Keys to A Successful Investment

• Many investors consider “deal risk” but not “financial risk.” Remember that the business could work great, but if the company doesn’t have enough cash, it will fail for sure.
• The #1 reason businesses fail is because they run out of money (Investopedia).
• We prefer to be the last investors in the round, and we always do work to figure out how far the current round will get the company. If we are investing early or in the middle of a round, we DO NOT INVEST unless we develop a high level of confidence that the company will raise enough capital to complete the business plan.
• How is management running the company? Are they spending too much? Ask whether the founders fly coach or first class, what level of restaurants they visit with clients, and which hotels they stayed in during their past three trips. The answers will give you a sense of how careful they are with investors’ money. Another good metric is that if you add up the salaries and bonuses of all of the “founders,” it should always be less than the annual revenues of the company. If not, they are being overpaid.

• How scalable is it? Many businesses look good when they are small, but unless it is easily scalable, it’s not likely to make money for investors.
• What is the cost of customer acquisition? How much does it really cost to get a customer? It’s easy to say “we’ll advertise online.” But how much will you have to spend to get a customer vs. how much that customer is worth.
• What are the marginal costs? If it costs too much to add another customer, it could force management to deliberately choke down growth, crippling the business.
• How profitable is it? The higher the profit margins, the easier it will be for the company to handle rapid growth and also weather downturns in the business.

It is difficult to find investment opportunities that meet the above criteria. But remember: you should reject MOST of the deals you review and be choosy in making investments.

We have been asked: “How do you score the above factors?” The answer is complicated. We consider all of the above factors to be important, but we occasionally invest in deals that are not very strong in one or two of the areas. Between the business model and the management, we believe the management team is more important, but a great business model can make up for lots of management mistakes, and it is easier to replace management than it is to change the business model.

One of the best things you can do is connect with investor groups like Ticker Tape Investments (you need more than one!) and follow the deals they invest in — EVEN IF YOU DON’T INVEST. It’s a great way to get experience with what works and what doesn’t without having to suffer the scar tissue yourself.

Watch the recording of the presentation of this info here: https://2viv.net/6KeysRecording

Reach out to Rita Karpel to get more information.

You should also watch the presentation on the “5 Top Mistakes Most Investors Make.” Watch it Here.

Automated Transcript of the 6 Keys Presentation.  [[NOTE: This has not been proofread and may not be accurate.]]

6 Keys to Successful Private Equity Investments

Hey everybody thanks for joining us walking welcome to the next ticker tape educational presentation on six keys to making a successful investment in a private deal my name is Tom Schmidt happy to be here and we’re going to run through a series of educational slides to also talk about ticker tape Investments and some of the deals that that we have done and that we are doing quick disclaimer this is not an offer to Social Security’s by any of the companies mentioned today ticket Investments Gallagher Partners utility rescue none of those this is just a urgency small presentation to talk about things that we’ve learned over the years while investing in private deals they’re always risks associated with any investment and we do not give legal advice investment advice or other professional advice you should get your own advisors to advise you on any deal to look at I get asked a question all the time what is ticker tape Investments well it’s not really a business it is a loose affiliation of a group of investors that invest in deals together Rita and I leave the group and we tend to go out and find the investment opportunities that we want to deploy our own capital in and then we bring in other investors to invest along Science Why well the primary reason is that if I can make larger Investments when say I want to buy Sofi stock that gets me access to deals that I wouldn’t get access to as Tom Schmidt small investor and so having the group ticker tape Investments gives us the ability to negotiate gives us better access all those kinds of things and it lets us do more deals it allows me to spread my limited Capital across a larger portfolio of Investments all these little logos you can see on the screen are deals we’ve done in the past from volunteer and sofa to crack it and ripple to USA Rare Earth mining company and possible Foods plant-based meat products thoughtspot and artificial intelligence got a big searching system harder to get pictures of the real estate deals we’ve done but lots of multifamily hotels litigation funding investment Etc we have currently four open deals one is TTI debt one is another multifamily investment the third is TTI metaverse where we invest in cryptocurrencies real estate in the metaverse blockchain software deals web free gaming deals that sort of thing and last but not least you probably have heard about the utility rescue offering so we have TTI utility rescue open as well 

