Royalty Deals, LP Protection & The IP Depreciation Secret Most Family Offices Are Missing | FOC

0:03But what I do want you to do Richard is I would like you if you can to share with everybody the most interesting thing that you know about deal structure, deal formation, something that everybody will then judge you on afterwards, because I'm going to ask for a thumbs up and a thumbs down, and we're going to work our way back. Sure. No problem. You're an animal, Brian. The number one thing is that nobody does gross revenue royalty deals, but investors really like to see them. I think that's super interesting. We've done 17 of them. I've surveyed people at our events. One time I met one family office from Norway that says, we love royalty deals.

0:38We do them all the time. Nobody else I hear ever really talks about them or does them. So I think that's super interesting to me because it's not anything new. By the way, I'm not even going to ask for a thumbs up or ties. That is like a monster, monster insight. We all get old way too fast and we wait too long for our money. And so getting royalties every year, even if they're a small amount and building it up, it becomes a self-fulfilling prophecy to be able to build your wealth, right? Or royalties monthly. We just exited a dental practice that scaled up to just under$30 million in revenue on December 27th, and we got our initial investment back just through monthly cash flow royalties.

1:12So then you sleep easy, and it's all gravy from there on out. Okay, I love it. But if I see any questions coming up, give me your hand, and I'm going to bring you up. David, most interesting thing, we just got royalties. That's a hard bar to go higher than. But what would you give all your years in investment, everything you've done in real estate, the greatest insight that you can share with people here? Don't count on redemptions. I'm joking. What does that mean? I feel like I'm the only person who doesn't know what that means. What does that mean? I mean, most structure can be solved for. So the uniqueness of structure really, I think, is driven by what the deal is, who the people are running behind it, and how fair they're going to treat the LPs.

1:55So I think when you look at capital stacks and you start to look at how I'm going to structure a deal so that everybody wins if it's a good situation or everyone's neutralized if it's a bad situation or you can at least protect the drawdowns, then structure can be solved for. Then it's about treating the LP or the co-investor as if they're part of my family. So not a structure per se, but from a theology standpoint, I think that's probably paramount. Does everybody understand the point that he's making here about just investment? I'm going to bring you up right next. I'm glad you put your hand up.

2:28This is super important. I have been involved in so many deals where afterwards the deal goes really well. It was mentioned on a previous panel as well, but you find that the entrepreneur does well or maybe worse. One of the investors does unbelievably well because they have preference shares or something in there two, three times and everybody else gets screwed. The deal terms are massively important and hardly anybody looks at them. Incredible insight. What have you got over there? Do you mind bringing the mic over? You got a hands up? Yep, let's bring it over. There you go. I was just going to agree with you that the deal structure...

3:08Just get that bad boy really close. Yeah, I was just going to agree with you that the deal structure is really important and that the LP should be treated as the GP. Yeah, I love that because it's all the way down, right? It's the LPs don't know what's happening. The GPs aren't always involved. The later investors come in. Protecting yourself on the deals is huge. Absolutely. Any suggestions as to how somebody can do that? Well, so the corollary to that is it's the right thing to do, but remember we're going to be doing deals together in the future, and your reputation is really important. I love that.

3:43Shame people. No, publicly. God bless you. What they can do is read the limited partnership agreement, and that's going to delineate every part of the deal, and then there's negotiation points in there. By the way, yeah, by the way, but just going back to your point, which is kind of more like me, I am a huge fan of publicly shaming people. I think if people do bad things, you should write to all of their other investors. You should write to all of their co-founders. In India, only because it's legal there, you should stand outside their house with a sign up saying this person screwed me. There are good people and you should take care of them.

4:20And then there are people who forget where their loyalties is and you should pursue those people to the ends of the earth. Okay. Awesome. Grizz, what have you got? Insight. It has to be a huge insight. Okay. Let's get ready. There's more laughs this next round. You guys are loosening up. That's good. I am surprised by the sheer amount of family offices. Maybe you guys do this secretly, but I've seen no one talk about it. No one's depreciating their intellectual property. And our hormone balancing company, Helix, it's basically automated on software that I architected. We get a valuation on it.

5:05We update the valuation as years go along. We capitalize it, and then we depreciate it. And basically every company I do, I look and see what's the intellectual property and what can I do to continuously, legally, you got to do this legally, but capitalize it and then depreciate it. It's a huge tax savings. It makes our company look more valuable on the balance sheet if we have to go get a line of credit or a loan. And it's come to the point where when we do invest and we're in that LP position, I'm at the point where I'm saying, GP, did you get your intellectual property? Are you depreciating it?

5:42I want a piece of that. So, you know, when you give me my K1 and we've made a lot of money, I want some of that depreciation. So anyways, maybe you guys all do that secretly, but. No, they don't. Most people don't know the value of intellectual property and intellectual property is absolutely massive. I actually have a founder that has got 25 ,000 pieces of intellectual property from movies and scripts through AI and writers writing them trying to become bigger than Disney in 10 years. Like intellectual property is going to become a massive thing and it's actually never been more complicated. with AI having no rights on it.

6:16So again, another huge insight. Join the Family Office Club by visiting familyoffices.com. We look forward to seeing you at our next live event.

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