Latest / The Inspired Stories Podcast / Valuing the Unvaluable: Michael Moscarelli on Level Three Assets, SPACs, and Digital Tokens

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Valuing the Unvaluable: Michael Moscarelli on Level Three Assets, SPACs, and Digital Tokens · The Inspired Stories Podcast

0:02
Yeah. Welcome to another edition of
0:05
the Inspired Stories podcast where leaders share their
0:09
experiences so we can learn from their successes and be inspired
0:13
by how they've overcome adversity.
0:15
My name is Anthony Codaspodi and today's guest is Michael
0:18
Moscarelli, vice President within the valuation and
0:21
financial advisory practice at Houlihan Capital.
0:24
They are an employee owned valuation, financial advisory
0:28
and investment banking firm whose mission is simply value
0:33
added. The team delivers independent
0:36
valuations, fairness and solvency opinions, and strategic
0:40
transaction advice for clients in fast moving industries.
0:44
The firm is a FINRA and SIPC member and recently served as
0:50
the exclusive sell side advisor for North American Warehousing
0:53
Company while also sponsoring the 2025 Coin Alts Symposium.
1:00
Michael leads projects that cover biotechnology, crypto
1:03
assets, SAS and Consumer Packaged Goods, helping boards
1:07
and investors understand what their businesses are truly
1:10
worth. Before joining Houlihan Capital,
1:13
he was an analyst at Century Business Consulting.
1:17
He earned an Ms. in finance from Villanova University along with
1:21
dual bachelor's degrees in finance and media from Temple
1:24
University. Now, before we get into all that
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back benefits.com. All right, back to our guest
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today, the VP of Houlihan Capital, Michael Moscarelli.
2:27
Thanks for making your time. I appreciate it.
2:30
Yeah, absolutely. Thanks for having me on,
2:32
Anthony. So, Michael, why did you feel
2:35
drawn to this kind of work in the first place?
2:38
You know, it's, it's, it's a little niche, but it is just the
2:41
kind of the ultimate curiosity driving intellectual challenge.
2:47
I have to say the the important back stories.
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My whole family is engineers. So my dad's mechanical, my
2:54
sister's aerospace, my brother's electric mechanical.
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So just my whole life has been, you know, if you see something,
3:00
you don't understand it, dig a little deeper, right?
3:02
Find out, find out more, understand it better.
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And this is this, this career path is just the best way to do
3:09
that. You really never know what's
3:11
going to walk in the door. You see different companies,
3:13
different business models, different industries every
3:16
single day. You know, nothing is ever done
3:18
the same way twice and you never see the same thing on any given
3:21
week. And so I think honestly, for me,
3:24
the ability to be to be curious and explore things deeply and
3:29
not be too stuck in a specific thing for a long period of time
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has just been excellent and really is what what drew me to
3:36
this path. So you come from a family with a
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lot of brain power, a lot of engineers.
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Were you ever thinking about going that direction?
3:44
What pulled you into the kind of money and finance world?
3:47
I guess a little bit, you know, I think the just such a
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fascination with markets. It's both kind of a human
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behavior psychology question mixed with, you know, analysis
4:00
and hard numbers. And I've always been a a huge
4:04
news current events kind of person.
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And it's amazing to have this quantitative mechanism that just
4:10
reflects everything going on in the world in in a quantitative
4:14
sense, right. So I think that's what really
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drew me towards it. I'm not quite as, as handy as
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many of my family members are. So I've, you know, I'm OK doing
4:26
a bit of a desk job sitting at a computer, but having kind of
4:29
that, that similar experience, I would say.
4:32
Talk to me a little bit about the quantitative tools that you
4:34
mentioned. You know, you're, you're big on
4:36
sort of current events, what's going on in the world and how
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does that kind of overlap with these quantitative tools to help
4:42
you explain all the crazy stuff that's going on?
4:46
For sure, yeah. I mean, you, you can't be in
4:48
this field unless you read a lot.
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You know, every, every business student from freshman year
4:54
onward is handed a copy of the Wall Street Journal and told to
4:56
read it, right. So it's it's impossible to not
4:59
follow those things. I think it'd still be effective
5:02
in this field. And then on on top of that, kind
5:05
of the beauty of working for any professional services firm is
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you, you have access to these data platforms that are nearly
5:12
all-encompassing, right? I mean, Bloomberg, S&P Capital
5:14
IQ, if you have a company or a space and you just want to dig
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into it, all that information is, is freely available to you.
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It's sitting there. Just dig in and it's, it's
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really impressive. I mean, the scope of what some
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of these platforms cover and what you can have access to at
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the click of a button, especially in such a structured
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way is, is really, really amazing.
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So it is just just nice to have that available.
5:41
Can you give a specific example of something that you might see
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about 3 PLS? Warehousing.
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Just to pick an industry that I might not see as the layperson
5:52
sort of sitting outside of one of these platforms.
5:55
Yeah, absolutely. I mean, I think transactions for
5:57
sure right. For any of these spaces, having
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an understanding both on generalized platforms and then
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specialized as well where you can go in and see, OK, this is
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a, a private transaction someone purchased very small, there's no
6:11
public filing attached to it. But there are various data
6:14
providers that go out into the marketplace and try to find
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stats on these deals that the average person won't really have
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access to. You see that a lot with PE and
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VC deals as well. You know, there's not an
6:27
obligation to publicly file what you paid for a business.
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It's all kind of insider information and there are many
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platforms out there that do the, the legwork to go and just
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aggregate that data. So the, the access there is
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certainly a, a big difference from say even the average
6:45
business owner, right. So you you own something in a
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particular industry, having that access to information is is a
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big differentiator. This is getting a little bit off
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track, but it's curious to me how these data aggregators would
6:58
have access to financial information on a private
7:02
transaction. Yeah, it's a little bit of, you
7:06
know, a bit of a trade, right. So some providers like I'm, I'm
7:09
thinking specifically of like capitalization and sort of
7:14
accounting internal like shareholder management
7:16
platforms, they have access to all of these cap tables for all
7:21
of these companies. Now obviously that data has to
7:24
be anonymized, right? Like you can't necessarily pull
7:26
that, but the aggregate data just by providing a service,
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providing a platform can tell you so much about the
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marketplace that otherwise you would have really no access to,
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right? Got it.
7:39
So it's anonymized, it's aggregated.
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It's not like a individual transaction.
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Here's what Bob paid Joe for his business.
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Right. And some of it is individual in
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that it's, it's reported, you know, in the sense of a data
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provider might ask, you might have some small indication, but
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maybe not the whole picture, especially when there's there's
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no filing obligation, right? Like you, you don't have to
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disclose what you paid for for most transactions.
8:03
OK, All right, fun little tangent there.
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Let's. Let's come back to a little bit.
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Yeah, let's come back to Houlihan.
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How did the opportunity for you to join Houlihan come about?
8:13
Kind of kind of two things 1 was just good timing.
8:16
You know, I was making the switch in a time where everybody
8:19
was hiring all over the place and it was it was a good time to
8:22
make a pivot. But also, I think, you know, I
8:26
was at a small firm that was really rapidly becoming a medium
8:30
sized firm and soon to be maybe even a, a larger sized firm,
8:33
very much like national. And there's, there's growing
8:36
pains that come along with that, right.
8:38
So you, you kind of see the, the, the ability to make an
8:44
impact, especially someone earlier, their career starts to
8:47
kind of narrow as an organization gets bigger.
8:49
And what I was looking for was just something where I could get
8:52
my hands dirty, have an impact, really see, you know, the
8:56
results of my efforts on the business, even at a, a
8:59
relatively early stage in my career.
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So it was actually a oddly enough, a, a connection of a
9:05
connection. Knew the name of the firm.
9:08
I don't know if they'd even like use them or knew, knew any of
9:10
their work, but sort of put me in touch.
