How to Legally Rig a Deal — Government Contracts, Warrants & Where to Put $100K Right Now | FOC

0:03I actually love the structure of how you invest. Just talk a little bit about how you came about it, how you transferred your family office into what you're doing right now, and how you kind of pushed the win probability more in your favor. Yeah, no good question. I know a lot of family offices look at alternative investments, assets, what can they kind of do with that. And so I kind of pioneered within the U.S. Air Force the innovation arms called AFWERX. And so built a matching funds program to bring private capital and public capital together. So over the last seven, eight years, nearly$7 billion of private capital has gone through that apparatus to transition technologies to get it out quicker.

0:44For all the real estate folks in here, do you like buying discounted houses? Of course you do, right? Because you get it when you buy it, as the saying goes, so you can make money on the exit. uh we we essentially have come up with a way to get free called free government cheese government money um and be able to leverage that because it's non-dilutive capital okay so quick example uh we invest in a company called electra um at a you know one of our funds um they do a hybrid electric uh airplane so you know you can do you know less than 100 feet take off transform regional travel. We came in, it was a$65 million pre-money valuation, but the Air Force was giving them a$30 million four-year contract.

1:32Here's what's really cool. That$30 million of revenue was not factored into the valuation of the company. So we literally put our check into escrow at$65 million valuation. When the government signed the contract, our investment went into the company. So I bought a discounted company effectively, right? Because the government doesn't take equity. They don't take anything out of the deal. So it's pure revenue to the company over the next four years that in this case wasn't calculated in the deal. Fast forward, they do their B round at like 275 pre-money. We'll probably come out in the C round, right?

2:11But we bought in essentially at a huge discount. And so those are the types of deals we're able to structure by knowing that the government contract's coming for a company. uh and that's what you know one of our funds do and we also do that internationally um in in europe as well and before i get to natalia i just want to stick on that for one second because it's a huge thing if you're not rigging the game somebody else is rigging the game like you got to understand that's exactly the way it is anyone who knows me you know i love warrants warrants and options i take them all day long two three four years capped valuations million bucks that we can put into it.

2:48Like, I want to play that game. Because if we can push the revenue, then all of the other VCs are going to push the valuation. And if they push the valuation, we get to slip in 80%, 90%, 95 % discounts. You do not want to play the game as it's played, right? You want to be able to change the stakes so it's in your favor. I love that. Did I see a question down there? Hit us. Grab a mic and tell us. It's got to be great, though, because this is a good level. All right. Thank you. Thank you for this wonderful panel and insights. This is for the next generation of people who are starting up their own first generation family offices.

3:22If you could travel back in time and you were starting from scratch in this day and age and you had your first, let's say, 100K or something very small, what would you bet on? What industry? What would you do to scale up to start your first family office? Who would you like that to? Pick a person. Just anyone. You know what? Let's do quick fire questions and you pick your favorite person on the panel. Oh, Seatris. okay so the question was what advice would i give you you're going right back to the start you got a hundred grand you want to become rich you want to be a family office where's your hundred grand going it's going into distressed assets right now this is our second time around you're not going to get this opportunity again as you can see the world is changing so we had the i was part of the last crash and million there, a lot of people lost a lot of money, but a lot of people made a lot of money.

4:19This is an opportunity like no other that you can invest in so many different things. Okay. Not just real estate anymore, not just, you know, your, your typical medical, your standard, you can even invest in influencers right now that have, you know, operations. So I would say, look at the low-hanging fruit. Go into industries that you know, that you have some type of experience in. And then find out what companies are a part of that, that are already doing things. Keep your money safe. But don't be afraid to just step out there. But right now, I'm just going to tell you and anyone else in here, we have no more time.

5:04I'm on the lending side, we've been talking about AI. We are entering to an era of the war of the resources. So if you can find land and hold on to it with any resources on there, do it. Go. Right now, people are not scared. Create a community for yourself. Create a syndication. There are other people that feel like you. Join that 100 ,000 with five other people that you have and go as big as you possibly can and move as fast as you possibly can. I love this question. I love this question so much. We're going to get a few more people to answer. I am going to answer it myself, the same as what I said last night that I told my son to do.

