- Why this is important: Diva family offices may not find takers for co-investments
- Whom to contact:Mike Gabrail (firstname.lastname@example.org)
Crossroads Group represents the interests of the Gabrail family. Originally from Iraq, Nashat Gabrail moved to the U.S. in the early 1980s and set up an oncology practice in Ohio. He was an early adopter of administering chemotherapy in his clinic, which later became a research facility for oncology clinical trials.
Paul Gabrail, his elder son, added to the family wealth through public-markets and real estate investments in the early 2000s. In 2004, the Gabrails set up Crossroads, which invests in private markets on behalf of the family. Paul, his brother Mike Gabrail, who is an attorney, and Andrew Strigle lead the investment effort at Crossroads.
Buyouts spoke with Mike Gabrail.
What kind of investments have you made?
Most investments came from a need we had, or opportunities that our friends and other family offices presented to us. We are almost like an incubator: We like an idea, we back it. We provide back-office support and even office space in addition to capital to our portfolio companies. Some we lose money on; most we do well.
We invest in funds and make direct investments and co-investments, too. We made about 20 direct investments and are still engaged in about 15 of them. We invest between $50,000 and $500,000 in our portfolio companies.
We are invested in a tech-incubator fund, but we typically will not invest in technology startups. We won’t invest in businesses whose output we can’t assign a value to.
What are some of your investments?
We were developing a number of housing projects and used a lot of rehab materials. At $1,000 a pop from Home Depot, bathroom vanities were a major cost for us. We got in touch with a Chinese manufacturer and managed to cut the cost drastically.
Seeing a business opportunity here, we decided to brand our vanities and created Belvedere Baths. We sell in almost all major home stores including Walmart, Wayfair, House and, of course, Home Depot.
We invested in Fit Active Sports because a friend in Atlanta wanted to make better workout gloves. The profit margins made sense to us, and now our products sell online and on Amazon.com.
Employer HCS grew from our father’s desire to reduce healthcare costs for self-insured companies. Currently, we are present in about 12 locations across Ohio and Iowa. By providing primary care on location, we help reduce catastrophic claims for employers and absentee days for employees.
We are invested in a car-dealership-performance-tracking system and other projects.
What makes you an investor of choice?
We don’t interfere in day-to-day operations, and [we] let the entrepreneur manage his business. But if the company is young we tend to be more engaged. We are on the board and provide any support, including additional capital, the business requires.
We had losses and we have learned from them. We are pretty young, so we are quite flexible.
What about co-investments?
Like any industry, some people in it are easier to work with than others. Sometimes, we come across what I call, for lack of a better phrase, “diva” family offices. There is no one way to describe a diva family office, except that you know one when you see it, usually having to do with personality conflicts. We will definitely not co-invest with diva family offices that create drama and have conflicts of personalities. This goes both ways: We won’t take one into our deals and we won’t put our capital into their deals.
What are the new trends in family offices?
Well, everyone is very excited about co-investments, but family offices need to approach them carefully. Some key issues are on who takes the lead, what are the core values of each office, what are expected returns and what kind of legal documents are required.
Also, there seems to be a cliched use of the term “family offices.” I mean, it is OK to provide services to family offices and to collaborate with them. But if you invested only 5 percent in the fund, then you are definitely not a family office. Just make that clear and don’t misrepresent.