Frequently Asked Questions
Just as several of our very savvy Member Families had questions before deciding to join forces with us, we expect you to have some questions as well.
We will be covering the top questions most smart members, just like you, have before they join:
The worst time to invest is when you feel as though you have to.
And that is the exact reason why many families got hurt in 2008 and in 2020.
They made the investments because they were forced to take risk right before the market crashed.
They felt pressured to invest for fear of missing out….this is human nature.
And it’s especially felt by some newer, emerging families.
But remember this: there’s no perfect timing for anything.
None of our member families are thinking about today, or tomorrow. None of them.
They’re thinking at least 10 years or more down the line. They’re thinking about who they have to provide for.
The opportunities *our* Member Families get into today will change their lives AND the lives of those next generations.
Our Member Families play the long game here and understand how the cycles work.
It’s not timing you should be worried about.
Instead, newer emerging families should at least start preparing themselves by understanding what they are missing in world-class assets managed by best-in-class operators and entrepreneurs.
Based on my experience, many families today are getting abused by sell-side investment professionals such as broker dealers, commercial real estate brokers, and seminars that disguise themselves as a family office, but never allocate a dime.
There are a lot of enigmas, but very little quality.
In fact, these schemes look nothing like the old partnership structures that firms like Goldman Sachs and Carlyle enjoy because none of them have the investment buyside experience, acumen, or most importantly a network of other sophisticated investors and families to co-invest alongside of. These firms, Goldman, Lehman, Rothschild, all started as – you guessed it – a family office. They were built on partnership and trust and are stronger with time and experience.
Dandrew Partners is not a broker-dealer.
We invest our own capital into these opportunities alongside the Member Families we guide and allocate for. This means we have a direct alignment of interests with our investors.
In plain language, this means if our investors win, we win. If our investors lose, we get hurt, too.
We believe aligned capital leads to better decision-making and is best for our Member Families.
For almost 20 years, Dandrew Partners has successfully managed wealth through the creation of multiple portfolios, with a particular focus on niche strategies.
We have successfully operated and managed a few distressed institutional real estate funds, several special situations, and currently, a remarkably high performing venture and income funds in an exceedingly difficult market.
Ten years ago, we moved from Fifth Avenue and established a beachhead in Las Vegas to formalize tax advantages for most of our larger member families, as well as leading the trend for other venerable firms such as Rothschild to join us out here.
In 2014, we started making direct investments in private equity, into the same successful companies and venerable brands operated and managed by our world-class family offices.
And today, we’re one of the industry’s preeminent private investment offices and merchant banks, that manages several venture funds, bespoke fixed income alternative investment facilities, and separately managed accounts for our Member Families.
Not only have we withstood many economic cycles and calamities but we — and our Member Families — have prospered during those difficult times.
That’s because our due diligence process is intense, far reaching, and transparent. And we know when discretion, discernment, and discipline are required most.
This is a great question. Emerging or newer families face the challenge of not being able to source the best possible opportunities because their network is local and usually siloed into one industry or business that they know well.
So for emerging families, their network is a risk if they aren’t seeing opportunities from pedigreed entrepreneurs.
Now why is this important?
All risk is human. That’s why we put a disproportionate amount of value on entrepreneur experience. Not just their experience starting companies, but selling them profitably.
The more successful exits they’ve had, the better.
And these opportunities are only available to experienced families who are well-known and can be trusted to execute.
Very simply, we like venture capital, private equity, and commercial real estate because you can control the risk.
Now there are two primary ways we ensure that we can control the risk..
First is by the basis. Not all investors get the same price.
Second are the terms. This could be anything from who gets paid first when an exit happens and how your options are priced, to where you are in the capital structure, even having a seat – or a few — on the board.
This type of influence gives very wealthy families the control they desire in these asset classes that you can not find in any stocks or any other liquid asset.
In the 20 years that we’ve been around, we’ve been participants and principals in a variety of different ways with both large institutions and established multi-generational family offices.
And over that time, we’ve been trusted to do what we say we are going to do. We are honest and upfront. This not only builds trust but it creates a form of intimacy.
This is our approach to every one of our business dealings, and also with our due diligence.
It takes hardened experience to look at the numbers dispassionately and to use discretion when allocating. Nobody likes to ask the hard questions unless your own money is on the line.
But the most simple reason we’ve had the track record we’ve enjoyed, is because we’ve spent 20 years building trust with other families and institutions. Communicating clearly, being responsive, and doing the best we can do to support them.
And because of that, our reputation has afforded us, and our Member Families, many opportunities.
