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Raising Capital And Revolutionizing The Coffee Industry With Josh Ziegelbaum Of Legacy Group

October 26, 2022

chrisseveney

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CWS 223 | Raising Capital

 

Every venture starts with a capital. However, the path to raising money can be quite challenging, especially with all the misconceptions surrounding it. In this episode, Chris Seveney invites Josh Ziegelbaum to shed light on this topic, righting the beliefs that often keep people from successfully raising the capital they need. Josh is the Director of Investor Relations at Legacy Group, a private equity asset manager that invests in agriculture in Latin America through their portfolio company, Green Coffee Company. Along with answering the most frequently asked questions on capital, he takes us into their work investing in coffee. He shares how the company evolved from being a hedge against inflation to what it is today, the number one largest coffee producer in Colombia. So follow along to this interesting conversation as Josh takes us through the ropes of raising capital and revolutionizing an industry.

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Raising Capital And Revolutionizing The Coffee Industry With Josh Ziegelbaum Of Legacy Group

We do have a special guest. We have Josh Ziegelbaum. Josh is with the Legacy Group. Prior to that, he was Vice President of Business Development for a company called Lifeafar Capital, which was a boutique private equity and asset management firm where he led capital-raising efforts. Prior to that, he was a private banker for Wells Fargo. This episode is going to be important for people to read because we are going to talk about raising capital, which is something a lot of investors and people look to do when they are trying to be an entrepreneur and go out on their own. Josh, how are you?

I’m doing well. Thanks for having me on the show. I’m happy to be here.

You are down in Florida. I know you were but I don’t believe you were impacted by that hurricane. Is everything going well down there?

Fortunately, we were not. I’m in South Florida in Fort Lauderdale. We were pretty unscathed from the hurricane that went through. It’s unfortunate to see that happen, of course. All is well here in Fort Lauderdale, fortunately.

Could you start by telling us a little bit about Legacy Group and what it is you do? I thought it was an interesting concept of what it is you are doing with the Legacy Group.

I’m the Director of Investor Relations at Legacy Group. We are a private equity asset manager. We invest in agriculture in Latin America through our portfolio company, Green Coffee Company. We also invest in other early-stage businesses in the region but we are much more focused on investments that produce a high social-environmental impact in Latin America, more specifically in Columbia. My day-to-day is raising capital and doing investor relations. We initiated a Series C funding round for Green Coffee Company, our Legacy Group portfolio company that I mentioned.

The day-to-day is investor communications, sharing documents, opening deal rooms, and making sure everyone’s informed. It’s a Reg D 506(c) offering for those of you that are interested in learning about raising capital. We raise from accredited investors. We have a high-net-worth group of investors, primarily from the US. The investor base is over 300. I cultivate and grow that and continue to add value to the business. That’s the main function of what I do at Legacy Group.

With the Reg D offering, what’s the minimum investment that the firm looks at?

We have a minimum investment of $100,000.

We have a lot of readers with who we’ve done several Regulation D offerings in the past and discussed a lot of that with the people on the show in the past. It’s good that Lauren is not here because you do the same thing that she does for us. I’m the nuts and bolts of buying assets from the type of work that we do. I enjoy having conversations with other people that raise money as well.

With raising money, what have you found are some of the misconceptions of the space, especially when dealing with credit investors, as well as some of the hot topics or the most frequently asked questions that people come to you at or somebody was looking to raise money, what should they be prepared to be able to answer to people?

On the outside, looking in, people think, “You have a high net worth group of people. They will be interested in investing.” When I left the world of the public market with my career at Wells Fargo and started working in private, I soon realized that high net worth clients aren’t necessarily interested in private placements. That’s an important reality that people need to face when they are going to raise capital. It’s not just who are the wealthy people in my network. It’s who are the people who I can touch base with who invest passively in syndicated offerings.

CWS 223 | Raising Capital

Raising Capital: An important reality that people need to face when they’re raising capital is it’s not just who are the wealthy people in your network; it’s who you can touch base with and who can invest passively in syndicated offerings.

