The Brutal Truth About Starting a Fund—And Why Most Don’t Make It | Ep 244 with Patrick William Founder of Rixon Capital

0:02I'm curious on starting a fund. what were some of the challenges that you went through when you were just up and coming and getting this thing going yeah thanks yeah but the biggest challenge and the biggest realization was how difficult it is to raise money because you turn up with some the analogy someone used was it's an airplane with two engines and we focus on one which is product but a great product i've got a great niche of a great story you forget there's another engine that needs to run which is actually You're raising money. And that's the hardest part when you're starting a brand new fund, convincing people to hand over their hard-earned capital.

0:39How did you get that going? I imagine, I know I've always wanted to start a fund. I know everyone I know is like, oh, I want to start a fund. But it seems very complex because you have one side you need to get money and the other side you need to deploy it. That's right. There are two ways of doing it. There's the sensible way, which is you get a really big family office or a large institutional fund. They'll take 10 to 70, 80 percent of your business and they'll help you launch. We did it the hard way. So we got a group of motivated people together, threw in whatever money we could, shared our Rolodexes.

1:16And then I just started Call Callie. So we started with a$3 million raise in October 2022, which really does not pay the bills. But gradually over time, as you build that track record, investors begin to recognize the story you're telling actually makes sense because they can see the results. I've always wanted to know, how does somebody that has or manages a fund make money? There are two core reb streams. So the first, which is the most substantial, is the management fee. so you get a percentage so we do 1.5 % but it can range from 0.5 % to a few percent of all the funds under management so if we had a$100 million fund at 1.5 % it's$1.5 million a year in revenue so that keeps the lights on and ensures everyone's paid and then there's a performance fee you get for outperforming your hurdle so the performance fees are generally 20 % of the outperformance but that outperformance tends to be material So if we're getting paid a performance fee, we've learned it.

2:20What do you look for when you're going to deploy the money? And how does that work in terms of ensuring that you're obviously doing it to the best places, but knowing there's always some sort of risk when it comes to, I imagine, putting money into anything? There are two aspects to that. So first is your rulebook. We've got, in Australia, we use what we call information memorandum. So that's what investors get. in the rule books tells investors, if you invest in this fund, this fund will do X, Y, and Z. So we're an asset-backed strategy. So all our loans must be first-ranking, senior secured, tangible asset-backed, and pay monthly cash interest.

3:00So that's our guideline. Then we've got a very senior credit underwriting team. They filter through all the potential borrowers who are looking for money, and they use their expertise to filter out people who qualify and people who don't. And then we take it to an independent investment committee and they basically beat us up over an hour and a half to make sure we've considered all the pros and cons, particularly the cons of a potential borrower. And if we've convinced them, they sign off and then we fund below. If somebody is starting a fund today, I want to start a fund about AI. If I want to start a fund about AI, and I know the fund might be different models than what you're doing, But what are like two or three things I need to ensure that I am really doing my own due diligence in terms of if it's even something right for me to even pursue this?

3:50Yeah, I like to tell investors, let me have the sleepless nights for you. Because you're an investor. You're a general manager at Walmart. You're a surgeon. You're an entrepreneur. You've got your lane. You know, you're busy at work. You've got your own stresses. do you really want to be running due diligence on 20-30 investments every week or you pay me a one-half percent management fee a i do the work i've got a team that is exceptional at doing this and number three the point you just made you're diversified across 15 to 25 positions uh so you're getting all this benefit uh in return for what is actually a very marginal fee so it's a very sensible trade-off for me thank you for explaining that i i this is like a something i i've always wanted to learn more but it's like unless i talk to someone such as yourself then i don't really know much about the industry i've never really raised money or raised capital how do you see just capital raise changing now that the cost of creation can go way down for example you can build an app you can build an mvp in three hours using software that costs you forty dollars versus Because before, you'd have to raise 30 grand and do just the MVP.

5:07And I think even cost of acquisition, maybe it's going up in the sense of there's more touch points. But then it might also be going down because you can just launch a campaign in five seconds. And you can use ChatGPT to create the copy and the ads and stuff. How are you seeing just this changing the landscape of fundraising? Look, fundraising for a small fund tends to be very personal. So that technology aspect is very helpful. But at the end of the day, investors want to see a face, shake a hand, have a conversation with someone and build a relationship. So AI, I think, at this point, helps with the back office stuff, preparing documents, cross-checking data.

5:49But when it comes to relationship building, it's still very much the human element has a lot of value. I guess we'll see what happens when they're so human-like and they're in a robotic state, we might not know who's a human and who's not. I want to hear more about your story. So you were born in Malaysia. Obviously, you're now in Australia. What was the journey like? So I went to university. I moved from Malaysia to Australia to go to university. And then I was hired by an Australian investment bank, Macquarie Capital, to work in the Emerges and Acquisitions team in Singapore. So I did Southeast Asia coverage in the tech, media and telco space for three years.