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And you know, Houlihan's great in that we're, you know, we're
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employee owned, we're small. So it's still very high touch
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and personal when we bring somebody on board.
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You know, my final interview was like with the CFO in person,
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very old school. And that's sort of how that how
9:29
that went down. Talk to us about the employee
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owned component. That sounds interesting and as
9:37
an outsider it sounds unusual in your line of work.
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Am I right or wrong in that? Absolutely.
9:42
Yeah. It's, it's a very different
9:44
structure from a lot of professional services firms.
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You know, typically you have a partnership and everyone is like
9:51
dead set. They want to make their way to
9:52
partner. They want to have an ownership
9:53
stake in the firm. Our founders, you know, a a few
9:57
years back, we're looking to obviously transition and make
10:00
the next step. And they decided that, you know,
10:02
the best fit for the type of firm that we are and the way
10:05
that we operate was to go for an employee ownership model.
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And it really, I can't speak highly of it enough to others
10:13
looking at at an ESOP transaction.
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It not only is just a great way to align incentives, but it does
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sort of take away kind of the US versus them sense that you have
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and some partnership structures where everybody's on the same
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team, everybody's working towards the same goal and
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everyone has a stake, right and A and a fairly equal stake with
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the way that ESOP rolls, ESOP rolls sort of shake out.
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So yeah, it, it ends up being honestly a really key
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differentiator, keeps turnover down.
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We have very, very low turnover, which is not something you see a
10:50
lot in professional services. So it's been really great for us
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as a a differentiator. Nice.
10:56
So tell us about the services that you provide at Houlihan
10:59
Capital. Yeah, absolutely.
11:01
There's, there's kind of two sides of the house, 2 related
11:05
but somewhat different lines of business.
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The first, you know, what I do is just business valuations.
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We are running the gamut all the way up and down the cap
11:15
structure. We can value pretty much, pretty
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much anything that comes in the door.
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But we're we're kind of concentrated on, on three key
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things, which is portfolio valuations.
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So that's private equity, VC hedge Level 3, hard to value
11:29
assets. We value them for typically
11:32
audit purposes, though sometimes just to have a sense of
11:35
investment performance. So we do a lot of that work.
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That's kind of our bread and butter.
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We do tax and estate work as well.
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It's kind of the the second tranche there.
11:45
Obviously tax and estate planning, valuing business
11:48
interests for, for tax purposes. That's a good bit of our
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business. And then transaction opinions,
11:54
fairness and solvency. We've carved out a, a bit of a
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niche doing fairness opinions in the SPAC space actually, which
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has been really, really fascinating.
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And the nice thing with that side of the business, we're
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we're very much industry agnostic.
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You know, we've been around a long time, we've seen a lot of
12:08
industries. We can have some expertise and,
12:11
and nearly anything that walks in the door, but we have a lot
12:14
of very specific experience and a few key verticals, you know,
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digital assets, I mentioned the SPAC furnace opinions.
12:21
We have a strong bit of cannabis experience on our banking side.
12:27
So that's business valuation. And then on the investment
12:29
making side, we're primarily you know lower middle market M&A
12:33
typically on the sell side. And most of the work they do
12:36
there is helping founder owned businesses figure out kind of
12:40
their next steps, figure out their exit be it through a full
12:43
sell side process or even more more trimmed offerings.
12:47
It just help you get get ready for that next step to understand
12:51
how to sell your business and how to speak to market
12:54
participants and present yourself.
12:58
Fun stuff. I've got a few follow up
12:59
questions for you. So Level 3 is something that's
13:03
new to me. Can you explain that?
13:06
For sure there's a fair value standard in the accounting, you
13:10
know, sort of sort of rule set called ASCA 20.
13:15
There's three different types of inputs.
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There's level 1, level 2 and Level 3.
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Level 1 is your typical, you know, market quoted heavily
13:23
traded asset, right? So publicly listed equity Level
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1 very easy to just point to an exchange and you say that's the
13:31
price of the asset. Level 2 is when you have like
13:34
some observable input, something like a like a broker quote, you
13:39
know, where it doesn't trade freely, but you could go to
13:41
somebody and say, hey, you know, what would you pay for this on a
13:43
committed basis? And you can cite that.
13:46
Level 3 is sort of what they call mark to model where you
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know, there's not an observable price.
13:53
You have to, you know, put together more of an argument,
13:56
whether it be a, a full DCF model, valuation, comps, prior
14:00
transactions, market adjustments, where you take much
14:05
more of a, an unobservable, they would say, approach to how you
14:08
value the asset. So when something hits Level 3,
14:11
that's typically where you know, a a fund might consider an
14:16
outside valuation advisor because of the complexity and
14:19
the additional scrutiny as well on top of that.
14:22
Can you give me an example of a Level 3 valuation project that
14:26
maybe you worked on? For sure.
14:28
Yeah. I mean the, the most common one
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I would say we see is privately held equity interests, whether
14:35
that be for APE Fund or AVC fund, could be anything from you
14:40
know a very, very early stage company investing in a seed
14:43
round or a safe all the way up to you know, bridge level PE
14:48
prior to exit. So those are typically what we
14:53
do for portfolio valuations. That's, that's really bread and
14:56
butter and we value, I mean hundreds and hundreds of those
15:01
positions in any given year. So it, it becomes something
15:05
where and I think it has become more, more often over the last
15:08
couple of years, something with a lot of scrutiny on it, various
15:11
sort of SEC pronouncements focused on that.
15:15
And as well as just I think the accounting scrutiny at the audit
15:18
level has become much more complex and really digs more
15:21
deeply into fair value marks. So that's definitely grown the
15:25
grown the practice there. And so the reason the SEC is so
15:29
involved is that maybe there's been some unscrupulous activity
15:33
in the past in this area. To some degree and, and
15:37
honestly, it's just, it's just very, very difficult to value.
15:41
And the more sort of standardization and, and
15:44
framework you can build around it, it makes marks comparable
15:48
across the marketplace as opposed to, you know, you have
15:51
someone using one approach and someone using another and they
15:53
disagree on this, you know, kind of a key.
15:56
It's not SEC driven, but like a key differentiator for fair
15:59
value has been sort of the elimination of, of blockage
16:02
discounts over the last, I think it's probably the last 10 years
16:06
where you are, you know, valuing an interest without giving
16:11
consideration to that position. You have to value it as though
16:14
it were sort of it's own thing in the marketplace, right?
16:18
The same as you would value any other version of that same
16:21
instrument. There's a variety of of sort of
16:24
things like that that can. You give an example of a of a
16:27
blockage discount. I I'm not following that.
16:29
Sure, right. So if say you hold like a very,
16:32
very large slug of like publicly traded equity, right?
16:36
So say you own maybe you own 10% of the the outstanding equity.
16:41
You know, trading out of that position would obviously be
16:44
obviously be somewhat difficult, right?
16:45
If you were to try to trade out of that position in one go, it
16:48
would have price impacts, it would take a substantial amount
16:51
of time. And theoretically, you know, the
16:53
value you could exit that position at is not the same as
16:56
what's quoted on a public exchange, but because you want
17:00
comparability across the marketplace, right?
17:03
That level 1 input that, that quote on the on the exchange
17:08
should be the value that's applied regardless of the size
17:11
of the position. So that's one of those like
17:14
standardization things where you it, it, it helps with
17:18
comparability, it helps keep everyone on a, on a sort of
17:20
level playing field, if that makes sense.
17:23
So a blockage discount just refers to the fact that if you
17:26
like, in this particular example, if you own 10% of a
17:29
particular entity, it's going to be more difficult for you to
17:32
exit that position quickly. And so that discount is that is
17:37
associated with that blockage, that difficulty in being able to
17:40
unload your position exactly. Yes.
