Building a Capital Marketplace for Mid-Market Businesses: Axial CEO Peter Lehrman (Part 3)

Sramana Mitra: How much are we talking? What kind of capital base did you start with?

Peter Lehrman: About a million.

Sramana Mitra: How did you bring this two-sided marketplace together? There’s always a chicken and egg in marketplaces. What was your strategy to bridge that?

Peter Lehrman: We built two products and launched them essentially at the same time. The two products were a tool for sellers and buyers of companies to articulate the profile of companies that they were looking to buy. We built two sides of the network concurrently from a product perspective and released them concurrently to the two markets. We picked very specific markets on the sell side.

As opposed to reaching out to CEOs, we reached out to business brokers and people who provide the advisory services to entrepreneurs and help them sell their company. We chose to engage the channel of business brokers and investment bankers from day one. On the demand side, which is the side that provides capital to mid-sized companies, we chose to focus on private equity firms first. More specifically, we chose to focus on private equity firms that made acquisitions of industrial companies and industrial manufacturing companies.

Sramana Mitra: Why did you make that decision to go for industrial manufacturing? Why that segment specifically?

Peter Lehrman: There’s a tremendous number of those companies in the United States that are in the sub-$50 million revenue range. There’s very low market share concentration and there’s very high number of private equity firms and corporations that make acquisitions in that market. In terms of solving the chicken and egg issue, which is actually an ongoing challenge for any marketplace, the way we got it started was we built these two products and focused on a specific industry to get started with.

Instead of engaging with CEOs who only sell their businesses once and who raised capital very infrequently, we chose to provide tools and products to investment banking and business brokerage community since they’re professionally in the business of helping to sell private companies. They’re a much more frequent user of our product for any given CEO or any given entrepreneur.

Sramana Mitra: The investment bankers and brokers were also from that industrial manufacturing industry? All these was surrounding the industrial manufacturing space. It was a concentrated offering within that space.

Peter Lehrman: That’s right. What we ultimately learned was that a lot of the business brokers and investment bankers that are slightly more up market, in many cases, were selling businesses in other industry verticals. In other words, they were not as specialized as some of the other parts of the ecosystem. Part of the reason that we were able to ultimately expand quite quickly out of the industrial manufacturing category was because the same population of brokers and investment bankers were active in other industries. The supply side was less specialized by industries than the demand side. That allowed us to focus on the demand side on an industry-by-industry basis but expand the supply side through the same initial go-to market relationships that we formed.

Sramana Mitra: This company is headquartered in Silicon Valley?

Peter Lehrman: No, we’re headquartered in New York.

This segment is part 3 in the series : Building a Capital Marketplace for Mid-Market Businesses: Axial CEO Peter Lehrman
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