ASPIRE 2017 started out with an Entrepreneurs’ M&A Roundtable featuring four of Northeast Ohio’s most prominent business leaders — Len Pagon Jr., chairman, Robots and Pencils, chairman and CEO, Next Sparc; Stewart Kohl, co-CEO, The Riverside Co.Charles E. Hallberg, CEO, Renew Advantage; and Kenn Ricci, principal and chairman, Directional Aviation Capital.

The group, moderated by Jerry L. Kelsheimer, former regional chairman, Fifth Third Bank, shared anecdotes and advice from their experiences buying or selling businesses, and the challenges — and opportunities — they faced.

During the question and answer portion of the panel, an attendee asked, “How have each of you learned how to identify promising opportunities and weed out the dogs?”

Pagon shared how he’s learned to be discerning and the importance of Warren Buffett’s rules for investing. What follows is a transcript of the above video, edited for readability.

Know when to pass

There’s lots of opportunities. I tend to get excited about too many opportunities, and over the last 10 years I've been much more discerning.

A lot of stars have to align to get a deal closed. So one of the things that is really important sort of initially, is I have to be really excited about it. If I'm sort of excited initially and then I'm kind of convincing myself, I've become more clear and discerning. It's not worth convincing myself. And to get a deal over the, you know, over the end line, there’s lots of twists and turns and a lot of challenges, and you need to have enough sort of motivation on both parts to really get a deal done because there’s going to be tough moments where you think the deal’s going to fall apart. So having that sort of connection that, enough relationship equity where you can work through those things. Also, I really look at the down side.

So, you know, based on the structure of the deal, based on where the capital's going in, or what the terms of the capital going in, I'm really trying to, you know, follow [Warren] Buffett’s rules.

You know, rule No. 1 is don't lose the capital. Rule No. 2 is see rule No 1. And so I’m really looking at the down side to make sure I have preservation of capital — that I'm not going to get impaired. Or if I am getting impaired that it’s going to be modest, the equity’s or whatever the capital is going in is structured that it has enough protection, and then also it can ride on the upside, and has enough multiples — enough return on the upside that it’s worth getting the deal done.