17:43
And there'll be price impacts and and so that's been sort of
17:47
done away with in fair value accounting in the industry
17:50
because it creates potentially very large differences in how
17:53
two different funds would mark what is the exact same
17:56
instrument, right. Talk to me about the tax and
18:00
estate work that you guys do and, and again, it probably
18:03
would be helpful for both myself as well as the listeners to hear
18:07
like a specific example. Obviously, you know, leave names
18:10
out. Yeah, absolutely.
18:12
You know, the the typical scenario, the way in which we
18:15
would kind of approach this, it's typically someone gifting
18:20
their existing interest in a company.
18:22
Typically they'll pass it down to the next generation, right,
18:25
founder owned business. There are tax implications of
18:28
course, you know, basis needs to be established.
18:31
So we would value the the founder specific interest in the
18:35
company for tax purposes. And then when they go through
18:37
any audit processes or deal with the IRS, they have a report,
18:41
they have a citation for what their basis is, what the value
18:44
is of the shares that were transferred down to the next
18:47
generation. And that's all sort of squared
18:49
away. And the, the reason you need a
18:51
third party valuation provider for that is that, you know, the
18:54
equity of small publicly or privately held businesses just
18:58
it doesn't trade, right? There's nothing you can point to
19:00
to say, you know, I'm granting half of the business.
19:03
This is what it's worth. You do really need to have a
19:07
strong enforceable viewpoint on what that that basis should be.
19:13
So let's say that I've got a business, it's worth $10
19:15
million, I want to hand off to my kids, not going to charge
19:18
them for it, just, you know, sort of gifting it.
19:21
So what you're saying is we still need to establish what the
19:25
valuation of that company is so that there's a determination of
19:29
what basis is. Can you, in layman's terms,
19:32
explain for folks what basis means?
19:35
Right. You need to, you need to have a,
19:37
a, an established value for what you're transferring, right?
19:40
I mean, that's really what it comes down to like with any
19:43
gift, right? If I hand someone $1,000,000 in
19:46
cash, I, I kind of know what that's worth.
19:48
If I hand someone 100,000 shares of a private company, that's
19:52
much more difficult to establish, right?
19:55
So that's really what the majority of our our tax in the
19:57
state reports are are doing is establishing that value so that
20:02
when you make that transfer you, you have a number around it.
20:06
And so when I make that transfer of this $10 million company to
20:09
my kids, are they paying taxes on the value of that, or are
20:13
they only paying taxes on the difference between the initially
20:17
established value, that basis and what they may eventually
20:21
sell it to somebody else for? Right.
20:23
I mean, that's, that's definitely that's a, a question
20:25
for some of the tax accountants out there.
20:28
Yeah, I mean, if, if they had existing equity, right, there's
20:30
that, that change from the basis and obviously your capital
20:33
gains, right. So that there's that component.
20:36
Typically it's trying to not run afoul of gifting maximums for,
20:41
for state taxes. But realistically it is just one
20:45
of those things where you you need a number and it's very,
20:48
very difficult to come up with one without a little bit of
20:51
outside help. And we talked about transaction
20:54
opinions and you guys have developed a particular niche and
20:59
fairness opinions in the SPAC space.
21:01
Can you talk about what a SPAC is and why your work is
21:05
particularly important in that space?
21:08
For sure. Yeah.
21:09
So a SPAC is is, you know, colloquially it's a blank check
21:13
company. So company goes public, forms a
21:16
pool of capital and then they go out and they look for a smaller
21:21
company typically to take private right or sorry, take
21:24
public. So they they form this big pool
21:27
and then they go and they do a merger.
21:29
And then after that the people who bought into the pool get
21:31
shares in the new company that's now public.
21:34
So it's a sort of abbreviated way for a lot of private
21:37
companies to go public without the full IPO underwriting
21:41
process, sort of a faster way to do that.
21:45
SPAC's are are really interesting because, and the
21:48
reason fairness opinions are so prevalent is because there's an
21:50
inherent conflict of interest. So when the sponsor of the SPAC
21:55
builds that initial pool of capital, they are compensated
21:59
through the issuance of sponsor shares, right?
22:02
So these are usually, you know, a reasonable portion of the
22:06
outstanding shares of the company that really only have
22:09
value if a transaction is completed.
22:12
And so the conflict arises where you know, if those only have
22:15
value when a transaction is completed, then your incentive
22:19
might be to complete a transaction regardless of the
22:22
valuation of the transaction because it's a binary outcome.
22:25
You either make money or you make 0.
22:27
And so that kind of gave rise and it's it's become pretty much
22:30
a standard in the industry where you hire a third party
22:34
investment bank, they go through the deal, they run their own
22:38
valuation analysis, they calculate the dilution and the
22:41
pro forma on the transaction. And they give you an
22:43
understanding of, you know, is the price you're paying for the
22:46
business. Given the structure of the
22:48
transaction of the SPAC deal, is it fair?
22:50
Is it reasonable? And then that gives you a basis
22:55
if there's ever shareholder litigation or if anyone comes
22:57
back after the deal and says, hey, like how closely did you
23:00
look at this before you went forward?
23:02
You have a full report, a full valuation, say, hey, not only
23:04
did we vet it, but a third party provider came in and also vetted
23:08
the transaction. So it's become pretty much, it's
23:13
not a requirement by any legal means, but it's become nearly
23:16
one in this back space because of that inherent conflict of
23:18
interest. I feel like I heard about SPAC's
23:21
a lot a handful of years ago and I feel like I'm hearing about
23:25
them less. This isn't my sandbox though.
23:27
Do I just have my head in the ground or have these fallen out
23:30
of favor? There, there's been some
23:33
cyclicality for sure. There was a very large SPAC boom
23:36
in 21 and 22. Everybody was launching 1.
23:40
The the difficulty is there are only so many viable targets that
23:45
can and frankly should be a public company.
23:47
So when you have, you know, 600 SPAC's all looking to do
23:50
transactions, not every target's going to be a winner.
23:53
And there was some, you know, a little bit of, of, of a
23:56
tarnishing of the SPAC vehicle. I think publicly because of
24:00
that, there is a few kind of very public deals that didn't,
24:03
didn't go super well. And so we've seen, you know, in
24:06
the last, probably the last 12 to 15 months, something of a
24:11
resurgence where SPAC's are being launched again.
24:14
You know, just this year alone, there's been at least 2627 SPAC
24:18
IP, OS year to date they're back launching.
24:22
But what we've noticed is that the market is a lot of serial
24:26
sponsors, people who have done SPAC's before and been
24:28
successful. It's a little bit more
24:31
constrained and intentional. And you're starting to see sort
24:35
of this group form of folks who who do spacks and repeatedly do
24:38
Spacks and have had success with them.
24:40
And you see a lot less of kind of, I don't want to call them
24:44
random outside entrance, but there was a time where like
24:46
everybody had a spack. Yeah, exactly.
24:49
And so you're, you're seeing a little less of that where people
24:52
are, are, are very serious about the vehicle, they believe in its
24:56
utility in the marketplace and they're being very intentional
24:59
about how they do these transactions and, and the
25:02
outcomes on the other end. So they're, they're very much
25:04
back in the last 12 to 15 months.
25:07
But there's, there's sort of a lag between when they IPO and
25:10
then when they actually do the transaction.
25:12
So we haven't seen yet how this wave of deals is going to fare
25:16
because most of them haven't really closed.
25:17
So we'll have to see in the next 12 months.
25:21
Michael, you said that you guys do a fair bit in the cannabis
25:24
space and I'm curious to hear what kinds of special challenges
25:28
exist there, right? You've got legalized at some
25:32
level for a number of states, federal level still illegal.
25:37
Recent announcement that they're going to transition it from a
25:40
schedule 1 to a schedule three. Kind of paint us a picture like
25:44
how does this make this space different for you guys to play
25:48
in? Yeah, the, the rescheduling is,
25:51
is a huge, huge deal in that space.
25:54
You know, when we first met, I, I did discuss a little bit of,
25:57
you know, Section 280 E, which is the, the big tax issue with a
26:02
lot of these cannabis businesses.
