Dave Sachse // investing in venture funds and startups as a family office [CC060]

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Dave Sachse
We made cognizant decision that we’re not going to have a website or any kind of online public presence about our fund, because our investment committee is made up of only family members. So how our fund works is we’re all we’re all our own LPs. It’s literally for families. It’s my aunt and uncle, my mom and dad, my brother and my sister in law, me and my wife.

Jay Clouse
The startup investment landscape is changing. and world class companies are being built outside of Silicon Valley. We find them, talk with them and discuss the upside of investing in them. Welcome to Upside.

Jay Clouse
Hello, hello, hello, and welcome to the Upside podcast, the first podcast finding upside outside of Silicon Valley. I’m Jay Clouse, and I’m accompanied by my co host, Mr. family man himself. Eric Hornung.

Eric Hornung
I have three siblings. One of them just moved to Hong Kong. Rough timing. The other ones live in Cleveland with my mom and dad. And that’s, that’s the family. That’s the direct family. And I have one soon to be family member and friend of the podcast Colleen.

Jay Clouse
And one relative who may be destined for sainthood.

Eric Hornung
That’s a far off family member. But yes, in somewhere in Italy. I don’t know. I really should get that story down better because you bring it up on the podcast a lot.

Jay Clouse
It just seems like something that I don’t want to let go. Which when your brothers moved to Hong Kong?

Eric Hornung
Brett did.

Jay Clouse
Really?

Eric Hornung
Uhuh.

Jay Clouse
Why?

Eric Hornung
He is on a project there for Accenture. And he’ll be out there for eight to 10 months working on this insurer tech blockchain syndicate thing.

Jay Clouse
Huh. What do you find out?

Eric Hornung
I found out that on to an indirect relative died in the Civil War, fighting for the North but died in New York City in Trinity Church, which is the oldest church in New York. I’ve been by that’s right by wall street. I’ve been to that church to that graveyard before had no idea.

Jay Clouse
Same. It’s where Alexander Hamilton is buried.

Eric Hornung
Yeah. How do you know that?

Jay Clouse
Because I love the musical Hamilton and it’s on Disney plus right now and I just watched it again.

Eric Hornung
Alexander Hamilton. I mean, he was the one who brought up the Treasury. I mean, that was the original, like, definition of FU money. We’re just gonna flood the market with fiat currency.

Jay Clouse
And Alexander Hamilton if you haven’t seen the musical, he truly lived his one life as well as he could have lived it.

Eric Hornung
Just like our friends at Ethos Wealth Management are trying to help their clients live their life the best way they can. And if you want to learn more about Ethos, go to upside.fm/ethos.

Jay Clouse
Well, Mr. family man in speaking of our founding fathers, today, we have finally completed our search to talk to a family fund. We are talking with Dave Sachse. The Founder and Managing Partner of the Sachse family fund. And Eric, you’ve been looking trying to talk about family offices for quite some time.

Eric Hornung
How come family offices don’t want to talk to us, Jay? How come?

Jay Clouse
I don’t know. But we are super interested.

Eric Hornung
I feel like it’s me.

Jay Clouse
You do seem a little thirsty to talk to family offices?

Eric Hornung
Well, I’m excited Dave decided to come on because family offices are historically. Well, I’ve mentioned a FU money earlier. And the definition of like, real wealth is being able to say FU to people, like I don’t need you, I don’t need to do this. I don’t need to spend my time on that. I don’t need to market. I don’t care. That’s how much money I have. And a lot of family offices kind of take that mantra. I feel like we’re they are secretive. They’re hidden. They don’t want people to know what they’re doing. They don’t need to brand it. They don’t need to, I think use the word thirsty. They don’t need to be thirsty for things because they are quenched, Jay.

Jay Clouse
Last year when I went to capitol camp that time that I won’t let you forget about that you didn’t get to do. Then the booboo.

Eric Hornung
It’s great.

Jay Clouse
I met several guys, the whole thing was mostly guys, several guys who run family offices. And they all had like very simple business cards, no websites like, Hey, we have money, we invest it, but we don’t need you to tell anybody about it. We don’t need you to find us, we’ll find you.

Eric Hornung
Nothing is more powerful than a business card that is just your first name and a phone number.

Jay Clouse
Well, I’m excited to hear what comes out of this conversation. But Eric, unfortunately, I cannot join you for this conversation. I’m not sure if he did this on purpose or not. But I have conflict. And so it’s just going to be you and Dave.