we’ve had numerous exits I’m going to talk about some of them in a minute various deals that even went public or a liquidated and we received the return of our investment this is a sampling of some of those we have the ones that are gray have actually concluded and liquidated the ones that are in green are expected to liquidate for instance 3M the litigation funding deal has settled it’s just a matter of claimants being paid out their settlements and so we’re just waiting on the timing for the funds to be distributed USA where Earth has also announced a stock deal they are going public and and sometime we don’t know the date yet but sometime between the end of January and April we should receive a significant return on our USA where Earth investment current how do you say conventional wisdom is that that’s going to be about 3.1 times our money nice little return the stock of the stock has been running up a little bit in recent days recent weeks so we’re kind of holding our breath hoping maybe you can get up into the four range for that one so far our best deal has been so fine at about 4.8 times our money and so we’re looking for when you think about investment opportunities we’re not looking for deals that are going to make us 12% or 15% or anything like that over time we’re looking for a multiple of our Capital just like you may have seen the utility rescue deal where we are projecting a nine times return for investors that get in in this round at this share price even like our multifamily deals we’re looking for a consistent yield 

5:00

Quarterly basis but then still some sort of multiple.  For any of the deals but they have different you know risk return profiles the debt deals for the lowest risk only going to pay out about 12% for year over time pretty consistently but there’s no upside to it you’re just getting your cash back plus about 12% per year little more risk in a multifamily deal looking for like a 30% irr minimum or or I should say we look for projected it’s 30% irr minimum we’re really looking for the deals where there’s some sort of explanation of what I were going to double our money plus yet that sort of probably eight to 14% annual cash money’s much greater potential upside but also much much whiskey we’re buying early stage of currencies we fully expect many of those to go to zero and so we’re looking for handful that have high performance to generate a multiple of our Capital here we’re talking you know if if over the long term this thing doesn’t return 10 to 15 times our money it’ll be viewed as a failure because of the sort of higher risk deals that were taking of course obviously the potential upside of these early stage cryptocurrencies the real estate the metaverse with three gaming where that means you’re playing a video game and getting paid to play the game so kind of a hot new thing in the Video Game World especially outside the United States and then last but not least utility rescue is looking at a 900% estimated return because it’s a pre-ideo deal and now it’s kind of a sweet spot to get into that opportunity we’ll talk a little bit about some of those today as I go through the six keys to a good investment but if you want detailed information on the opportunities just reach out to Rita 

Who is it at Ticker Tape? Well from a driving seat standpoint it’s just the two of us Rita and I but we represent about 300 investors that invest alongside Us in all these different deals and we’re not like a two-person show right we enlist the help of those 300 investors to a bring us deals find deals for us be help us that the deals look at them hey do you experience in mining okay we’re looking at rare earth or USA or Earth come take a look at it and tell us what you think about the opportunity so we leverage that group for more than just a capital from the expertise for the excuse me for the deal flow Etc my background I’m a lawyer I am a entrepreneur and an investor I think utility rescue is my 17th company that I’ve either founded or co-founded over the years so been around that block a few times about 12 years ago now somewhere around there depending upon hike and I started actively investing in private Equity deals and started ticker tape investments in 2014 been a successful litigator that’s kind of how I got into all this I started representing investors who’ve been cheated and Deals so the slides I’m about to talk about in a minute much of that information I learned from litigating investor fraud cases and and finding ways that bad people have cheated investors out of their money and so one of the things I talk a lot about is how can you what sort of Warning Sign should you look for how can you avoid some of those pit Rita has been in as a 30 plus year track record in the investment space started as a Trader on the floor of the Chicago Merc and has raised hundreds of millions of dollars of capital for all kinds of different Industries and has kind of a niche 