26:03
You're effectively taxed on gross earnings rather than
26:07
operating earnings. And so it really does put a huge
26:11
weight on the valuations of a lot of these businesses and.
26:14
It's sorry, sorry to interrupt here, Michael, it's such a big
26:16
point that I want to make sure that maybe you know people who
26:19
you know this isn't what they do on a regular basis understand
26:22
this. So for most businesses, say you
26:24
make $1,000,000 but you had $500,000 in expenses.
26:29
You're let's. Let's make it 600.
26:31
You had $600,000 in expenses. You're only going to pay income
26:35
tax on that $400,000 profit right now in the cannabis
26:39
industry, up until now, there's been this rule that existed that
26:44
says, Nope, you've got to pay income tax on that full
26:46
$1,000,000, which you're, you're paying income tax on more than
26:51
what you had, a lot more than what you had income on.
26:53
So it's a huge strain for companies.
26:55
OK, so. Go ahead.
26:56
Right, exactly. And and that's really been the
26:58
thing. It is a huge strain, even many,
27:01
many operators who have had strong growth and have done very
27:04
well in their respective, you know, state marketplaces it it's
27:08
very much put a, a downside pressure on them.
27:10
And many of the investments were made with the expectation that,
27:14
you know, the cannabis would be reclassified, 280 would be
27:17
rolled back. So the announcement that you
27:19
know, reclassification is, is on the table and potentially in
27:23
progress is, is massive. Obviously there, you know,
27:26
there's more than just saying it to make it happen.
27:28
There are quite a few sort of regulatory steps that would need
27:31
to happen, but I think it would likely help to reignite the
27:36
sector both from a valuation standpoint and from a deal
27:40
standpoint. I mean, the M&A in the space has
27:43
been, I mean, fairly stagnant for the last couple of years
27:47
just because this, this legalization effort hasn't had
27:51
nearly the tailwinds that it was expected to have.
27:55
So rescheduling it from a Schedule 1 drug to a Schedule 3,
28:01
does that change that taxation law or there more?
28:04
Things thinking, yes, it would roll, it would get rid of this
28:06
288 restriction, it would, it would, it would be a big deal.
28:11
It would help I think as well with banking access.
28:14
I don't know the exact regulatory component there, but
28:17
like with many sort of high risk sectors, there's a hesitation to
28:20
provide banking services for obvious reasons.
28:22
So it it would, it would do a lot to just take a lot of burden
28:27
off of these businesses. That's the other thing you just
28:30
touched on there is, you know, not only having cannabis
28:33
scheduled and scheduled one affect, you know, how people
28:38
have to pay their taxes. It also effects, you know, can
28:40
they get a bank to work with? Can they get a merchant account
28:44
to run credit cards? Can they get insurance?
28:46
Like, you know, there's a lot of service providers that don't
28:50
want to touch it when it's in this sort of Gray zone.
28:53
Absolutely. Even in our space, you know,
28:55
we've worked very closely with a lot of cannabis funds, but early
28:57
on you know, there was very, very big hesitation from a lot
29:01
of the larger firms cause of the potential KYCML legal arguments
29:06
as well as just potential reputational risk.
29:10
Any, any high risk industry like that does raise those concerns.
29:14
But we've, we've seen those I think taper off to some degree
29:17
in the last couple of years and this would do a a lot to to
29:21
leave those as well. So we're recording this in early
29:23
February 2026. Do you know where this stands
29:28
making this change? It's been announced standing
29:31
it's movement towards. Yeah, I, I, I know the
29:35
announcement that was back in December of 25, it would have
29:38
been late December. So we haven't really, as far as
29:43
I've heard, haven't heard any huge movement there quite yet.
29:46
You know, a couple of my colleagues might be a little, a
29:48
little closer to it. But yes, I'm I'm sure when it
29:52
you know if, if and when it happens, it will be a it will be
29:54
a huge mover for the space. Yeah, we'll see the headlines
29:57
right away. And so, Michael, the work that
30:00
you do, are you more in the business valuation side?
30:02
Are you in the investment banking side?
30:04
Do you kind of straddle both sides?
30:06
Yeah. I'm, I'm much more involved on
30:07
the, the business valuation side as well as with our fairness
30:10
opinion practice. So I guess a little transaction
30:12
exposure there. But yeah, our, our M and a
30:15
business very much focused on the lower middle market.
30:19
They, they're kind of, there's a little bit of overlap.
30:23
There's something where we, you know, we might have some, some
30:25
clients in common and or some referrals we can make between
30:29
sides of the house. But for the most part we're
30:31
we're fairly separate. Oh, interesting.
30:34
I guess I had assumed that a number of folks that are using
30:37
you for one would just naturally use you for the other.
30:40
It's interesting that it's, it's a very different market scale.
30:45
So like many of our valuation clients are you know, 10s of
30:49
billion dollar private equity and venture capital funds.
30:52
So it's, it's sort of different from a lot of like lower middle
30:55
market businesses, you know, 10 to $50 million transaction sizes
31:00
on the investment banking side, you're not necessarily in the
31:03
same like size scale that a lot of our our our valuation clients
31:09
would kind of be looking for. That's not to say it doesn't
31:11
happen particularly in, in things like services, roll ups
31:15
and stuff like that where we have found our own businesses
31:17
where one of our private equity clients might be interested in
31:21
enrolling some of them up. That can definitely happen.
31:23
But it is interestingly sort of a different niche even on the
31:28
valuation side. Like we have a lot of digital
31:30
assets practice. We're very, very heavily
31:32
involved in that space. And then on the M&A side, I
31:35
don't know that we've done really much in the in that space
31:37
from a transaction standpoint. So yeah, it is interesting.
31:40
We're sort of sort of separate in that sense.
31:44
And so who are the folks that you typically have direct
31:47
contact with at your customers? Are these the owners of the
31:52
companies? Are you with GPS or LP's at
31:56
different private equity firms? It's typically CF OS on both
32:01
sides, CF OS or higher level accounting executives.
32:05
So you know, at our, at our typical client, if it's a
32:08
private business, I take typically CFO with some help
32:11
from the CEO. If we are working with a fund,
32:16
it is typically their whoever heads up their accounting to
32:20
help us. Again, we're we're helping with
32:22
their fair value practice. So getting them through an audit
32:24
will frequently be in contact with them, sometimes be in
32:26
contact with their auditors. And then on the deal side,
32:30
typically, you know, for a SPAC transaction, there's usually a,
32:33
a sort of a special committee. So it's a couple of board
32:36
members who are designated to sort of carry out the process.
32:39
So we'll be directly in touch with the the company's Board of
32:42
directors and their executives as well.
32:45
Interesting. So Houlihan Capital's mission as
32:49
we stated in the intro 2 words, two very short sentences value
32:55
added. Can you share an example of how
32:58
Houlihan really went the extra mile to deliver value to a
33:02
client? Yeah, absolutely.
33:05
I will say, you know, there's there's a variety of examples.
33:09
It it's one of those things where, you know, it's so
33:12
ingrained in how we work with clients.
33:15
We've always been high touch white glove.
33:19
The fact that we're kind of a boutique firm and we've been
33:21
around a while, but we've stayed relatively small means we, I
33:26
don't know how to phrase it. We sort of approach every
33:28
engagement as though we have like something to prove, like we
33:31
have a chip on her shoulder a little bit because we're a small
33:34
firm, right? Like we, we do have this sense
33:36
of, you know, we're playing in a field with much larger
33:39
professional services firms that are competitors and we really
33:43
have to go the extra mile to show that we are available and
33:46
commutative. It helps that we have this ESOP
33:50
structure with, with very limited turnover, a lot of, lot
33:54
of folks in the space, you know, you'll, you'll work with one
33:56
team one year and you come back the next year and the entire
33:58
team's brand new and you're like, OK, I got to start from
34:00
scratch. And one of the things we've,
34:02
we've done really well is keeping client teams consistent.
