Episode 21 - Starting a Faith Driven Fund with Luke Roush of Sovereign’s Capital
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Today’s episode, we’re talking to someone who is an expert in his field but also a dear friend to all of us who host this show. Luke Roush co-founded Sovereign’s Capital in 2012 and serves today as Managing Partner.
On today’s episode, he shared the story of the startup that spans from Jakarta to Silicon Valley and Washington DC. As you know, the Faith Driven Investor movement is a global one, and Luke provided some great insight on some of the snares and pitfalls, as well as trends he’s seeing emerging, as we head into the future.
As always, thanks for listening.
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Episode Transcript
Some listeners have found it helpful to have a transcription of the podcast. Transcription is done by an AI software. While technology is an incredible tool to automate this process, there will be misspellings and typos that might accompany it. Please keep that in mind as you work through it. The FDI movement is a volunteer-led movement, and if you’d like to contribute by editing future transcripts, please email us.
Henry Kaestner: [00:02:34] Welcome back to the Faith Driven Investor podcast. You know, we haven't spent much time at all talking in either the Faith Driven Entrepreneur or the Faith Driven Investor podcast about what some of us do during our day jobs. And a lot of that's been neglect. And just thinking that other people's stories are really interesting because they are. In part, that's also because we've never wanted this to be anything that would be self-promotional. And yet we very much do feel called by God to do the work that we do at Faith Driven Entrepreneur in Faith Driven Investor and at Sovereign's Capital. [00:03:06][32.4]
[00:03:07] And for those of you don't know, Sovereign's Capital is an investment fund that Andre Mann, Luke Roush, who's our guest for today, and I started about eight years ago coming out of the experience that we collectively had in running faith driven enterprises and believing that there is an opportunity to have aligned capital coming alongside and encouraging the entrepreneur to be able to love their partner, vendor, customer or employee in a way that might have some level of marketplace witness and transformation. And so we started Sovereign's Capital, which is a fund to do that. We did it eight years ago and over the course of those eight years have invested just about 45 companies in the southeast and in Asia and along the way have brought onboard just an incredible staff to include William Norvel, frequent co-host and co-founder of Faith Driven Entrepreneur. So it's been with the Faith Driven Entrepreneur podcast and Faith Driven Investor podcast since the beginning. Many of you may not have known what he did. You may have thought that he was a color commentator for Alabama football or basketball. But no, actually, he is a full-time investor. [00:04:07][59.9]
William Norvell: [00:04:08] Honestly, the color commentator for Alabama basketball is pretty bored. In fairness, I might get that job one day. [00:04:15][7.2]
Henry Kaestner: [00:04:18] Luke, welcome to the podcast. You have never been—have you ever been on the show? [00:04:21][3.4]
Luke Roush: [00:04:22] I have not. Long time listener, first-time guest. [00:04:23][1.8]
Henry Kaestner: [00:04:24] It's awesome. What do you think? [00:04:25][0.7]
Luke Roush: [00:04:27] Thrilling. [00:04:27][0.0]
Henry Kaestner: [00:04:30] So why don't you do this, why don't you take us back to the beginning and tell us what Sovereign's Capital does, what's its theory of change? Why does it do what it does and then just bring us up to speed? And then as you do that, I'd love for William to chime in a bit as well, because the funds have matured and gotten bigger and there's been more opportunities. We've seen other niches in some of those are ones that Williams involved in particular. But take us through again the problem we're trying to solve, the theory of change, all that. [00:04:58][28.8]
Luke Roush: [00:04:59] Yeah. So just to back up a little bit before that. My background was really as an operator and I think that Sovereign's was really born out of our experience collectively as operators and we had seen the impact that capital can have on the direction that corporate cultures and corporate values take. And my background is really in medical devices and healthcare consumer products. And I had seen the impact that venture capital had on companies that I've been a part of and started to have, you know, what I would call just a holy discontent around the disconnect that I had seen between my own faith and who I was on Saturday, Sunday and who I was during the week. And I hadn't been involved in anything unethical or anything crazy, but I just really felt a sense of real sacred secular divide in my own work and my own faith. And I had a desire to try to figure out how to bring those two worlds together, something the Holy Spirit put on my heart. And he also put some people around me that I think pushed me to better understand how those two worlds might intersect in a way that was winsome and relevant. And so our real theory of change at the beginning of Sovereign's