Eric Hornung
Just Dave and me hanging out. Shooting the shooting on family offices. We’ll catch up with you on the back end, Jay.

Jay Clouse
If you guys have thoughts on this episode, as you listen, you can tweet at us @UpsideFM or email us Hello@Upside.FM. And if you or someone you know runs a family office, we’re interested in talking to more of people like you. So email us Hello@Upside.fm. We’d love to talk. Will get to that interview with Dave right after this. Hey listener, have you ever wanted to get a message in front of the Upside audience but weren’t sure how to sponsor the show or weren’t able to do a long term sponsorship? Well, now you can just go to Upside.fm/classifieds. And let our audience know anything that’s going on in your world, whether it’s an event, an application, a special coupon, or deal, or just letting them know who you are, what your company does. All you have to do is go to Upside.fm/classifieds. And you can place an ad on this show. That’s Upside.fm/classifieds.

Eric Hornung
Dave, welcome to the show.

Dave Sachse
Thanks for having me. Eric.

Eric Hornung
I want to start with how you got into family office investing.

Dave Sachse
Yeah, as far as family office investing, I mean, my my family started a family office when they my parents sold a manufacturing company. In 2012, I was more just very fortunate with the hand I was dealt in life to all of a sudden find myself in my own family office later in life here. So that’s that’s kind of how I organically started working out of my own family office.

Eric Hornung
Did you always know that you were going to have some substantial wealth growing up? Or was this a kind of sprung on you thing?

Dave Sachse
Definitely didn’t always know. But I wouldn’t say it was sprung up on us, per se. But I mean, my parents are always long term thinkers. And I was raised in an environment where we understand the value of $1. In addition to you know, if I got $10 in a birthday card, my parents would tell me to figure out, save 11 of it. So all of a sudden, that was kind of the mentality that I grew up in. So I wouldn’t say it was a surprise, but I didn’t say, you know, I was expecting it, either.

Eric Hornung
So walk me through what that looks like. Your family finds liquidity, and they decide, oh, we should set up a family office. How does that even happen and how involved were you in that process?

Dave Sachse
Yeah, no, good question. I think this varies from family office to family office. I mean, we’re we’re very modest or smaller family office where it’s really only family. And then we have a few admin and additional staff. I mean, there’s other families offices that will hire dozens of staff to manage different asset classes and whatnot. But realistically, I mean, after my parents sold the company, both my father and mother are very community oriented, as well as just helping other businesses, whether large, but especially small and medium size. And so my father set up a consulting business out of an office where family work that then became the family office. And so he helped consult and work with, you know, young entrepreneurs and SMB companies and older entrepreneurs. And then my brother and I just started doing different ventures out of the office as well.

Eric Hornung
And how did you get up to speed on what this looks like and what you could and couldn’t do.

Dave Sachse
As far as could and couldn’t do? What do you mean by that?

Eric Hornung
I don’t know what I mean by that to be honest like.

Dave Sachse
Yeah, I get where you’re going. So I, you know, the interesting thing with with family office, especially if you’re investing out of a family office is pretty fortunate because you get to make your own rules. You know, it’s much different. If you raise a formal VC fund, because you have an investment period, you have a term period, you have to make certain investment, like investments at a certain rate. In family office, you can be patient capital, you can make 10 investments in a month or zero. So you don’t have to deploy like, like VCs do, necessarily. Is that kind of what you were saying?

Eric Hornung
Yeah, I think so. So as I understand a family office, you mentioned the different types of assets that you can invest in. And obviously, we’re interested here on the podcast about venture capital, but what percentage of venture capital and that can be in vague terms, what percentage of your portfolio is allocated to a venture capital investment versus the public investment versus a private equity investment? How much do you think about funds versus direct investments and you can kind of talk about your specific family office or the family offices that you interact with in general here.

