E104: How to Start a Single Family Office w/Justinas Milašauskas

Summary

Podcast Summary: The David Weisburd Podcast

Episode: E104: How to Start a Single Family Office w/ Justinas Milašauskas
Release Date: October 17, 2024
Host: David Weisburd
Guest: Justinas Milašauskas, Investment Manager at Will Grow

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1. Introduction to Will Grow

In this episode, David Weisburd hosts Justinas Milašauskas, the Investment Manager at Will Grow, a first-generation single family office based in Vilnius, Lithuania. Will Grow has established itself as a prominent player in the European private markets, leveraging its roots from the successful logistics company, Girteka, and the real estate giant, Sirin.

Notable Quote:

"Will Grow is a first generation single family office based in the Baltics in Vilnius, Lithuania. It started eight years ago on the back of a successful logistics business called Gerteka."
— Andrius [01:04]

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2. Investment Philosophy and Strategies

Will Grow adopts a robust investment approach, heavily skewed towards private markets, allocating approximately 70% of its assets to this sector. This strategy is facilitated by their operational businesses, which provide the flexibility to engage in more illiquid investments aggressively.

Notable Quotes:

"Having operating businesses allows us to be more aggressive on illiquids."
— Andrius [01:45]

"We are actively investing the [private markets]."
— Andrius [00:00]

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3. Portfolio Construction and Asset Allocation

The family office maintains a diversified portfolio across various asset classes, employing a metaphor from European football to illustrate the roles of different investments:

• Venture Capital: Analogous to strikers, aiming for high returns and taking measured risks.
• Buyouts: Comparable to midfielders, providing stability and strong performance.
• Private Credit and Real Assets: Similar to defenders, ensuring steady income generation.

Notable Quote:

"Every asset class has its certain role in our portfolio and probably one of the better analogies could be with European football."
— Andrius [02:30]

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4. Building the Venture Capital Portfolio

Will Grow employs a three-year vintage-based investment cadence, aiming to build a diversified portfolio of 15 to 17 managers per cycle. Approximately 80% of their focus is on small pre-seed and seed managers, emphasizing a risk-based ticket sizing strategy. This approach ensures diversification and strong relationships within the fragmented venture ecosystem.

Notable Quotes:

"Our ticket sizing is risk based. So for highest risk seed, pre seed we write a bit smaller checks."
— Andrius [04:15]

"Most of manager relationships come from pre seed and seed space."
— Andrius [04:15]

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5. Navigating Geographic Challenges

Operating from Lithuania, Will Grow acknowledges the challenges of being outside major financial hubs. Instead of relocating, they leverage a strategy that involves partnering with networks in established centers like London and the US. This approach allows them to collaborate on due diligence, data, and systems, effectively bridging geographic gaps.

Notable Quote:

"We decided not to build a team in London or US and fund the funds across both venture buyouts and other asset classes help us a lot."
— Andrius [04:26]

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6. Sourcing and Evaluating Managers

Will Grow sources its funds through a balanced mix of fund of funds and other networks, each contributing approximately 50% to their pipeline. They prioritize managers with strong cap tables and institutional backing, which serve as significant signals for underwriting decisions.

Notable Quotes:

"I would say half comes from fund of funds, another half comes from other networks."
— Andrius [05:02]

"The strength of the cap table of a fund manager acts as a strong signal."
— Andrius [05:25]

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7. Investing in Spin-Out Managers

Will Grow demonstrates a keen interest in spin-out managers—those who have honed their skills at larger firms and are now venturing out independently. They value the entrepreneurial DNA and the potential for these managers to outperform their predecessors.

Notable Quotes:

"The spin outs typically have learned the craft of venture at a bigger firm."
— Andrius [07:09]

"They're also essentially making a bet on themselves... they have a lot of skin in the game."
— Andrius [07:25]

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8. Risk Management and Decision-Making

While recognizing the potential of spin-outs, Will Grow remains cautious about associated risks such as GP market fit, fundraising challenges, and scalability of assets under management (AUM). They emphasize thorough due diligence to mitigate these risks.

Notable Quotes:

"The GP market fit... it's important to validate the track record."
— Andrius [07:36]

"We have to pro-actively discuss and understand how, you know, Fund three, Fund four would look like for the emerging Manager."
— Andrius [07:36]

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9. Lessons from Public Markets

Drawing from his extensive experience in public markets, Andrius highlights the importance of conviction and selectivity in investment decisions. This philosophy underpins Will Grow’s approach to committing quickly to high-quality deals without succumbing to the pressure of deploying capital hastily.