This is a question I get asked almost every single day.
Venture Capital is the term given to the money that invests in high-growth startups and smaller companies in exchange for equity ownership at the founders share price, which can be pennies to a dollar a share usually. This can include things like warrants and other options for the investor to benefit from when the company is sold.
These funds do not invest their own money but utilizes the money of corporations, investment companies, and limited partners.
Over the years, families have been making venture capital investments by allocating directly into the company, instead of a fund.
These direct investments allow us more control. The upside is that the risk is higher, but so are the rewards.
On the other hand, private equity investors are the persons who invest in stable companies in exchange for the stake of that company. These are privately owned companies that require growth capital to expand or acquire a competitor.
As far as industry profiles go, venture capitalists usually only invest in emerging technologies, such as biotechnology, AI, digital security, alternative food sources, space exploration and so on.
Private equity investors usually only invest in good old-fashioned operating companies, such as manufacturing, retail, agriculture, finance and insurance, or energy. They prefer these types of businesses because they are stable companies which currently do or will throw off cash flow quite soon.
Now let’s talk about the ticket sizes.
These are the average check size of an investment.
Comparatively speaking, venture capital firms invest far less compared to private equity investors.
Venture capital guys usually can only go so high in a single startup. Some max out at $5 million, others $20 million. This is because – depending on how experienced your entrepreneur is – it's far less cheap to launch a technology company than it has ever been. These are almost always equity investments.
On the other side, most private equity investors target companies that are already operating. They are larger and have probably been looking for a partner to merge with. At this point, the ticket sizes can get higher. Today, in the billions with a mix of equity and debt.
Now let’s talk about the difference in the number of portfolio companies there are between venture and private equity.
Most venture capital funds and direct investors will consciously make a lot of investments in smaller companies and startups. Because based on their experience, they know any one deal will far exceed the losses on any of the other investments combined and perhaps multiplied.
On the other hand, private equity managers concentrate on fewer companies or single companies. That's why they put a lot of money into one company only.
Private equity managers are more event-driven and are more involved with these companies as they drive the entire financing and recapitalization of these portfolio companies to extract value. They are seen more as an operating-partner-in-kind.
And lastly, let’s talk about the exits.
Not all exits are the same. Venture capital investors in the late 1990s used to root for the IPO. Today, thanks to that regulation that came after the go-go 90s passed, taking a company public became prohibitively expensive.
Today, IPOs are still strong. However, new conventions have developed where mature startups can go direct and offer shares to the public without a 6-month selling restriction or expensive fees to investment banks that were as high as 7% at times.
Private equity investors go for what’s called the grand slam: they refinance the company, pull out the equity. The reason this is called the grand slam as those proceeds are usually taxed at a far lower rate or are tax-free altogether.
Private equity and private credit are two entirely different products. In the industry, we call these “structured products.”
Private equity is the equity or cash contribution an investor makes into a privately owned company. It’s private money, and these limited partnership interests don’t trade on any stock exchanges. They are closely held, usually by a controlling family.
The risk is that you can lose your entire equity investment. It’s not secured and has few rights and remedies in the case of a default. You have more risk, BUT an uncapped upside should you have a qualified operator or CEO who’s done this before.
So if you bet on a track record, you bet the equity and perhaps mix in a few extra warrants and options.
If Amazon comes in and buys your dog food manufacturing business, your investors are happy. They took a risk and now see a nice multiple on their invested capital.
Now, private credit is debt. This means it has different risks and rewards. The money invested is secured and those private credit investors are paid first, no matter what.
Just like a mortgage, if something goes wrong, they know they are going to get paid, but they just don’t know when. They structure the risk away from their deals as much as possible.
Think of private lending on assets such ultra-fine art, high-end collectible cars, and other statement assets that are more liquid than real estate. If the borrower defaults, possession is 9/10ths the law and off to the auctions we go with that precious collateral.
It all comes down to the rights and remedies of what each investor has.
Debt investors are protected, and collateralized, and they receive a coupon.
Equity investors take on more risk, but the upside is left uncapped. They are looking for a multiple.
There are hybrid structured products too that act like both debt and equity, and those are called mezzanine pieces.
They have the security of the loan, but some sort of an equity kicker in there as well for being between the private credit and the private equity.
This is something that I talk about at length in our ACPARE Capital Structure Certification. ACPARE stands for the Association of Capital Placement Agents for Real Estate.
It’s the world’s preeminent accreditation platform for raising capital, and buying and flipping commercial real estate buildings. And it’s available to all our Member Families for free.