Dave Sachse
Yeah. So you know, I think a lot, there’s a lot of different flavors, depending on the size of the family office, and how much they’re allocating towards certain asset classes, and also with the expertise and their background, but just talking like early stage venture, investing here for a moment, a lot of the financial advisors that I’ve spoken with that work with family offices, they’re typically suggesting anywhere from 5% to 10% of liquidity can be kind of focused on that. But again, that varies. That’s more just a an average, I would say. But yeah, I mean, that’s, that’s kind of what I’ve seen is the allocation. And then you know, for us, I mean, we’re similar, we might be slightly higher here with also the, you know, the market correction and kind of downturn occurring here. But yeah no, it’s a blast. We’re having a lot of fun doing it. We both do direct investments as well as venture funds. The reason we invest in other venture funds for many reasons, diversification of investment It’s to augment our team. I’m not afraid to say I don’t know. And I say that often. So I’ll ask a lot of these smart, full time VCs that we’re partnered with. Yeah, it’s also for deal flow as well. And just to, you know, try to make more bridges, especially in the Midwest, when there’s not, you know, there’s not a lot of capital, as are in, you know, some of the other key cities Boston, New York, San Francisco, places like that.

Eric Hornung
So when you’re looking at a fund as an LP, what are things that stick out to you as saying, we should allocate capital here?

Dave Sachse
Yes, we look at a we look at a lot of different things. You know, me being new kind of the investor side, I was pretty naive on merging managers versus, you know, proven managers and I, I didn’t necessarily look at that as much. And I know, you know, a lot of institutions and endowments, look at the later stage managers, I actually kind of took the opposite approach we looked at more of the emerging or if they’re in like the first one, two or three third fund, and we looked at certain GOs That we wanted to have a presence in or at least have boots on the ground that had a formal partnership. But we also looked at style and strategy. So for us, like our family is a family office of entrepreneurs and we’re operators. And you know, how I grew up is like no workers beneath you. And so, you know, those are the type of operators that we kind of align with. And same thing on the investment side. So the investors that we align with or more operators, you know, those are the ones who truly have empathy and understanding of kind of the founder journey and how it’s a journey of peaks and valleys, you know, and often a lot more valleys and peaks, people just publicly see the peaks. So they think that’s what a lot of you know, entrepreneur, ship and early stage investing can be but 98% to 99% of the time it’s a grind. So it’s it’s awesome having operators as investors on your side knowing, hey, not only are we gonna support you financially, but also operationally and we’re going to think about, you know, getting strategic capital to work for you, and not just idle capital that’s along for the ride.

Eric Hornung
Is it ever weird because you make direct investments as well as invest in venture companies that you kind of are competing for deal flow with them? Or does that not ever happen?

Dave Sachse
I won’t say it’s never happened. But I also, I don’t view it that way. So like, I’m not in the venture game here to count how many unicorns we have or to get in the latest consumer technology or anything like that. So I don’t necessarily have sharp elbows. I’m more about really trying to invest in smart entrepreneurs, but also drive community development and creating modern jobs in some of the areas of the country that really need it. And they really need more capital to support these entrepreneurs, especially at a time now where you know, it’s becoming a lot more capable to build technologies anywhere and scale those technologies. So so they can capital needs to catch up to those areas as well.

Eric Hornung
How do you think about branding in the family office space? I feel like a lot of times people just say family office. And sometimes that means we’re one family and one person doing one thing, or we’re a multi family office, or we are White Rock capital, and it’s a family office, but no one would know that’s family office, because they’re coming at it from such a fun style investment. Like, just talk about branding in general and the decisions you guys have made on how to and when to brand?

Dave Sachse
That’s a great question. So I’ve seen kind of branding all over the board. there’s kind of two thoughts to this. There’s like the very public brand. And oftentimes, you know, it might not even have, it might either have the family’s name or not have the family’s name in it. Sometimes it depends on who’s actually working for that entity. If are there any family members or is it all non family members, but then there’s kind of the other vein where it’s like, you can’t find any information about it and it’s only we had a word of mouth I’m kind of in that camp, I learned why my IC or investment committee thought that way. So we made cognizant decision that we’re not going to have a website or any kind of online public presence about our fund, because our investment committee is made up of only family members. So how our fund works is we’re all we’re all our own LPs. It’s literally for families, it’s my aunt and uncle, my mom and dad, my brother and my sister in law, me and my wife, so I have a fiduciary responsibility to them. And there’s people on the committee that didn’t want to be solicited for six figure checks on you know, ideas that were written on a napkin the night before, and put in them in tough situations with friends, family, acquaintances, neighbors, stuff like that. So we make the cognizant decision to not have a public presence for that reason, largely for that reason, but I will say, you know, we do do decks and we share decks with VCs and founders and and other partners accelerators and stuff, but but yeah, I haven’t really put any branding behind it. And now that I’m three years into this journey, I realized that my deck looks like I made it Microsoft Paint. So I I’m starting to invest a little in some design, but we still don’t technically have like logo and stuff and it’s just this Sachse family fund.

