Kai Sato is the founder of Kaizen Reserve Inc., a venture capital advisory firm for family offices and corporations. He recently joined Mauloa, a growth equity firm that primarily invests in family-owned businesses. In a distinctive approach, Mauloa takes minority positions and leaves management in control, proactively helping the company grow via operational expertise and strategic relationships. Sato discussed his background in family businesses, Mauloa and what he sees trending in 2024.
What is your background in finance, and tell us about your journey to where you are today?
My first job out of college was in asset management for Macerich, which was basically a small consulting team for our C-suite. I was blessed that the company’s founder, Mace Siegel, became a Yoda-like mentor in my life. He would stress that while you have to know the financials, someone has to actually bring the forecasted growth to fruition. So he challenged me to create the value depicted in our underwriting, even throwing me into sales during the Great Recession.
I probably took the value creation mantra to an extreme and quit my job to co-found a software company in sports, which was later backed by the LA Dodgers. Nothing gives you perspective in finance like becoming an entrepreneur, where you’re tap-dancing for dollars in order to survive. But once that company was stable, I started angel investing and then found a niche in venture capital for family offices and corporations, who can be uniquely strategic investors because of their existing assets. Tailoring to their respective strengths, we focused on startups in verticals like sports, aquaculture, proptech, consumer and climate.
But in time, it became evident that their portfolio companies often needed dedicated attention to reach their potential and would benefit from my periodic involvement as an operator. So in the midst of it all, I've been a CMO multiple times, with one company being acquired and another going public on Nasdaq — the latter of which pulled me into the world of microcaps, which are small, publicly traded companies and an area where I personally invest most actively.
As Warren Buffett has said, “I am a better investor because I am a businessman and a better businessman because I am an investor.” That’s certainly been the case for me.
What can you tell us about the growth equity firm that you recently joined?
It’s called Mauloa, which means “endless” in Hawaiian. We make minority investments exclusively into cash-flow-positive companies, many of which are family-owned and even multigenerational. For example, our most recent investment is called O’Connor Plumbing and is now run by the founder’s two sons, Kevin and Tommy, but it was started over 70 years ago.
Another one of our portfolio companies is Mr. Christmas, a remarkable holiday decor business that is celebrating its 90th anniversary this December. A key differentiator for Mauloa and consistent with our moniker is that we leave business owners in control of their own destiny instead of forcing them to sell if and when the investment leads to rapid growth.
Formerly known as Sachs Capital, Mauloa was founded by Andrew Sachs, who began his career in private equity at Morgan Stanley but later wound up investing in smaller companies around the Washington, D.C., area, alongside his dear friend, Joshua Freeman. After Joshua’s tragic passing, Andrew forged ahead with their thesis of backing profitable companies led by great management teams. He raised Fund I in 2007, Fund II in 2015 and is now on his third fund, as size and geographic reach has expanded to keep up with demand.
What does Mauloa’s structure look like?
Preferably the first and only outside capital, Mauloa typically invests between $15 million and $30 million in exchange for a minority stake in the business. However, we can go much larger if the right deal presents itself. The funds are commonly used for owner liquidity, partner buyout, growth equity, acquisitions, refinancing or working capital.
Not only does existing ownership maintain control of the company, but we don’t predetermine a future exit timeline. This varies greatly from most growth equity firms, which usually aim to liquidate their positions within a few years. Conversely, Mauloa is content to hold them indefinitely while helping grow cash flow alongside our partners — the business owners.
Is this a trend — growth equity firms investing in family-owned businesses?
Yes, especially if they are cash-flowing well. But this isn’t a new concept. Berkshire Hathaway, for example, has been acquiring such companies for decades.
With high interest rates and muted economic optimism, different types of investors have seemingly begun to view family-owned businesses through a different lens. But something that stands out for Mauloa, other than its unique approach, is its founder, Andrew, who has been doing this for over two decades. He’s learned a lot through the years, and few investors place as much emphasis on the human side of the equation, always trying to select and protect the right company cultures.