Capital, which has really persisted over the last eight years, is that people who are leading companies and building businesses are ones who are truly shaping culture. If you think about the entrepreneurs the last fifteen or twenty years, they're all impacting the way we work, the way we play, the way we interact and communicate with one another. The way we live, the way we work. And there's a huge opportunity in the midst of those enterprising businesses to be able to really create new culture and define the way people interact with one another. So we really felt as though the opportunity as an investor to come alongside entrepreneurs and to be able to speak into their journey in both who they were in terms of their identity, but also how they thought about using their businesses to be a blessing to others and impact culture in positive, redemptive, restorative ways. Just a huge opportunity. We weren't a hundred percent sure what that looked like, but we knew there was something there and that was kind of how our journey began. [00:06:54][114.8]
William Norvell: [00:06:55] Thanks for taking us through that amazing journey from where you guys got started. I'm sure it's an amazing effort to have the world's greatest co-founder, not just next to you, but along the journey around, it's good to have Henry on board. [00:07:07][12.3]
Henry Kaestner: [00:07:08] Who's that? [00:07:08][0.3]
William Norvell: [00:07:09] Yeah, yeah. that's you. [00:07:10][0.7]
Henry Kaestner: [00:07:10] That's a shout out to Andre Mann right there. [00:07:12][1.9]
William Norvell: [00:07:13] Yeah. I hope Andrew is listening. But Luke that's an ambitious goal. You know, you guys set out on an ambitious journey here. There were like you said, it's kinda shown itself to work. I'm sure it wasn't that easy, though. I'm sure you learned a lot of things along the way to our investing audience. I feel like most investors. Right. You go out trying to prove a couple of big things, right. You think they're true. That's why you rally support. That's why you raise capital. That's why you build a team. That's why you go out to make investments, to try to make a market return, but also make an impact in the world. What were those three or four big things for you guys as you started and how those play themselves out of three years? [00:07:49][35.9]
Luke Roush: [00:07:50] Well, one of the things that we really were hoping to be able to prove out was something that you just said, which is we hope to be able to deliver both an at market rate of return, but also see businesses be salt and light where they were planted. And, you know, I grew up with this two part gospel of we are sinners and we need a savior. And that was really the extent of a lot of what I heard on Sunday mornings. But there was also, as I came to better understand this creation narrative in the early part of the Bible and then a restoration narrative in the latter part of the Bible that I really came to believe were central to the journey that many of us as business people were on. And so now we had this idea that many thought was really crazy at the time because the prevailing winds back in 2011 and 2012 were that there was a tradeoff between sacred returns or spiritual impact and secular returns or at Market Alpha or better than at market real achievement of Alpha in terms of investment results. [00:08:42][51.9]
[00:08:42] And so we had this idea that actually biblical values generally correlated with good business principles and we wanted to be able to actually test that out and to evaluate and prove in the context of a professionally managed fund, not an investment or a company, but actually a portfolio of companies that both spiritual returns and financial returns could be pursued in parallel, not at the expense of one another. But in some part because entrepreneurs had a clear sense of who they were and what they were trying to do in and through their companies and were able to instill that belief in that ethos within their employees who ultimately extended that into, you know, customers and the entire ecosystem that a business operates. So that was one of the big things that we wanted to prove out. [00:09:21][38.5]
Henry Kaestner: [00:09:21] Do you ever find any conflict in that? [00:09:22][1.3]
Luke Roush: [00:09:23] Absolutely. Absolutely. So, you know, particularly when you think about short term, medium term, what's going to happen this month, what's going to happen this quarter, what's gonna happen, you know, in the next year or two? There are absolutely some Zero-Sum games to be played in that timeframe. [00:09:39][15.8]
[00:09:40] But our view, my view, is that over a longer time period. Call it four, five, 10, 15 years to the extent that you make businesses that really value employees. And then those employees are able to make decisions to value customers and to develop things that customers love. It affects the economic engine of the business such that you're able to acquire customers and retain customers way more cost-effectively than your peer group. And so over a long haul, we actually. To the integration of gospel into core business practices has actually correlated positively with returns, not at the expense. But you've got to take a long view. Short term is definitely some sacrifices. [00:10:17][36.9]