Eric Hornung
Have you used Beautiful.AI by any chance?

Dave Sachse
I have not. No, what is that?

Eric Hornung
It’s great. It’s like high quality decks for people in a hurry.

Dave Sachse
I will, I will check that out. Thank you. I, just for the record, I did not make my deck in Microsoft Paint.

Eric Hornung
It’s okay, if you did.

Dave Sachse
Some slides look like it.

Eric Hornung
What are some of the if there’s the obvious downsides of not having a brand and the obvious upsides it sounds like of not having a brand? What are some of your frustrations with not having a reputation in the marketplace or only having a incognito reputation in the marketplace?

Dave Sachse
I don’t know if their frustrations is more as their challenges per se But yeah, credibility, people taking you serious or even taking a meeting with you. I typically often have to share my deck ahead of time if I’m not getting a warm intro, but you know, yeah, I mean, I, I mean, the big, the big elephant in the room is most traditional VCs don’t like family offices doing direct investing themselves. And if you know, that gives you a leg up and most family offices, but I mean, there’s many reasons for them to feel that because, you know, family offices treated like private equity, or they you know, they play shark tank and try to take too much equity upfront, you know, they’ll put silly terms into defer or deter other investors downstream to not wanting to touch the deal. So then all of a sudden, you’re shooting, you know, the founder in the foot, even though they think it’s a successful milestone, but really, they just walked into a trap because nobody else is going to invest in them. So you know, I get I get a lot of the reasons why VCs have that mentality towards family offices. So that I mean, that’s always a challenge working around that. I, you know, I usually counter people with that, because I’m often under, you know, overlooked and quite an underdog and I, I’m okay with that role. And that doesn’t bother me. But you know, the thing that’s pretty interesting, Eric is being in the family office position that does direct investments as well as fund investments. I see a lot of different decks, not just on the startup side. So on the fun side, that is accelerated my learning over the last three years is seeing how different funds are structured, and how different strategy now I treat all that information confidential and only for our internal use. But yeah, it’s accelerated my learning immensely. So I, I you know, if capital is equal, I’m starting to understand how VCs compete. Yeah, and I think that gives me a leg up. So, you know, the one thing I think that VCs will do with family offices is they target them to be LPs. And I get that, but you know, I think often if they’re not one of the big name family offices, they definitely get overlooked and underestimated for sure when it comes to venture investing.

Eric Hornung
Do you think that makes you a better co investor with VCs or a better early stage investor for those later stage VCs? I guess that’s one question. And then a second question would be coming off of that, when you guys are making direct investments, are you eating the whole round? Or are you taking a portion of and having co investors?

Dave Sachse
So I mean, I think we’re a benefit for both those to co invest, in addition to do it directly ourselves. And what I mean by that is kind of what I said before, we don’t have sharp elbows. And literally, we have a list of philosophies internally for how our fund operates. One of those philosophies is if you take care of the founder, and you take care of their customers and their team, good things will happen. And that might mean not making the best decision for you as an investor. So I’ll give you an example recently has have a company going through a series A, and we were in early wanting to act on our pro rata and part of our strategy is acting on our pro rata until a series A. However it was way oversubscribed, I think like by two or three X, there was a lot of strategic money that was trying to get in to come further. So it’s a no brainer for us then, even though it’s not, I mean, it’s painful, because we that’s part of our strategy to act on a pro rata, but we waived it, because that’s what’s best for the startup. And again, because our fiduciary responsibilities to the family, we’re not always playing the we need to make our investment this quarter, we need to get that 5% or 10% allocation to make sure that this could be a return that returns the fund. So we’re not playing that same game. So we do have an advantage that way. We can be much more patient and opportunistic capital.

Eric Hornung
What are the other philosophies they exist in the fund that you can share?

Dave Sachse
I mean, so the other philosophies Family First, that sounds corny, but working family is very challenging and very rewarding at the same time, but putting in governance and making sure that you know, there’s a process in place especially if you have strong opinions to entrepreneurs and your family is really critical. Because otherwise, you know, all of a sudden holidays can really, really suck.

Eric Hornung
How do you think about that? Because you’re you’re investing in tech and these high growth businesses and your family was comes from a manufacturing background. Is there ever any rub there?

