Let’s talk TERMINOLOGY.
Just like any sport, business, or hobby there are always those words that might be foreign to a begginner.
Funds are no different.
When I first started my fund venture I sat down with my dad and he walked me through fund terminology.
He told me that I needed to know these words and meanings because when I go to board meetings or talk to investors that I won’t be taken seriously if I can’t use proper jargon.
Let’s talk about what some of these words and jargon are and why they are so important.
Why Jargon is Important
When I was starting a fund I was invited to meet with some other investors and managers.
They were pretty much double my age and had plenty of experience.
Two of them dominated the conversation in this meeting.
I finally stood up and said,
“What are we going to do about the waterfall structure?”
They questioned what I meant…
I responded asking about the pref, the management fee structure, and all of that kind of stuff.
For the next 30 minutes I continued being a part of the conversation instead of a idle observer.
Because I knew what to talk about and what they were talking about I ended up getting 1/3 equity instead of what maybe would have been 5%.
That is the power of terminology.
Whatever fund you decide to move towards,
SEEK THAT SOPHISTICATED VOCABULARY.
To give you some examples from a Real Estate Fund point of view.
You don’t “buy” Real Estate,
You Acquire it.
You don’t “sell” Real Estate,
You Dispose of it.
When you get into a room of investors you want them to write you a check,
So give yourself the advantage!
How different would it be if you were able to outline your fund in an advanced way instead of trying to find your words?
When you know what you are talking about people will give you more trust and more respect.
Let’s use a term as an example:
When you go to get a loan the first thing you ask is, “What is the capital stack?”
And then you wait for an answer.
Most of the time they won’t know.
But for an example let’s use a mortgage:
You have a $100K home.
You want to borrow $60K on the first mortgage, $20K on the second, and $5k on the third.
This means you have $15k in equity.
This is an 85% LTV or Loan to Value because you borrowed 85% of $100K.
Capital Stack means that in the event that you can’t repay your loan, who does the money go to first?
Well the succession of how people get paid is by what position they are in.
In this case the first $60K goes to the person in position 1.
Then if there is any money left it goes to the people in position 2.
And so on until everyone is paid or the money runs out.
Now I’m not making this about capital stack,
I’m just using this as one example of terminology where if you can explain it then you will be taken seriously.
Learning the proper words for the fund you want to be a part of will help you earn trust, build confidence, and raise money easier.
If you want to know more about fund jargon and terminology then you are in the right place.
We also have a Facebook group below, that is free to join, where you can meet and talk with people who have the same interests as you do.
It’s also a great place to learn.
Why do you think it’s important to learn correct terminology?
Let me know in the Facebook group!
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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.