 

That’s an important one in trying to identify where those people are. Some of them might be listening to podcasts. They might be at conferences at events. We’ve seen a lot in mastermind groups. Organizations of investors who collectively analyze projects and invest together are either part of a syndicate or individually. Identifying who your client is and where to find them is very much key.

Other questions people would want to know is, “From start to finish, how do you do this? What are the documents that you need? What is the regulatory component?” There are plenty of securities attorneys out there that can help guide anyone looking to do this on fund documents and setting things up from a compliance angle.

That’s an important piece but it’s one that could be outsourced. The one that couldn’t be outsourced as much is identifying investors. That, I would say where the challenge would lie for anyone who’s looking to raise capital. If you want to set up a fund and pay a lawyer to do that, you know this being an Asset Manager, identifying opportunities to invest in is another piece of it.

You said you had someone else on your team that does my role. At our company, we have two partners who live in Medellin, Colombia. They handle the day-to-day of the business. They sit on the board of the company. They are a steward of the investor’s capital, along with myself. There’s a whole team that goes involved in it. It’s not just the raising of the capital. It’s deploying it intelligently. Without a good product, investors will not be interested. That’s a whole other piece. Do they invest passively? Maybe the answer is yes, but is your deal one that they would be interested in?

Without a good product, investors will not be interested. Click To Tweet

What we found, and I’m curious to ask this question because you are also investing internationally. With our investments, there’s an education component not only about how to invest but what it is that you do. We invest in mortgage notes, and most people think, “What is that?” They know real estate but mortgage notes are something we have to spend a lot of time and energy educating people on because they don’t understand it. I’m curious because while you are doing stuff in Columbia, you have to educate a lot of people about that. Also, I’m sure a common question is part of the risk-based being in an investment group in South America as well. I’m curious about the education component.

That’s a huge piece of it, of course. It’s important to note that while the assets are primarily in Colombia, we have a US investment structure. Investors participate in common equity ownership at a holding company level here in the US that owns all the assets down there. That allows investors to wrap their heads around things a bit better, like, “I’m investing in the US, a company that owns foreign assets.” There’s comfort there and education that goes beyond it. It’s an emerging market, and it’s an industry that most investors don’t know much about. Most of our investors are in real estate. They are in the stock market. They are business owners. They are looking for diversification into other markets and other asset classes.

Education is key. We do weekly newsletters to keep people informed of things that are going on in the alternative investment space in Columbia, in coffee. We do relatively in-depth investor updates every quarter, which we do formally. We hold webinars with live Q&A. We have individualized meetings where we set up 30 minutes to an hour to address questions and provide education is an educational component to it. When you get people into your ecosystem and their eyes are on you, maybe their interest is peaked but you need to cultivate that relationship over time through education and value add content.

 

A lot of what you said resonates with something that we focus on a lot is there’s the nurturing of the relationship with the investors educate them to get them to invest. I find it’s more work after the fact to keep them informed, communicate with them, and continue that education. There’s no what I will call surprises down the load where somebody says they may have not known something or what was going on. It sounds like you do an excellent job with the amount of content that you are putting out to all your investors.

What has been the biggest challenge of once Legacy Group started to raise, especially in Colombia with the coffee and getting out there and again, networking, finding the right people, how long has it taken? There are a lot of people that have this misconception of, “I have a fund. I have a Regulation D.” You can’t have any attorney do it but then you have to go out and build those relationships. People don’t realize the amount of time it takes to go from, “Great, we are doing this, and now we can go solicit people through the Reg D file to succeed to credit investors to ramp up the scale of that offering.” I’m curious if you want to share a little bit of experience with that.

It’s when we set out to do this. You are looking uphill. You are like, “I got to raise this much money. Who am I going to sell it to?” You might have this little network. You have to grow it over years with different events and different initiatives that drive people to subscribe to your newsletter or put them in contact with you in a personal manner, whatever your strategy is. It’s a long game.

