Ryan Eisenman is the co-founder and CEO of Arch, a digital solution utilized by over 180 private investment firms to automate the administration and management of tens of $Bs of alternative investments.
Ryan is a Houston native, graduated from Vanderbilt University, and now lives in New York City where Arch is headquartered.
On this episode Chris and Ryan discuss:
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(2:27) - Ryan’s background and career
(3:49) - The Israeli Entrepreneurship scene
(6:41) - Ryan’s journey to founding Arch
(12:16) - What are you solving with Arch?
(14:15) - Who are the customers for Arch?
(15:13) - What was your experience raising capital in 2021?
(17:14) - What do you lean on VC’s for?
(19:20) - How do you break into the VC world and start setting meetings?
(20:30) - How long did it take to convince your first major investor?
(23:09) - How often do you talk to your investors?
(23:25) - What’s “the next stage” of the business?
(24:53) - Why was $1mm in revenue the point where you brought in more sales staff?
(26:37) - How has your role changed as the company grows?
Ryan Interviews Chris
(28:17) - Chris’ thoughts on what’s broken in this industry
(33:11) - What is and what should your first step be after a major liquidity event?
(35:16) - What separates a great advisor from the rest of the pack?
(38:27) - Chris’ role as an asset Manager and the purpose of Fort Capital
(40:54) - How did you raise your first deals?
(42:13) - Where do you see FC in 5 years? 15 years?
(43:29) - How is the current market affecting your strategy?
(48:43) - Being fearful when others are greedy, and greedy when others are fearful
(52:10)- What would you be building if you had to work somewhere else?
And I can tell you for one thing. If you told everybody in the world, they have one country where they can put all their money for the rest of Time. It's All Coming to America. And number two, if we opened our borders and you asked every immigrant in this world, where would you truly love to live? If you had the choice? They would all be coming to America. Hey guys. Welcome back to the Fort podcast. My name is Chris Powers and I want to thank you for joining me today. This show is an open-ended discussion and journey covering real estate business entrepreneurship. Ship and investing. I would love to hear from you by tweeting me at Fort Worth Chris on Twitter. And if you have enjoyed this show, I would be super grateful. If you would follow us on Apple podcast, Spotify or whatever platform you listen to. And if on Apple, it would mean a lot, if you leave a rating and review, last but not least, you can find all these episodes on YouTube. Thank you so much. Again, for joining me and enjoy the show. This episode is brought to you by for Capital Fork. But all is a real estate investment firm. Based in Fort Worth Texas, with a track record of transacting, more than 1.6 billion in assets throughout Texas, Tennessee and Florida. The team over at Ford is currently looking to acquire Class, B, industrial deals between 15 and a hundred million dollars throughout Texas, Florida Tennessee, and now North Carolina and South Carolina to learn more about Fork Capital visit w-w-w dot Fort Capital LP.com, For anyone that tried buying a car over the last couple of years, it was not an easy thing to do. I just got a car and had one of the best experiences I have ever had with Frank Cadillac here in Fort Worth Texas, when you think a Fort Worth businesses, it's hard to not think a Frank Cadillac. Well, that's because they have been around for 87 years and with history like that, they know a thing or two about how to treat their clients like no dealer, markups over MSRP. P the price on the sticker is the price you pay. So when you're in the market for a new vehicle check them out. New inventory is arriving daily from the XT 4 5 & 6 to the CT four and five black wings with cp0 rates. There is always something in store at FK Cadillac.com. That's FK Cadillac.com. Frank can't Cadillac community-driven locally different. Since 1935. All right, here we go. Ryan. Welcome to the show, my man.
Chris, thanks for having me great to be here.
I met Ryan about a year ago because he's building a business that solved a problem that I had but before we kind of get into that business and what you're solving, let us just kind of open it up with kind of who you are. Your story and what brought you into the tech world?
Yeah, hey everyone. I am Ryan Iseman. Originally from Houston, Texas live in New York City. Now, building Arch, We talked about a little bit later, kind of first big exposure to attack was. I spent a summer in Tel, Aviv kind of at this intersection of tech and business in 2013. And while I was there, I had a lot of exposure to the Israeli entrepreneurship scene, which is kind of second only to the US and Silicon Valley. So a lot of companies that were growing quickly expanding to the us out of school, joined, a consulting firm, but about a year in left for a tech company. That was And to scale into the u.s. Saw. A lot of things that worked really well. There are some things that didn't work as well, but kind of through these different experiences, just a lot of the impacts that can have on people's lives on workflows, on the progress that we're able to make as people as individuals as communities and it seemed like the best way to improve lives and have leverage, I love it.
When you say it's second to the US, what do you mean by that? As it relates to Israel? That's interesting.
I think, and it may be number Three. I am not kind of up on my fax but it in terms of the number of companies that are started that are going public joining the NASDAQ innovating and different business models, innovating different Industries. Israel has a really strong entrepreneurship scene and one of the interesting things there is its extremely unhappy hierarchical. So you can come in as a 20-year old intern and have a big impact or come in as like a young employee and Work directly with a CEO who's trying to scale a business and so you don't have the layers. You need to often work through when you join a large Fortune. 500 company out of school. They're very good at finding Talent, empowering talent and getting two answers quickly.
That's interesting. How didn't know we talked about this but is that a cultural thing? Like what, why is that in Israel? Is that how the kind of their culture works? Or it's just yeah. What, what breeds.
