http://www.dallasnews.com/business/small-business/20100825-Young-investors-in-the-trenches-706.ece

Brooks Burgum and Jordan Bastable are not your average private equity investors. The two 20-somethings launched Longwater Opportunities in Dallas nearly a year ago and made their first investment - in an Irving assembly company - in the midst of a fragile economy.

It's their youth, inexperience and hands-on approach that distinguish them from other private equity firms.

"Our model is completely different than most private equity firms in town," Burgum said. "We are not chasing oil, gas or health care. We are in the trenches, trying to grow our brand and reputation."

Longwater operates with a fund-as-you-go approach - finding deals before seeking investors instead of the more traditional model of raising a fund that is then used to buy companies. Its sweet spot is small manufacturers with $750,000 to $2 million in annual profitability.

So far, Longwater has secured about $10 million in capital from a handful of wealthy individuals and families and a sizable bank loan.

It's a common business model for a small, start-up private equity firm, industry experts said.

"What is unique is they're in their 20s," said Adley Bowden, managing editor of research firm PitchBook Data Inc. He's seeing "very few" private equity firms starting from scratch in this economy.

"Nowadays, it's more difficult to raise a fund," said Josh Beckerman, an editor for Dow Jones Private Equity Analyst. "The fundless model is a way for a firm to start out and build a track record. [Fundraising is] difficult even for people with 10 to 20 years of experience."

Some debt-laden private equity deals are defaulting or going bankrupt, equity and debt are expensive, and invested companies are struggling. Deals peaked in 2007, when the $48 billion buyout of Dallas-based TXU, now Energy Future Holdings Corp., became the largest deal ever.

On the upswing

U.S. private equity investments are improving a bit, totaling $47.6 billion in the first half of this year, up from $23.1 billion a year earlier but down from $107.3 billion in the first half of 2008, PitchBook says.

Burgum, 27, came to Dallas 18 months ago to get a master's degree in business administration at Southern Methodist University (he graduates next year) to add to a political science and economics degree from the University of North Dakota in his home state. He was a trader at the Minneapolis Grain Exchange and a project manager for a Las Vegas commercial real estate developer.

Kansas City, Kan., native Bastable, 25, moved to North Texas in 2003 to attend Texas Christian University. Armed with a bachelor's degree in entrepreneurship and finance, he worked for a hedge fund, a real estate investment firm and a restructuring group.

They met at a crawfish boil and realized they shared similar goals. They ended up working at Plano-based Lineage Power, a private equity-owned company that makes and sells power converters, before starting Longwater.

Circuitronics

After analyzing hundreds of businesses, they bought Circuitronics Inc., which assembles printed circuit boards and provides other services such as testing. Longwater thought it could improve the 39-year-old company's flat sales and invest the resources needed for growth, Bastable said.

"I liked their vision of being able to take this to the next level," said Jeff Forbus, Circuitronics' former owner. "Our personalities seemed to jell."

Neither Forbus nor Bastable and Burgum would disclose the price of the November deal.

Under Longwater's direction, Circuitronics has hired five people for a total of 29, installed new software and invested six figures in new equipment. It's also setting up the company's first automated order and inventory system, with Burgum spending three months sorting and cataloging the entire inventory.

Circuitronics' revenue rose 10 percent in the first half of 2010 from a year ago, Burgum said. The plan is to bolt on other acquired companies to gain more control of supplies and offer new services to customers, he said.

A second buyout fell through last month, but Burgum and Bastable said they hope to close another deal soon.

They acknowledge that some companies and potential backers have been wary of their age and inexperience.

"People have said, 'Come back to me when you have some successes you can share with me,' [but] it hasn't hindered us," Bastable said.

It helps that he and Burgum are investing their own money in each deal.

Forbus, 39, had no reservations about the duo. "I like the fact that there's some innovation and energy there," he said.