Henry Kaestner: [00:10:18] Are there enough companies out there to invest in? [00:10:20][1.6]
Luke Roush: [00:10:20] Well, so there was another big thing that when we went around and actually spoke with folks about this is kind of what we feel like. That's been our hearts. We've been operators, but we want to transition over into being investors. What a lot of people said is that's great. You know, there's likely to be five or 10 world-class entrepreneurs over the next five years in the U.S.. Good luck on finding as many as you need to be able to find to generate that many well-qualified deals. [00:10:44][23.4]
[00:10:44] Because the general rule in venture investing, which our first two funds were really more focused on venture capital style investments. General rule is you got to look at 100 deals to be able to find one that actually passes muster. And so, you know, if you want to find, you know, 10 companies or 15 companies as we had and found one, that means you got to find fifteen hundred or a thousand entrepreneurs that meet the criteria. And nobody really thought there were that many out there. In fact, I think even those of us on the team had some questions about are we can end up with a portfolio of seven or eight, which is going to make us a little bit overindexed and over concentrated. [00:11:16][31.7]
[00:11:17] Are we really gonna be able to get 15? And what we found was actually there are a boatload of believers who are also building companies, many of whom have been largely underground because secular capital doesn't really understand these entrepreneurs, which is something that we believed and also saw proven out over time. [00:11:33][15.8]
[00:11:34] Many of them are actually just kind of underground in their faith and they hadn't actually come up and become visible in terms of being a Faith Driven Entrepreneur. They'd been living really a dual life, much the way I'd done much of my professional career. [00:11:46][12.6]
William Norvell: [00:11:47] Well, that sounds like it was just an easy journey. You found a lot of people who believed in you. You got everybody together. But how was raising money? So we're an investing podcast, right? There's a couple of different parts of it. You just talked about finding the companies and that was, you know, a little bit easier. Maybe in the numerical sense. I want to hear how you actually found them. So maybe it is that I'm sure it's more difficult than it sounds. But what about raising money? What about convincing others? You said the team even had questions. How was the fundraising trail? [00:12:13][25.9]
Luke Roush: [00:12:14] Yeah. So, you know, you would think. Absolutely. And both Henry and I and Andre and Tom, all the folks that were really around the table in the early days, believed that because of some of the entrepreneurial successes, that we would have to be really easy to go out and raise a $20 million fund. In fact, we had alloted ourselves 90 days to go out and raise 20 million dollars, which we thought we would then put to work over the ensuing 12 months, and then we'd be able to raise a follow up fund about 18 months after the initial inception of the fundraising process for fund one and then raise fifty to a hundred million dollars as a fund two in short order. Mind you, and what actually happened was that fundraising process originally supposed to be 90 days turned into 18 months and we ended up after we called literally everyone in our family Rolodex. We were able to scrape together 12 million dollars of investable capital. [00:13:05][51.1]
[00:13:06] And, you know, again, just something that is now actually a real blessing. But at the time, we were just like, you know, hand slapped face. We had 75 LP's. We had to have 75 people invest in the fund to be able to get the twelve million dollars. Now, as fund one has had some success, I can tell you that there is infinitely more joy in sending out 75 distribution checks to individuals, mostly individuals, infinitely more joy in that than sending out 10 distribution checks to, you know, some fund manager in Connecticut. So what we originally were incredibly frustrated with has actually become one of the great moments of joy, particularly the last two years with a fun one. [00:13:47][41.2]
William Norvell: [00:13:48] That's great. That's great. And look, just thanks for walking us through that. And one of the things I always love and you get into investing is really looking at a few specific companies. A few examples, if you would maybe walk us through a couple of companies you invested in where you can really show what not only what the company has done and what God has done through them, but what you think Sovereign's has been able to do as a unique niche investment partner along the way. And then potentially as well as share one that, hey, you met an entrepreneur who loved the vision everyone bought and you invested. But the story, wasn't one of wild financial success, but it was something else. And maybe the company didn't work out because that is the nature of investing capital is some of these companies don't work out. And God still teaches us so much through those investments and through those journeys. [00:14:33][45.3]