That? Yeah, to tie this just briefly to a little bit more of my background. And went to Vanderbilt University and studied human and organizational development there. A lot of jargon and words. But what it really is psychology of business. One of our courses, we talked about. And if we get the technical word for, but essentially, I think it's like the power distance. So, it's how much power there is between the number one person. And then the number 500 person in organization, and they have one of the lowest power distances of any country meaning that if you are A first-year Analyst at a bank there, or a young person to tech company there, you're actually expected to speak up and to call out leaders. When things aren't, right? And that's just a big part of that culture, which I think is led to a lot of innovation.
Interesting. So I think the answer to this is, yes, but I would assume the less power distance, or is the better a company is, or is it purely dependent on the?
Company? I would guess that overall the better company is I think it's probably like any good dictatorship if it's a really good dictator, you can have a great country but there's a lot of really bad dictators. So democracies are great because they allow more people to have a voice and better? Governance, I think it's probably the same for power distance. If you have a benevolent leader who is really strong and has great vision, that company May outperform and maybe look at like an apple is a good example of that. But the more that you can Empower employees, I would say, Across the board, the better off. A company will be, because people are empowered to make a decisions to work autonomously and to bring good ideas throughout the organization. I love.
It. I have not heard that power distance thing before, but it makes a lot of sense. All right, so you kind of you went to Israel. You came back. You worked in tech. Let us talk about what you're doing today and maybe how the idea, or maybe the story of how you left, whatever you were doing, to kind of take this leap and start something new.
Yeah, so this is mid 2017. I grew up in a house with my dad as an investment adviser. So saw a lot of the financial services world as really appealing and could it had grown up with the Wall Street Journal just in and around what we're doing. And so kind of theme of like investing was always interesting. Alongside this theme of Entrepreneurship and went to a dinner, met an investor there who had started to company. Sold one of the companies to Facebook used to be a lot of (LP) investing doing a lot of direct investing and was talking to him about this like early idea of. I think there's a lot of infrastructure missing on the private markets and seems like a lot of investors advisors accountants. Attorneys are struggling with the lack of standardization and lack of infrastructure and through conversation with him is his eyes lit up, and he was like yes this is a huge pain point for me. And can you help me collect my K ones? And I was like shorn only a little bit about kailyn's but it seems like I think we can probably do. Well let us understand this a little bit more. And he essentially walked us through his process which was, I have 100 plus K ones, they come from all these different places they need to get to my accountant. Some of them come to me, some of them come to my advisor, some of them I don't even know how to get them and it's painful universally for all of us at the end of the year and this is the biggest pain point I have. And if you could solve this for me, I would love to help you build this business and so helping us build this business. Ended up. He introduced me to my two co-founders, Jason and Joel. We're both MIT software Engineers. He became one of our first clients. So we had to design clients at the beginning of our charges, the name of our company, and then he as it works out. Runs a venture fund, it was, was kind of getting like a venture fund off the ground at that time. And they were the first check into our company, and we were one of their first Investments and so kind of sometimes, you gotta one dinner and it changes everything. This is one good.
And both at your house, you can say let lesson one. Go to dinner show up. Yeah.
Yeah. Leave it to Serendipity.
Lean into Serendipity. See you had that dinner, and we will go into what's going on at the business, but we're you already looking to start something like we're you kind of looking for an idea where you an entrepreneur that looking for an idea. Or did you already kind of know what you want to do or were you just waiting to hear like something because this seems like a typical story of like an entrepreneur that was waiting for An idea, but how was it for you?
Yeah, I have always been really interested in the intersection of like, where the world is and where it should be and have been keeping a list of ideas. It's 2013 of things, I think are broken. That should be fixed or ways to solve problems. Actually, like, I have been doing this since earlier. I think I invented like a combination Fork, spoon knife in kindergarten for like an innovation contest, terrible. Terrible idea but was always interested in this vein of Like creation and creating things and Entrepreneurship. And this idea of a solution for investment management and solution for private Market investments. In particular, is something that I would kind of gone written a few times in this list and continue to expand on the idea of what this could be. And so in some ways it was like an idea that was brewing and then was looking for that Catalyst of the person who could help us take it to the next level.
So when you left that dinner, how long from leaving That dinner to, we're going to do this, like the next day a couple weeks. Did you sleep on it? What happened?
Yeah, it was is a mini months process. So, started meeting this guy, every couple weeks for coffee, he brought in some different people that he invested with had built companies. With we talk through this idea and some others in parallel. He introduced me to Jason and Joel. We then started for three months more formally vetting. This idea amongst a couple others as well with this idea of before we raise capital and take on the burden of investors and investor expectations before we quit our jobs or Focus full-time on what we're doing. Let us make sure that this has legs. So we talked to a few hundred investors advisors accountants others trying to figure out one. Like, is there something here? And if there is a there, what how do you start is it with collecting K 1s? Is it with investor portals? Is it with other things and just trying to figure out like the minimum viable product of sorts? And then of course, there's all the other things like what's in your name, what is your name? You need a name before you incorporate, all those kind of things you need to do before you start a business, but we have added this idea over getting three more formal months.
And out of jealousy. I just have to tell listeners I am very jealous because I have a probably a smaller list but at the top of the list, was this idea or something similar to it. And it was solving my own pain points which I think are huge. If anybody on this podcast listener or collects K ones you kind of understand for me, it was like a Google sheet that I use to kind of keep track and then the burden to go get them. And so my idea was to start a service that would help this process. I went out on Twitter, I said, is anybody doing this? And that is how you and I met I think somebody commented you and we ended up talking. So let us kind of move into what your building and like what you're solving and you have kind of let it. You know, you have given us the story of how it started, but where are you today with the product?