Notable Quotes:

"Public markets taught me to develop conviction quickly, act fast."
— Andrius [12:17]

"You don't need to chase every opportunity. So that's what we try to focus, be very selective and build conviction quickly."
— Andrius [12:17]

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10. Unique Position as a Single Family Office

Will Grow distinguishes itself through its independence from major financial centers and its dual focus on direct investments and fund commitments. Their entrepreneurial DNA and flexibility to act decisively provide a competitive edge in building and maintaining strong relationships with top managers globally.

Notable Quotes:

"We are emerging LP based outside of a typical financial center."
— Andrius [02:01]

"We are happy to be decisive, quick and commit to the first closing as I mentioned."
— Andrius [12:55]

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11. Geographic Strategy and Operational Footprint

To overcome geographical limitations, Will Grow allocates significant time to traveling to key financial hubs like New York and San Francisco. This face-to-face interaction is crucial for maintaining and expanding their investment pipeline.

Notable Quotes:

"Given our base far away from the financial centers, we have to travel a lot... six weeks per year in the US."
— Andrius [15:34]

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12. Future Outlook and Sustainability

Will Grow is committed to sustaining its venture program without relying on external funding. They project a DPI (Distributions to Paid-In) of 1x eight years out and have structured their investment activities to operate independently from their operational businesses.

Notable Quotes:

"On venture side, DPI should be 1x7 eight years out, we believe maybe even longer."
— Andrius [10:40]

"We are running independently."
— Andrius [10:40]

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13. Final Insights and Takeaways

In closing, Andrius emphasizes Will Grow’s patient and quality-focused investment philosophy, particularly in sectors like cyber deep tech, life sciences, and tech bio. Their generalist approach allows them to remain adaptable and receptive to top-tier managers across diverse domains.

Notable Quotes:

"We are very much focused on top quality GPS and patiently investing in venture lower mid market buyouts and other strategies."
— Andrius [14:55]

"We spend a lot of time on cyber deep tech, life sciences, tech bio."
— Andrius [14:55]

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Conclusion

This episode offers a comprehensive look into the operations and investment philosophy of Will Grow, shedding light on the intricacies of running a successful single family office in today’s fragmented and competitive financial landscape. Justinas Milašauskas provides invaluable insights into portfolio construction, risk management, and the unique advantages of being an emerging LP outside traditional financial centers.

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End of Summary

Transcript

[Andrius]

Public markets taught me to develop conviction quickly, act fast, and this is what we have here at Willgrow. We're happy to commit into the first close, we're happy to speed up our process if needed. It's a great time to be investing. We see fundraising data, we see how many months it takes to close a fund. So this gives us an emerging lp, an opportunity to start building relationships with the top managers around the world. And if we look at the statistics, best vintages have been post GFC 2011, 2012. This resembles to some extent these times and we are actually actively investing the.

[David]

Family office is three and a half years old. You've invested into 60 managers. What are some of the biggest lessons that you've had from investing in venture private markets so far?

[Andrius]

Ticket sizing in the first few deals also is a lesson for us.

[David]

What do you wish you knew before investing into merchant managers? So you're at a you're an investment manager for Will Grow what is Will Grow?

[Andrius]

Will Grow is a first generation single family office based in the Baltics in Vilnius, Lithuania. It started eight years ago on the back of successful logistics business called Gerteka. Girteka nowadays is the largest asset heavy transport company in Europe. On top of that we have another operating company called Sirin which is the largest real estate developer and asset manager in the Baltics. On industrial side, Wilgrow itself is one of the most active private markets investors in Europe these days. We have 60 managers across asset classes.

[David]

You have an active logistics company and real estate development company. Does that affect how you allocate the rest of your funds within the family office?

[Andrius]

Having operating businesses allows us to be more aggressive on illiquids. So we are heavily private markets skewed on our asset allocation, currently running close to 70%.

[David]

What else makes you unique from other single family offices?

[Andrius]

We are emerging LP based outside of a typical financial center. So I guess that makes us a little bit less hyper cycle prone investor. Then on top of that we are actively investing in funds next to our primary fund investment practice. Moreover, being first generation single family office, we have entrepreneurial DNA.

[David]

When we last chatted you used a football analogy to describe the different assets that you invest in. Venture buyout, private credit. Tell me about that.

[Andrius]

Every asset class has its certain role in our portfolio and probably one of the better analogies could be with European football. So venture for example has a role of delivering outsized returns, delivering alpha to the portfolio comparable to striker. What strikers do on the football team, take measure risks and score goals. Then the Buyouts, I would say sort of represents a midfielder analogy in European football. So they have a great opportunity to be strong performers but provide some stability to the overall portfolio. Hence we have. This represents the largest allocation to our portfolio and real assets private credit. This, this more like defender steady income generating type of investment approach.

[David]

So tell me about how you went about building your venture capital portfolio.