Luke Roush: [00:14:35] Yeah. So maybe the first company I'll talk about is Cloud Factory, and I think Mark Sears has been a guest on before, and so you've heard parts of his story either through FDE or FDI podcast. But you know, Mark's story and what God really called him to in Cloud Factory is a unique one. And what really resonated with us was the scope of his vision. So this idea that there are a million workers around the world who want to be connected with work and are prepared to actually work hard and produce, but really just need access to work that needs to get done and being able to pair that source of labor with demand for labor in developed countries where work cannot be efficiently outsourced and whether it's machine learning or whether it's artificial intelligence or big data analytics. There is an amazing story that has been written through Cloud Factory. The work that that country has done, not just now in Nepal, but also in Kenya and in other countries around the world. And so, you know, that's an example of like an early stage company where he needed a few things. He needed an investor that was going to both understand and resonate with where God had called him in terms of Ezekiel, 37, of the valley of dry bones and what he was called to do in and through that workforce. We understood that vision. We supported it. We're excited about it. We actually were looking to help him even reinforce that in ways that he maybe hadn't thought through. And I think that really resonated with him. The other thing that he needed was some amount of patient capital. This was not a story—at the time that we invested, they had, well, less than $400,000 in revenue—I think about one hundred or one hundred fifty thousand dollars in revenue. So there was enough success in customer product market fit to be able to reinforce, but it was still really, really early. And so he needed somebody to be able to come alongside and be patient with them over the long haul. And the last thing he needed was somebody that was willing to just think a little bit differently, whether it was currency risk or whether it was sovereignty risk. And some of the environments he worked in, particularly in the early days where there was less of a cushion, because one of the other things that we wanted to be able to set out prove—back to an earlier question, William—was this idea that almost any company can be a biblically oriented company. There are no Christian companies. There are Christian leaders who lead companies, and that can be done in almost any context. [00:16:43][128.5]
[00:16:44] And so just to give you an example of a different kind of company was an organization called Lock It, which we invested in in Southeast Asia, which was focused on effectively making live events safe and transparent, both for the organizer as well as the attendees, as well as for a government who were trying to assess how people are getting in, getting out. And, you know, if there are problems, who do we contact? And so the entrepreneur there had seen some real challenging things in the live ticketing industry in Indonesia and had a vision to really bring a Livenation type business model to that country. And we got excited about his vision for impact and were able to come alongside and encourage and support him as his first institutional investor. And ultimately that company sold to another company. And now he's got an opportunity to impact a much broader universe in the company that acquired him. So it's a good example of like how do we think about investment, but also how do we think about exit? Ultimately, these are not companies that we're going to own forever. There are companies that are going to own for a period of time. We're going to help to shepherd and steward for a time. And ultimately they're going to end up either as a publicly traded company or as a part of a larger entity. And as that happens, oftentimes the ministry platform that existed pre acquisition actually expands. It doesn't contract or go away. It expands after a company's bought. So there are a few examples. [00:18:01][76.6]
William Norvell: [00:18:02] That's great and it's a great segue. Let's switch gears just a little bit. Investing is a relationship driven business, as are most businesses. But specifically, you took up a pretty unique mantle here when you were starting Sovereign's Capital with Andre, Henry and Tom. And you actually moved your family to Jakarta, Indonesia. You just mentioned a few Southeast Asia investments as that might throw some people off. Talk about why you did that. As the legend goes. You made the decision about two hours from what I hear. I don't know if that's accurate or not? We can ask, Brooke, if that's accurate or not. But I would love to hear the story of why you did it and what you learned through it. What was true, what wasn't true, being in the place, fully immersed in where you're investing. And tell us about that story. [00:18:45][43.1]