Six keys to making a successful investment in a private deal and again I could tell you about 30 of these but we’ve boiled this down to the six that we think are kind of the most valuable points to make sure that when you’re looking at a potential investment in a privately held business whether it’s a house a multi-family deal some sort of real estate syndication pre-ipo deal a startup company any kind of privately held investment you want to make sure you check as many of these six boxes as possible first I’ll make sure that whoever’s promoting the deal has skin in the game meaning they have invested their catch I do not mean that they own some stock in the meeting it’s not about will they get an upside if it is successful it is about will they suffer pain if it fails that’s what you want to make sure number two are the dogs eating the dog food that was one of the first things one of my investor mentors taught me make sure that the company’s product whatever that may be can be a service is is gregariously consumed by its customers right people need it want it or clamoring to get it that’s the kind of deal you’re looking for is the company well-funded we’ll talk a little about that number four is a big one I’m going to give you a couple of examples when we talk about this in more details from my litigation career but there’s a lot of of deals out there particularly a lot of these reggae plus deals that I see out there where they’re not as well vetted and you have less sophisticated investors looking at them there’s a lot of ways that the people putting a deal together can take advantage of investors you know my doctor clients my dentist clients all these folks have challenges where they don’t know what to look for so number one it’d be helpful if you can hire an advisor to help you look at a deal but if not then start attending these these events with ticker tape and will educate you on some of the stuff to look at but make sure that the the deal is favorable to your class of investment not some investor that came in earlier number five make sure the management team has experience there’s some components to that that you may not have thought of that we’ll talk a minute and last I like to talk about a particular business as efficient and I don’t really mean by that that you’re hoping that the business runs well and makes money what I mean is the more efficient that the business is and as a business model the more mistakes that can be made the more bad things can happen in the economy to hurt the company but it still survives because it has what I call room for air right that’s a key thing so we’ll talk about that a little more number one make sure that whoever is asking you to invest could be the founder of a startup could be the CEO who could hired to come run a company could be if somebody’s doing a real estate syndication it could be the property manager whoever’s asking you to invest if they have not put cash in the deal I will not invest it let me say that again if they’ve not put cash their own dollar bills into the deal at the same risk as me I’m not investing into me I’ve seen hundreds of opportunities I’m sure many of you guys have too where the founders or is well the five of us were making 300 Grand a year before but we’re only charging the company 200 Grand a year so we’re getting credit for $100,000 a year investment that is not an investment that’s me paying you a salary out of my pocket and you getting stuck anyway not okay if you’re not putting your cash and no I don’t have to be a lot but it needs to be a lot in proportion to their net worth and the reason is not because people think oh I want the the management team or the the Insiders or the founders that to quote have stock because we want them to be motivated to have success that’s important but that is not nearly as important as what happens if the deal fails I took that little graphic and used it here because I think it’s perfect it’s a little gruesome but the idea is that hey we’re going to take off like a rocket and if the rocket explodes I want the founder to explode with I want it to be I wanted to be super motivated not to let it fit some of y’all heard me tell my story I heard this on the radio one day and I literally like stopped in my tracks I was so fascinated by this little vignette supposedly somebody asked Jimmy Carter from her president one time what is the difference between communism and And capitals and is cancer was a farmer in the Soviet Union will not stay up all night with the state’s pick I was like what the heck is that and what he explained was that if you’re a farmer in the so in communist Soviet Russia and your pig got sick you let the pig die and the next day or maybe the day after a truck shows up at your farm and drops off another pig a pig belongs to the state to the government not to you however in Iowa that pig represents that farmer’s daughter getting food getting to go to the school trip getting new shoes off of those things so if a pig and I will get sick the farmer and probably the farmer’s wife and kids are up all night in the barn nursing that big back to health that’s the thing you want to invest in right the one where the farmer is so motivated he’ll stay up all night if he asked you he will work night and day tirelessly because if it fails he will suck that’s what we’re looking for ask these questions get on a call talk to the founder and whoever’s asking you for money and don’t be shy ask him tell me hey if this business fails I want to hear how you know what kind of pain are you going to infer now sometimes I’ve been in this situation as an entrepreneur Once Upon a Time my company was doing a couple million dollars a year in sales and all of it was on a credit card merchant processing account and I was personally liable for all of those sales so in other words if people buy tickets this was on board tours we’ll talk about it a couple times give you a couple of examples so if I’m for two or sells tickets today for July but then the company goes out of business in March all of that money has to be refunded from the onboard bank account if on board doesn’t have any money the market Processing Company is coming to and so I was first I would have been devastated if that had happened financially and certainly it was it was roughly equal to at some at some points in time it was roughly equal to about my net worth so it would have literally wiped me out over and above the money that I had invested in the company directly and so you know that that’s that’s not nothing right you want that guy for those guys or Dallas motivated to make sure that the company survives and succeeds you want them to be in that position hey you know when you bought trucks did you guarantee the loans hey what happens if we don’t pay these bills are you liable for anything how much cash have