Yeah, absolutely. So when we started all we started with was. Let us collect K ones for investors with this idea of There's all these different investment portals or investment managers. It's an information via email or posted to their site. The investor needs access that information the advisor and the count it needs access that information. So let us create something that's scalable Cloud. Base allows everyone to access the information they need with an initial focus on tax documents. What we have built that through into over the last four and a half years is a kind of full platform for holistically managing alternative Investments. Meaning that with Arch, you can see all of your Investments? In one place you can see every commitment you have made. What it's currently worth metrics on some basic performance items their cash flows and have all your documents stored. We also standardized this data for use within other systems in the industry. So if you're running an out of car or Black Diamond, Orion Mastro different kinds of accounting systems as well. We can push this data into those systems or into a format that's adjustable by other systems. And then the you can add accountants other members of your team too. Okay ones to see the capital closer, they're coming due. And we wrap this all in customize notifications per person and Chris is a user anything that I.
Missed. No, it's pretty spot-on. They, I mean, yes, I get a weekly or daily, I guess. I get a daily email of everything that came in the day before, which are for 40-something, third-party, Investments that I am in our Capital calls K1. Distributions announcements. Quarterly letters things I should know. You know, most people just that's hundreds of pieces that email year that are not organized, they're just stuffed in an e-mail somewhere and it has thoroughly helped my life. I guess, my question to you is the next one is, is it mostly individuals? Because there is a large, what? For me, it was understanding that there was a everybody. I asked it was like me or in a similar position investing wise. If you asked any of them, some of the most sophisticated people on the planet, how do you manage this stuff? They're like, with duct tape and Google sheet. I mean that's like the answer. So you just do this for individuals. Are you doing this for family offices? Like whom are the customers?
So we serve individuals, family offices, Ras multifamily offices, Banks institutions, like endowments foundations, Pension funds fund to funds. So actually quite surprising that, there's a huge overlap in the problems that endowments and foundations that manage billions of dollars have with family offices and individuals. And so what we're building is universally applicable to anyone with dozens hundreds or thousands of private.
Investments. Okay, so you raised five and a half million dollars last year before we get into, what you're going to do that money. I think this is something to maybe pivot the conversation just a second on. Just like the capital raising BC world, what was that like grazing and in 2021 and you know what happened? Why did you raise all this money?
Yeah so when we went out to raise, we actually only thought we needed to raise two million dollars in order to get to the next stage of our company. We then met some of Investors have our craft Ventures who started using our platform in the diligence process. They like the experience. They have these problems as clients, and they liked what we were building. And so then they convinced us to instead raise five million dollars and take them on as our lead investor which we are extremely happy that we did for a number of reasons. One, they have been incredible investors to work with Jeff Fuller who we work with closely with founded StubHub David Sachs was the CEO of PayPal is also A competitive podcaster with you and the all in podcast and are has been an amazing part of the story as well. When we would start working with her, she was a senior associate then was promoted to principal and now as a full GP and so kind of someone to watch in the industry. Another reason why we're happy that we raised five million dollars is not immediately after, but over the last 12 months, the investing Market has become much harder than so it's great to Be able to sit and grow your company without having to think about going back out and raising Capital to be to sure. Your customers and your partners that you're going to be here for the long run and that you're building the company conservatively so that you aren't at the whim of financial Market swings.
David. If you're listening to this I am a huge fan. I am happy to come on the all-in-one podcast and I love that you're running Twitter right now with Ilan even though you might not say that you are. But anyway back to the pod cast what you said, like, working with these investors is great. What about working with them is great is that they have a playbook for how to grow, they have relationships. Like what do you lean on these? VCS for.
Like a little bit of everything. So I think when you look at for investors is figuring out whose aligned with you culturally and can help you get to the next phase or phases that the business. So, what we found here is, they're extremely well-connected to different institutions that we should be partnering with people that can be customers, they have playbooks for Raising and growing and properly managing teams, and have resources for different areas, even like regulation and compliance, and how to deal with that area of the world. And then they're fully aligned with what we want to build in and are good patient long-term capital. They don't expect to make a quick buck in a year, there are in this for, let us see what we can build together over the next 10 years or so. And we think that's going to be that kind of long-term generational.
Business. You said that you were I am glad you raised five million for, lots of reasons. One of them being that it would be a, it's good right now, given the capital raising environment. But at the time when it wasn't, why did they convince you to raise five instead of two? What was the reasoning?
Then I think part of this is when you're working with an investor like a craft or any kind of like Tier 1 Venture investor or other Venture investor that has a mandate You want them to feel like they have enough skin in the game to be involved and if they are writing a two hundred thousand dollar check, they probably wouldn't be that interested in participating in the company to the extent that we want them to be part of it. And we decided that ultimately and every decision we make is entrepreneurs, we're hoping to do this, which is make the company more valuable with each incremental decision. So we realize that the company was more valuable with craft on the cap table and their leadership behind us and them as close partners. Even though we had to delude ourselves a little bit more than Founders that taking on that day, Lucien led to more valuable business and ultimately would allow us to build and scale more effectively.
And when you're going out and raising that money, I know you're a first investor had his own fund and was kind of plugged into the VC world. But how do you kind of break in and like start getting your deal around and setting? These meetings, is it pretty easy to set meetings with VCS or is it tough for? You have to be kind of shepherded through Or know somebody like how do you make your way to a tier 1 BC and get in front of them?