34:06
You know, you can always pick up and call your, your person
34:09
managing your deal like you're, you're never that far removed
34:12
from the person who's directly doing the work that you're
34:15
paying for. And that really is just kind of
34:18
how we've we've gone the extra mile and differentiated
34:21
ourselves. Let's talk about crypto a little
34:24
bit, because you do a lot of crypto valuations, and this is
34:30
an interesting one because you can see what the valuation of a
34:34
particular coin is just by looking at the exchanges.
34:37
And as we record this, Bitcoin has been in a bit of a slump,
34:43
you know, another crypto winner, as they call it.
34:45
So what is it specifically that you need to do to value these
34:50
assets since you can just see kind of on the open exchange
34:54
like where you know the prices are?
34:57
Gotcha. Yeah, that there's, there's two
34:59
very key differences and and that's in the both the equity
35:03
side and the token side in digital assets have complexities
35:07
that you don't necessarily see in traditional venture.
35:10
So on the on the token side, typically what we're seeing and
35:14
the guidance around this has been changing, but we do like
35:17
what's called discount of discount for lack of
35:19
marketability analysis. So little different from the
35:22
blockage we talked about earlier.
35:24
Many early token investors will before a token launches be
35:29
entitled to a, a tranche of the token, right.
35:32
They'll typically invest in equity and as sort of a kicker
35:34
on that, they'll get a certain number of tokens when the token
35:37
launches. The The thing is that those are
35:40
then restricted, right? They have typically an
35:44
algorithmically based unlock where over a certain amount of
35:47
time those tokens get distributed.
35:49
And because of that, there is an impact to the value of those
35:52
tokens because you have to wait to receive them, right?
35:55
There's, there's a time value component there.
35:57
And so we provide a lot of work on the token side saying, look,
36:00
I have, you know, whatever size position of tokens, but they
36:04
don't unlock until, you know, four or five years from now and
36:08
how to properly fair value that could be somewhat unique.
36:12
And then on the, the equity side, because sort of tokens and
36:17
tokenomics create this entire new paradigm of what the value
36:20
of a company is, right? Because traditionally in venture
36:23
space you might have, you know, equity, you're going to have
36:26
maybe a little bit of debt. It's usually some sort of
36:28
convertible to participate in the equity upside.
36:31
And then you've got the token and it becomes a a very, very
36:35
involved discussion and understanding to place value on
36:40
a token when the equity of the business is sort of sort of
36:45
diametrically opposed, right? Like the whole point of the
36:48
company is to establish a token protocol.
36:50
So once the value of the token protocol sort of adjusts for the
36:55
value of it, sorry, the value of the token sort of captures the
36:58
value of the protocol, then what's the equity worth, right?
37:01
Because you've kind of had this transfer of value once the token
37:04
is launched. And so that kind of creates this
37:06
this very difficult argument, not argument, it's very
37:09
difficult discussion. And to understand that, you
37:13
know, you may have invested in the equity of a business and in
37:17
the tokens. But once the token protocol
37:19
launches and the business itself, which is like the
37:22
protocol they've created is giving value to the tokens, it
37:26
may or may not still be giving value to the equity.
37:28
And frequently it's not right. The equity is just sort of a
37:31
shell. The company has done what it's
37:33
supposed to do and it just sort of sits there.
37:35
So it, it can be very difficult to understand.
37:39
I'm probably not describing it very well.
37:40
So, right, so there's the value of the token, right?
37:44
Yeah, I want to, I've got a token, it's worth a a dollar in
37:48
USD. And so I want to, you know,
37:51
trade that to somebody and, you know, take the money and put it
37:53
in my pocket. So that's the value of the
37:55
token, the equity of the company.
37:59
I think what I'm hearing you say, tell me if this is correct,
38:01
Michael, that the value of the equity of a coin, a crypto coin,
38:07
it's harder to kind of wrap your hands around because it's not
38:10
like you're not providing a service, right?
38:13
It's not a service based business where you've got, you
38:14
know, billable receipts. It's not, you know, a physical
38:17
good that you're selling or it's like, OK, I've got cost of goods
38:19
and here are my sales. It's like, how do you establish
38:25
what, you know, the, the, the ownership value is in the
38:29
company itself? Is it, you know, hey, if I own
38:33
and I don't know Bitcoin I don't think really runs this way.
38:35
But if I owned, you know, 100 shares of Bitcoin and Bitcoin is
38:38
worth $60,000 today instead of $100,000 yesterday, how does
38:44
that affect the value of my ownership in Bitcoin over here?
38:48
Right, exactly. It's it's not always an
38:50
operational business anymore. And the key wrinkle too is many
38:54
of these protocols are decentralized, right.
38:56
So they run, as long as there's computers to run them, doesn't
38:59
matter if the company is really doing any work on them, they can
39:02
just exist out there in the ether and and give value to the
39:06
token. So you know, one of the things
39:08
you see commonly is that the, the equity part of the business
39:11
will hold what they call like a token treasury.
39:14
So they will, you know, put the tokens out and maybe 10% of
39:17
those tokens will kind of just be held onto for the equity.
39:20
And that will help kind of provide a a sort of low value,
39:24
minimal value for the equity component of the business.
39:27
But that's not to say that there's really any operational
39:30
component there as you point out, right, like you're not
39:32
going to necessarily increase the value unless the value of
39:35
those tokens change. So it is, it is a very, you
39:40
know, it's, it's hard to explain.
39:42
It's a little a little in the weeds, but it it really.
39:46
Does because it's hard to understand too.
39:48
Right. It's very hard to understand and
39:50
it but it does, it creates a completely unique challenge and
39:53
it's something where, you know, even if you invest in this
39:56
space, it's it's really difficult to parse out and
39:58
that's why we've seen I think quite a bit of growth in that
40:02
digital assets business just. Helping our clients really
40:06
understand that and how to put that into a a framework that
40:10
more traditional auditors can understand.
40:13
So for an old fuddy Duddy like me, can you help me understand
40:17
why folks are coming out with new coins?
40:20
Is it they want to get into the, I don't know, just sort of the
40:27
hype that the valuation of this coin will go up and then they
40:30
can sell it for actual cash? Do they see it being able to
40:34
provide some, you know, real world non digital value or am I
40:40
thinking about it in all the wrong ways?
40:42
That's you've kind of identified, I think the two key
40:46
conceptual approaches when someone launches one of these
40:49
protocols, you know, the the first one is that what's
40:52
colloquially called like a meme coin where you're just like,
40:54
look, there's momentum in the market.
40:56
People want to gamble a little little bit.
40:57
I'm going to launch coin, I'm going to, you know, promote it
41:01
in some way. I might make it silly or I might
41:03
attach my name to it or I might and people will buy it to have
41:06
something to, to kind of speculate on, right.
41:09
And those are purely, you know, they're very much acknowledged
41:12
to be just speculative. And then on the other side, you
41:15
do have true utility tokens where you say, look, I'm
41:17
creating this protocol. It does it, it provides a
41:22
service or it does a, it does something that has utility and
41:26
will be useful. And the more people that use it,
41:29
they need to own the token in order to interact with this
41:31
protocol, the more demand that will drive to the token and then
41:34
the token will increase in value.
41:35
So I think a lot of the true, you know, the really utility
41:42
based crypto investors are very much still out there.
41:45
There are still protocols that are launching that are saying,
41:47
look, this cryptographic technology has serious real
41:50
world implications. And we've built a tool that can
41:52
help you use those implications. You see this a little bit with
41:56
what they call real world assets or RWA, where they're trying to
41:59
take other assets out in the world and bring them on chain,
42:03
make them more accessible to to invest in.
42:06
You see, you see a lot of that kind of thing.
42:08
So there's there's kind of two very much two different
42:10
philosophies and projects are typically one or the other.
42:15
And it's it's pretty clear up front which that is.
