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With 50,000 venture capital-backed companies projected to go down in flames this year. . .
People have been asking me “Where are the good clean deals that can generate 5-10X returns on my money with basically no risk?”
(Oren, laughing) “Let me know when you find one of those, because I’m also super interested in a no-risk 10 bagger.”
But after participating in more than 250 deals, here’s the truth about who consistently makes the biggest – and usually lowest risk – returns on these deals. . .
Banker? Founder? Attorney?
It’s the Banker.
Sure, the investors don’t do too badly for themselves. . .
But only the banker can structure deals that provide all four elements needed for my “perfect” investment opportunity:
Normally, you have to make tradeoffs between these four factors.
But when you’re the banker, because you control the money, you can structure deals that provide you with a legal and legitimate advantage over the other people in the deal. In fact, as the banker, you’re expected to do so.
And any banker who knows how to originate, structure, and execute these types of deals also knows how valuable what they do is. It’s literally their entire job to look for ways to maximize their upside while shifting as much of the risk as possible onto other parties in the deal.
Bankers work hard to find these deals.
For investors, here’s the bad news: If you seriously think the banker is going to give you their “easy button” deals that consistently make them these types of big, fast gains. . .
Here’s a quick course correction for you: NO.
“The Banker’s Best Deals” is not something you can get into. It’s just not.
But here’s the good news: If you know how the banker puts together deals–and you just steal their playbook and do it yourself–you can capture all that upside for yourself.
All you have to do is find a well-run operating company that you can attach revenue, reporting, and capital-raising infrastructure to. . .
And then you have to help them move up a “weight class” so they can go after a 10X opportunity.
Don’t get me wrong. If you’re targeting a 5-10X return in under five years, there is real work that has to be done with this playbook, and it cannot get outsourced to some intern or associate.
(This is why venture capital firms can’t do juicy private equity or banking deals–they’re staffed with junior associates.)
But if you know all the cheat codes that private equity firms use to consistently generate these types of returns. . . all you have to do is step in to drive revenue, raise money, and implement financial controls, or “do the work.”
That’s why if I’m going to be putting my own money at risk, I’m looking for one thing, and one thing only: An opportunity to structure a deal the way a banker would.
I want to be the banker.
Because if I can string together five or six back-to-back deals as the banker, I’ll be right on track to hit my +100 million net worth goal in the next three years.
Everyone thinks that the people who make lots of money are the charismatic founders they see on the covers of magazines, on TV shows like Shark Tank, and in pop culture like Mark Cuban.
But in the real world of finance, outside of Silicon Valley and TV. . . no one cares about founders.
Why?
Because most founders–while they may be good small business owners–simply don’t have the executive-level skill set required to build a $1 billion business.
And this is why people in “real” finance don’t give wunderkinds too much money. . . because bad things happen when there are no adults with spreadsheets in the room
You know all the names: SBF. Adam Neumann. Elizabeth Holmes.
Even Uber was a fraternity car wash gone wild under Travis.
Real Money wants nothing to do with financing vanity projects run by egotistical founders.
And I should know. I’m raising $200 million+ of debt and equity financing for a factory I’m building right here, right now, in America.
I’ve been working on putting this deal together for three years now.
And you want to know who I’m giving $200 million in capital to manage? Not some 25-year-old Stanford grad who’s never run a lemonade stand before.
So who did I hire to be CEO of this high-tech precision manufacturing facility that I’m using to target a $5 billion market?
A 42-year-old 20-year industry executive–and the five-person team he’s bringing with him–who has a proven track record of results doing the thing I’m doing: precision manufacturing.
In other words, he has already built and run the manufacturing facility I’m raising capital for right now, and grew the business from $0 to $100 million in under five years. . .
And he is generating approximately $2 million a month in profit for the shareholders.
Needless to say, I’m pretty excited about the idea of owning a business that pays me and my investors $2 million a month in dividends.
But even with that great track record, before I hired the guy, I flew to Europe three separate times and locked myself in a room with him for two days straight each time.
If I was going to put $1 million of my own money into this deal to get things started, I wanted to know the secret behind what makes these factories such incredible cash flow monsters, and how he was able to grow the asset value from $0 to $100 million so quickly.
Here’s what he told me: “You don’t just build a factory. You build a technology company ON TOP of a factory.”
Question: Why is this unique angle so important?
Answer: This deal doesn’t fit “cleanly” into any particular ecosystem for any “normal” type of financing.
The technology is incredible: large-format precision manufacturing technology.
But the deal is not a good fit for Silicon Valley, San Francisco, Wall Street, or Boston finance centers.
It’s got a real estate element–after all, it’s a factory–but the added technology and IP that comes with the deal means it’s not a “standard” deal.
That’s why these deals wind up stranded, outside the walled gardens of the name-brand capital markets ecosystems.
It’s kinda like having two plugs that just don’t match.
These types of deals are my absolute favorite for one simple reason: The valuation of the company can change dramatically based on the story you tell, which allows you to move the deal into a market where the “investor plugs” do connect.
And I’d say there are few people in the world better than me when it comes to telling a great story.
But no matter how much of a silver-tongued pitch devil I am, I still can’t raise “real money” from “real bankers” unless there are certain things in place.
And if you want to know my secret for consistently putting those “things” in place, and making returns in private markets, it’s this: understanding how to find a good business–with a good management team–that has a real 10X growth opportunity ahead of them. . .
Then putting a reasonable amount of capital into the company, sometimes less than $5 million, to optimize the company and get the connector plugs to fit into the bigger capital market channels. . .
And THEN you can take it to market and either sell it or scale it.
This is what billionaires mean when they talk about “banking.”