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Episode Summary
You’re at $500K EBITDA. It took five to ten years of bootstrapping to get there. You know the next move (hire the GM, put in the ERP, build the sales function) and you can’t get there from here. The bank won’t fund it because there’s nothing to repossess if it goes south. The shark tank crowd will fund it, but they want a chunk of your company and they need a 10x outcome. So you stall. Or you sell. Or you eat into your own paycheck for another five years. Patrick Donahue and Nick Eridan started Hill Capital to sit in that gap. We got into why traditional banks can’t fund the breakout, why selling equity is the most expensive capital you’ll ever raise, and how to run the money-on-money math so a 25% interest rate can look cheap next to giving up 30% of your upside forever. The real number we kept circling: half a million EBITDA to two million. That’s where ESOPs, real private equity, and a seven-multiple instead of a three-multiple become possible.
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## Top 10 Takeaways- Two sources of capital exist for most owners: the bank and Shark Tank. Neither funds the middle.
- Bootstrapping to $500K EBITDA took 5-10 years. Cutting your paycheck for the next leg shouldn’t be your only option.
- Not all capital is equal. 25% interest can be cheaper than selling 30% equity if the math works.
- Run the money-on-money math. A dollar in for two back beats giving up forever-percentage of your upside.
- Equity is the most expensive capital you’ll ever raise. If you succeed.
- Growth capital gets paid back from free cash flow over time, not from a forced exit on someone else’s timeline.
- The breakout you’re chasing is half a million EBITDA to two million. That’s where your real options multiply.
- Who funds the fund matters. Institutional money has different incentives than entrepreneur money.
- Ask every capital source what the end game looks like and what happens when you stumble.
- Map free cash flow monthly for five years. If you can’t see the path, you can’t choose the capital.
Sound Bites
“We like to say there’s always two sorts of capital that people think about, one being the bank, and one being Shark Tank.” (@TBD) — Nick Eridan
“Wall Street, banks, private equity firms, not all of them, but a lot of them have really been designed to profit off of penalizing founding business owners.” (@TBD) — Patrick Donahue
“We talk a lot about any sort of money that you raise by selling equity will be the most expensive capital that you ever raise if you’re successful. And if you’re not, well, then you don’t have anything.” (@TBD) — Nick Eridan
“The investment capital has gotten too disconnected from its source. That’s what we are looking to change with Hill Capital.” (@TBD) — Patrick Donahue
About This Episode
Patrick Donahue and Nick Eridan are the co-founders of Hill Capital Corporation. Patrick came up through investment banking and equity research, including time as Director of Research and Managing Director of Investment Banking at Northland Securities. Nick spent seven years as a CPA at KPMG before moving into small business consulting. Together they raised a $10M fund and deployed it through what they call an equity-based note: a growth capital structure that sits between traditional bank lending and private equity buyouts. This 2021 conversation digs into why the gap exists, who gets stuck inside it, and the math owners need to run before they sell a chunk of their company to fund their next phase of growth.
Resources Mentioned
- Hill Capital Corporation — Patrick and Nick’s growth capital fund. — hillcapitalcorp.com
- Empire Builders — Hill Capital’s curated networking event for entrepreneurs.
- Berkshire Hathaway Annual Meeting — Patrick references Warren Buffett and Charlie Munger’s approach to backing operators.
- EconTalk with Russ Roberts — Referenced for Adam Smith and the broader motivators behind capital.
- Atomic Habits / Tiny Habits — Referenced in Patrick’s definition of intentional.
- 1 Million Cups — Entrepreneur community Hill Capital supports.
- Women’s Business Alliance — Entrepreneur community Hill Capital supports.
Connections
Phase + Module:
- Module 2 — Expand Knowledge — How capital structures actually work for owner-operators
- Module 5 — Predictable Revenue — Growth capital deployed against a revenue plan, not against hope
Milestones:
- Milestone 4 — Owner’s Value (DCF) — The DCF math that justifies the growth investment
- Milestone 6 — Transaction Value — Where the half-to-two-million EBITDA breakout multiplies your exit options
- Milestone 13 — Strategic Plan — The plan growth capital is actually funding
Concepts referenced:
- The Multiple & WACC — Why the three multiple becomes a seven multiple after the breakout
- Free Cash Flow — What pays back growth capital and feeds owner distributions
- Normalized EBITDA — The metric the breakout is measured in
- The Four Value Levers — Where the growth capital actually gets deployed
- Value Gap — The distance between today’s valuation and the target
- Enterprise Value vs. Equity Value — What you keep when you bring in an equity partner