you put in versus kind of what your net worth is that a lot of money to you but what we’re really looking for is we want them motivated not to fail that’s the key thing second key the dogs are eating the dog food I’m looking for Investments where the dogs are already I should put the word already in there eating the dog food okay now I don’t invest chick or tape doesn’t invest in companies that are pre-sales in other words they haven’t sold anything yet and this is the reason why this key is that I don’t want to make a bet on whether or not hot the dogs will eat the dog food what do I mean by that again these are not my words this was one of my mentors Jim Alexander I’ll I’ll take all the stories about him later on told me this he said don’t invest in a early stage company unless you’re certain that the dogs will eat the dog food and I’m like what does that means well what happens is he goes I can create a wonderful dog food I can you know tell you how healthy it is I can tell you how it’s going to make your dog live longer it’s going to make your dog’s coat look shiny and I can probably Market it in a way that people will buy it but if people buy a bag of my dog food and take it home and the dog won’t eat it cuz it tastes bad they remember buying a second bag and my company will fit right so you want to know that the product whoever the end user is which may or may not be the customer I’ve seen the case of the dog the dog’s owner is the customer but the dog is the end User make sure that the end users look so I wait until all invest later when I can see whether people are clamoring for the food and by the way very cute photo but what’s wrong with that picture tell you what’s wrong you got a bowl of dog food in front of two puppies and their heads aren’t buried inside the bowl chomping down they’ll love it okay dogs are aggressive eaters cuz they’re wired to think that if I don’t eat it right now, someone’s going to take it away from me. So I want the ones where they’re voraciously consuming the product.  Make sure you find a business that’s already proven that it’s product works.  One of the Proven that it’s product works one of the words I like to think about is rabid fans right sorry with the continued animal analogy but I’m looking for businesses that have rabid fans people that love the product they love the company they’re they’re ready willing and able and clamoring to buy more of a great example of this is utility rescue if you ask Rita if you’re talking to her about investing in Utility Rescue just ask her: “tell me about the dog eating the dog food.”  Well the company has 80,000 existing customers who freaking love the company why not because we’re great or we have good people or we we are nice it’s because literally all the company does is save people money right so when it’s saving you money on your cell phone bill if you get that notice saying man I just saved I was going to pay the Verizon now I don’t have to Holy Cow you love utility rescue right so just had a meeting yesterday with restaurant chain called hot body and the CEOs like where we signed because wait you’re going to you’re telling me you’re going to go negotiate our monthly bills including waste garbage pickup and internet service and electricity and all these things and we only pay you if you save us money where do I sign you can find 50 restaurants so that’s the kind of deal I’m looking for where I know that the product works people love the product it has value people will pay for itself another thing remember how is this going to play out you’re going to ask the promoters hey I need to know if the dogs are eating dog food how do you do that show me your sales well I’ve seen I’m litigated cases where people manipulate the sales reports to make it look like they’re doing better than they are so make sure you take into account things like cyclical right hey you showed me the last 12 months and I happen to know that the economy’s been very strong in the last 12 months in this area show me what you were doing 4 years ago in the economy wasn’t so great how did you do during covid how did you do during it’s been around long enough how’d you do during the Great Recession right I want to see what is the impact on a recession of a recession on your sales because remember you’re investing today but today’s economic climate may not be the same next year you may lose your investment because it turns out the economy goes down and they fail you want to understand cyclical you want to understand seasonality I put on your onboard tours again this is one of my companies that that we ran years ago that the exciting to us and so of course we never did this but what I could have done is I could have had investors like investing let’s just say September and show them or even show them 12 months of sales and say look how much our sales have grown over the last 12 months well that’s purely seasonal if you took a 12-month graph of any time period during the whatever 10 years of 16 15 years I think the company was around any two year period you would have seen a huge increase in sales in the summer and then a decline in a slight increase in December and then a massive decline in the winter and then it increase in the song so don’t be fooled by that take seasonality into into account another example is marble slab ice cream I represented a bunch of marble slab franchisees who went looked at the company to manage sales look great they bought a franchise and they fit what happened well anything like a restaurant or a new retail store tends to have that kind of trendy newness Factor right new restaurant opens up keep tons of people go there to try it out a bunch of them are like and it was all right now my favorite and they never go back what’s the one there’s a there’s a fried chicken franchise from Guatemala called Pollo Campero and I was involved in some lawsuits around their expansion in Texas well then this is not an example of something bad but when a new foil can Peril restaurant opened up in Houston Texas it looked like a In-N-Out Burger there’d be 40 50 people standing outside the building in line trying to get this Fried Chicken and and it was because it was all this pent-up demand that was finally satisfied all these people that had moved to Texas from Guatemala or maybe Honduras nearby and knew about it they’re like oh my gosh we got to go get this and then 6 months later those lines were gone and so make sure you take into account when you’re looking at sales doesn’t mean that the dogs like the dog food that they sold a bunch in the first three months the question is did those people come back and buy it again you’re interested in repeat business longevity of business limited impact to cyclicality Etc and also always ask yourself are there other factors that I’m not taking into account that affects the sales.