We have been successful in the sense that we’ve gone from $10 million in assets under the management of equity committed a few years ago to about $40 million now. The strong growth trajectory for the business. We initiated a $25 million equity round. What’s good about things as you go forward is that it snowballs. There’s somewhat of an effect where your past investors reinvest. They tell other friends and those friends that invest. It’s almost like a web, so to speak.

We’ve found that if you can speak once to a large group of people, whether that’s through a podcast, a webinar or a group presentation, that’s an effective use of your time. If we can get 20, 30, or 40 high-net-worth individuals in a room and have them listen to a presentation, that’s much more effective than having an individual call with all of them. We do both. We do individualized conversations and calls but usually, they are follow-ups to group presentations that we do. We will approach various networks and do that. We have been successful in that regard.

Are you the person that’s talking with a lot of these investors or is someone in your office?

I’m the main point of contact for our investors. We do have other members of the capital raise team. We have a VP of Business Development, Dustin Baldwin, who’s done a great job in our pre-Series C and our Series C round. We have another VP of capital raising. The partners assist in the capital raise. We are all client-facing to a certain extent but I would say I’m not the main point of contact.

I was mentioning that because, similar to on our end, when people have reached out and called us, they are surprised at like, “I’m speaking to a human.” It’s interesting because, for us, they pick up and call Lauren, and she’s out in California and holds a conversation with them. They didn’t think they would get someone or get a call center or something like that. It’s like, “When we tell you we will speak with you, we will speak with you.” That also goes a long way when it’s forward-facing.

I know that with COVID and a lot of this being done by Zoom has been helpful because things that might have been done over the phone now you could do by Zoom and get to see that Josh is a real person. You are getting to see that person versus somebody on the phone trying to talk to you about an investment that’s $100,000. I don’t care how much money people have. It’s a lot of money. It’s something that they have to be extremely comfortable investing in.

The personal approach is the way to go. Investors want to know that you are real. They want to see you on a video call if they can’t meet in person. They want a person that’s genuine to them. Leading with genuity and with confidence is key. They could tell that you are a good person on the phone. It’s harder to tell through an email but that’s also an important piece of it, the way in which you respond to people.

A lot of the communication is written before you get on a phone call. I would tell your readers who are looking to sit out and do this. It’s not so much. Get guys interested. Get on calls. Feed content, add value, and answer questions in written form in a professional manner. Often, you will get 5 or 10 questions as a reply to an email newsletter, like, “What happens if this or that happens?”

You will have to craft nice responses. Based on those responses will dictate if these people want to talk to you or if they want to invest. If you are doing it with a team, let’s say you are someone such as yourself and you have deals, have a strategy, and building on a team, you want to make sure that whoever is the one talking to the clients knows the material the back of their hand. Clients will see right through it if they don’t.

At our team, the director of investment relations has direct contact with a lot of the clients. I’ve seen other setups where they will filter through an associate for the first people that come in. A lot of people might get lost at that stage speaking. I’m not saying that there’s not a place in an organization for an associate or an analyst level but when you are talking about $100,000 tickets with multimillionaire investors, they want to talk to someone that can speak the same language as them. They might often be turned off getting some junior-level type of employee right out the gate. It’s important to think about all that as you are narrowing down your approach.

That’s 100% the truth. Lauren, who’s our VP of Investor Relations, has done asset management. She’s managing assets. When people ask about specific things like, “Do you do this and that?” she knows it. She can rattle off. It’s interesting. A lot of that content goes out. Speaking with people, I was on a call with a potential investor. You mentioned that most people how honest they are and stuff. The person asked the question. I point blank said, “I do not know the answer to that but I will look into it and get back to you.” People sometimes get the feeling that they have to answer every question. You don’t have to answer every question.

There are certain questions you should know about the basics of the business but this was a complex tax question. I said, “We have accountants on staff. We use everybody that are expert in that. I will get that information from you but I am not the right person to answer a tax question.” I gave that person the answer. I went back. I got the answer for them. I emailed it to them. They said, “Thanks, that’s exactly what I was looking for.” I have been on calls because I’m also an investor. When I ask people a question, they would give an answer but it wasn’t an answer. They would go around. You could tell that they struggled with the answer or it was similar to. I have kids. You ask a kid, “Did you get your homework done?”

