The Most Powerful Insight for Investors: Asymmetric Risk

0:03So now we have one question about investors and one question for sponsors. So the first, what is the most powerful insight you can give to investors that are striving to be where you're at? I guess we'll start Jeff again. I think key insights would be don't always assume that risk and return are somehow connected. And always think out of the box. Because when I met a billionaire for the first time, I asked him the question. I said, how did you get to be a billionaire? and the answer he gave me was that you need to find asymmetrical return versus risk and you need to really focus on the risk took me a long time to figure out what that meant and how to apply it correctly right so what i would always say is that look at a situation uh from the from the investor's perspective and say how can i literally zero out my risk or almost zero out my risk and maximize my return to the point where it's unlimited.

1:05Don't always assume that risk and return are so closely connected in the way that the traditional thinking. So what I would say is break out of the traditional ideas and understand that where the greatest opportunities lie are in the areas that you would least expect them to be and always challenge traditional thinking. Before we go on, if you guys are taking notes I think that's gonna be one of the takeaways from this, the asymmetric risk return, that's quite interesting. I would say also, even as an investor, people say this a lot to people who are raising capital, but I say this to the investors too.

1:44Think about what you add. What's your value add?

1:51Because this is a relationship that's a two-way relationship. And even if you're an LP, certainly the success of the company and your investment is part of your success. So if you can open doors for them, if you can make introductions, if you can help them raise additional capital, if you have expertise in the industry, whatever that is, I would try to add value as an investor and not place it all on them to try to add the value. And then the other thing kind of related to that is that if you gravitate towards potential investments where you can add value, then they're probably automatically in your sweet spot where they're in an area where you have a competitive advantage or industry knowledge or something.

2:37So you're probably within your wheelhouse if that is true. Dan, other than having massive confidence, what should investors do? Confidence comes through performance. Treat the money as if it's yours. I'm sorry, I didn't hear that one. Treat the money as if it's yours. Ah, yes. Okay. Well, let's see if I can follow that one up. You can follow that, Dan. He's really great. Well, because it's so true, right? Because you really have to if you don't. Nobody, when you're investing with other people, you're going to have to realize that nobody is going to treat your money as well as you treat your own.

3:25So if you take on others, you really have to take on that same mindset. But that's kind of his advice. Mine I would go with is to always be on the lookout when for situations when your own tactical success it like is linked to or you know uh affects strategic failure so taking a a an example that i was just involved in recently um you know there's let's say you've got this portfolio company and they're giving you a really really interesting equity deal um you know they're they want to take on your money and they're going to give you say 15%, 20 % of this company, and you think, wow, that's a great deal.

4:11What you might not know is that they also have all these agreements with other people that maybe they've actually pledged more than 100 % of the equity in their company. Or maybe it's not even that egregious and fraudulent. Maybe they've just given away maybe up to 50%, maybe a little bit more. All of a sudden, that person you're dealing with is a hell of a lot less interested in making sure that everything works successfully for everybody because they have a much less cut of whatever will come out. And you don't know what's kind of on that other side unless you go in and ask. And if they really are pledging more than 100 % of their equity, you can bet that they're not going to be straight with you to begin with.

4:58So first comment, treat the money as if it's yours. I assume everything's a lie. Yeah, you know, our group is centered on our judgment is based on we're all investing our own money, which becomes a very powerful metaphor. But what I really wanted to answer is that from our perspective, a good idea, sexy technology is worth about 1%. Everything else, 99 % is the entrepreneur and the founding team. That entrepreneur makes every hiring decision, every motivating decision, every pivot. And it's all about the entrepreneur. So what we have to do is, yes, check out, can the technology work, can they protect it, et cetera?

5:42Is it big enough, et cetera? But when it's all said and done, there were three or four companies back in the early 2000s that were selling books online. There is one that succeeded. And that was why? Because of the entrepreneur. What we have to figure out is, are they telling us what we want to hear or is it real? Hi, I'm Richard C. Wilson. Our community has closed over$1 billion of transactions. We have over 16 million registered members across 100 plus LinkedIn groups. And I own billionaires.com and run Family Office Club. Over 19 years, we've hosted 300 live events. I've built 50 of our own AI tools.

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