Most venture funds are closed ended and have what’s called a lock up period, usually from 5-7 years. There are no publicly traded stocks in a venture fund. The investors only get paid if a company exits in one of 2 ways primarily: It goes public, meaning IPO or it sold in a merger to a larger company. Venture capital is the same as pre-IPO and if the company doesn’t sell or merge with any oher company, that could be a problem. This is exactly why we only invest in experienced and pedigreed entrepreneurs with other larger families who have done this many times before. Their experience, contacts and human capital goes removes a disproportionate amount of risk from any start up venture and can assure successful exits in almost any market, in any industry.
Our firm’s core belief is that there’s tremendous risk in most liquid products today.
That’s because the barrier to entry is lower and the level of sophistication has all but diminished.
As I’ve mentioned before, there’s NO CONTROL in the stock market. Just like a casino, there's more money to be made betting on how much money a company will make, rather than how much money the company actually makes.
Today’s equity investors are speculators, not investors. And these liquid products do not provide for the needs of those larger families who are looking out at least 2 generations that they are planning to provide for.
In venture, you’re investing in companies that aren’t public. They don’t throw off any cash flow, and if they do, its used to grow the company. There are no quarterly distributions because there is no cash flow to distribute such as in commercial real estate or other fixed income funds like Fine Art Enhanced Income.
Investors in venture capital funds and opportunities do not get paid and these investments are illiquid until the time the fund comes to end, usually when most of the companies in the fund have been sold off.
Venture funds and investments are not liquid, therefore there is really no way to get any liquidity in these privately held funds. However, the fund manager, at his discretion, may opt to buy you interests out, however, not at the same price you invested into. Venture is high risk, and most of that risk is that you’re not going to get your money out anytime soon. These secondary interests usually sell for steep discounts, depending on the underlying assets and performance of the fund. It is best not in invest in venture capital if you feel as though you’ll have a liquidly event in 5 – 7 years or if you’re not that liquid now. Venture is high risk, and that risk is that you’re not going to get your money out anytime soon.
Most companies in well performing venture funds have a gun to their head to create value and sell it as quickly as possible. Think of it as building a skyscraper. There’s a lot of work going on and there are a lot of external factors that can affect exits, such as pandemics. If there are a few companies at the end of the term of the fund, the fund managers can opt to extend the term of the fund or just sell off the least desirable companies to any other investment office who has more time and has the expertise to grow that company.
A family office generally has assets of at least $100 million under management.
The reason for this is that it costs at least 1% of that per year to effectively manage and operate a family office.
These are costs related to office start-up costs, in-house legal counsel, annual accounting and audits, cash management, fund administration, investment banking fees, tax preparation and other banking services.
Generally, there are two types of families: an operating family and a liquidity family.
An operating family has businesses they actively run day-to-day. Usually this is the first or second generation of the family, rarely the third.
In families such as this, most significant investments are value-add additions to their current lines of business. The amount of net worth that is liquid is relatively "small," and is usually managed in a way to keep some liquidity should they need to shore it up fast. Any discretionary liquidity is then programmatically invested directly into asset classes that are tax advantaged, such as commercial real estate.
A liquidity family is a family who has exited their day-to-day businesses and has the majority of their net worth in liquid investments. A family such as this will generally have an investment "bent" which influences their decisions.
For example,...if the family originally became wealthy through biotechnology, that will likely be the industry they favor in the portfolio. Most liquid families usually favor a heavy allocation into venture capital and other special situations, with a healthy mix in longer term, high-credit quality corporate tenants.
Family offices, especially newer families who have had a liquidity event or an exit, are prime prey for investment sales professionals. This goes for anything from stocks, mutual funds, broker dealers and real estate.
This brings unnecessary risk to emerging families who have been siloed in their respective industries. They don’t know who to trust.
Traditionally, working with larger, more established families has been the way wealth creators and their heirs have protected their legacies.
Dandrew Partners sends out quarterly commentary that covers portfolio-level information.
It also details new investments made during that 6-month period, as well as any follow on allocations to companies we’ve invested into prior.
Dandrew Partners may be unable to issue tax information by April 15 and investors therefore should plan accordingly and be prepared to file a tax extension.
The reason for this is many of the portfolio companies need to report to us before we aggregate and can report to you. The Schedule K-1 is issued to limited partners once Dandrew Partners completes its tax return.
If you have further questions that we haven’t touched on here. Please reach out to us.
As a reminder, this club is by invitation only and the best reply to this exclusive invitation is a signature.