, I mean, it's helping guarantee your investment as well if you can stack the cards in your favor. So Jamie, with that said, if there is anyone out there who's listening right now, what's the best way they can learn more about your fund and learn more about you and get in contact?
Jamie Shulman: Well, that too. That's a bonus too.Sure, sure, so thank you. So we have a website, https://meriwethergroup.com/, the company has a LinkedIn page. I'm on LinkedIn as well. That's kind of our primary media channel for sharing good news about new borrowers and things we're up to. And it should be very easy to track me down if you kind of go through either of those portals and certainly appreciate it.
Cameron Howe: Yeah, we'll leave a link in the show notes as well for anyone interested in chatting with Jamie. Jamie, thank you very much for coming on. Hopefully, I wish you the best of luck. Hopefully we can stay connected. Maybe invest on the day alone from you in the future.
Jamie Shulman: Awesome. Cameron, thank you so much. This was really fun.
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