Planning a path to follow-on investments and avoiding the ‘capital gap’: keynote interview

When Lloyd Capital Partners & Phi Group co-invested in Turning Earth, a food composting company, it didn’t anticipate the challenge of follow-on investing to continue growing the company, said Joshua Roach, chief investment officer of the family office.

Lloyd Capital, which invests the fortune of Chicago-based Lloyd family that owned the Chicago Tribune before it went public in the 1980s, needed another $150 million to continue expanding the company, he said.

Turning Earth, based in southern Connecticut, composts organic waste in New York City and turns it into energy, powering more than 10,000 homes, Roach said. The company needed more capital to continue building the anaerobic digestive plants it uses in the process.

“You would think it would be easy to get funds for a pre-permitted business that will generate an internal rate of return of 12 percent to 14 percent,” he said. Turning Earth is still looking for additional funding.

That taught Roach a lesson: plan out a path of follow-on investing and build a governance framework for companies, he told the audience at Buyouts Insider’s Family Office Connect event in Chicago Thursday.

Investing in new technologies could lead to capitalization issues as other investors take time to come on board, which can lead to a capital gap, he said.

Roach advised family offices to “pause before you jump into direct investing.” Family offices should start small and figure out if they have the stomach and time frame to make such investments, he said.

For that, build relationships with other family offices, make sure there is alignment of interest with them and trust each other, Roach said.

“Be open to take bets on projects you believe in,” he said.

Lloyd Capital manages the investments for six generations of the Lloyd family and half of the wealth is in public securities, Roach said.

The family had made investments in real estate, technology and energy, and partnered with three to six families in each co-investment, Roach said.