14 Strategies to Become a More Effective Investor: Part 2 | Summary and Q&A

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August 28, 2021
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Private Investor Club - 4,000 Investors
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14 Strategies to Become a More Effective Investor: Part 2

TL;DR

Negotiate co-GP deals and consider co-investing as strategies to customize investment structures and minimize risk.

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Key Insights

  • ❓ Many investors overlook the opportunity to negotiate investment structures and often pay the sticker price without considering customization.
  • 🤗 Co-GP deals can be difficult for smaller investment providers to attract, as larger families and investment advisors may not be open to giving up economics or modifying their own structures.
  • đŸĒŠ Co-investing can be beneficial when following experienced investors in niche industries, but caution should be exercised to ensure due diligence and commitment from the co-investing parties.
  • đŸ’Ē Performance-only fee structures can create stronger alignment between investors and investment firms, but concerns exist over potential abuse and excessive risk-taking.
  • đŸĨē A multi-pronged investment sourcing strategy, including building databases, connecting with top connectors, and positioning oneself to be found by potential partners, can lead to more investment opportunities.
  • 🉐 Considering royalties as a funding option provides unique advantages, but it is still an underutilized approach in the industry.
  • 🎮 Focusing on chokepoints in specific industries and playing a unique game can provide significant advantages in deal flow and negotiation leverage.

Transcript

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Questions & Answers

Q: What are co-GP deals and how can they benefit private investors?

Co-GP deals involve negotiating customized investment structures based on risk and return expectations, allowing investors to have greater control and potentially earn profit shares without fees.

Q: How does co-investing with other investors mitigate risk?

Co-investing with experienced investors in a specific industry allows for shared due diligence and leverages their expertise, reducing the likelihood of making uninformed investment decisions.

Q: What are the advantages of performance-only fee structures?

Performance-only fee structures align the interests of investors and investment firms, as fees are based on the success of investments. This can lead to better decision-making and stronger partnerships.

Q: How can royalties be used as a source of growth capital?

Implementing royalties as a funding method for companies allows investors to receive a percentage of gross revenues, providing them with ongoing income and potentially reducing their illiquidity.

Summary & Key Takeaways

  • Strategy 5: Negotiate co-GP deals and waterfalls to tailor investment structures based on expectations and risk assessments.

  • Strategy 6: Co-invest with experienced investors in niche industries to leverage their expertise and conduct due diligence.

  • Strategy 7: Consider performance-only fee structures to align investor and investment firm interests for better results.

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