[Andrius]

We take a three year vintage based invest in cadence. So we just started the second cycle. In each cycle which consists of three years we try to build a portfolio of 15 to 17 managers, well diversified.

[David]

When you were having this discussion about venture capital, did you think about potentially doing all small funds or all seed funds?

[Andrius]

Probably 80% of our time we're spending on small pre seed seed managers in terms of sourcing and diligencing. Because this is probably the most fragmented part of venture ecosystem. Our ticket sizing is risk based. So for highest risk seed, pre seed we write a bit smaller checks. For a bit later stage and sort of less risky part we write a bit bigger checks. So on a dollar basis we are rather well diversified. But in terms of line items, most of manager relationships come from pre seed and seed space.

[David]

We spoke last time that one of your constraints is you are in Lithuania and you're self aware to understand that you have to use a slightly different strategy given you're outside of the financial hubs. Tell me about that.

[Andrius]

In order to think about one's strength you have to realize your weaknesses. So. So this is obviously something that we've been discussing a lot internally. We decided not to build a team in London or US and fund the funds across both venture buyouts and other asset classes help us a lot. We build our networks with the help of them. We collaborate on diligence and data and systems.

[David]

What percentage of your funds are sourced through your fund of fund relationships versus directly or through other warm introductions?

[Andrius]

I would say half comes from fund of funds, another half comes from other networks. But again, if you would look at the managers that we backed outside of fund of fund sourcing channel, their cap tables look pretty strong with some other fund of funds or flagship institutional investors.

[David]

So you're able to piggyback on other institutional signals in the market.

[Andrius]

The strength of the cap table of a fund manager acts as a strong signal. It's not the only factor that goes into underwriting equation. But this is a, this is a strong signal for us.

[David]

Indeed there's some nuance for LPs when they look at other signals from other institutional LPs. Where are cases where you would not follow a signal from a top institutional lp.

[Andrius]

At the beginning of our venture investing, we more emphasized the brand of the firm. With that, obviously you have underneath some strong institutional LPs, but we paid less attention and maybe the strength of the brand and the name of the firm was more important. Later we've decided to focus much more on emerging managers. So with that, you know, the brand is still a little bit unclear and then you have to extract the signal elsewhere. And the strength of the cap table of the manager acts as a strong signal for us these days.

[David]

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[Andrius]

The spin outs typically have learned the craft of venture at a bigger firm. They made a good amount of investments, you know, successfully and unsuccessfully. They learned on someone else's dollars and probably there is a time when they feel they need to go solo.

[David]

They're also essentially making a bet on themselves. They're saying that they're going to outperform their previous manager and they have a lot of skin in the game. On the contrary, what are some of the risks that come with investing in spin out?

[Andrius]

Sure, there are few, few risks that we have to be mindful. First, is a GP market fit. The question is whether the manager has done, you know, similar or the same strategy actually at a previous firm. So that's important to validate the track record. Also, there is a certain element of risk in fundraising. Probably, you know, they had the investor relation people arranging, talking to LPs now, now they have to do that themselves, being stretched in time and make sure that fundraising does not drag out for too long. The third one would be, yeah, I think it's ambition to scale aum. That's one of the risks we want to discuss proactively and understand how, you know, Fund three, Fund four would look like for, for the emerging Manager.

[David]

Just to play devil's advocate there, let's say you had a top GP spinning out of one of these very large funds and you assume that they're going to scale you on fund two and fund three, but fund one was right size. Would you ever invest into a manager knowing that you probably wouldn't invest in the next vintage?

[Andrius]

We haven't done that yet. Just recently had a case where we clearly understood that it's a one vintage play for us and we passed. And I think overall it would be highly unlikely given that our approach is to underwrite typically two vintages.

[David]

Yeah, I think there's essentially it's like option value. If you hit the next Sequoia or the next benchmark, you could have that allocation for 10, 20, 30 years, which is incredibly valuable, especially from a compounding aspect. The other one is relationships. You get into those top brands and now you're able to use that both as a track record and oftentimes the most kind of LP friendly gps will also introduce you to other gps, whether they invest before them or even sometimes competitors.

[Andrius]

In extreme cases the question is, do you want all of your emerging managers to become these large platforms? That's I guess the question if the strategy remains to be seen. But if the strategy is to focus on precedency the 80% of the time, this might also provide some proper churn in the portfolio.

[David]

Yeah, I think there's probably a nuance there. You want some of them to graduate, so you could say I was in Fund 1 of Benchmark or Fund 1 of Lightspeed. And I think you also want some of them to stay the same size for kind of returns and everything. So I think they all have value in the marketplace. The family office is three and a half years old. You've invested into 60 managers. What are some of the biggest lessons that you've had from investing venture or private markets so far?

