July 3, 2020

Do family offices invest during pandemic and how do they invest in the "peace" times, by Sebastian Zhou.

Do family offices invest during pandemic and how do they invest in the "peace" times, by Sebastian Zhou.

In this episode of Fundraising Radio, Sebastian Zhou Investor at Alpha Square Group explains how family offices act now VS how they act in the "normal" times and also gives recommendations on which investors to approach first during this pandemic.

Alpha Square Group's website: https://alphasquaregroup.com/

In this episode of Fundraising Radio, Sebastian Zhou Investor at Alpha Square Group explains how family offices act now VS how they act in the "normal" times and also gives recommendations on which investors to approach first during this pandemic.

Alpha Square Group's website: https://alphasquaregroup.com/

 


Transcript

So, in this episode, we'll talk about how family offices are reacting to this dynamic. How do they still invest? Are they just waiting for the does to sell and we'll also discuss, who should the founders go to right now to raise? 

Money should be venture capital should be an angel. Investor should be angel group should be a family office. Should be regular bank we don't know yet, but hopefully specimen will bring some light to that question. 

Best in Alaska called by you giving us some background on yourself and on the alpha square group. 

Oh, for sure I appreciate that. I think of how many so on our end. So, basically, I'll probably started by sharing more lights on the support group and then, and then my background. 

So basically offer score group or a single family office based in New York. 

So, we started in twenty, fourteen, fifteen, single family office with the family backgrounds into financial services and insurance in our side specifically. 

We do all looking for broader asset allocation to private public and ours, mainly contemporary arts on our side, always broader on asset allocation mandate. 

But but we do have a strong emphasis into at the private side, whereas we do actively invest directly and also into so,
from an position as well into private market specifically.
So we started out in twenty, four, fourteen and fifteen. 

So, by now, it seems inception would have infested across thirty three companies so far and, and there's, you know, the other positions that we have either directly and indirectly as well. 

And that's a little bit overview on on the background of the family office and and for us, 

specifically, 

on the private side, 

we do invest across early growth and mid to late growth stage of the company got it. 

So, yeah, I think you forgot to mention more background. So we know what alpha Square does, but what's your? Which what brought you here? 

What brought you to the, to the VC field percent happy to share. So,
I actually,
I do spend time across broader Asia, 

and I moved to us,
roughly the age of sixty and essentially, 
I do spend time with both a patient and us for this amount of time. 
And I do spend my career initially at Salton trading and Morgan Stanley, and then spending timing to asset management and variety of the financial services. 

And then, and then diving to the family office that whereas we do allocate broadly both into private and public. 

Whereas the, the interest to me is more lean towards the, the private side, whereas we could be more value add to entrepreneur. 

It says, and by helping them guiding through the cycles, or helping them grow alongside us as well. So by, I guess definition of family office, we do allocated both. 

So we do have a flexibility to to invest either public and private in the meanwhile, the long term patient capital towards the company. 

So I'm pretty excited to join roughly office for three years ago. 

And then, as being always on the investors side, in a lot of spec, helping the company or portfolio screen, fasting to scale to the next level, got it. 

So first question here would be about family offices. I recently had interviews with a lot of angels and you're seeing the same thing. 

Basically we have to infuse more capital right now, because they were sitting on cash for several months and they basically have to deploy now, not to disappoint therapies. Basically. How does it work with the family offices? 

Are the waiting for for, for sale? Are they behaving like angel investors or not really? So,
as for me office,
broadly, 

speaking,
people are definitely more cautious or to deploy capital and obviously,
you see,
in the market pension,
et cetera,
those would be and historically,
or has been heard by the public market.
They're trying to re, from there, you know, private position, react to the public or vice versa. 

But the general says is the people a little bit cautious more on the private side in general as for us and we, we do active. 
You allocate to both, 
from and perspective, 

but also the direct investment perspective, 

but I, 

I just don't imagine That'll be the same velocity and and the pace as before because as, 

as there's definitely an impact into economics, 

even though it wasn't really fully reflected into the public market yet, 

but on our side, 

we're trying to think a more long term view versus a few year horizon. 

So so, 

by doing that, 

we do think there's other company will be due throughout the crisis or cycle, 

or or, 

I guess downturns per se, 

as we observing twenty, 

two thousand or eight back you see the likes of Twilio or Shopify was. 