Dave Sachse
What do you mean by rub?

Eric Hornung
Maybe a mis understanding or mis application of prior experiences or business models on new businesses or business models?

Dave Sachse
I mean, it is it is a little challenging because you go from the widget mentality of build it, and it’s done. But you could create a new version or a different version that might cannibalize it. But, you know, to software where you’re always building and you’re always upgrading it, it’s never done. It’s always just constantly being updated. So like that mentality is a huge mentality shift. But you know, the other things too is you just look at unit economics can be very, very attractive. So, you know, B2B SaaS companies having gross margin of 70% to 90%? I mean, if manufacturers had that, you know, there would be salivating. So, yeah, there, you know, there’s some pros and cons that we work through. But, you know, I do have experience trying to do a high growth startup out of Wisconsin in Chicago at a 2013 timeframe. So I have some experience kind of jumping in the fire for venture backed startups and understanding the pace, you need to develop software to be successful. So I have some of that background. And then, you know, as corny as it might sound, you know, I’ve been learning a lot on Twitter over the last decade. I mean, I’d follow probably around 2000 people, and I would say 80% of that is in the tech startup space. Now a lot of it can be noise and stuff, but there is a lot of useful input and valuable data there as well.

Eric Hornung
Do you have any pro tips for following people on Twitter.

Dave Sachse
Pro tips, I would not consider myself a pro Twitter I usually will follow anybody that is just tweeting all relevant content that I find really interesting. So if that’s tech VC sports, particularly NBA or box, I mean I usually give them a follow but it is i mean it’s it’s good to look at lists too because your your Twitter feed especially with the updated algorithms, it can get a little less useful if and more noise if you don’t have control that.

Eric Hornung
Is Giannis the best player in the NBA?

Dave Sachse
No question no question.

Eric Hornung
You’re going to fire up some people.

Dave Sachse
No. I mean, whoever those people are sending my way we can have a debate but he was on pace for the best player efficiency rating of all time. He averaged 30 pretty much 30 and 12 this year, by only playing 30 minutes. Harden, Harden needed like 45 minutes for that so and I know LeBron had a good story, but the stats don’t don’t say it was that good of a story compared to Giannis’.

Eric Hornung
Let’s flip this back to family offices before We go down a sports a rabbit hole, how much collaboration is there in between family offices, we see these family office associations are those real things? Do you have like a cohort of family offices that are on slacks that all talk to each other like VCs do? Or is this a completely archipelago type setup?

Dave Sachse
I do see a lot of family offices collaborating, whether it’s through kind of a formal family office group, which there are a lot of those organizations out there. I think some of them, you know, do a good job as far as creating structure and in a family office or legacy planning, you know, financial planning to future generations, stuff like that. It’s just not my style, or my flavor, per se. So the collaboration or interaction that we’ve done with other family offices is, has been more local in Wisconsin, although I’ve started to get connected to more national now just due to VC. But yeah, oftentimes, they’ll talk to each other because they want to be kind of private with some of these informations and some of the challenges are just unique challenges that not a lot have. So that, you know, they try to get a sounding board of this because not a lot of people are in similar situations. So yeah, for example, when I started this venture fund out of my family office, I slowly but surely got connected to other either family members of family offices or representatives of family offices that would have immediate with me in pretty undress pretty much undress me with all these questions about how did you start a family venture fund? How do you do it out of your family office, the governance, if it’s not unanimous? How do you get national vetted deal flow? How to like, what do you analyze on these companies that are only 12 months old? Like there’s not much data and stuff? How do you actually do due diligence on that? What terms do you care about on a term sheet? Is this control terms, economic terms? And like, especially if you’re investing early, what happens to the terms later on? So like, all these questions is do you do one pile of money? Do you do multiple pile of monies? So like all these questions. So instead of me having all these kind of one off conversations with family offices, I looked at this as an opportunity to bring others along kind of our journey. So I set up a formal syndicate, if you will, that’s actually called family VC, as corny as it is. But I do treat all these members as if their extended family. And it’s really a group about collaborating and just learning around VC. And we do that in a variety of different ways. We do that through essentially deals, data and discussions. So I share at least 30 vetted deals a year and also showing some of our investment activity. So they can see kind of as as we go, things that we do well and things that we learned to do better next time. So, you know, we’re kind of opening up the hood of our family office venture fund to make others comfortable and see Hey, there are others doing this. Yeah, so we do that with with deals and then data. I have an educational newsletter. I’m just a data not so like if I see a family office report on. You know, families allocated more to VC or this asset class or different strategies. I’ll share that with the group in our newsletter as well as national and, and local VC news. And then we have discussions are in live in person events when there’s not a pandemic occurring. We typically bring VCs whether local or national, in and then we just have kind of open dialogue conversation. It’s not a pitch environment. This isn’t a fancy wine and dine dinner over, you know, seven courses, dinner or anything like that. This is more like cookout chat, family style, more pay no questions, a dumb question. This is kind of the safe tree, if you will. So that’s kind of the environment I set up. And yeah, the group actually has been phenomenal so far. I mean, we have over 40 members, individuals in our group that represent eight family offices, as well as couple corporate venture groups. Yeah, it’s been a great group. I mean, they’ve already co invested with us over 1.5 million, and we just started it in July. And again, we’re doing early seed stage seed stage investing to where the checks are like our average check is 200k, for example. So it’s a it’s more early stage smaller checks.