You have that two-second pause, and then all of a sudden, it’s like, “I think so,” or something. The pause right there tells you right then and there, like, “They didn’t do it.” Trust me, investors can see and read that. Be comfortable if you don’t know the answer. Be upfront and say, “Let me get back to you on that.”

That’s a great point, for sure. That’s one that we practice. Do not make up an answer. It’s one of your investors that will come back and haunt you.

Do not make up an answer, or one of your investors will come back and haunt you. Click To Tweet

You were Wells Fargo, private banking. I’m sure you are probably doing well in that line of work and so forth. What got you to go from that to start working in the private equity side?

I was happy in my career at the bank because I was able to help clients. I was able to have an individualized approach, similar to what we do now, but with public securities and with products. It made me happy to build genuine relationships with people. That part of the business I loved. Financial services it’s my passion. I was aligned there.

After 5 or 6 years, at the tail end of my stint there, I started realizing that the value that I was creating was that I had a great relationship with people. I was able to make them comfortable but in terms of the products that we were offering, they were black and white in the sense that every other bank had them. If it’s an ETF, it’s a mutual fund. It’s a mortgage, it’s a depository account, whatever it is, we are able to provide white club service and make the client happy.

They will come in and be like, “What’s the difference between this and what I get next door?” I’m like, “Nothing. You get to deal with me.” There were other reasons as well. The larger corporate structure does not lead one to excel through effort. You can climb through the ranks as I did over time. I had a nice, decorated career, which I’m grateful for. It got me here. You hit walls, and then you are in a position where, “I’m a private banker in this office but someone has my job at the company, hundreds of them around the country.”

You are one of many that are easily replaceable and you are offering products that are from everyone else. I wanted something that was more rewarding, that was more interesting, and that I could have a product or service that a client could not get anywhere else. I was always driven to Latin America. My wife is Mexican. I speak Spanish. I love the culture. I’m down in South Florida, which is very much the Latin America of the US. It’s driven to that market.

I knew that there was an opportunity there. I ended up finding the partners who I work with now. It was through a LinkedIn job for that VP of business development role that you mentioned. From there, we pivoted to what we are doing now at Legacy Group. They brought me in to head up investor relations but it was at almost out of frustration that I didn’t have a great offering for my clients. I want a more dynamic environment where I could add more value. I found that in private equity.

I want to talk a little bit about the coffee side of things. There’s the Green Coffee Company, which I know you’ve got several other offerings in your portfolio. Green Coffee is the latest. I’m assuming you drink coffee. Do you drink it black or do you put stuff in your coffee? How do you drink it?

When I’m in Colombia, I drink it black like the locals. Here, I will put a splash of half and half.

Internally, we have a staff of eight of us. That question was divided between the people who drink it black and the people who don’t, and the people who drink it with a splash. Some people put old milk and other things in there. It created a lot of controversies where people would drink it black and were a little screw boost in there. Why coffee? I don’t know a lot about Colombia but I’m guessing the coffee business is a major producer in that area. Was this a new entity startup or did you merge with an existing coffee supplier down there? I’m curious because it seemed like you were trying to get in there into a competitive market.

Coffee is the national product of Colombia. It’s known for its coffee. Colombia is the third-largest coffee-producing nation globally. The partners at Legacy Group found Columbia prior to starting the coffee company and saw that it was a market itself that was right for disruption and opportunity and arbitrage-like returns for investors. We founded the Green Coffee Company.

It was built from the ground up. We did a seed funding round in 2018 that we initiated to buy the first set of assets. It was under 1,000 acres. It’s grown over time. The initial strategy was somewhat of an alternative to a syndicated real estate offering where investors could buy assets that produce cashflow through agriculture. It was a hedge against inflation, an alternative to a syndicated apartment building for guys that want exposure overseas.