Actually viewed throughout the crisis, so I do think it's the best time to allocate, and also to create a company. Right right. Yeah, I totally agree with you on this one. 

So, now, before we jump deeper into this topic, I wanted to share more of your perspective and specifically what exactly do to as and best for, at alpha square group. What's your role? 

Oh, 

I guess, 

from my side specifically, 

so we, 

as I mentioned, 

right we we do broader as allocation that ranges from private public and contemporary arts on my row specifically. 

I I do tend to cover mostly on the private, where I could be an investment,
a direct investment into the sector, 
which tend to focus on enterprise and think tech there's two sector, even though we have down. 

So consumer E, commerce before. But that wouldn't be a core focus on our end in the investment mandate. So, majority of my time will be on the private. 

So I do cover funds and and direct investments. So, we do typically five to eight direct investment, core, direct investment by that. 

What I mean, in a given year and then that's typically the pace. We will be spending time. 

So, 

but on the other side, 

I do tend to cover a bit into helping the company that I do cover back when making an initial investment, 

helping their go to market strategy. But also. 

Pay strategic clients introduction, not just selling the US, but also the APAC in general that will, that will be helpful. 

So those would be, I guess, the my majority of my time would be spent on got it. And the next question is, how do you source the deal? So how do you find those starts that you want to invest in privately? 

So, I guess from a family office perspective, it is a little bit different aspect that we do overlap with the VC of the world. 

So we tend to think ourselves that we, we tried to keep a relatively low profile while maintaining pretty active from the past to allocating for investment. 

So we do tend to use a few approach one being the research driven approach. 

I think that's across board for a lot of the hedge funds, or, or the vc's that we do spend a few months into a particular sector to understand the key players and pinpoints a valid change. 

That that we, when we encounter a company that we get to know all the players, whereas the challenges at the company need to solve to get to the next step. 

So that by definition the research of our approach that would actually generate a lot of either. 

I guess outbound targets or against inbound as well and then the second I would say, it's the entrepreneur and portfolio network. 

So, since inception, we've had that over thirty portfolios, the core portfolio by job. I mean, usually it's a larger than a few million position and and that. 

And if the data network, we usually would have a referral from the portfolios either could be the entrepreneur himself or broadly speaking the partners. You have to work with either in the earlier side or so. 
So, those can be another channel to source with as well. I would generally say it's a little bit unique 
and given that we're in the family office community. 
There's a, the offers who, either on the investment side. They have their direct investment practice, whereas we do collaborate pretty often for that. 

The family could be on more on the operations side, 

whereas they do see a lot of a strategic alliance with their business and, 

and in partnership we can strike with and those would be three channels that to source deal. 

And third point, it's usually different than the other policies I would say, because we do half globally. 

We tend to partner with three hundred, three hundred, plus, family offices, either in financial services insurance, a telecom, and a variety of the sectors and you name it. 

Got it so you mentioned that I mean, I got major the major sources of, of your deal flow. 

I was wondering, can a founder just basically email you or can they reach out to you on LinkedIn and you'll actually take a look at their pitch deck or is it not something that works with? You guys. 

Generally, 

speaking, 

the email would be more responsive, 

the other channel technically, 

but I do tend to take meeting selectively by meaning that usually, 

if, 

if it's more personalized email or message, 

I would, 

I would generally apply a reply. 

But, if at that standard templates, or I guess the, the group message, it's, it's usually a bit difficult, but I, I try to respond to all the emails, at least on the other channels. 

I cannot guarantee,
but I would be welcome to to those entrepreneurs we reach out,
but also to personalize to the end goal,
whereas do see the strategic alliance or or things we particularly looking for. 

Right? Right. That's great. So, now, let's discuss the topic. That's one. Probably of the major, the most training topics right now, in terms of the VC world, and it's who should founders go to right now for funding? 

So we have three major sources of capital for third founders, which is angel investors and and family offices. Which of those three do you think a foundry should choose right now for funding? 
I think generally, speaking, depending on stages both, but I guess all of them works. 
But at this point, I do believe if you wanted to go to a VC that you needed to have a, if very clear proposition. 