42:19
So we'll, we'll climb back out of this particular rabbit hole
42:22
in a second, but I, I've got another follow up question.
42:25
So give me an example of a coin that's coming out that says we
42:30
have some sort it, it's more than just a speculative tool.
42:32
It has some kind of inherent functional value to it as well.
42:37
Right. I mean, some of the, some of the
42:38
original ones, I guess probably might be the original 1 was ETH,
42:43
right. So when that came out and, and
42:45
still somewhat to, to to this day, the, the intention is that
42:49
people would build applications on top of the ETH protocol and
42:53
that would, it was pretty much the first to, to really push
42:58
this utility area. Yeah, Ethereum and, and that I
43:02
think has kept the value or or the the prices a little less
43:07
volatile and maybe some other tokens is that there are still
43:11
many applications built on the Etherium blockchain that have
43:14
utility and are useful. And there's a reason to buy
43:17
Etherium and and use it rather than just, you know, hold on to
43:21
it from a speculative viewpoint. And there's, there's many of
43:23
them launching kind of all the time that are a little more
43:26
niche. But that's just the one that
43:27
comes to mind as what kind of not launched the the concept but
43:33
did did really help to popularize it.
43:35
Yeah. And So what would be an example
43:37
of an application that runs on the Etherium blockchain?
43:41
There are quite a few of them. I mean you, I mean kind of the,
43:45
the straightforward answer, you see a lot of decentralized
43:48
exchanges that run on, on various block chains that allow
43:51
you to trade other tokens using that underlying chain.
43:56
There is a variety of sort of scaling technologies, ways to
44:01
use an underlying chain, but then have a chain stacked above
44:05
it that can work faster and do more things, but then still
44:08
consolidate down to the original chain to keep that sort of that
44:12
enforceability that that safety and having so many folks using
44:16
it and verifying the chain. Pretty much the the way that
44:21
these are structured is, is usually all about trust, right?
44:23
The bigger a protocol is and the more people who are using it,
44:26
theoretically the the sounder the structure is and the the
44:30
more you can rely on it for your project.
44:32
So there, there are many too many out there to to dig into
44:36
too deeply. But yeah, fair enough.
44:39
There's a lot. Let's.
44:39
Come back out of that crypto rabbit hole there.
44:42
The deep dive. Yeah.
44:44
So you were recently promoted from a senior associate to the
44:49
VP of the financial advisory of the valuation and financial
44:54
Advisory practice. What was that transition like
44:57
for you? Any bumps in the road as you're
44:59
kind of stepping into that new role?
45:01
Yeah, I mean absolutely. You know, it's, it's a
45:04
transition for, for me, moving from, you know, being a, an
45:08
individual contributor to managing teams, managing
45:12
projects, being sort of the, the end of the line from a client
45:15
facing perspective, which I think for anyone, you know,
45:18
relatively early in their career, that's, that's the big
45:21
step, right? Like that's the big transition.
45:23
You can be really, really good at what you do.
45:25
You can be, you know, an excellent analyst, but at a
45:28
certain point, there becomes a point where you have to take
45:31
more responsibility. And I, I think the biggest
45:34
difficulty for me has been managing teams and, and
45:38
understanding that you're now having to delegate.
45:41
You can't do a deep dive into every single thing that you work
45:44
on. You cannot be the person running
45:47
point on the analysis for a a twenty person portfolio, right
45:50
So or a 20 position portfolio. So you, you get to a point where
45:55
you know, learning to, to delegate and, and learning how
45:57
to delegate and still guide folks newer in their career is,
46:02
is probably the biggest hurdle. And I will say that's also the
46:07
most rewarding part, I think is, is having newer analysts, newer
46:11
associates come to you and ask questions and try to understand
46:14
and seeing them grow and develop and, and start to honestly to,
46:19
to question you, what your, your viewpoint is in your opinion and
46:22
come to you with like a fully formed argument that you're
46:23
like, wow, I, I actually don't have anything against this.
46:26
I can't, I can't talk you out of this.
46:27
This is correct. That's really the amazing part.
46:30
And that's been the most, you know, difficult, but also the
46:32
most rewarding thing making that transition.
46:35
Were you provided with any kind of management training?
46:38
Because, you know, I see this a lot where folks are, they're
46:41
really good at their job, right? And that's what sort of leads
46:44
them to get promoted. But they weren't given the
46:46
foundation or the skill sets to say, OK, here's how to apply
46:51
your domain expertise to managing a team of people that
46:58
are also working towards the same goal.
47:01
Yeah, I've been, I've been really lucky in that our our
47:04
more senior vice presidents and our directors and managing
47:07
directors on the team are just extraordinarily knowledgeable.
47:11
They've been around the block, they know what they're doing.
47:13
They've dealt with every variety of client under the sun.
47:17
And so they've really for me just been like an open line of
47:20
columns of you have any questions, if you run into
47:22
something you just don't know what to do, you can always
47:25
escalate. You can always go to them.
47:27
It's kind of the perks of a a small, pretty tightly knit firm
47:30
is whenever something like that happens, it's never I don't have
47:33
time for this or I can't deal with that.
47:35
It's just OK, what do you need? Walk me through it.
47:37
How can we figure this out? So I've I've gotten really lucky
47:40
in that haven't been just thrown into the deep end, as they say
47:45
very much, you know, still slightly trial by fire, but with
47:48
a lot of support for sure. So we've talked about how you
47:53
guys are a smaller firm, there's a lot of other really big
47:58
competitors out there, but you guys are offering the same
48:03
quality, the same level of services.
48:06
When you're kind of going up, you know, when you're recording
48:09
a customer and somebody chooses you over one of the big ones,
48:12
why do you think they're doing that?
48:14
What are they getting with you that they aren't getting with
48:17
your bigger competitors? For sure.
48:19
I think you know three key things, sex or expertise is, is
48:23
primary, right, particularly on digital asset side.
48:26
We're a known player in that space.
48:28
I think we by size actually by number of positions, we're one
48:32
of the largest players in that space.
48:33
And so for many things like that and on the back opinion side,
48:37
variety of things where we we have expertise, we have a niche
48:39
carved out that that is definitely a differentiator as
48:42
far as winning work, it does help.
48:45
I mentioned that we're white glove and low turnover
48:47
frequently, you know, clients may be coming to us from another
48:51
service provider and they've had a variety of just sort of
48:54
turnover related and larger firm interactions that they've just
48:57
rubbed them the wrong way And they want someone that they can
49:00
just pick up the phone and call and ask questions.
49:02
They don't want, you know, 7 people in a chain before they
49:04
talk to the person who's working on their project.
49:06
So that is a key differentiator. And the other thing too, is
49:09
that, I mean, the way that we price our work, both compared to
49:12
larger competitors with higher overhead, but also that we're
49:15
typically fixed rate, which is a big deal in the space.
49:19
Many sort of audit and professional service firms are
49:22
hourly. We typically build flat by
49:25
position and we provide audit support on the back end.
49:29
So we not only do our work and help you get to this phase where
49:32
you can then send that to your auditors, But when your auditors
49:35
have questions, you know, technical questions on valuation
49:37
that you're like, man, I'm working 60 hours a week already.
49:41
I need to invest the funds in my fund.
49:43
I, I don't have time to answer these questions from auditors.
49:46
We provide support on that as well and it's built into our
49:49
pricing as part of our engagement.
49:51
It's not a secondary, it's not, we're not going to bill you
49:53
hourly for going back and forth. We're just going to handle it.
49:56
We're just going to take care of it.
49:57
So there's a, you know, both an expertise component and the sort
50:01
of outsourcing taking it off your plate component.
50:03
That's a a key value driver for us.
50:06
And that pricing component is huge.
50:08
To be able to have that that cost certainty going into
50:12
something really helps from a planning standpoint.
50:16
For sure and it, and it means we can service clients that have
50:19
trouble working on an hourly rate, right.