Eric Hornung
And when you’re doing this fund inside a family office, one of the things we hear about family offices is that they have patient capital, they can deploy it in whatever structure they want. But when you’re doing a fund inside a family office, do you then bring the VC style terms and length of fund and you have that three to five year deployment window and you want to exit in 10? Is it the same kind of structure within a family office? Or is it hybrid or different? Or How’s it? How’s that look?

Dave Sachse
Yeah, I mean, I think very various royal family offices, quite frankly, but for what we did, I think, and I, what I’ve seen is the best family offices operate as if they’re a fund sending money to people they don’t know and have a fiduciary responsibility. So and what I mean by that is, yeah, having a 10 year outlook and having a thesis and you know, I’ll tell you I wildly underestimated how much work doing a venture fund? Well is. And you’ve probably seen my other brand Midwest perks. That’s a consulting company where I help early stage tech companies with sales strategy and fundraising strategy. And I started that at the same time, I was trying to convince my family office to do a venture fund. And slowly but surely, God got him on board. But then I just wildly underestimated how much work it is. And I mean, it’s a it’s definitely a full time job, and we’re understaffed, but I mean, I do VC full time. And I think the best family offices do it full time and treat it like it’s a real fun. The reason is, otherwise, you can quickly get away from your thesis or your strategy. And then when you start spraying, and then you do the spray and pray type thing, then you’re almost like doing an index model. And you don’t have a clear path to what is our return profile that we’re trying to get. So I mean, everything that we look at, we consciously evaluate it, can it be a 10 x opportunity granted, we’re early stage, so proceed to that late seed. So anything that we look at. Can this be a scalable 10 x return. And I think, you know, the the families that operate with a true thesis and you know, state of that thesis, at least 80% to 90% of the time, I think are the best ones that I’ve seen.

Eric Hornung
One of the things we’ve heard on the podcast before is that Angel groups tend to move very slow, whereas VCs tend to move relatively quick. When I think about patient capital. I think that there’s this longer term horizon. Now you guys have a bit of a mitigation strategy there where you have that 10 year horizon, but there’s no such thing as a patient founder when they’re fundraising. Right? They want it quickly. So how do you guys think about speed to close versus the fact that you have a variety of patient capital?

Dave Sachse
So that’s a great point. I mean, speed to closes is important because that’s also how you compete in VC, the granted set, you know, the really intense speed in the Silicon Valley. The New York the Boston I mean, we’re not going after those deals. So we don’t need to act in days or a week type thing. But you know, we do have a process where a minimum, it’s a couple weeks, so at least two weeks, because we have certain documentation internally. And then we do investment memos that we circulate with our investment committee that then reviews it, and then we meet on it. So we can act pretty nimbly, you know, during a pandemic, when you have operating companies and you’re trying to keep people employed, operating companies outside of our portfolio, which we also have 15 portfolio companies that, you know, you’re checking in on, we can typically act in a few weeks. This is a little bit of a challenging time, because you’re, you’re hurting cats, because everybody’s putting out fires. But yeah, no, I mean, I mean, that’s, that’s pretty much how we operate.

Eric Hornung
What am I not asking about family offices. Family office investing, governance, getting to family offices that I should be asking.