Yeah kind of like all Industries. There is a certain level of jargon and trying to understand how things work and how things operate. So we look to our peers who are stage ahead of us to learn how to do this and what we realize is what we need to figure out what our story is and make sure that what we're trying to build. And what we're trying to do is easily communicable because people have short attention spans in everything. So we need to give them enough in an email, that they will take a meeting, Give Them Enough in a meeting. That they will take another one and be at a show enough traction or enough of whatever we're trying to prove that they want to be involved in this as a story. And so working with peers using peers to get introductions to the right folks was extremely important and extremely helpful for us and it's something that we love helping others with as well.
And to get into the extent, you can share. I know some of this might be private but like how long did it take to convince craft to invest in you? And I am assuming once somebody like that takes the lead, it's easier to fill in the rest of the round. Based on, who your horses, like, how long was that process? Mainly with craft and then just to fill out the round total?
Yeah, well, we were about 95% subscribe for around when we met craft. So that's part of also, the reason why I would thank you, Vince es to raise more because wasn't left. I think we went from initial call to term sheet and under three weeks with them. They moved really quickly. We provided diligence and resources quickly. So I think when there's a relationship that you want, whether it's an investor or an employee, speed really matters, and it's like how you do. One thing is how you do everything. So speed of execution at every place matters. And then once we had them on the cap table around, at that point was fully subscribed, but then we were able to go on and say okay, who are the All investors or couple Angels or other funds that we most want to have at this stage as additional advisors, as additional investors. And so then they were able to introduce us to some people and our Network also was able to introduce us to some others who came in, who have been extremely helpful along the way as well.
Well, I love it. Congratulations. So it's awesome. Thank you.
And that might be my biggest piece of advice for people constructing around is I think like one strong strategic. Sure who can be like the one most closely in the trenches with you? And then, as many Small Checks of people with expertise in a certain area. So, if you need a marketing person or you need a banker, you need someone else. You have that person you can call on his expertise in that area and hook who can help you see around corners.
If you're like me, you like to wake up and get your daily dose of reading for me. A lot of that has to do with commercial real estate because of the industry that we're in it for Capital and the news is important. But if you're a busy Stay professional like me. You don't have time to skim through the dozens of dry and add filled media, Outlets each day. That's why I read cre daily. A free email newsletter that cuts through the Clutter and delivers concise, witty commentary on the latest trends and transactions in commercial real estate. I discovered cre daily a few months ago and it's an email, I actually look forward to getting each morning. If you're a real estate professional, you owe it to yourself to try it out and stay on top of what's happening in the industry in. Only five minutes to give their free daily newsletter of try. Visit cre daily.com that cre daily.com. How often do you talk to your investors every day? Every week, every month comes and goes.
Yeah we do a quarterly board meeting will do ad hoc meetings when there're big things to discuss and then probably ping them every two weeks with a question or something along the way.
Okay, back to see you raised around and you kind of said twice to get us to like Next stage of the business in a financial services business. Kind of like what you're building. What is the next stage? Is it a certain amount of Regulation a certain amount of customers? Like, what does that next level of business look like for you in this business?
Yeah. So when we raised the round, we just brought on our first are a client and so that was a big part of the story that we wanted to unlock is like can we serve investment advisors at scale and bring on people with hundreds or thousands of investors? Moments. That's something that we have now accomplished. And now are probably, median client is an investment adviser with 800 to 1,000 alternative Investments that they're managing on behalf of their clients. We have clients with 10,000 or more and clients with 12 Investments. But kind of, that's where we're starting to spend a lot of time on the Enterprise side or on the business side is with that kind of advisor. So I was one element and then just building like bigger teams to onboard clients It's clients build product. There's a lot that we have planned in the future to extend our product to, to build a lot more of the core infrastructure, that's needed to manage an alternative investment. And so kind of thinking with that lens of how to continually be Innovative in build, a machine for Innovation and serving customers. Well, it's.
Gail. I love it, man. One of the things you put in our notes was that you were the sole salesperson until you hit a million in Revenue. Was that a certain Target and you knew you were going to hand it off for? Can you expand a little bit more on like what you meant by that?
Yeah, this was one part intentional and one part accidental. So first two and a half years of the business was really just trying to understand what product Market fit was in this industry and how to build a product that was repeatedly cell. Able to the people that we want to work with that in law came for us and, you know, 2020 once we unlocked that ability to repeatedly sell the product, I still wanted to own that process at the beginning, just, so we're making sure that we're continually improving the product. From all the feedback we're getting from our customers and prospective customers and just kind of running as tight of an organization as possible. And kind of our growth story has been also being conservative in growth so that we can Allocate Capital efficiently. I think when we started to get around the six, seven hundred K in ARR level, that's when I realized that we should start to bring on a salesperson. But given the types of customers that were selling to, we wanted to bring on the right person and be extremely thoughtful in that decision. And so took us a little bit longer than we would have liked to find that first person. But when we did, it's been an amazing choice, and she's been a great part of our team. And has kind of built the foundation to be able to bring on more people into that sales org and probably want to we got to 150 or 900k in ARR then at that point it's like well we might as well get to a million before bring on the first person. So yeah. Some of that because.
I love it. I can tell you have learned a lot about building a business. I would say from four and a half years ago, kind of to where you are today like what's your job like today versus, you know where it's been and how do you continue to think about? Out as the company goes from this small thing with a few employees to larger. Like how you're going to continue to kind of elevate yourself? And how do you continue to elevate yourself? I think this is something that a lot of listeners think about often is like when is it time to grow up a little more and delegate or you know, continue to rise to the occasion. Like how do you think about that?