Luke Roush: [00:18:47] So we had this idea of like, wow, wouldn't it be interesting if we could come alongside entrepreneurs who are motivated in their faith and wanted to live that out in the work that they were doing and also had a desire to really build sustainable economic engine companies. And so as we were talking through just the convergence of 10 40 window and emerging middle class, we started to actually do a little bit of a boil the ocean. So we spent time on the ground in Middle East, spent time in Eastern Europe. Andre took a trip down to Latin America. We looked at parts of Africa and ultimately decided the through process of elimination around the demographics, local demand, geopolitical risk, instability. We ultimately decided that Southeast Asia was the place that we wanted to focus. And as we got further into Southeast Asia being the right place to begin, specifically a focus on Malaysia, Singapore and Indonesia. We had this awkward conversation when they were like, well, you know, we all know that the lifeblood of any deal of any fund is deal flow. How are we going to source deal flow in Southeast Asia from Durham, North Carolina? And I always remember the old tobacco warehouse where we had our office in originally. And it, I think, hit us all at once that it was going to be very difficult for three white dudes who were in Durham, North Carolina, to try to come in every month or two or three to Southeast Asia and actually get access to the best deals. The only way you get access to great deals is being in community. And as we became more aware of what was going on in Indonesia specifically, we realized that there was no western venture capital money on the ground. There were a number of people that had tried to do it. Living in Singapore, living in Hong Kong or living in Tokyo. But nobody had actually like moved to Indonesia and done it in so in a relatively short order. We had this conversation as a partnership. I went home, talked to my wife and then about it wasn't two hours, it was about 45 days later, we got on a plane and moved to initially to Kuala Lumpur and then ultimately to Jakarta. And then Andre and his family joined us about six months later. [00:20:45][118.7]
[00:20:46] It was the best decision we ever could've made, but it didn't feel that way about six months in because six to nine months into that adventure, we had yet to find a single deal. There wasn't really anything that was even in our pipeline of things like we might do at some point. And so you had those moments in life where you really start questioning what are we doing here? And if I wasn't having these questions, my wife was definitely having those questions. But by God's grace, in the three months after that, we ended up finding our first couple of deals and we got going and ended up in an amazing four year run. [00:21:19][32.6]
[00:21:19] And that continues today with full time staff that are Indonesian that that really shepherd those investments and are also making new investments. [00:21:25][6.4]
William Norvell: [00:21:26] Amen. Okay. Let's switch gears a little bit. We've talked about fundraising. We've talked about funding investments. I've got about 45 of those in the books now. We've talked about the niche of sovereign's capital investing in Christian led businesses. What does that look like? We've talked about it as a spiritual integration. What is that look like coming alongside and being a part of this journey? Practically right. Could mean a lot of different things to a lot of people. What does it mean at Sovereign's to come behind Christian led businesses and encourage them in the work that they are doing and called to by God in the marketplace? [00:21:57][30.9]
Luke Roush: [00:21:58] Yeah. So one of the things that we've learned is that one size fits one. And there are some things, though, that we think are consistent across the body, the portfolio, and that for anybody who is tracking content on faith driven investor Web site, you'll see some things that I think we've posted in blog posts in the past. But there are really five characteristics that we look to reinforce as we come alongside entrepreneurs. The first is that we want to make sure that they've got a real clear sense of identity and who they are. It's one of the things that we see most often corrupted amongst entrepreneurs is that the narrative of the world in the narrative of most venture capital, private equity, is that it's all about you as the CEO of a fast growing startup that's, you know, getting a whole bunch of attention and creating a lot of value, at least on paper. There's a real easy and slippery slope to get on around, just a mistaken sense of identity and ultimately were know children of the king and that's who we are. But even though we know that to be true on the journey day to day, that something can get warped. And so we really want to try to focus on that as we get to know an entrepreneur and make sure that they in their heart know who they are so that we then have permission to be able to remind them of that on a regular basis. [00:23:10][71.7]
[00:23:10] If we end up investing, the second thing that we really care a lot about is business excellence. If the product that we produce is not high quality, then the quality of the testimony that we have is compromised. So we've got to make sure that we're producing high quality products or services. Otherwise, we run the risk of potentially being a negative witness. The third thing that we focus on and we think these are things that can apply, by the way, to every business. This is not a one size fits one thing. This is one size fits all. The specific manifestations of each of these things are actually quite different depending on the nature of the business. The third thing is that we want to make sure there's a real theology of work. Who owns this business ultimately? [00:23:47][36.8]