It evolved over time to be what it is now. We are the number one largest coffee producer in Colombia, with 6,600 acres and 7.7 million coffee trees. It’s grown to that from nothing. It was birthed as an idea a few years ago. The partners live and work out of Medellin. They are both Americans as well. One is a corporate attorney as one of the partners. The founder is a corporate accountant by trade. We are very much involved in the day-to-day of the business. We are active in our role. We meet landholding families in person. All the family members, multi-year negotiations. It’s a fragmented market.

You have to be on the ground. You have to have locals. You have to be knowledgeable about the company itself. We appointed a CEO and president who is a 25-year veteran in Colombian agriculture. We have the former CFO for Fox Latin America and the former head agronomist for Starbucks Colombia. We’ve stacked a team in our corner. It is fragmented. You need to negotiate for long a time.

Often, there’s seller financing involved. There are stress scenarios. It’s not an easy market to break into. Us being on the ground there and having a local team of expertise has allowed us to disrupt the industry and revolutionize the way coffee is produced. That’s our main focus. This is our flagship portfolio company. It’s the only one we have open for investment for investors.

CWS 223 | Raising Capital

Raising Capital: Being on the ground and having a local team of experts allowed us to disrupt the industry and revolutionize the way coffee is produced.

 

It looks like there are over 400 full-time employees. I have somebody I grew up with who went and started out doing microbrew with beer, and now it’s blown up. They have 1 or 2 $30 million facilities. They’ve completely exploded up into the Northeast. The interesting thing I also found with business in a country like Colombia was when I was getting my Master’s. We did a lot of analysis on international real estate. People think, “All you are doing is buying real estate in another country. It’s no different.” People forget about the two other major components, which are land dealings and how land is transferred could be different than in the US.

We are here. We get title insurance. I don’t think many other countries have that type of insurance program and stuff. Also, you are dealing with another currency. If one currency is doing much better than the other, that can have a significant impact as well on the investment. It’s interesting to see. I love seeing successful companies go from starting to now having over 25 farms, 6,000 acres of land, and 7 million coffee trees.

You brought in the right team, from what it sounds like. That’s one of the things I was going to roll into especially going back a little bit to the money-raised side of things. For any type of business, I’m curious to get your opinion on how important it is to have not only yourself but the ownership of the company or people you work with, their background, and their experience to raise money. How do you view the importance of that?

I would put that high on the important scale. People want to know the team behind the opportunity. That’s one of the first questions that’s always asked, “Why are you capable? Why Legacy Group? Why the rest of the teams? What makes the partners capable?” That story of the background and how it fits into the overall thesis of your investment strategy is crucial to your success.

The background story and how it fits into the overall thesis of your investment strategy are crucial to your success. Click To Tweet

With people when they get started, I’ve seen in our space in real estate, there are certain aspects where you can move much quicker to go, “I don’t own a few rentals in this. Now I want to go do syndication.” With that track record that you mentioned and having several years behind your belt, especially the longer you have that history, people can be more comfortable. It’s not that, “It’s somebody who is sitting there, trying to raise money to do something that they don’t have the experience in or putting their money at risk.” It’s imperative that those people know and understand the business that they are doing. We have eight employees, which is a lot.

The coffee company that people invest in has over 400 employees. I’m curious, with the size of the company, are there specific people who all call or the coffee whisperers who know when you go to acquire land? I’m guessing there’s soil testing and stuff like that to make sure it can grow coffee, and then similar to my buddy who does the beer brewing. There are several people that are the ones who make the potion or make the magic. Is it similar to coffee as well? Is it sensitive to land and Mother Nature?

We have a team not only of financial professionals but coffee professionals. We rigorously analyze soil weather patterns, the state of the trees, and how much production is expected. If there’s an opportunity to value add through planting more trees, we do a thorough analysis of each acquisition that’s conducted by the team of the CFO, partners, and CEO. CEO’s background is in agro-industrial engineering. We are analytical in our approach. We run financial models on the acquisitions. We determine payback periods.