5:40I spoke to a great buddy of mine who's over in OpenAI, was head of platform over there for years. And I said, what do you think my boy's going to do? And he's like, your boy is so screwed. Like, they're all so screwed. It's over. So I'm like, okay, cool. So that's awesome. Thank you so much for that. But it applies to all of our kids. So you're all in the same place. So I said to my kid, I invest a lot in India. The IPO market in India is like five times oversubscribed. Pre-IPOs I adore in India. This is just one example for me. I said to my kid, I'm not paying for your college. I put him into Santa Monica College, but I said, I will lend you, because I'm really cheap, I will lend you$100 ,000.

6:16My suggestion is you go into India, you build connections, which I'll help you make those connections, and you put your$100 ,000 into an IPO, a pre-IPO. Then I want you to take your money out after the first year, it turns into$200 ,000. The second year, we're going to put that$200 ,000 into another pre-IPO. I think we got five to seven years in India. Third year, let's say you make nothing. Fourth year, then the$400 ,000 is going to turn up to$800 ,000 to 1.6 to 3.2. Before you know it, within 10 years, your$100 ,000 has turned into$10 million. So for me, if nobody knows anything about pre-IPOs in India, we have one of our companies here, Beehive, who are going pre-IPO, but there's lots of them.

6:56Look up pre-IPOs in India. Who else has got something really good? I'll take a stab at it. So leverage can be your friend if used properly. This isn't LBOs of the 80s, but I think now more than ever, you've got an aging population of small businesses that have nowhere to go and they need to do something with their business, either going to shutter or they're going to sell. And so with the unsophisticated small business group that exists out there in our universe, leveraging up and taking out a lot of these home services, taking out a lot of these types of AI-proofed businesses. In addition to hard assets, real estate, I think the small business world is just ripe for the picking right now.

7:40It's aging massively. And the next generation, they don't want to do anything with it. They just want their parents to sell it and give them the money so they can keep playing Nintendo. So, yeah, Summer businesses, amazing. Love it. Richard, can you counter us with the worst investment opportunity that anybody can make today? The worst. The worst investment opportunity is... Don't say small businesses. I think the worst investment opportunity is the one that everyone talks about. Like, whatever the herd is doing, you should just do the opposite. And like, honestly, the 100K, I would say go to electrical trade school and get a certificate in business through the Harvard ALM division, play around with Claude Cowork and become an AI nerd over three months and then go around hiring up all the electricians and selling them out to data center builders and running all the electrician businesses in your community because most electricians don't run it like a business.

8:33They don't use AI. They scan PDFs with their phone and it's just not professionalized. And the ones that do are purchased up by private equity and they charge more than attorneys and they charge you$400 an hour to do your electrical work. So great point. So you're either leaning heavily into AI or you're buying 34 car washes. because it's the only thing that AI is not going to touch, right? Only robots will take that over. Okay, good. Any other questions, by the way, before we follow down here? For best thing, what have you got? We're in the last three minutes, so really good. So this is interesting.

9:07I'm Brandon Jones. I don't know how many people in here have used the deal structure ninja, but I wanted to talk and maybe ask Richard, did you know it can be used for restructuring? So I had someone I represent, their anchor investor, they needed a capital call, came after him with a shark attack, 51 % they wanted to take of the company. I was able to use a deal structure ninja, advise them, got it down to keep their 20 % equity stake. Originally did a repayment convertible note structure with an equity kicker if they didn't perform. And everybody was happy with that deal. come on that is nice amazing so um restructuring using the deal structure ninja do you have any insights on that yeah maybe you can repeat afterwards when there's a bit more time about the deal structure ninja because does everybody know how the deal structure ninja works or new a few might be tired of hearing about it but my closing remarks i'll touch on it real quick just so i don't monopolize the time here but um but the biggest tip is that with deal structure ninja always go two three four five iterations deep the first results you get might be interesting but is dialing it in deeper, deeper, deeper and making sure it's practical and has all the context you need to really serve you.

10:23Yeah. Join the Family Office Club by visiting familyoffices.com. We look forward to seeing you at our next live event.

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