(Click image to play video.) In this episode of the Investor Views series, Single-Family Office Managing Partner, Brian DeLucia talks about the benefits of family office collaboration, how companies need to differentiate themselves in order to succeed and the mistakes capital seekers should avoid.
In this episode, Brian and I talked about:
The importance of aligning interests and identifying strategic relationships
Opportunities in modernizing traditional businesses
How family offices are benefiting from collaboration
Why companies need to clarify their point(s) of differentiation to attract capital
Modernizing the capital allocation process using technology and data analytics
“As family offices, we take a little bit of a different approach. Kind of elevating these companies with like-minded experience to bring that strategic value and leadership and expanded rolodex to truly elevate these companies, modernize them and create more jobs. I would say we look at this from a much, much different perspective than, as I said, just financially engineering them or chasing the latest flavor of the year.”
“You see a lot of people chasing businesses, chasing transactions, bidding up assets and companies, and ultimately it’s creating a lot of overpricing, a lot of over leverage in the markets today, and I think that when the music stops, we’re going to find ourselves with a lot of companies that are over leveraged with debt.“
“I like the fact that as families, we’re getting together more often. We’re engaging in more conversation with one another, trading ideas. I would say kind of keeping an eye out, or looking out for one another to try to truly identify opportunities that we could truly scale.”
“it doesn’t matter whatever the business is, whatever the endeavor, whatever the strategy is, the first mistake I see is, often in their first round, they’re looking to raise too much capital, whether it’s $50M or $100M. In my opinion, start out small with your first round. Start out with $10M and get oversubscribed quickly.”
“…my question always is, “What are you doing differently or what are you offering differently than the next guy? What information do you have access to that nobody else has that ultimately is going to differentiate you?”
“I think from a business perspective, when it comes to raising capital, we have to start looking at modernizing that process, especially in today’s world.”
TRANSCRIPTION: November, 2018, Brian DeLucia, Managing Partner, Arrivato, LLC
JB: in this episode of Hedge Interview, I’m speaking with Brian DeLucia. He is the Managing Partner of Arrivato, a family office located in New York on the east coast. Brian is going to share with us some of his key interests and concerns as he navigates today’s investment marketplace. Thank you for joining us today Brian. So, your experience includes real estate development, especially within multi-family rental communities, and special situations lending. You also established a leading sports media firm. Let’s get started with the first question, which is more about your primary focus right now, your area of expertise at Arrivato.
BD: Well, thank you. Our focus is first centric as a family office. You know our family and some of our family office friends have been active in real estate development both in land and building development over the last thirty years and secondly we also handle the U.S. business interests for a very large non-U.S. family and larger real estate transactions, but also (we focus on) identifying strategic relationships and underlying technologies in energy, agriculture, defense industries as well as looking at some of the health care and impact sectors. And lastly, we also handle some consulting work as well discreetly aligning interests, whether it’s special situations across several industries or discreet dispositions of access with in real estate. You know just utilizing our inner circles to bring together those opportunities as well as working to elevate traditional economic-driven companies, bringing strategic value and leadership to those companies as well.
JB: That sounds very diverse. Sounds like you look into a lot of different things, which must keep your job very interesting.
BD: Oh absolutely. I think it’s important to remain engaged in the business community from a broad perspective to understand what is happening out there in the marketplace and certainly out on main street on a day-to-day basis.
JB: On that note, what’s happening in today’s markets that really excites or inspires you? Sort of like, the good things that you enthusiastic about I guess from a global macro perspective.
BD: I see a lot of people chasing what I call the ‘latest flavor’ of the year, but one of the things that I enjoy doing is kind of getting outside of that and above that. You know, enjoying meeting some talented entrepreneurs today that are really creating real social and economic impact, that have the scalability to touch an entire global population in everyday life. So, one thing I maintain being excited about is the leadership, as a family office and as a family office community, that we bring good traditional industries, like manufacturing, logistics, distribution, business services. And also, I think that just within that area, you see a lot of investors traditionally try to financially engineer these companies for their own interest. As family offices, we take a little bit of a different approach. Kind of elevating these companies with like-minded experience to bring that strategic value and leadership and expanded rolodex to truly elevate these companies, modernize them and create more jobs. I would say we look at this from a much, much different perspective than, as I said, just financially engineering them or chasing the latest flavor of the year essentially.
JB: So almost like with a little bit of a social responsibility type of element to it. Not as formal as impact investing, but being socially responsible about what you’re choosing to get involved in from a higher level I guess.
BD: Absolutely Jennifer. I definitely agree with you on that. We definitely try to bring a broad picture but also something that’s just real life and I think a little bit more authentic when it’s all said and done.
JB: Ok. What’s happening in today’s markets that would concern you or make you feel worried or nervous.