Probably the most important things I can do. Our Empower members of our team to make decisions train them on the things that we know that we think are important about our company and our Market in our decision-making Frameworks and their recruit other great people to the team. So that's what I am trying to do. A lot more of is spent more time, recruiting great Sellers and do less of the direct sales work. Myself, spend more time with the team, making sure that we're all rowing in the same direction and that people feel empowered to know what kind of decisions we should be making so that they can make decisions autonomously, and we don't have to micromanage any of the things that are most of the things are coming through the.
Company. Part of this episode, we decided that we'd flip the mic a little bit and go back and forth. Ryan, I have had some good discussions, and he had some questions for me that I think are really relevant to the audience and so Brian if you want to fire away, and we can kind of go back and forth, would love to hear what you have to ask and see if I have a good answer.
For him. Sweet. Thanks, Chris. Well, you mentioned both on this call and when we first spoke that you had extensive notebooks around ideas in this space and would love your thoughts on, like, what's broken and what you are hoping to build, or what you were thinking about was keeping you up at night around because the broader family office and Investment Management World.
Well, I think at the, I think there is a large segment. There is a group of people in this country. Let me I will take even one step. Get back, just because you have made some money. Doesn't mean a, you know, how to manage it or be that you're necessarily going to have the tools to participate in things that the uber wealthy people of the world get to participate in. But when you look at like an average family office, a lot of the overhead to me, you know, its people its software. It's things of that nature, but unless you're super wealthy, you can't really afford a family office, some people don't want a family office because Just don't want to manage all these people and do all these things. But you asked me about my vision is like, I still think that collectively there should be products that allow people to have the same access in the same things that a big family office has if you're able to like pool capital or pool resources together and, you know, and I can go through a laundry list. I think people think a family offices as just groups that like, help you make investments, but the truth is family offices. Help you with Lots of things but help you with your set up tax returns, they help you collect information that you need. They help give you data but some offices also help you. If you fly privately they will help you either you know by your aircraft lease, an aircraft book you hours on netjets they will help you give away money to charity. So they might have their own foundations, or they will work to help you especially in multifamily offices. Send your money elsewhere. They have Says to the best Tax Strategies and updates that are going on in Washington and how it could affect their Capital. They also kind of hunt in a pack family offices work together. So you will typically see deals get done where lots of the same family offices are in them. They all share information and there's kind of this ecosystem. And so, then there's just this layer right below the family office of all these people that have accumulated wealth, but don't have the resources and or don't want to start the family office. And so, so if I am going out to like the furthest vision and then working backwards was, how do you create this, like multi-family office type of structure? That thousands of people can join and participate in the benefits of what they would have, if they were part of a smaller family office. So, I mean, at the most basic level like getting K ones in on time like I promised you, the wealthiest families in the world are not worried about getting their K ones and on time, but somebody at the family office is but You're not thinking I mean I gotta get this I got to make sure my quarterly reports show up on time. I got to make sure all my you know if you're in 40 different deals like you said and you're getting distributions from each of them. Like how do you know that every distribution came in? Are you going to spend like one day a month? Checking your bank account going over? 39 came in but I am missing the 40th? Like you talk to most people and you're like, hey, did you get all your distributions this month? Like I have no freakin clue and God forbid. You are getting Checks from him and you like moved your office and now like checks haven't been arriving for six months and you completely forgot about that check. There's just a lot of things that happen when you have started allocating capital in your managing life. If you might have a second home you might have you know a second home with cars that need insurance regularly and property insurance regularly. You might have tons of bill pay that you need paid and the wealthier you get. In what tends to happen to people, as their life? Becomes more complicated administratively, they get in more deals, they buy more toys. They travel more, their kids are in schools. I mean, all these things happen, but nobody really gets this like, family office to go with it. So you either spend half your days, kind of administrating, your life, or you hire someone. So, that's a long way to answer. A question of what did I think was possible is bringing a family. An office suite of services to maybe the person that's worth, you know, x amount of millions or whatever, they could be worth a billion, I don't care that don't want a family office but want all the services of the family office so maybe we can start there and then I will stop.
Yeah, that's great. And it one thing articulate, I think it was a Biggie Smalls that said Mo Money. Mo Problems.
That might be the title of this episode.
And if you say you had a liquidity event, you sell Plumbing business, or technology business, or you win the billion or two billion dollar Powerball. What is and what should your first step be?
That's a great question. I think, what most people do is they go. Start. Interviewing wealth management firms. Or usually what happens is, you know, you're going to sell, like a year out. And so either maybe for a couple years before you have already started talking to people, you have started talking to attorneys. I remember we had a cell once and before we sold a lot of people gave me some advice like you got to go to your local law firm and set up a few things. I would have just never known to do that and so maybe Be less than one is. If you're going to have a big liquidity event, your usually starting to plan for that. But what I would tell you, and I am shocked with time after time is again, just because you built an amazing business that could be worth hundreds, you know, tens hundreds of billion dollars. A lot of those entrepreneurs have been so deep into building that business. It's not like they have thought about how am I going to manage a billion dollars? They know how to make it managing it as a totally different set of skills and all the challenges and complexities that come with that. And so step one would be, if you know, you're going to have a liquidity event start preparing. But then after the liquidity comes in, hopefully you have had a plan. If you haven't the best plan I have ever heard is done nothing. Leave it in your account, do nothing. And then start talking to different people and start developing a plan. I think a lot of people get it and start, you know, buying stuff and investing and going crazy the best advice I have ever been given or been told is at least have a plan for what you're going to do. And if you don't have a plan, there's no harm in just kind of chilling out and sit and still if you're going to have a big sum of money, go to a JP Morgan, maybe a big Bank. Like they will have the very basics of what you can do with money in the interim while you kind of Set a plan forward. So I don't know if that answered your question.