50:22
I mean, we can work with AVC firm that you know, they have 30
50:26
or 40,000 and that's it to do all their work for the end of
50:29
the year, right. Like they can't they can't go to
50:31
a bigger firm. It's not going to ever be in
50:32
budget. But at the same time their
50:34
auditors are saying, hey, we we need you to think about a third
50:36
party valuation advisor. So it gives us flexibility and
50:40
it gives our clients certainty that, you know, we're not going
50:43
to surprise you. We're not going to come back and
50:45
say, hey, you know, we, we, you called me on a weekend.
50:47
How dare you? Here's another bill.
50:48
Like it's, it's just a different way of doing it.
50:52
It's very high touch, very white glove.
50:55
Michael, let's talk about the future of Houlihan Capital.
50:58
What are some growth initiatives or some internal projects that
51:02
you're excited about? Yeah, I think the the biggest
51:05
push for us and this has been one of the sort of changes in
51:09
the way we've we've done business the last couple years
51:11
is really increasing how we team sell.
51:15
Most professional services firms as I'm sure you're aware have
51:17
this partnership structure. Partners are outselling work.
51:20
They have, you know, business development expectations for our
51:24
firm. We've actually sort of always
51:25
had a separate, separate team doing a lot of our sales, doing
51:29
a lot of our business development and our specialists
51:31
can really focus on exactly that, being specialist, being
51:34
execution people. But what we found is when you're
51:38
out selling work, it is so, so important to have someone there
51:42
who has been doing it, who has the, the technical knowledge and
51:46
the background to really speak to client on a, on a deeper
51:49
level about how they view what the project might look like.
51:52
You know, the sector that they're working in.
51:54
They can throw around the, the acronyms and the KPIs and really
51:57
understand. And so we really, we really made
51:59
a push to do that where you know, you're not, you're, you're
52:03
never really interfacing with us without somebody from our
52:05
execution team ensuring that we can understand what you're
52:09
talking about and, and give you a better sense and really
52:11
demonstrate our expertise. And that's been great for us.
52:14
It's really been good both for, you know, us execution people
52:18
who need to learn how to sell. Obviously, as you move up in
52:20
professional services and for our sales people, they just,
52:22
they have support, they have backup.
52:25
They don't have to, you know, quick Google on the side or
52:27
anything if if a really technical question comes up.
52:31
I want to shift gears for a moment, Michael, and would love
52:34
to hear about a serious challenge that you've overcome
52:37
in your life, whether it's something work related or
52:40
personal, and how you got through that.
52:42
Sure. Yeah, it's definitely a, it's
52:45
definitely a tough one. It's a tough question.
52:47
I will say, I think, you know, very, very early in my career, I
52:52
did completely change, completely changed course,
52:56
completely changed my path of my life, what I wanted to do.
52:59
I, you know, you saw my, my media degree hidden on my, on my
53:03
CV there. I had every intention of, of
53:06
being a radio reporter. Actually, I went to school for
53:09
it. I had done, you know,
53:11
internships at my local NPR affiliate.
53:13
I have been doing some freelancing.
53:15
Really was completely sad. I'm like, this is going to be my
53:18
life. This is what I'm going to do.
53:20
This is the path that I, I am interested in.
53:22
And I, you know, did a couple of projects, did a summer
53:26
internship, got to the end of it and just thought like, this is
53:29
not where my skills lie. Like this is the thing that I
53:32
love the most, the thing I want to do the most in the world.
53:35
And I'm just not very good at it, which is just, it's a brutal
53:39
place to be because again, you've, you've done the
53:42
training, you've done the things you're supposed to do.
53:44
You feel like you should be reasonably competent at that
53:48
thing. And yeah, I, I completely, I
53:51
mean, within the span of, I think a month or two went from
53:54
like, I'm going to take a job doing this to, I'm going to
53:57
completely pivot. I'm going to go get a master's
53:59
degree in finance. I'm going to, you know, take
54:02
some of the skills I've learned, but do something that I think I
54:04
can succeed in and, and do well. And that was definitely, I mean,
54:09
that was a hard, that was a hard thing to do both from the sunk
54:12
cost, right? I had actually not only double
54:15
major in undergrad, but started a master's program in media
54:18
while I was an undergrad. So I was like working like a
54:21
dog. I think I took 21 credits, like
54:24
two or three semesters, like really, really cranking on this
54:27
idea and just had to completely kind of have the talk with
54:31
myself like, this is not what you're going to do.
54:34
Did somebody else tell you, hey, Michael, you're not very good at
54:40
this, you might want to consider something else?
54:42
Or was this you just being critical of yourself?
54:46
It was one of those things where you, you see people who are
54:49
successful. I, I remember I was sitting in
54:52
a, it was a pitch meeting. So this, this team I was working
54:55
on is actually a science show. And they would, they'd sit down,
54:58
I think once a week it's like Monday morning meeting and
55:01
everyone would pitch stories, right?
55:02
Because you have to come out with a new show every week.
55:04
You have to know what you're going to cover.
55:05
You have to have a list. And I remember looking around
55:09
and these are just amazing people.
55:11
I mean, they have 75 ideas and they're so curious and they want
55:14
to go dig in. And I'm sitting there and I
55:16
just, I got a blank list, right? I've got nothing.
55:19
And I was like, I don't think I can produce what needs to be
55:24
what you need to just every single week to make this a
55:27
career, right? Like you can never, you can
55:29
never really set it down and like not be thinking about it.
55:34
So yeah, I was, it was I, I think that was the moment I
55:36
remember most as like that's you got to pivot like this is just
55:40
not going to be for you. Anybody try to talk you out of
55:43
that transition? I not particularly, I had one
55:47
mentor in the space who, you know, I had really talked
55:50
closely with her about, you know, pursuing a career.
55:52
So I, I think for her that was like, it was a bit surprising.
55:56
I just like went dark for a couple months.
55:58
I was like, oh, by the way, I'm taking a job, going to go to
56:00
grad school and take a job in finance.
56:02
So I think that was that was probably the only person.
56:05
No one really pushed back too much.
56:06
But I think a lot of people were very much surprised because I
56:09
kind of built my whole career, my whole identity around this is
56:12
what I'm going to pursue. Any regrets?
56:17
Oh, not, not too many. I have to say I, you know, kind
56:20
of one of the perks and, and kind of talked about this in the
56:22
beginning of this field is that, you know, that curiosity, that,
56:25
that ability to just dig into things when they're presented to
56:29
you never really goes away. Like I, I worked on a, it was a
56:33
satellite networking deal couple, couple years ago.
56:37
And I, I find there's so many times where you know, like this
56:40
deal, you, you just spend 2 days, you just read about the
56:43
topic, right? You have to be as close to an
56:46
expert as you can be in the time frame because you're going to be
56:49
speaking to a board that does satellite networking for a
56:52
career, right? They've done it for 30 years and
56:54
they know all the insurance and outs.
56:56
And you have to be as prepared as humanly possible in the short
56:59
time frame you have. And I think that's what I've
57:02
really loved, is keeping that same sort of concept of being
57:05
like a mile wide and an inch deep and being able to dig into
57:08
these things when necessary has kept sort of the curiosity alive
57:13
in my career for sure. So what would you say is your
57:16
superpower, Michael? I mean, honestly, it's that
57:20
curiosity. I'm just, I am stubbornly.
57:22
I do not like being in a scenario where I don't fully
57:25
understand something, you know? I can, I can BS with the best of
57:30
them, but I, I really feel uncomfortable speaking to
57:33
something that I haven't at least read a primer on or
57:36
understood to a a deeper level than would be expected.
57:39
You know, obviously you can't be an expert in everything.
57:41
You can't, you know, can't become one overnight, but you
57:45
can certainly try. And so throughout my career,
57:48
whenever I've been faced with that challenge, I've just done
57:50
everything I could do to to just know as much as humanly possible
57:54
and just give it an an honest try to learn the topic and
57:57
understand. How are you leveraging AI in
58:04
your own workflow? You're super curious.