And usually, it's the thing that works is typically you need to go to one of for the feel of the piece that could essentially and make the call directly in this difficult situation. 

It is definitely getting better. But I guess during the past few months were covet to make an investment decision I can give a week's or one month timeframe. 

That's a virtually a, a, I guess the long term outplay or efforts. So it's virtually a bit difficult. 

And for a family office, specifically, I do see the value of a patient capital because usually technically the family office don't have a first of all to have a strict ownership requirement. 

And the investment horizon, retention, typical, pretty much a long term view that we can whiter through the psychos and and policies, whereas they could be restricted by their mandate. 

That could be, you know, six years, ten years or ten, plus two years. Right? 

It could be anything on the family office that, 

that that's much nimble or and obviously, 

if there's alignment of specifically the family office with the backgrounds or or essentially the operation basis, 

that could be a great alignment with the entrepreneur where the company they're trying to boot. I I think that's that's amazing channel for sure for the entrepreneurs to go into specifically. 

And and the other side I would say, for a lot of the family office, they do have a ability to both, because they can do equity. 

They can do more like a live credit they can do that which cell family office could do both or one of them. 

I think that given that says it's been a bit, I guess,
flexible that the typical VC,
whereas you do require I, 

I guess the specific router heard those or what the strategy you're, 

you're being limited to to equity fast more. 

So. 

That's actually a very good point. The structure of we see is very crucial in this case. So great that you're pointing out and speaking of and your investors, nbc's do do any angel investments on the side. 
So, besides working for alpha square group, do doing angel investments. 
I I would say a handful and even though the majority of the investment tends to be on, the is going to public and then,
whereas at the family office level,
we do have a, 

the deals we investing as the firm level.
We do have some flexibility to Co, invest as well. 

So, and, you know, sometimes it could be earlier site or growth stage so it has to, or we do test to participate alongside as well separately. 

But I guess that's a handful, I would say in that given year or so, right that's got it. 

So, one of the questions that I personally like to discuss is what can convince you to move forward with some specific starts. 

So, for example, you get a personalized email on on email, and then asking you to review your pitch deck and, you know, just give some feedback, etc, etc. 

What are the first things that you look at in that email or in that pitch deck was where those decisive factors for you that will make you think like hey, I want to be a part of that company. 

Yeah, I think speaking to the way that to to interact the, the first of all definitely be pretty upfront, I guess introduction on the backgrounds and obviously and understand that. 

I guess first of all stressed the stages we're investing and then potentially that, you know, because some of the portfolios are actually on a website. 

So, they actually know who they wanted to talk to or do see the value proposition with what an alpha score or us came me to to back them initially. 

So I do, I do appreciate if I guess entrepreneurs would please take extra initiative or or step that to look through our portfolios. 

And there will always be lot through to introduce the portfolios amongst each other in, or to prospect portfolios. So, that's one thing. We, we do app. Okay. 

So,
I guess just pretty much articulate a,
guess on the value proposition that you've brought to,
I guess,
the industry and,
and potentially why would be,
I guess,
needing capital from us and how we can be value add it's crucial to us. 
I guess that the long term or patient capital. Great. That's a good note. So, now let's talk about more specific thing that you want to see on the beach deck. So, where are the three must have points on the beach deck. 

For sure so, I, I think generally, there's actually three or four points. First I would say is I would be looking at, I guess, for any stages. Right? 

But did the earlier a much earlier site where I guess the mid stage will be a little bit different, but generally speaking for us would be why now I think that's crucial. 

And and especially when, why would you decided to view the company now versus a few years ago or or maybe in the three years. 

And second I would say is is mission critical. Why is the product or the service you're beating? Is mission critical to the customer or the end users right? 

So, by that definition, you be clearly stating the, the value proposition. You understanding to the industry that you're beading towards. 

So, that's the second point, which we do evaluate that pretty seriously. And, and a third point that I would say, I do, tend to look at I guess that the most right? 

So essentially, it is just a. 

What makes you, I guess different than the others that you couldn't really replicate is that the previous experience with execution or is that a more technical mode? 

Or is that, 

I guess the other stuff we can look out and then maybe that is third, 

third point or fourth point that's together with number three is why you, 

I guess specifically, 

right to build the business, 

or the industry that you wanted to tapping to. 