That's great. And let us talk about advisors for a second and then maybe we will talk about asset managers. What separates a good advisor from about advisor or a great advisor from a mediocre advisor in your opinion?
I think a lot of it is the relationship that you have with the advisor because at the end of the day, there's only so many. There's not a lot of tricks and when you're managing wealth a lot of it is you have made it. You don't want to lose it. So it's not like you're making it and then you're trying to get into all these super crazy deals till I quadruple your wealth. Again, A lot of times at that point it's like yeah I still want to take some swings but I just don't want to, you know, I don't want to lose it and so at Don't lose it part of the game, if that's still your game, like there's not a ton of variability and what you can do. And so there, it's like, what's their reputation? How long have they been in the business? And honestly, do you really like them? Because I think this person becomes a big part of your life over time if you have an advisor, certainly, if you have a family office, if you were to truly have one that becomes its own. While it's a business, it still becomes like another family for the family. I mean, they become very ingrained. With these people, they're given a lot of trust, the people of those family offices. Know a lot of details not just Financial details, but they know a lot about the family and how they work and you know which kids are doing what, and which kids aren't and so it's got to be someone you trust and that you like, you know, fees are fees ask everybody like what are your fees and then ask them after that, okay? Those are your fees. What are the hidden fees? I say that kind of tongue-in-cheek but a lot of times what's on the surface isn't the total package. Edge. And then, you know, to the extent, you can try and talk to some of their clients, try and talk to somebody that has worked with them before that, you know, that has money at that firm because really at that level you're just not bouncing around. It's not like you're looking for a new advisor every year. I mean this should be something that you hope is a lifetime deal. And so for family offices, it certainly is but if it's not going to be a family office, you're hoping that you never have to change your wealth manager. And if you do, maybe it's just once or it's for a reason that isn't I don't like my current manager. Maybe you came into way more wealth and you need to move to another level or something, but I don't know. I think the answer the question is, like, how great of a relationship can you have with the person? Do you understand where they're putting your money, are they transparent? But again, like if there's anything, I have learned There's just anybody. That tells you they have some like hidden secret on how to make you a lot more money is, it's probably not true. You know, Warren Buffett often says like just go put it in a Vanguard. That's almost the safest way to make a lot of money. And so, not to take anything away from advisors because I think they do more than just invest money. They help you with insurance problems. They help you with estate planning thoughts. They help you with lots of other things besides just putting money to work, but Yeah, you got to get to know and like these people trust them and make sure they have a good reputation.
Cool. And then, so, the client hires the advisor, the advisor hires the asset manager. You are an asset manager. Your audience, probably knows exactly what you do. But I may send this to some people to check out this podcast at. Don't know what you do. So Chris what do you do as an asset manager? Would love to learn about the four companies?
Yeah so we raise private capital, and we Best it directly into real estate. We're not an alligator ourselves. So Ryan if you give me a dollar that dollar is going directly into a real estate asset. We're currently not a fund, we Syndicate deals on a deal by deal basis. We might be a fund one day, but we raise money deployed into real estate. And then we operate that real estate in hopes of generating a return that we can provide to you, as monthly dividend, cash flow and then maybe one day as a, as a lump-sum sale where you get a multiple of Capital back, and we typically well, all we buy is industrial real estate throughout the Sun Belt, and we typically hold assets anywhere from three to seven.
Years. That sounds pretty great. How do you get into this?
Business? Yeah. So I started buying real estate my freshman year of college back in 2004 taking advantage of basically financing they would give to a freshman in college that didn't need any credit or any money or any track record. That's I guess less than one is, take advantage of the opportunities that are given to you at the time because smartly the America, you know, most lenders won't do that anymore, and they probably shouldn't have with me. 18 years later, we have raise capital from over seven. We currently have seven hundred investors managed over a billion dollars worth of industrial real estate throughout the Sun Belt, and so we raise Capital directly from investors and then directly buy real estate in the deal by deal format. So we might have a 50 million dollar deal. We're going to raise 20 of equity and get a 30 million dollar loan. We would send out a deal memo to our investors, we would raise that 20 million dollars is Guard down payment, and then we would buy a piece of real estate. And then it's for capitals job to manage that real estate, create value, provide cash flow to our investors. And then usually we hold for three to seven years. Will either refinance or sell that asset and distribute a lump sum of capital or 10? 31 that money into a new asset to say from paying taxes.
Sweet, and on raising money, how do you raise your first dollar? What was that process like for you?
Yeah, it was a lot of everybody here as friends and family and that's exactly what it was. I think the first couple deals you do you raise from people that are close to you and so we had a development over at TCU we need to raise a believe. Our first phrase is nine hundred thousand dollars to build, 16 town, homes around TCU that we're going to be student housing. And those investors were my, my college roommate. My college roommates, dad, my best friend. My best friend's, dad, my mother and my dad. And a few other people. So as people very close to us, now what I am proud of is a lot of those. Same investors are still invested with us today. Their family offices are invested with us, their cousins and uncles are invested with us. And so, I think I said this earlier, but, you know, again people that have capital or that like to invest typically know people that like to invest and have capital. And so it's a kind of ripple effect and all that to be said, you have to be making people money. So your track record speaks for itself, so, As that gets better, it's easier. And, you know, when we make somebody a dollar that they will very often Go sing your praises and introduce you to new people along the way. And so it's just been 15 years of continuing to meet the right, people at the right time.