Dave Sachse
Well, I you know, I think the speed I think you’re, you’re right, Eric with, you know, thinking of founders that you know, they need to be careful with who they’re engaging for fundraising because I know You know, a lot of people do make fun of or steer clear of angel groups because they can take a long time. However, I do think there’s a ton of value from some Angel groups as long as you understand the process. And I think that’s the biggest thing that founders should understand with any investor, they’re going to specially family offices, is asking about the process. And like, just as much as they’re questioning you, you should question them as a founder. Because, yeah, I mean, some processes, hey, they’re a minimum of eight weeks, okay, well, we’re on a timeline where we’re going to close in three weeks. So that’s probably not going to work. But you know, and how we operate anytime we know. We’re not going to invest, it’s going to be a no, I try to communicate instantly, even if that’s verbally on the call. That’s just so they know where we stand because I think the worst thing that happens, especially if there’s, you know, a downturn in the economy is investors kinda, you know, dragging things out, and or not being just direct and even ghosts founders I mean, that’s awful. And that’s, that’s another value that we have. We don’t go intentionally we don’t try to not ghost anybody whether it’s invest another investor, a founder, a rep at an accelerator, other partner, we try not to ghost anybody. So I think it’s important that you understand that when you’re approaching family offices, so you don’t get in a quagmire where you think you have some capital, because you don’t have the capital until it’s in the bank account.

Eric Hornung
And I do have one last question. You mentioned earlier on in this interview that you had a thesis around specific geographies. You’ve also mentioned that you’re specifically interested in Wisconsin. Your second company is called Midwest perks. So where do you find yourself most interested in investing?

Dave Sachse
I mean, from a philanthropic standpoint, and just a need standpoint, yeah, the Midwest because there’s a lack of capital, but due to our core focus, even though I am very philanthropic and community driven, because I do have a fiduciary responsibility to Family members, we go for the best opportunity wherever that may be. It just so happens that because we’re trying to do a 10 x type return, we’re looking at, you know, valuations that are much lower, that tends to be in some of these areas where capital isn’t as flushed, and it’s not as prevalent to raise at higher valuations. So that sometimes puts us in the Midwest or greater rocky area, where we’re finding just some better, better valuations. companies that have better valuations with a lot more traction, and it’s just a better deal than on the coasts if they’re just going into pilots. And you know, they’re already at a 15 million prix or something like that to do 10 X on and if you’re investing at stages like that all the time, you’re probably the math will probably not end up working out well for you.

Eric Hornung
If people want to know more about you, or your family office, I guess where should they go?

Dave Sachse
Yeah, I mean, the best spot is probably to reach out to me on Twitter or people can hit me up via email. It’s pretty simple email just Dave.Sachse@gmail. Otherwise, just find me on Twitter, shoot me a DM and I’ll shoot you my email and we can connect if it makes sense.

Jay Clouse
All right, Eric, you just spoke with Dave Sachse of the Sachse family fund. Did you figure out why family funds don’t want to talk to us? Is it you?

Eric Hornung
It’s not me, thank God, it is incentive structures. It is the fact that they have enough money to not need to do a lot of the things we see funds doing. They have their own capital, their own balance sheet. And a lot of people refer to this as like patient capital. They don’t have to do anything with it. They have to support their lifestyle and the money that they have is to be invested in ways that they find interesting or compelling.

Jay Clouse
Talk to me a little bit more about investing off balance sheet. We talked about this a little bit in our conversation with Jason Alien of Koch. I’d love to hear more about that and what that means to you because my finance brain isn’t like your finance brain and I don’t know what that means.

Eric Hornung
So I think the best way to think about is comparing like a fund and a family office for a family office, let’s say you have $10 million in the bank, you don’t need all of that to live. So you have a significant chunk of money that is an investable asset. And some of it you’re going to put in things that are very conservative. Now, that might have traditionally gone in like a bond portfolio right now that’s bonds are yielding like zero percent, pretty much so maybe not the best place to protect against inflation, that’s irrelevant to this conversation. But a portion of that those investable assets are going to be used potentially depending on the family office on alternative assets, which might include things like private equity or venture capital, which might be invested in funds or directly invested in individual companies. And because of that, there is no timeframe like this money is going to be planned for and it is going to be invested over your entire life and your you may run out of it or you may give it away or you may have some estate plan at the end might go to your kids or Am I going to trust and there’s all this stuff that can happen to it. But it’s not like you have to give that money back to anyone that has a defined period of time. So, with a fund, you have a very specific mandate, that 10 years from the day you start the fund, you need to be returning money to your investors, which completely aligns incentives differently. And for fun, that means you have to make as much noise as you can to get the best deal flow you can to get the best deals you can as early as possible. So that way you make sure that you’re returning to your investors because your goal isn’t to beat inflation. Your goal is to beat every other potential fund out there.