Right. Those are actually great points that you mentioned especially the last two I love them. I personally. 

Take a lot of time looking at those, and, you know, figure out what those are. So we discussed, what should you have on the beach deck and let's discuss what you should not have on the beach deck on your first introductory email. 

What are the things that serve as red flags for you? When you just face the company? Wait. 

Yeah, so I, I would generally say, try to avoid, I guess too much wording I guess, on the formality wise, try to avoid too much of wording in a presentation or deck. 

So whereas you maybe you can show a lot of graph to illustrate exactly the point that you try to make. 

And then a second, I would say on the market specifically, we were expecting anything more than just a enormous or big temp because the market is a big apparently. 
But I guess that doesn't guarantee that a company could capture the market. Sure. Out of it. Right? 
So, or, I guess maintain competitive or we're more alongside the process. So I would generally avoid just only stating a, there's a huge ten. 

But how do you get to, I guess the next level as equally important as just stating that the larger temp and also, I guess that teams background. 

So those were to just to point and then, 

and just, 

I guess, 

to keep pretty concise on the points that you wanted to articulate and and also the value proposition is. 

Extremely crucial that, 

and maybe on the competitive landscape that that show that that you clearly understand the competitive mix up industry and where the place are, 

and how you are different from them from either go to market or product itself. 

So, those, I would, I would generally say that to pay to put a great emphasis, rather than just a paid, I guess, study on single factor market. Right? 

I think the one the most on this list is actually separating a small step, and the big vision in general, because some founders focus, so much on the big vision. 

They forget to say, like, what's what's the plan for the next month? You know, they don't really know what's the plan for next month, but they know the plan for next ten years. So we're coming up to our last question today and it's a call to action. 

What's one thing that you want the listener to do? As soon as that is over. 

So, I will say for anyone who is speeding the company today, I, or, I guess already get funding stone and keep running. 

I, I do think that's the best time to who has down to build a company and to carry on the execution. Right? 

So I said my best company would be surviving out of the crisis, or uncertainties would essentially thrive as we observed back in the last cycle. 

Right even though apparently the private market or the public that have reflected into the, I guess, the economics or or the real impact into later spectrum. 

But I, I do really, I think, as the best time to build a company, and also to add extra cushion to. The cash position that you have, 

because we really don't know what will be happening in six months timeframe and how the market will be making adjustment, 

or will either, I guess, 
dump the eighteen month or so where we just don't know yet impact on timing perspective from a previous cobra situation or so there's definitely impact, 

but clearly,
it wasn't fully reflected into into against the market yet and also looking forward. 

I guess I do believe to aspect to, to remain true. First of all. Definitely. That the company needs to raise capital. Right? 

Usually, 

it's a, 

it's a twelve to eighteen month or twenty four month timeframe, 

but in this, 

you know, 

extreme environment, 

it could be different in a so as mentioned, 

it's always great to get more capital into it and start to focus on product execution, 

etcetera. 

And the second, there's definitely a generally shift from, hey, growth at all cost mentality then to a a cost basic allocation exercise. 

So so basically, the founders need to have a. 

To make a choice when when it came to their investors indicates, or a way essentially to, to weigh the opportunity costs to choosing any partners. 

So so those, I would say it is just to diversify the capital pool. So essentially to have somebody sees your cap table. 

Obviously guide you through, you know, go to market strategy, anything else, and also following through the entire lifecycle of the company. 

And also one thing just to to, 

I guess to add on is for family office or even for because in family offices, 

apparently a lot of into those funds and also itself. 

Right? So, it's both it's a kind of slash so essentially to understand their backgrounds. 

And and the investor base would be crucial as well, because usually the DLP, I would say basis of the fund, the, or generally the family office itself as the heat and assets. 

So there's, there's a critical role to to play. We're driving the values.
So, founders, even, I guess, in the most difficult or certain types so, those, those would be the points I 
wanted to add and, and obviously for entrepreneurial funders to, to, to keeping minus. 
Right. That's actually great advice. That's a good call to action. So we'll wrap it up here. Thanks. Lots of best team for coming up and for sharing your experience in this field for shedding some light onto the life of the family office. 

Right now, and during this, because I make and stay safe out there. Yeah, we'll appreciate it.