Yeah. So zero to over a billion dollars in 15 years. 700 investors, what does this look like in five years or than or 15 years from here?
I think in five years, I believe that we will have 45 billion of a. Um, we will have really deepened our relationships. I am sorry our markets that were in an expanded throughout the Sunbelt. I think we will have a larger team. I think we will start raising more institutional capital, and possibly get into funds rather than syndicating on a deal by deal basis, but we're going to do all of that thoughtfully. We're not going to grow, just to grow. Bro, we need to have the deals in front of us that make sense, but we are primed and ready for to take the company from a billion 25 billion. You know, our largest deal sighs we did last year with 115 million. We're looking at lots of things in the hundred to three hundred million dollar range and so will also begin to probably acquire more portfolios and aggregations of buildings rather than one off buildings as time goes by. And then, who knows? We may stay private, you could turn it into a Reit, you have. A lot more opportunities as you get to that 325 billion in an um sighs. That's awesome. Let us talk for a moment.
About markets. So right now it's December 1st of 2022 Market has changed a lot in the last 12 to 18 months in the same way that for us is a start-up harder for us to raise valuations have come down based on Revenue multiples in the real estate world. I imagine that higher interest rates lead to lower asset prices but also hard our debt. So curious What that leads to for you? What you're thinking about and how that changes your strategy and allocating capital in the future?
Yeah, it's a great question. So it's A Tale of Two Worlds. Right now, one the capital markets are tough, interest rates are going up, but we know they're going up. We you have a fed that's kind of giving you the step-by-step Playbook. I think early on people might not have believed it, but I think everybody now believes that Powell is going to do what he says he's going to do and so it hasn't made things better. But I think it's starting. The markets are starting to calm down because they understand what's happening going forward. So there's that number two, banks are not really wanting to lend right now. They either a, they have had such good years for so many years, or they lent a lot in the first half of the year that a lot of banks are saying, hey, let us just kind of watch the rest of this year, play out, and we will start again next year and then over a certain loan size once you get out of conventional lenders and you get into private. Ivett's lenders or bonds or cmbs debt after a certain size, call it like 50, 60 million, 100 million dollars, everything's floating rate, debt. And so it's really, that's a harder loan to get right now. So, the larger deals are having trouble getting done and really, there just hasn't been a lot of folks that are better in the market right now. A lot of sellers don't want to sell right now because, you know, they want to see where the market is. A lot of people have made a lot of money. Over the last month has been a 12-year Bull Run in real estate. And so right now just everybody has an ability to kind of not do much. You know, there are certainly people that are going to struggle through this. If you have had floating rate debt, maybe you're in your on in an unfavorable asset class. We will see. But for now there's the capital markets that suck. I mean I am just not going to say it any other way. I think there's Equity there. It's the debt piece, but there's also a lot of equity that's saying let us just wait and see what happens. And so how long people are willing to wait, I don't know. I mean when you have all these discretionary Vehicles raised and all this funds and you hear dry powder that money has to get deployed sometime, or the GPS have to give it back and if you know how Capital flows like GPS would rather put it to work, then necessarily give it back, and so we will see how long people will, wait. I think the FED is kind of signaled that there might be a couple more. I think, Palace said yesterday that the next one might not be as big as people had previously thought which is kind of more dovish signal. But on the other side, especially as I can speak to our portfolio and Texas and certain asset classes, leases are happening. Vacancies being filled, rents are rising still. And so you have kind of this Tale of Two Worlds. I called the ground game, like, what's actually happening at the property is very encouraging, but then the buying and the selling of the assets right now is struggling. And so we look at that as an opportunity to buy when others are fearful or when other Others can't buy. And so we're still not, we're not at full price Discovery yet. We have one deal or closing next week that makes a lot of sense but as far as buying at the pace we had been buying we just haven't found anything. We're going to wait for some price adjustments, and we're going to wait for the capital markets to open back up. And when that really happens, I would guess towards the end of the first quarter. Next year, you will start seeing some money flowing back and forth. Again, that's a pure speculative, guess I could be Laughed out so hard. Come q1 and next year, but that's kind of my guess given the latest fed signal. And really, that the feds job is working. I mean, things have pretty much stopped in our industry. The Housing Industry which I am not in but by and selling of homes is that like almost stopped home? Builders are laying down, they're going to finish their inventory. My new home, builders are looking at 50% Revenue cuts for next year and so it's working. Now, do I? Expect them to like lower rates immediately. Absolutely not. I think they will hold them firm, and we just have to remember this. We were operating at 0% interest or close to it for a long time, that is not normal. What is normal is kind of where we're getting back to a, which is 4 to 5% fed fund rate. I mean, if you look over a 20 30 year period like that has been the average now, it sucks to go back that way, but I think it brings a healthy Dynamic back to the market. It resets a lot of things and of course, there will be, you know, some Get pinched. But overall, for the ecosystem, long term, it's the right thing to happen, and we will go through a little pain to get there but I think you know we will be back at it in the next couple of years. Next you know half year and then in a couple years I think we will be moving at full speed again.
Yeah, it's great. You want the alluded to be kind of the be fearful when others are greedy and greedy when others are fearful. And if that was Ben Graham or Warren Buffett, who said that or kind of recycle Over the years, but kind of what in your kind of upbringing or in the lessons. You have learned over time as investor has allowed you to come to that disposition, which I think is pretty well aligned and correlated with success.