[00:23:48] Who do we report to? We report to a board of directors or, you know, a set of investors. The best entrepreneurs in our portfolio had a real clear sense of a holy calling and a holy ambition that they work mightily and heartily under the Lord. Now, they are thoughtful in terms of how they surround themselves with the right advisors and counselors, but ultimately they don't report to me as an investor. And in the last two things we intentionally put last, but we think they're really, really, really important. And the fourth is ministry indeed. And then the last one is ministry in word ministry indeed looks a lot like what corporate social responsibility typically looks like in the world. So how do we love our employees? How do we love our customers? How do we engage with our community in ways that are winsome and relevant and loving? And we feel like we need to. Demonstrate to people that we truly love them, irrespective of where they are on their own faith journey, because we do not believe in the idea of creating holy huddles inside businesses. We got to be able to recruit, retain, promote and celebrate the best and brightest, irrespective of where they are and anything other than performance and the quality of their work. But we do want to make sure that we demonstrate through ministry, indeed that we really love them. In the last one is ministry and word. When we've done the other four things well, we ultimately believe it's important to be able to share the hope that we have and why we do what we do in four. Again, the best entrepreneurs in our portfolio have a tremendous platform to be able to provide a winsome testimony as to why they do what they do. And so those are the five marks of how we engage with our entrepreneurs on the spiritual element. [00:25:22][93.6]
William Norvell: [00:25:22] That's great. That's great. And it's fun to see how they work at every company, you know, in different places and different formats that one size fits one mentality. I think it's really good just on that for our listeners to remember, you know, there's not a playbook at Sovereign's, you don't sort of get your chaplain after you get your investment and then you get this next thing and then, you know, there's not this thing that's handed to you. It's really significant to understand what God's weaving through each person, each company, each geography individually. [00:25:50][28.2]
Luke Roush: [00:25:52] Yeah. And, you know, it's one of the things that we often have requested of us is like, show us what your score card is or, you know, a real formulaic approach around metrics in evaluating where each business is in terms of spiritual integration. And there are some things that we can measure, particularly around prayer and, you know, scriptural reference in how scripture underpins core business practices. But one of the things that we have learned is that we don't want to be formulaic in the kinds of tactics that make sense, because what makes sense, you know, in a country like the US or a company in California versus North Carolina can be pretty dramatically different. And certainly when you look at some of the US or Nepal or Kenya or Indonesia or Singapore, what's acceptable and what's culturally appropriate can be quite varied. We still think that those five elements are true in every business, but the specific game plan, depending on size and stage in the style of the leader or the founder. Very, very important to try to get that right. On a 1 to 1 basis. [00:26:49][57.9]
Henry Kaestner: [00:26:51] So it's been eight years since you raised that first fund and a lot's transpired since then and a lot of development and team in Indonesia. And then along the way, though, you found an opportunity not just to invest in fast growth companies, companies that are growing at, say, 10, 15 percent month over month, but also in the lower to middle markets, companies, companies that might be going through a level of generational transfer. And that's really where William comes in, too, because that's part of the team that he helps to lead. Walk us through that transition and how you've seen opportunity to stay doing some of the things on the fast growth side, but then to merge that in with some the opportunities you've seen with some businesses here in the United States that more of us might be familiar with. [00:27:32][40.9]
Luke Roush: [00:27:33] So one of the other things that I think is really important and is just a lesson that we've learned, particularly in the first four or five years of investing outside the U.S., is the importance of having local partners. [00:27:43][10.0]
[00:27:43] And one of the things that we've been pitched on any number of times is entrepreneurs who live in the U.S. who have grand plans of being able to take their business either to Southeast Asia, to Africa, to Europe or wherever. And what we've seen on the ground is that in different countries, each country's different. [00:28:00][16.2]