Jay Clouse
So it sounds like running a family office comes with a lot less pressure.

Eric Hornung
Yeah, being rich is just always easier.

Jay Clouse
How easy would it be to screw up a family fund?

Eric Hornung
Well, I there’s a really cool stat. The Vanderbilt family met in like, they’re like 200 and some heirs of the Vanderbilt family and I think they met in like now 1997 all together, and there wasn’t a single millionaire in the group. So people tend to lose money over generations. Within the first generation, though, it just depends on the market and how you allocate capital is very variable. One of the things I was excited about with Dave coming on is he is super interested in venture capital coming out of that the family office perspective, but also interested in in terms of funds and fund investing. I think he has a kind of wealth of knowledge about that intersection between family offices and venture capital, he has a ton of connections with Midwest perks, I find that he’s a very thoughtful person in general, and super well respected by founders from what I’ve heard around the Midwest. So Dave is definitely someone that I’m excited to be connected with on the podcast. I think he thinks about things critically, and I’m, I really appreciate him coming on and being one of the few people who’s willing to talk about family offices publicly.

Jay Clouse
Well, Eric, I hope you and I through the course of this podcast, Can amass and FU wealth of knowledge.

Eric Hornung
And FU wealth of knowledge. I also get a few wealth money if you want, Jay, we can do both.

Jay Clouse
Well, we’d love to hear your thoughts in this episode, dear listener, you can tweet at us at @UpsideFM or email us hello@upside.fm. And again, we’re interested in talking with more family offices. So if that’s you, or if that’s someone you know, connect us over email hello@upside.fm. And we’ll talk to you next week. That’s all for this week. Thanks for listening. We’d love to hear your thoughts on today’s guest. So shoot us an email at hello@upside.fm or find us on Twitter @UpsideFM. We’ll be back here next week at the same time talking to another founder and our quest to find upside outside of Silicon Valley. If you or someone you know would make a good guest for our show, please email us or find us on Twitter and let us know. And if you love our show, please leave us a review on iTunes. That goes a long way in helping us spread the word and continue to help bring high quality guests to the show. Eric and I decided they were coming Couple things we wanted to share with you at the end of the podcast. And so here we go. Eric Hornung and Jay Clouse are the founding parties of the upside podcast. At the time of this recording, we do not own equity or other financial interest in the companies which appear on this show. All opinions expressed by podcast participants are solely their own opinion and do not reflect the opinions of Duffin Phelps LLC and its affiliates honor collective LLC and its affiliates or any entity which employ us. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. We have not considered your specific financial situation nor provided any investment advice on this show. Thanks for listening and we’ll talk to you next week.

Interview begins: 6:49
Debrief: 35:17

Today we’re talking with Dave Sachse, the founder, and managing partner of the Sachse Family Fund.

The Sachse Family Fund is a family office venture capital fund based in Milwaukee, Wisconsin.

In today’s episode, we’re finally exploring the family office investing model!

Key Points:

  • Family office beginnings – 5:46
  • Family offices and VCs – 8:33
  • Branding for family offices – 13:02
  • Pros and cons – 15:38
  • Collaboration between family offices – 22:57

Follow Dave Sachse: https://www.linkedin.com/in/dave-sachse-1244989/

—–

This episode is sponsored by Midwest Tech.

Midwest. Tech is a virtual summit for startup founders and investors across the Midwest taking place September 8-10.

The goal of the summit is to connect early-stage founders across the Midwest with venture capitalists and angel investors focused on pre-seed, seed, and series A fundraising. The event is free for founders.

Apply by August 7 at midwest.tech/connect.

This episode of upside is also sponsored by Ethos Wealth Management.

Managing wealth with an eye toward the future demands vigilance and skill in today’s global economy. Over the years, Ethos Wealth Management has worked with clients and their professional advisors – including attorneys and accountants – to create comprehensive wealth management plans designed to make the best use of their wealth today and help ensure its endurance for future generations.

Ethos helps you live the one life you have to live the best way you can.
Visit upside.fm/ethos to learn more.


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