Yeah, I think I stole that right out of Warren Buffett's book. So that's certainly nothing original. We hear that a lot, but I think you have to have done it for a while. So I have and you have to, I think we live in a world now with the internet and you're able to just see a people's emotions, and how quickly people can believe in. And change the next day and it really takes kind of long-term mindset. And so for me it really goes back to how well do you really know what you're doing? Like I know Industrial in the Sunbelt, probably better than 99.999999% of the world and so that gives you a level of confidence. So what I see is not risky, other people might see as risky, but I am coming at it with a lot more information than most people. Will do. And then realizing, I mean, if there's anything like I have learned to follow the internet or anything is This world gets very fearful really quick, but they're willing to get fearful over limited information at times. You know, we live in a world now with the new headline every day and people you know it's like Whiplash people don't know really what to believe in but what you can always believe in is if you just go back over time is like the markets will move people. Innovate people get better downturns don't last near as long as up Cycles do the best investments of all time have been bought when people are scared and the vix. Is high and people are kind of paralyzed. And the question you have to ask yourself is this time different of thousands of years? Is this going to be the time when it nothing ever comes back? And you know I was listening to Jamie dimon speak the other day, and he just you know he said something that was just kind of cool. He's like look we Bank all over the world. And I can tell you for one thing. If you told everybody in the world, they have one country where they can put all their money for the rest of Time. It's All Coming to America. And number two, if we opened our borders and you asked every immigrant in this world, where would you truly love to live if you had the choice, they would all be coming to America and that's where Warren Buffett has talked about that. But I fully believe that I think we live in the best country in the world. Despite the issues that we have we are still a country that is there's nowhere else. I would rather be and there's Nothing we get hard on ourselves, and then we're able to be tough on ourselves but I think we have the best place to invest. We have rule of law, we have access to Capital, we have some of the smartest legal systems in the whole world. And it's just an if you're thinking long-term, it's a great place to invest, and so I believe that not to be any different. This time is it sucks. Sometimes to see your current assets drop in price for a period of time. Sure. But if you're not trying to get rid of them tomorrow who cares? And So I would just go back to what history says, the best deals get done when other people are fearful and hopefully, we will have the courage to participate at that exact moment.
Yeah, that's awesome. Sounds like you found good Country Fit for yourself personally. And then founder market or investor Market fit for the way that you invest in the way you're building the firm. If you couldn't build a real estate investment company and you had to do something completely different. What would that thing be?
I think I already told you what I would go do. I would come after you now. I am .
Dividing. The Biggest competitor.
I truly believe in what you're doing. I think democratizing, I don't know if it's the words democratizing but democratizing the family office suite of services to a greater group of people is something that you could unbundle. I don't know I am really enjoying doing the podcast right now, I will just say it, I don't know what I would go do. I have been the chairman of Fort for two years? Cause now, I love that business. I love participating in that business, but I do feel like I will do something else again. I don't know what that is. If somebody's out there listening, and it's got a great idea, I would love to hear it, but for right now, I really couldn't answer that. I don't know what I would do. This is all I have ever done and I love doing it. And as time goes by, I realize I wanted to play in the sandbox that I know how to play in a built, a great Network. I have learned a lot of things. I want to keep leveraging. Whatever is God. Here I want to leverage that I don't want to go build like spaceships or rockets and start totally fresh again. And, so I wish I had a better answer for you but I don't really know what I will do next or if I will do anything again. I am sure I will but I don't know what that would be. I love your idea. I think it needs to get done. I actually I will give an answer now I would probably go get into oil and gas in the energy space. If I had to actually with a gun to my head, go start something again. Tomorrow in a different industry. I think we have it all wrong. We're using more oil today than we have ever used and I think 50 years from now we will use even more than we use today. There is nothing. That shows me that's not going to happen now. Sure, I want all energy to work and I want other sources to work, but we are so dependent on oil, there is so little capital in the space. Now, you know, some of the other day told me, I am in the oil and gas business and if you tell some people that in today's day and are you might as well tell them, Like a p*** Studio or something. It's crazy. I mean, people think that oil and gas has almost like a villain yet. It is the main source of energy that runs the world and makes the products, like the Plastics and the lubricants, and all of the things that we used to function on a day-to-day basis. And so, there's my little oil and gas ramp, but if I had to leave what I am doing today and get into another industry, I would probably jump into oil and gas. I think it's the largest opportunity right now with the least amount of capital in. It.
Well, hopefully someone who's listening is inspired by this goes and becomes a Wildcatter or starts a pipeline and Loops you in, and then do some great things in that industry as.
Well. And then they will make a lot of money, and then we will use your software to manage it. And that's how the story that's how this podcast came to be.
Exactly. Well, thank you for letting me ask you some questions. This is a ton of fun as well.
I really admire what you're building. I look forward to just continuing to become friends and stay in touch. I think you're at the, you're at the, the tip of the Spear of what's possible, you have a very sticky product. Once you're on boarded, it's very sticky and you all do a remarkable job, and I am just excited. So, thanks for joining me today. Maybe we will do this again in a few years. Once you have hit the next stage that we called it.
Awesome would love to do it. Thanks, Chris. Thanks for having me talk to you soon.
Everyone, it's Chris here again. Thank you so much for joining me on this journey. If you enjoyed the show, please follow the show on Apple Spotify or subscribe on YouTube. Thanks again, and I will see you on the next episode. Chris Powers is the founder and chairman of for Capital LP, all opinions from Chris and guests of the fort podcast are solely their own, and do not reflect the opinions of for Capital LP. This podcast is for informational purposes only and should not be relied upon for Real Estate or decisions. Decisions. The fort with Chris Powers is produced by straight up on casts. The fort with Chris Powers is produced by straight up on casts.