[00:28:00] Investing in Southeast Asia, which I'd put in air quotes if you could see me, is something that's not a good idea unless you've got a really huge fund, because what it looks like to get capital into and out of Indonesia is completely different than Malaysia or Vietnam or Cambodia or Singapore. And so contextual awareness as investors put capital to work is really important because the people who really understand what ministries can be most effective on the ground in emerging markets and also understand who can be trusted in business and also understand how to ethically in a Foreign Corrupt Practices Act context, navigate the governmental authorities. You have to be on the ground to be able to understand who those men and women of peace are. And that's something that was a really important lesson that we learned in the early days of Indonesia. It's something that we continue to apply today as we think about, you know, our work with Fund Three just in terms of our work with lower middle market sector. One of the trends that we observed of the last four or five years in that we've had a lot of conversation not just with our own team internally at Sovereign's, but also with our limited partners, is that on a comparative basis, venture investments have gone quite a bit more expensive over the last four or five years. And at the same time, what we've witnessed with the baby boomer generation here in the U.S. is that there's well over a hundred thousand businesses that are going to go through generational transition in the next 10 to 15 years. Many of those businesses don't really have any idea about what that transition is going to look like in terms of leadership and in terms of continuity around the culture and ethos of the business. So as we've waded into now our third fund, we've become a lot more focused on businesses that we would describe as generational transition or tightly controlled family style companies that are in the lower middle market sector. And so our focus has really been on the southeastern part of the U.S., although these businesses exist everywhere. And, you know, on the venture side, we oftentimes are talking with entrepreneurs about what it might be like some day for them to have 50 or 100 or 200 or 300 employees on the lower middle market side. We're talking about businesses that already have 50 or 100 or 200 employees and oftentimes have tremendous witness and testimony and impact in communities where they've been planted for 10 or 20 or 30 years. And so a big focus in our third fund has is coming alongside these entrepreneurs and providing long term think 10 to 15 year plus hold periods aligned capital that celebrates where they are in terms of values. We're okay being a minority investor and we value, particularly in the current economic climate, the ability to maintain low leverage. So we think about return on equity, not as a leveraged ratio, but as a straight ratio. [00:30:46][165.8]
William Norvell: [00:30:47] Now that's I mean so one thanks for branching off into that market so that I have a job. [00:30:51][3.5]
Luke Roush: [00:30:51] Wait, let me ask you a question. So, William, what gets you excited at lower middle markets? Like what other kinds of businesses that you get really ginned up on? [00:31:00][9.1]
William Norvell: [00:31:01] It's fun. I mean, I I get excited that I get to be a part of Sovereign's Capital because I get to hear about venture stage companies. Right. That's exciting. You read about them a lot. I think they have the potential to be cultural change agents in really unique ways. These are companies that end up on the cover of Time magazine. Right. And do really world changing things. I guess for me in my life, I've never been a home run hitter. I love a good single right between the first and second baseman. And I feel like that's a little more the way my mind works. And so when you talk about one size fits one, what I think it's the same for investors, right. So my investment philosophy is I love seeing a business that has been an anchor tenant in their community for a long time, they've been kind of on this long obedience in the same direction mentality, just continuing to get, you know, half a percent better every single day at what they do. And we had a guest on Don Flow who said one of my favorite lines that I keep repeating the other day. And he said, you know, when someone entrust their scarce labor capital to me, I take that very seriously. And in contrast to, not that this is bad, it's just different. In contrast to the moving around nature of startups where you work in a barge and you kind of try new things. And a lot of these companies in lower middle market and in these communities, people entrust their scarce label capital for 25 years. I mean, they go to work at this company and they never leave if it's done well and if it's done right. [00:32:26][84.8]