On the money raise side, I know you are doing another raise of looking for another $25 million that you are in the raise now. Is that money already in real estate? I will use the example that some people try and get the money to target the asset and some people already have the asset, then they go and get the money. In your line of work, you already have where you are going to use. You are going to get some equity and that financing as part of the raise. That money you have a specific need or goal for what that money is going to be used for, correct?

Yes, of course. It’s a $25 million equity raise but it’s being run with a $75 million debt raise, which we are doing from institutional lenders. We’ve mapped out the use of proceeds for the full $100 million. A little bit more than half of it is going to be for more farmland acquisition and infrastructure build-out, the balance being a coffee roasting facility in the US and then a distilling unit in Colombia, so we could monetize the coffee byproducts with the goal of creating ethanol and alcohol from that. We’ve mapped out entirely where we expect to spend the money. For certain acquisitions, the conversations are ongoing for the acquisition piece but we don’t have a 100% of it planned. This is exactly where it’s going to go but we know where each piece of it is to be spent.

For people who are looking to raise money, that’s a question you are going to need to answer. Again, on the real estate side of things, you may not have a specific asset or deal as you are going into it. We call them sometimes blind pools but you should have a buy box of, “Here’s what we are looking at. Here’s some of the things we have been negotiating. Here’s the type of asset we are going to look for,” and explain to them not only about that buy box but depending on your return structure and your waterfall with that investor.

Rolling that into, “Here’s the reason why we are looking at that because here’s how it’s going to perform. Here’s how we project this perform or here’s what we are going to do to get it to perform,” to get that full circle of, “This is how you are going to get your money back.” That’s always the question that investors will ask is, “When am I getting my money back? How am I getting my money back?” is something we see in real estate. Do you see that a lot on your end as well?

 

Yes. “What happens? What’s the exit strategy? That’s the constant question that we get. Every single person will ask that.

The ones we have been getting a lot, which I haven’t had in the past. I’m curious if you get this, too. We will have people ask us, “Is our investment guaranteed?” We get that question. Our response is, “Unfortunately, no. We are not an FDI-insured bank paying 0.1% interest in your account that’s insured.” I found that interesting. As we get to wrap up, a quick question I was going to ask you is one thing over your career that you’ve learned or a piece of advice you could give to people out there who are looking to raise money, a takeaway for people that something you’ve learned over time.

I would treat every investor as you would treat your best friends or your family members. You need to believe in the product. If it’s something you don’t believe in, it’s going to transmit into your communications with people. You got to do right by your investors, that’s for sure. Be completely transparent, be honest, and be invested in the project as well. Those are important things. It will come back to you if you don’t. We have been doing that from the beginning but I’ve seen it many times with other firms and heard horror stories about it. Be transparent. Be communicative. Be honest. Treat people the way you want to be treated. That will come back to you in droves.

If people want to learn more about your investment or reach out to you, what is the best way for them to reach out?

I would love to get in touch with any of your readers here. You can contact us by email at Investor.Relations@Legacy-Group.co, or you could find us on our website at Legacy-Group.co.

Josh, thanks for joining us on this episode of Creating Wealth Simplified. As always, people, make sure to subscribe to our show and also check us out on YouTube as well. Thank you all. Enjoy the rest of your day.

 

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About Josh Ziegelbaum

CWS 223 | Raising CapitalJosh is responsible for managing investor communications, onboarding, individual and commercial clients, as well as overall support of company initiatives. The dynamic work experience Josh has gained throughout his career gives him a unique perspective on both sales and operations.

Prior to joining Legacy Group, Josh worked as Vice President of Business Development for Lifeafar Capital, a boutique private equity and asset management firm where he led his team’s capital raising efforts. Before that, he was a Private Banker for Wells Fargo with a focus on complex credit needs and investments in public securities.

During his time at Wells Fargo, Josh climbed through the ranks and received multiple internal recognitions and awards for his efforts. He most recently managed a book of business for high-net worth individuals and business owners in Miami Beach. Josh is originally from New Jersey where he studied economics at Rutgers University, and received a Series 7 license in 2017. He is known for his passion around building deep relationships with his clients and for consistently acting in their best interests.

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