[Andrius]

Ticket sizing in the first few deals also is a lesson for us. So I guess this combination to work on sourcing, just wait for the best opportunities. And again, as a family of us, we don't have this pressure to put dollars to work. So this good place to take these learnings and move forward.

[David]

What are you guys modeling in terms of dpi? In terms of getting your capital back to continue a venture program? How many years out do you think that you're going to have a perpetuating that doesn't require external funding?

[Andrius]

On venture side, DPI should be 1x7 eight years out, we believe maybe even longer. But one and a half year ago we actually set up our all investment activities in order not to depend on operating businesses, even though venture is the longest one and it will require funding from other asset classes. On a on a firm level we are running independently.

[David]

What other strategies do you implement in a bear market as of today versus a bull market?

[Andrius]

It's just a great time to be investing. We see fundraising data, we see how many months it takes to close a fund. So this gives us an emerging LP an opportunity to start building relationships with the top managers around the world. And if we look at statistics, best vintages have been post GFC 20112012209 vintage is also pretty decent. So this resembles to some extent these times and we are actually very actively.

[David]

Investing Congratulations 10X Capital podcast listeners. We have officially cracked the top 10 rankings in the United States for investing. Please help this podcast continue climbing up in the rankings by clicking the Follow button above. This helps our podcast rank higher which brings more revenue to the show and helps us bring in the very highest quality guests and to produce the very highest quality content. Thank you for your support. You had a long career in the public markets before you came over to Wilgrow. What lessons do you take from your public markets investing?

[Andrius]

Investing is very similar across asset classes. So you just have to make sure that every deal that you do is a great deal. You don't need to chase every opportunity. So that's what we try to focus, be very selective and build conviction quickly. So public markets taught me to develop conviction quickly, act fast and this is what we have here at will grow. We happy to commit into the first close. We happy to speed up our process if needed.

[David]

Venture capital is known as an access class where it's very difficult to get in the very tough funds. How do you differentiate yourself against other top LPs?

[Andrius]

We typically commit for two vintages. Of course things might change, strategies might change, teams might change at the manager. Again, our budgets can fluctuate, but this is the modus operandi. So we're there for two integers. As we are active 3/4 in the US this gives a great opportunity for US managers to diversify their LP base. Also, we are happy to be decisive, quick and commit to the first closing as I mentioned. And maybe finally we are pretty well connected with another family office and LPs in Europe. So we made a bunch of intros to our managers and actually in some cases brought other LPs alongside.

[David]

Should GPS in the United States look at Europe as essentially one geography or one country when it comes to connectivity and strategies.

[Andrius]

Yeah, it's hard, I think. No. So it's very fragmented market for sure. Different languages, different regulations. I think first step for us is naturally London, so it's closer culturally and language wise and it's the most established financial center in Europe. So this is a natural bridge. But then if you look at continent, it's very fragmented and for us this fragmentation I guess played to some disadvantage in the sense that we committed less to European managers and more to the US because in many cases European managers, they run localized strategies bounded by geographies which we think is not, is not ideal.

[David]

What do you wish you knew before investing into emerging managers?

[Andrius]

When we started, emerging managers were a category with a dedicated target of allocation in our portfolio and at the moment it evolved in our strategy that being emerging manager is just one of the features that we like about the managers but without any dedicated bucket and we benchmark merge managers to establish managers in the same domain. So that would be I guess the key learning and adjustment on our side.

[David]

What would you like our audience to know about you, about WillGrow, about anything else you'd like to shine a light on?

[Andrius]

Will Grow is a small professionally run family office who does not have a pressure to put dollars to work. So we are very much focused on top quality GPS and patiently investing in venture lower mid market buyouts and other strategies. And again so we although we run generalist approach, we spend a lot of time on cyber deep tech, life sciences, tech bio. So happy to meet folks from these areas.

[David]

What is the main advantage of taking money from a large single family office versus an institutional investor? What are the pros and cons? You're in Lithuania. How often do you go to New York or San Francisco in the US and tell me about your strategy in terms of face time.

[Andrius]

Given our base far away from the financial centers, we have to travel a lot. So spending, give or take six weeks per year in the US roughly equally split between east coast and west coast where we meet our existing relationships and new relationships. Building new relationships is very important for our future pipeline.

[David]

Well, thank you for sharing this masterclass on Single Family Office.

[Andrius]

Thanks David.

[David]

Thanks for listening to the audio version of this podcast. Come on over at 10x Catavel Podcast on YouTube. By typing in 10x Catavelpodcast into YouTube.com and clicking the subscribe button on the YouTube version of this podcast, you could see the graphs, visuals and key takeaways that accompany every episode.