BD: I think actually, let’s play off the word authentic for a moment. The lack of authenticity in the market. You see a lot of people chasing businesses, chasing transactions, bidding up assets and companies, and ultimately it’s creating a lot of overpricing, a lot of over leverage in the markets today, and I think that when the music stops, we’re going to find ourselves with a lot of companies that are over leveraged with debt. And ultimately, at the end of the day, it’s going to hurt the heart of these companies which is the everyday workforce and that’s probably the biggest thing that concerns me almost every day as we’re moving closer and closer to the end of the business cycle.
JB: That makes sense. What new investment trends or developments intrigue you right now?
BD: Well, certainly everybody right now is chasing blockchain and opportunity zones, but let me answer this from the perspective of a family office, or the family office community in general. I like the fact that as families, we’re getting together more often. We’re engaging in more conversation with one another, trading ideas. I would say kind of keeping an eye out, or looking out for one another to try to truly identify opportunities that we could truly scale, whether it’s real estate developers trading better places to live and work. We’re identifying those traditional companies and elevating them to the next level, which is definitely creating a lot more jobs, unlocking more liquidity to address special situations that are allowing very sharp and talented people to execute on opportunities beyond the boundaries of just traditional debt channels. Helping to create more economic development within communities where liquidity has dried up, and also just truly giving talented people and up-and-coming entrepreneurs a real voice in the marketplace. So those are the things that I see trending just within our circle.
JB: Would you say that you collaborate with your ‘family office tribe’, so to speak? That there’s a lot of collaboration?
BD: Absolutely. We certainly have, I think, a very close knit community. It’s groups of people that are very like-minded, have created their wealth in specific industries or endeavors, as well as people who work for families and run their family offices. I think there’s a certain level of comradery, certainly here in New York City. We definitely see that. We get together on a regular basis, whether it’s in round table sessions behind closed doors, or private dinners, and it’s a lot of fun.
JB: I bet it is!
BD: Yeah, just to sit and have these conversations every day in terms of how we look at different things or even little one-percenters. It’s really interesting. In fact, just a week and a half ago, we were in a round table and the grandson of a very, very famous family in the financial services industry. So this was third generation, and his wife runs their family essentially, and she was just giving some little one-percenters in terms of how she looks at things in terms of maybe very specific managers. When you’re around that and you’re in that dialogue every day, it’s a little bit more real. And that’s what I’m excited about, because when you separate out what I call the white noise, where you have a lot of professionals out there chasing deals or chasing their next commission checks for their own self interest in terms of their own economics. So it’s very refreshing when you have a group of like-minded people in the same room and you have real conversations about how we can help one another out, how we can bring real value to real businesses.
JB: When there’s consensus around certain ideas that you’re sharing, that must build your confidence one way or the other about something that’s positive or negative. That must reinforce your faith in doing something or not doing something, or moving in a certain direction.
BD: Absolutely. And also, I think along the same lines, for families that maybe are diversifying, you know, if there’s a family that created their wealth in oil and gas, and now they want to be a little bit more diversified, let’s say into logistics companies. Ultimately, they could align themselves or partner with a family that built their wealth in the logistics industry, and going in, alongside of them, into maybe a logistics company that maybe we can help lift up at the end of the day and elevate to another level or modernize in today’s marketplace and that’s something that brings a comfort level as well.
JB: It’s refreshing to know there’s that level of sharing of ideas rather than coveting ideas. That’s really great. Without naming names, give an example of how a company or asset manager or entrepreneur truly impressed you. What was refreshing or what did they do differently than others?
BD: Through one of our inner circles within the family office community, there’s a couple of families that I’m friends with who suggested I come sit down for a private dinner, and this was about six weeks ago, and they introduced me to a group that they’d been invested into for about a year and a half now. And what’s interesting is, I guess you would say, working with a lot of early stage companies, but they’re not startup companies. They’re kind of working outside the traditional Silicon Valley channels, to align with talented entrepreneurs that are ready to gain some traction in the marketplace, with very, I would say, phenomenal but very fundamentally sound businesses that are en route to creating some very positive impact across the world right now. That’s the one thing that I was very excited about (with) that group because I thought they showed a lot of empathy and just a real fundamentally sound approach with real people. That’s one thing that excited me.
JB: That is very positive. That’s a very positive thing to get excited about. Conversely, what’s something that a company or entrepreneur or asset manager has underestimated in their process of attracting capital. Give an example of how someone has missed the mark by overlooking something critically important to you.