What do you see as an emerging trend in family businesses in 2024?
One of the biggest trends in family businesses is baby boomers and how they’ll handle retirement. There are over 2.3 million boomer-led businesses that employ at least 25 million people in the U.S., which are inevitably going to be impacted by an ownership transition of some kind. We find that Mauloa’s approach can allow them to “have their cake and eat it, too,” since business owners can de-risk through some liquidity but permit families to maintain control, with the added bonus of our ongoing help in growing the companies.
Survey: Changing times create wealth conundrum — more affluence, more worry
By MARCUS BARAM
There is a growing gap between what wealthy people value and how they choose to protect it against a myriad of risks through appropriate insurance, risk management and loss control programs, according to a Chubb survey of 800 affluent North Americans who were asked how they view their wealth, what they value most, whom they turn to for financial advice and what keeps them up at night.
Below is an excerpt of the report:
Whether their wealth was inherited (25%), self-made (40%) or a mix (35%), respondents to our survey stand out for working hard and playing hard. The vast majority (83%) are working, and almost a third say they would prefer never to retire. There are more millionaires in North America than ever before. Between 2019 and 2022, the number of U.S. households with net assets over US$1 million leapt by 63%, according to the U.S. Federal Reserve. In Canada, the number jumped by 23% in 2021 alone, according to Credit Suisse estimates.
But making it into the millionaires’ club is not what it used to be. A Chubb survey of affluent individuals finds that despite achieving considerable financial success, two-thirds do not consider themselves wealthy, including many with investable assets of more than $10 million.
Turbulent times globally — including geopolitical pressures and changing weather patterns — and greater risks from lawsuits all seem to leave most wealthy North Americans feeling less wealthy and far more insecure about their future. Two-thirds of respondents in the Chubb survey say that building wealth today is more challenging than ever before; and 62% say they are concerned that the current economic climate will impact their wealth, even though the economy continues to grow at a fast clip, unemployment remains low and fears of an imminent recession are receding. They worry particularly about their investments losing value and the impact of inflation, as both stock and bond markets face continued volatility.
“A lot of our clients, even those who were born into wealth, continue to work because they enjoy the work they do,” says Gary Pasternack, head of insurance advisory, Bessemer Trust. “Their wealth allows them to do work that they really enjoy.”
Wealth today means more than accumulating assets. “The real value for the families we work with has to do with something more than what they own. It has to do with education and finding their own way in the world,” says Pasternack. Wealth building and investing has always been linked to the pursuit of passions and values, even as those passions and values shift over time — from pursuing a higher quality of life to creating new experiences.
Over the next 12 months, wealthy North Americans plan to spend more on their homes, their collections, travel, education and entertainment than last year. As they invest more in creating a sanctuary at home, collecting fine art and luxury goods, and enjoying some of the experiences they missed during the pandemic, they face a complex set of risks to their wealth and lifestyle — and a growing gap in how they protect against those risks.
Beyond Owning Things: Building Sanctuaries, Creating Experiences
For successful people, wealth is more than the financial assets on their balance sheet. It is also the memories and stories behind the things they collect, the way they style their homes and the experiences they choose to create. The pandemic accelerated a shift away from simply owning things and toward investments in entertainment, travel and education — areas where respondents plan to increase spending over the next 12 months.
They also plan to devote even more resources to their homes. Home is seen first and foremost as an investment for 62% of respondents, but it also represents comfort, security and family for nearly as many. The average value of respondents’ primary homes is $6 million, and 46% already own more than one home — a number that is likely to rise. Nearly three-quarters of wealthy individuals plan to increase discretionary spending on real estate in the next 12 months, with 43% planning to upgrade or renovate their properties and 38% looking to increase the number of homes they own, continuing two trends that began during the pandemic.
This is an excerpt of Chubb's "The Wealth Report: Closing the protection gap in a time of increasing risk"