How To Create Luck When Raising $10m+ – The Simple Strategy Family Offices Use – Natu Myers
How fast will this make you money? I’m going to go over how fast razors.com can make your money and what that looks like right now. So, how fast can you expect a return on investment from setting up and raising capital for your fund roll-up or acquisition? We’re going to split this video into two parts: the amount and the probability. Everyone has a timeline, so let’s assume that you’re just getting set up with private placements or you’re not ready yet. The end timeline is when your funding offering is created and closed. The truth is, getting everything set up takes time and costs. The whole purpose is to make things take less time and cost to create value. For the setup, we propose that some of our members set up real estate investment trusts and complicated entities, and we assist them in lowering potential legal fees. This is one situation, but perhaps your situation is different. The idea is to get setup fees as low as possible, often as low as $10,000. (create your own luck quote)
As you’ve seen in this example, the point is to make sure we get these costs as low as possible. The idea is to minimize legal fees where possible in a standard way. The red represents the standard way of paying $40,000 to a securities attorney to set everything up for a complicated transaction, which is where the negative cost is. But in the ‘better’ way of doing it, we aim to get those fees under $10,000 as quickly as possible and create value in that difference between the red and the blue. The area underneath the two curves represents the value and the return on investment in the first part. (create your own luck quote)
Next, there is the raising part of it as well. For raising capital, investment banks typically charge a retainer fee of $25,000 and several success fees. These are some of the standard rates for mid-market investment banks that are registered by FINRA. The idea is to get this cost underneath $5,000 to $10,000 for the raising part as well with companies like raises.com
And the same story applies when working with a normal boutique investment bank to work on compliance and outreach to investors in situations where it’s legal to do so. The cost is normally $25,000 or $35,000. You can look at the delta between the two costs and try to minimize it as well. This is the raise phase. In terms of cost, but what about the probability of the deals closing and how can we look at the return on investment in terms of the chance of getting things closed? (create your own luck quote)
You can also use this strategy when selling your deal to investors, in compliant ways. You want to see the arguments that are being made here and use it to your benefit, both in terms of potentially using this strategy, and seeing how it makes sense in the context of using a company like raises.com to set up and raise for your transaction. This is the expected value formula. If people are familiar with this, this is how multi-millionaire investors like Richard Kosh and others track their investments. Basically, you look at the probability of a deal closing or the probability of the value you’d get multiplied by the value you’d get. (create your own luck quote)
Years, you know, you multiply the percentage chance of that happening by the million bucks. So let’s say you have a 10% chance of a venture capital investment giving you $1,000,000. You just multiply that by 10 and then that will give you $100,000. So that’s what it would be worth. So that’s basically the formula in a nutshell. If you’re not familiar with the sigma and it looks intimidating. So, again, all it is, it’s the sum of all the values. The sum of all the values in the formula multiplied by the chance of the values actually taking place. And so that gives you the expected value. So let’s say you make $100 if you flip a coin and it lands on heads. So flipping a coin that lands on heads in that case would have an expected value of $50 because there’s only a 50% chance of the coin landing on heads and giving you $100. So you just multiply $100 by the probability of it happening. I mean, then you get $50. Yeah. And again, because the value is $100 and you multiply it by the probability of 50%. And because there are no other values to add up, that’s the only thing there. So the expected value is, you know, it also includes negatives. So for example, let’s say you make $100 if you flip a coin, it lands on heads, but you lose $100 if it lands on tails. (create your own luck quote)
So what that means is that the expected value will be zero, because when you add everything up, the probability of the thing landing on heads is 50%, you get $50, but then the chance of it going on tails is worth -$50. So because the probability of landing on tails is 50% and you multiply $100 times 50%, you get negative, you get -$50. But then again, because the chance of it landing on heads, you get $100, multiply that, you get $50 positive, $50, but then you add them up. That’s what the sigma and the crazy E looks like. You add them up and the net is zero. So you just have to remember that there are some plus and minuses when you look at expected values and chances of things actually taking place in closing. And again, remember, we multiply the probability times the values and then add them up. So let’s go back to what we discussed initially. Let’s say you’re working with standard corporate professionals to set up and raise for your private placement offering, and you spend probably $75,000, versus spending, let’s say $5,000 or $10,000 or whatever, looking at cost-effective firms and setups and done with your methods. So let’s run through that formula. So the cost-effective way, let’s say at worst costs $10,000 to set up and raise for your deal versus and then plus, let’s say if your deal closes, you can net $500,000. (create your own luck quote)
So let’s say, whatever type of transaction you’re doing, you make $500,000 if it closes. And let’s say that there’s a 10% chance of your deal closing, but there’s a 100% chance of you paying money to set up the deal, advertise to investors, and hire salespeople or whatever. So there’s a 100% chance of you paying money to get it going, but there’s only a 10% chance of you netting $500,000 in profits after the deal closes. So that would mean that the expected value would be $40,000 because we simply multiplied what you lose times the probability and then we add up what you gain, times the probability. So obviously, it’s because we’re multiplying $10,000 by 100, we get $10,000, there’s no difference and then we multiply $500,000 by 10%, and then we get $50,000. So then you add them up, you get $40,000. So that’s the expected value if you include the probability of 10% chance of the deal closing. So the standard way, if you work with the big investment banks. So let’s go back to the red. So if you work with the big standard investment banks and professionals and accountants that are normal and then you set this up, you know, you’re guaranteed to pay $75,000, and let’s say you get the same benefits if the deal closes and let’s say there’s still that 10% chance of the deal closing, you know, then it’s the same story. (create your own luck quote)
You know, the only difference is that you’re paying more initially. So again, we’re multiplying. There’s a 100% chance of you paying, let’s say, you’re paying for administration software. You know, the typical cost is $75,000, and plus the investment bank, $75,000 to begin. And there’s a 100% chance of you paying that without you guaranteeing that the thing will close. But let’s say there’s a 10% chance of your deal closing and you’re netting $500,000 in profits. You know, it’s actually -$25,000 and that should be in red, but -$25,000 when you add everything up. And yeah, because we just multiply it 100 times this and times that, so don’t take it from me. You can play with these numbers and this is a standard pretty basic formula that people use when looking at probabilities. So if you add up the probabilities of your deal closing based on your confidence of working with any professional, just get that value that makes sense for what you’re doing. And even if there’s a 1% chance that you will raise enough capital within the time frame that you’re looking for to get the results that you want, you potentially save yourself a lot of hassle and time wasted for something that hasn’t happened yet. So hopefully, this helps bring some clarity into you properly knowing how to plan out your capital raise. (create your own luck quote)