BD: Definitely a few critical mistakes I’d say especially if they’re approaching family offices. And today, everybody is looking to raise capital. Certainly they’re all targeting family offices. Especially some of the ‘flavors of the year’ in terms of let’s say blockchain technology or opportunity zone funds. Everybody’s coming after the family offices. But it doesn’t matter whatever the business is, whatever the endeavor, whatever the strategy is, the first mistake I see is, often in their first round, they’re looking to raise too much capital, whether it’s $50M or $100M. In my opinion, start out small with your first round. Start out with $10M and get oversubscribed quickly. When you do that, it creates a real energy and a real momentum and to me you have a little bit more credibility when you’re starting more pragmatically. So get oversubscribed, show there’s some energy and momentum where you have to quickly start fund two. That’s one very underrated aspect that a lot of capital raisers are making a mistake on. The other thing (mistake) is what I call the ‘me too’ syndrome and that goes back to what I just said about everybody’s raising money right now for the blockchain ventures or the opportunity zones or multi-family value add deals, and my question always is, “What are you doing differently or what are you offering differently than the next guy? What information do you have access to that nobody else has that ultimately is going to differentiate you?” Because everybody is pitching the same thing every day and it’s just not compelling. And it really comes down to what’s the alignment of interest with investors, especially if you’re looking to align with a family office. Because at the end of the day, there’s a lot of competition for dollars, especially in our circles, and I think you really have to quickly answer the question, ‘What are you offering that’s making it compelling to write that check from an economics standpoint?” I guess that’s one area that I think is certainly a big discussion, or certainly a lot of discussion amongst some of our closed door dialogue among family offices.
JB: Definitely. I’ve heard that as well that defining your competitive edge, your value proposition, what makes you different, because if you’re just like everybody else, there’s really no point. I mean if everybody’s the same. You’re looking for somebody who can differentiate themself and their offering in a critical way. I can totally appreciate that. Lastly, what’s one thing you hope will happen by year-end or any time next year?
BD: Well, I think there’s two things. Number one, you certainly want to see, from a geo-political perspective, maturity in society again. We’ve become a very immature society, with all the back-biting. We’re falling for all of the traps right now, these arguments that separate ourselves more than bringing us together. And this isn’t a democratic or republican issue. (Neither) side has the answers or solutions to everything. We have to get back to understanding that both political parties play a very important role in this country and we have to stop identifying as democrats or republicans. We have to look at ourselves as we’re Americans and we’re people and we live in a society that certainly has become very global and we have to understand that the narrative is different today. We’re an evolving society and if the narrative out there doesn’t fit the narrative that you grew up with, that doesn’t mean that it’s wrong. It doesn’t mean that you’re right and they’re wrong. It means that we have to listen to each other and understand each other a little bit more and find those common levels of ground where we can work together. Like I said, at the end of the day, nobody is right and nobody is wrong. Nobody’s values are superior to anybody else’s. I don’t think these arguments about patriotism, you know there’s not one person that’s more patriotic than the other. We just have to work on listening to each other and find ways to get along and certainly work together for the common good and help lift each other up again as a society. I think from a business perspective, when it comes to raising capital, we have to start looking at modernizing that process, especially in today’s world. We’re becoming a lot more modern of a business society and people are out there raising capital in very, very tired manners that I think I would call the 1980’s way of capital raising and right now were in the year 2018.
JB: I’m so glad you’re talking about this. Tell me what you consider to be antiquated versus what you would like to see more of in terms of getting more advanced.
BD: Well, no matter what year we’re in, you always want to start with the friends and family, your core base of what I all the ‘country club’ level, and at some point you outgrow that. Whether you’re building a real estate portfolio or selling widgets, no matter what you outgrow your audience at a certain point. And then what happens is that, most times let’s just say you have 40 or 50 or 60 or 80 investors or an audience of investors. Any time you have a transaction or endeavor, you pick up the phone and you reach out to that base. But like I said, at some point in your evolution as a business, you out-grow that (initial method) and you have a couple of different choices. Some people are very fortunate that they can align with one ultra high-net worth investor that’s going to write a check and strategically align with them, which certainly it creates a different economic relationship with an investor. A lot of benefits to that, but a lot of people aren’t fortunate enough to be able to track that one ultra high-net worth investor, maybe because they’re playing in tertiary markets or in a very tertiary business model. You have to continue building a large audience of investors and the biggest mistake that we keep on seeing today is, you know if you have 60 investors, getting that first 60 investors is very difficult, and you have a lot of people going out to luncheons and dinners and coffee. Ultimately, to get that one investor, that’s a lot of meetings and a lot of costs to just get one investor. I think with today’s technology, there’s a lot of modern ways to scale this up with very proprietary technology and data, analytics and predictive analytics by targeting number one, the right data and looking at historical algorithms of very specific investor behaviors and using very sophisticated technologies and proprietary technologies to start building larger audiences of investors, having the investors start raising their hand and say, ‘hey, we’re interested in getting to know you and working with you in the future.’ And that’s something where crowdfunding was kind of a start to that, but ultimately at the end of the day, I don’t think that’s the long-term solution, mainly because you’re probably not, in a lot of cases, building long-term proprietary relationships, but I think if you learn how to utilize proper data on large scales and like I said, utilize the right technologies, there’s a lot of very interesting things you can do in terms of aggregating much larger audiences, going from 50-60 investors to let’s say a few hundred if not a thousand or a couple thousand investors over the course of 6, 12, 18 months. So that’s the one thing, I hope to see companies evolve their approach over the next year.
JB: That’s very interesting – to make a much more targeted approach using data. Brian thank you so much for your insights. This has been so helpful.
BD: You’re welcome Jennifer, pleasure.