Cloud Equity Group is a Wall Street-based investment management firm strategically positioned to capitalize on the expanding industries of web hosting and cloud-based infrastructure. Pulse 2.0 interviewed Cloud Equity Group founder and Chief Investment Officer Sean Frank to learn more.
Sean Frank’s Background
What is Sean Frank’s background? Frank said:
“I started my first company at the age of twelve – a web hosting company, XE Technology Solutions, that caught the tail end of the dot com boom. My business grew very quickly, and I branched out from there into many related verticals such as web design, game servers, and outsourced support. While I was still in high school, I met Andrew McKelvey – the founder and former CEO of the popular job-posting website Monster.com who took the company public. At the time, Andrew was running a New York private equity firm called BlackFin Capital that had about $1.5 million AUM. Andrew became a mentor and taught me how I could scale my company inorganically through acquisition.”
“Over the next few years, I completed a dozen or so acquisitions to scale my business. In the process, I learned a lot of things – one of which was that I did not enjoy the CEO role as much as I did the tasks and responsibilities associated with strategic acquisitions. I liked the satisfaction that comes with the M&A process and the excitement of negotiating and closing the deal. So when I went to college at the University of Pittsburgh, I majored in Finance and then went on to earn my CFA designation.”
“In 2013, I co-founded Cloud Equity Group as an investment management firm focused on web-hosting company acquisitions since I knew the space so well. Over time, we’ve grown into a multi-strategy investment management firm with a focus on what we broadly define as tech-enabled business services that deploy the Cloud, Big Data, AI and other emerging technologies to deliver superior service to customers.”
Evolution Of Cloud Equity Group’s Thesis
How has Cloud Equity Group’s thesis evolved over time? Frank noted:
“We’ve evolved from focusing almost exclusively on web hosting provider acquisitions to a multi-strategy investment management firm that invests broadly in tech-enabled business services. The bulk of our work is focused on a control buyout strategy; however, we also make minority equity and debt investments within the same sector.”
Favorite Memory
What has been Frank’s favorite memory working for the firm so far? Frank reflected:
“No one favorite memory comes to mind. Over time, we’ve hit many milestones in terms of new deals, new team members, new funds, and new investment strategies.”
Significant Milestones
What have been some of your firm’s most significant milestones? Frank cited:
“Same as above. I view all of our milestones as equally exciting and impactful to our growth as a firm, though I’m certainly proud of the fact that we recently celebrated our 10th anniversary and remain successful despite the fact that the PE sector as a whole experienced a sharp decline in deal volume over the past few years.”
Investment Success Stories
After asking Frank about investment success stories, he highlighted:
“We’ve had a few distressed turnaround investments that have been very memorable. One that comes to mind – an acquisition of two companies simultaneously back in 2017 that were on the verge of going under. The companies were cash flow negative and had too much debt on the balance sheet. They also were past due with many critical vendors and on the verge of being shut down, as well as facing several lawsuits from third-party creditors. We were able to negotiate a deal with the owners to buy both businesses entirely while simultaneously bringing all vendor accounts current, settling all pending lawsuits, and repaying all creditors. Within 3 months, we were able to make the combined company cash flow positive. We continued to operate the businesses for about 5 years until we ultimately exited, selling them as profitable operating companies.”
Investments To Date
When asking Frank about metrics like investments to date, he revealed:
“We’ve probably invested close to $100 million to date.”
Industry Focus
What are some of the industries that Cloud Equity is focused on? Frank emphasized:
“We are currently very focused on managed service providers, digital marketing agencies, and, as our name attests, cloud-hosting providers.”
Differentiation From Other Firms
What differentiates Cloud Equity from other firms? Frank replied:
“Few PE firms are as highly specialized as we are in terms of where we invest. Although by definition we are a financial investor, we are incredibly involved with the management teams at the companies that we’re invested in and are much more in the trenches with business operations than many of our peers, as our hands-on involvement with these companies helps them improve profitability or grow more quickly.”
Challenges Faced
What challenges have Frank and the team faced in building the firm? Frank acknowledged:
“Like most private equity firms, raising enough capital for our early investments was one of our earliest challenges. But we went on to build strong partnerships with some key investor groups that were willing to take a chance with us and to help us grow over time. Those early investors are still with us, knowing they can trust us to manage their investments carefully and provide meaningful ROI. We also have brought many new investment partners in along the way.”
Future Firm Goals
What are some of your firm’s future goals? Frank pointed out:
“We will continue to focus on growth in terms of our investment strategy. Private credit is an area that we are particularly interested in. We’ve been doing it for a few years now but are really looking to grow the strategy significantly over the coming years.”
Additional Thoughts
Any other topics to talk about? Frank concluded:
“Just that if you are either an investor or run a company in the sectors we operate, you may benefit from following me on LinkedIn as I often post about emerging trends in cloud-based and other tech-enabled companies as well as on financial investment strategies in general. I also believe strongly that we have an obligation to help more Americans become financially literate because the benefits that a capitalist-based economy offers shouldn’t be limited just to the uber-rich. People can follow my posts at https://www.linkedin.com/in/seanfrank89/.”