[00:32:27] And while you're unlikely to end up on the cover of time and you're unlikely to have, you know, five, ten thousand employees, because that's probably not the scale of the company that you're going for, you are likely to have a really impactful vision into a company in the community. And for me, a lot of that comes from my personal story. My dad more or less ran a small business. It was a small unit of a bigger business. And he probably had eight to 10 employees. And I just grew up seeing the impact he had on their lives and that just God planted a seed in my heart to be a part of that. And I saw what happened when he left and I saw how they were treated afterwards. And eventually the office actually closed. And so I saw the impact that leadership could have. And Stauber, my holy ambition, my highly ambitious life is to be a phenomenal number. Two, to visionary entrepreneurs and leaders of well-run small businesses. And being able to come alongside them in unique ways is great. And lastly, I'd just say the way my mind works to think about different investing is just I'm really good at taking a canvas and making it better. Having 10 20 years of data to build on had in that to make decisions on is just the way my mind works. I don't work as well with kind of the blank canvas and come up with something out of the blue. [00:33:38][71.0]
Luke Roush: [00:33:38] Good. Thanks for sharing then. [00:33:41][2.2]
William Norvell: [00:33:41] And as we come to a close, you're going to get the hot seat question that everybody gets. It's amazing to see how God's work continues to move through us and through our companies, but specifically through us and then therefore through other people. [00:33:53][11.7]
[00:33:53] And so would love, if you would tell us maybe a portion of scripture that has come alive to you in this season of life, maybe something you've been meditating on for a while or even this morning, just something, God's word that maybe you could share with our listeners that's impacting you and how you do your job as an investor. [00:34:09][15.7]
Luke Roush: [00:34:10] So it's a great question. And one of the things that I've been doing in the last couple of years is actually reading through the Bible on youversion. And at the end of each day, you can actually go through all the verses that you read and then you can highlight and then copy paste. So I've been building this note's file over the last couple of years and then over time I hope to be able to actually pass effectively a Bible off to each my kids that has all the scripture that has spoken to me and then some notes on how that scripture spoke to me at the time that it found me. And as we know, the Bible is alive. And so one of the things that I've just observed is the rediscovery of scripture and what it said to me ten years ago or 15 years ago or 30 years ago. As a kid is oftentimes common, but sometimes different. But I was doing a devotional with my son and one of his friends at a football combine down in Southern California a couple of weeks ago, we were going through proverbs, as I'm prone to do periodically when I'm just looking for something quick. I'll go to whatever day it is. And then the proverbs. You know, if it's March 16th, it'll be Proverbs 16. [00:35:11][60.9]
[00:35:12] But we were going through Proverbs 16 on this day and I highlighted the verses most important to me. And and my son and his friend did the same thing. Just really interesting. The narrative of these three verses from different parts of Proverbs is proverbs 16 to 9 and 10. And in 16, I won't read 'em in sequential, although note to listeners that there's some other scripture between each of these, but all persons ways seem pure to them. The motives are weighed by the Lord in their hearts. Humans plan their course, but the Lord establishes their steps. The lives of a king speak as an oracle in his mouth does not betray justice. How much better to get wisdom and goal to get insight rather than silver? And one of the things that has just been a great joy in Sovereigns is both the partnership that I've had with William, you and Henry and Andre and Tom and Jake and Michael now and others that are on our team. It's been an incredible joy because our hearts are prone to corruption and our hearts run after things that are not always the Lord's design. And so the joy to be able to do things in partnership and also to have our hearts start to chart our course, but also having people around us that can try to make sure that the Lord is speaking directly into decisions that we make, knowing that the heart is deceitful and trying to build up a hedge of protection around that through both fellowship as well as God's word and prayer. That's something the Lord's been teaching me lately, in part based on my own failings. So that's what I'd want to share. [00:36:38][86.1]
William Norvell: [00:36:39] Amen. Thank you so much for joining us. Thank you so much for sharing the Sovereign's story and what God's been doing for so many years and just highlighted someone who's got to be a part of it. Catching a vision from the Holy Spirit and taking one step forward and seeing what happens and then taking another step forward is something I see and you and Henry and Andre and Tom and something that investors should be thinking about as they get into faith driven investing. This is not mapped out. This is not a clear strategy on what to do in every situation. [00:37:11][31.7]
[00:37:12] So thank you for sharing that story of how you guys just kept putting one foot in front of the other. Trust in the Lord, exactly what that verse said and continue to learn along the way and humbling yourself to what God's plan is. [00:37:12][0.0]
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