58:06
You got to, you know, get up to near expert level and in
58:08
industry how do you use that as a shortcut or or other ways that
58:12
you employ it? Yeah, I mean, it's, it's really
58:15
become a key tool I think in the industry, honestly, it's it's
58:19
going to be unavoidable, right. It is getting better and better
58:23
by the day. We, you know, typically myself,
58:26
I'd like to use it as a, sort of a, of a, of a challenge or like
58:31
a thought partner, right? I like to have my own approach.
58:34
I like to have a concept of what I want to do on a particular
58:37
thing. And I want to have it try to
58:40
punch holes in my argument. And it's, it's relatively good
58:43
at that. And it's gotten better,
58:45
particularly in things like choosing market comps for
58:49
companies. It's gotten really, really good
58:51
at that in the span of 12 months.
58:52
It previously didn't do too well.
58:55
So it really, I think for us and it's, it's kind of what we
58:58
encourage our team to use it as. It's, it cannot really at this
59:02
point do your job for you. And even if you let it try, you
59:05
have to very much very closely audit it, right?
59:08
You need to really understand the output in order to, to let
59:11
it take over more of that work. But honestly, using it as a way
59:15
to, to punch holes in your arguments and, and fight against
59:19
your idea, right? Is, is really great.
59:21
I mean, it can pull from so many things that might suggest
59:24
otherwise. And it's, yeah, I mean, that's
59:27
how we've been using it primarily, I would say.
59:29
So for you, you're doing most of your research on these fancy
59:32
data platforms that we were talking about at the beginning
59:35
of the interview. And so from reading those, you
59:38
sort of formulate your ideas and then you feed those into a large
59:43
language model and you're like, hey, hit me back, like what?
59:47
What am I missing here? And sometimes it comes up with
59:50
some ideas where you're like, oh, that's legit, I need to look
59:54
into that. And other times it does what
59:56
LLMS do and it hallucinates and you're like, well, that's a
59:59
terrible piece of feedback. Exactly.
1:00:02
And, and I think that's really for, especially for people early
1:00:05
in their career and financial services right now, that's going
1:00:08
to be the differentiator is you need to not only be able to use
1:00:11
this tool, but you need to be able to know when the tool is
1:00:13
wrong, right? And so much of what we do is
1:00:17
really this person to person making an argument,
1:00:20
understanding something qualitatively.
1:00:23
And that's just going to continue to be what, what where
1:00:26
people can bring value, right? As LLMS improve, I do think so
1:00:30
much of the quantitative side of the business is really just
1:00:33
going to become not black box isn't quite the right word, but
1:00:37
it's going to be so heavily assisted that things like
1:00:39
modeling skills are, are going to start, excuse me, start to be
1:00:45
less of a differentiator, less important.
1:00:48
And that's I think where the where the field is going.
1:00:50
And there's already platforms now who you know, they'll give
1:00:52
you a, a valuation of your business.
1:00:54
You can throw in your financials, throw in your cap
1:00:57
table and it spits out a number. But I think that's a
1:01:00
differentiator, right? Is does that number make sense?
1:01:03
Can I understand how that number was reached?
1:01:04
Can I support that? And that's where people can add
1:01:07
value, and that's where the LLMS so far haven't quite caught up.
1:01:11
That's not to say they won't, but for now, that's where I
1:01:14
think where the human edge still exists.
1:01:17
What are some other exciting changes that you see coming to
1:01:20
your field? There's, I mean, honestly, the,
1:01:23
the, the beauty of it is that people come up with new things
1:01:26
to value every day. You know, financial markets
1:01:28
never sleep on creating instruments that are challenging
1:01:32
and difficult. And we, we always see something
1:01:34
new walking in the door. I think, you know, continuing to
1:01:38
see new strategies. We've seen that with, not to go
1:01:41
too much of A tangent, but digital asset treasury companies
1:01:44
like MicroStrategy, they effectively took a pool of
1:01:48
digital assets in a holding company and listed it.
1:01:50
And for some reason it traded at a huge premium to the underlying
1:01:55
digital assets. These little quirks of markets I
1:01:58
think are just going to continue to amplify particularly as we've
1:02:01
seen, you know, retail investment involvement really
1:02:05
pick up. I think the do you.
1:02:06
Think that's what you're driving these.
1:02:09
I don't know if you call them arbitrage examples or.
1:02:12
I, I think to some degree, yes, it's, it's a lot of retail
1:02:16
participation that's definitely going to continue to be a trend
1:02:19
as long as there's risk appetite out there.
1:02:23
I, I think that's driving a lot of it.
1:02:24
At the same time, you know, a lot of the traditional
1:02:28
investment structures have kind of become old hat.
1:02:31
And if you're a, you know, a fund manager or an allocator,
1:02:34
you need to be able to show look like this is the new thing.
1:02:36
This is the thing that's going to drive alpha and new returns.
1:02:39
And you know, we need to look into this.
1:02:41
And so I think that's partially some of it as well.
1:02:45
You know, you've seen private equity and such be sort of in a
1:02:49
holding period of exits and things like continuation
1:02:52
vehicles trying to, you know, see, seen a bit of stagnation in
1:02:56
that strategy. So I do think you're going to
1:02:57
just continue to see people come up with stuff all the time.
1:03:00
And that's what excites me is you just never know what's going
1:03:03
to walk in the door. Michael, I've just got one more
1:03:06
question for you today. But before I ask it, I want to
1:03:09
do 3 quick things. First of all, anybody who wants
1:03:11
to get in touch with Michael Moscarelli, their website is
1:03:15
Houlihan capital.com. We'll have a link to that in the
1:03:18
show notes, Houlihan capital.com, and his e-mail
1:03:21
address is mmoscorelli@houlihancapital.com.
1:03:25
mmoscorelli@houlihancapital.com. They'll be links to both of
1:03:28
those in the show notes. And if you're enjoying the show
1:03:30
today, please take a moment to follow us on your favorite
1:03:33
podcast app. It sends a signal that helps
1:03:36
others to find our show. So thank you for taking a quick
1:03:39
moment to do that right now. And as a reminder, if you want
1:03:42
to be the hero advisor that shows your clients how to get
1:03:45
their employees access to therapists, doctors and
1:03:47
prescription meds that, as paradoxical as it seemed,
1:03:51
actually increases the company's net profits, reach out to us at
1:03:55
adbackbenefits.com. All right, so Michael
1:03:58
Moscorelli, last question for you.
1:04:00
What is 1 specific thing that you hope to be celebrating a
1:04:03
year from today? This is just, you know, this is
1:04:07
the easy one, right? I just another year of growth
1:04:09
with Houlihan, right? That's really the hope.
1:04:12
But I guess on a, on a more personal note, we're only a
1:04:15
couple days for my anniversary. So I'll be celebrating 4 years
1:04:19
of my wife, who's been incredibly gracious putting up
1:04:23
with my, you know, career last couple of years.
1:04:25
As you can tell, I tend to talk a lot.
1:04:27
I tend to ramble a little bit. So if you think he got a little
1:04:30
bit of this of that on the podcast, she puts up with it all
1:04:33
the time. So.
1:04:34
And what is her name? Throw that in there.
1:04:36
That's Emily. Yeah.
1:04:37
Emily, tip of the hat to Emily for putting up with Michael.
1:04:42
All right, Michael Moscarali from Houlihan Capital, I want to
1:04:46
be the first to thank you for sharing both your time and your
1:04:48
story with us today. I really appreciate you being
1:04:51
here. Yeah.
1:04:52
Thanks, Anthony. Appreciate it.
1:04:54
Folks, that's a wrap on another episode of the Inspired Stories
1:04:57
podcast. Thanks for learning with us and
1:04:59
if one thing stood out, put that into action today.