By far one of the biggest concerns I get from fund managers is that they don’t know how to pick or even spot a winning deal.
“How do I know which deal I need to choose?”
“Which sector or niche will outperform in the future?”
“What type of asset class do I invest in?”
I get it, I was there once too. I understand the frustration!
Instead of sitting around and waiting for someone to bring one to me I decided to take action and talk to people. Your network is usually one of the best ways to find deals.
This past week I sat down with a Multi-BILLION dollar fund manager for a lunch that lasted a couple hours.
His advice on this subject was too good for me not to share!
The 100/1 Rule
You need to know that this works for every single type of fund.
We were sitting down looking at a bunch of potential real estate properties and he said to me,
“It’s really important that in your first few deals you need to follow the 100/1 rule”
And I said, “What do you mean?”
He went on to explain that the 100/1 rule is that you need to seriously look at a MINIMUM of 100 deals before choosing the 1 that you want to invest in.
That’s how thorough you need to be and how you make sure you get the cream of the crop.
This is especially true at the beginning of your fund. A lot of us only get one shot at making this work!
We don’t go and raise all of this money from investors just to “be okay at it”.
In fact, that’s a quick way to not get money again.
We want to make sure we know what we are talking about and make great deals for them!
He said that as a new manager someone will only give you a 10th of what they are actually willing to give you if you perform well on your first deal.
It’s a trial period!
They are testing to see how you will do, if you do good you will get much, much more.
He also mentioned that if you do good on the second then that’s when the pocket books really open and their third investment can be 5x to 10x that!
See how important this is now?
This is where analyzing 100 potential trades, or 100 potential companies, or 100 potential properties benefits you.
Imagine how much better you will be at spotting a deal after looking at 100 of them!
This is why we emphasize this in Step 1 of our FUND LUANCH FORMULA. We want to find that incredible deal.
We tell our investors that we would die before giving them a 14% return because we are aiming for 20 – 25% returns!
Learn From Your Past Potential Deals You’ve Analyzed
When you go and you analyze these deals you want to make sure you have some way to track them so that you can compare one against another.
How are you going to tell what deal is great if you have nothing to compare it to?
Or maybe something changes and you’ll want to be able to go in and see it a deal works now when maybe it didn’t before.
Once you have your 100 deals tracked and analyzed now you can sort them and figure out based on return which one is your SLAM-DUNK!
Then you can approach your investors and trust me it is a lot easier to raise money when you can prove your due diligence.
When using the 100/1 rule and analyzing the 100 deals to find that 1 home-run we need to be diligent about it.
Don’t kind-of analyze 100 deals.
Analyze all of them with the same seriousness even if you think one might not quite as good.
I’ve been surprised with how many deals that I’ve looked at where I thought “there is no chance with this one” but I did it for the sake of practice and it turns out to be a great deal or even the one I end up using for my fund!
- Be thorough.
- Keep a history of due diligence.
- Execute on the 1!
I know from experience that if you’ll do this that you will find it much easier to raise and close money from your investors when they are excited about it.
Let me know below what are some of the ways you analyze deals?
I’m always looking for better ways to step up my game!
DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the authors.