6:31Towards the end of that time, they sent me back to Sydney to work at HQ. And the short story is I never left. I met my wife here and she didn't like the weather in Malaysia. So Australia was going to be my new home. So I worked in M &A for another 10 to 12 years. the M &A shop I worked for towards the tail end set up a funds management business. And that's when I made the cultural differences. And it's also the taxation system. So in Asia, for instance, in a lot of Asia, there is no tax on capital gains. So people love the equity markets. They love capital growth because it's effectively tax-free.

7:11Whereas in Australia, there is a substantial tax. So an income fund versus a capital fund competes on a different level. What are you excited about when it comes to, let's say, Asia Pacific, Southeast Asia? I don't know if you're still following up with what's happening in Malaysia, but everyone I know in Southeast Asia, for example, there's so much entrepreneurial excitement. It's insane. And I always enjoy, obviously, going to the neighbor in Singapore, always so many events about business and such. But is there anything that excites you or anything that you're looking at, maybe for either Asia, Pacific or Southeast Asia?

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9:05It's definitely to raise capital from there because the target market out of Asia is people who have done really, really well in these entrepreneurial ventures. There's a lot of money in that market. And effectively tell people, look, I know you can make a 30 % return on all these little investments you've got in various sectors, but there's always a spot in your portfolio for something boring, safe, and income generating. And that's where you should come. What's the allocation that people typically do when it comes to like this, what you're saying is like the more, the boring, maybe more steady, and then you have obviously different risk levels.

9:40But what do you normally see people do for the percentage of their portfolio? Good question on percentage. I think it comes to where you are in your life cycle. So if you're closer to retirement, we'd get close to 50 to 75 % of someone's portfolio because it's an asset-backed strategy and they're using us for income. But if it's a younger person, they tend to use us just for that income. It pays for the cost of the trusts or private school fees. So the median investment is half a million dollars. So that'll generate$5 ,000 to$6 ,000 of monthly income with our fund. So some investors say, as you said, it pays for private school fees.

10:19We've got one investor in the Gold Coast who says it pays for her Maserati lease. I mean, if you can get a free Maserati, not free, but if you can get a Maserati paid for, I mean, that's better than paying for the Maserati, right? That is quite fascinating. I mean, I know, you know, there's other returns that I've heard people say, you know, five to 10 percent of something like you get to a certain age and you just want to continue with something steady and lower your risk factors when it comes to the majority. But when you look at just entrepreneurism or entrepreneurial spirits of people, when you think of what makes a great, successful CEO, what is one trait that either has been there for you, been there for people that you've known, partners, however you want to spin it?

11:09But what is one trait that you find like, okay, every successful entrepreneur has this one trait? Mindless self-belief. if you believe in yourself and you believe in what you're going to do and you stick with it, and that's why that belief allows you to stick with it, you'll come good, by and large. Our example is we thought we'd start with tons of investor funds coming in and instead of tons of$3 million, but I knew it was a great product. I knew that what we were doing was different and special, and we just stuck with our guns. And so with time, people recognize what you do, and you will come good.

11:46I think we're all impatient. I was just talking to my wife about how we just launched this software like two weeks ago. And I'm like, you know what? Normally I would just give up, Patrick. I'm like, forget it. It's not moving fast enough. Shiny object syndrome, right? Like I have no patience, but you know, you just said it before you start in the beginning. It wasn't huge, but you knew that eventually you'll get there. How do you continue with that patience knowing that it is not an overnight success? There's a quote by Ferdinand Cortez, the conquistador who turned up to South America. They landed and they had a choice.

12:27We could chicken off. We can get coffee and go back to Europe or we could go into this unexplored jungle and all the risk that comes with it. And his famous words were burn the boats. and if you'd burned the boats and there was no plan b and that's exactly how we built the fund there was no plan b so it was going to succeed or is going to succeed uh and that allows you to have laser focus so you might have a bad month you might have a bad quarter but if you haven't got a plan b you'll stick with it uh and surprise surprise if it is a good idea it will work no i'm glad you say that i think a lot of the most successful people that we've had chances to talk to what's would have said the same thing it was all or nothing that was it there was no plan b c d f either this made it or it didn't make it and then they lost everything do you find this to be almost like the reason why most people probably would not make it as an entrepreneur not that they can't do it but the the reason why they wouldn't continue and make it is because most people don't have that ability to say, this is it.

13:40I'm going all in. It's one thing when you work for a job and you know you'll get paid and maybe at some point you get fired, but your business, you may never get a paycheck. You may never make any money yet. You're going to put out all of this, this, you know, work and energy. How do you feel about that in terms of, do you think this is a reason why maybe a lot of people don't get, don't try and be an entrepreneur? Yeah. I think you're you bang on on that. The biggest challenge, and so I've come from financial services and the worst part about a career in finance is it pays too well for very little risk.

14:14So why would some investment banker give up his job when he's got a good income and he's looking after his family? I think that was Jeff Bezos' story. He was an investment banker and his boss told him, why on earth are you doing this? You've got this great job, you've got a big bonus that turns up every year. And he said, I've got bigger dreams. all right he's done all right he'd probably have a much smaller yacht if he continued that's what i'm guessing you know um definitely wouldn't his wedding would have been much smaller i'm sure uh patrick no this this has been great i appreciate your time if people want to get in touch with you they want to find out more information about the fund everything that you're doing how can they do so uh our web page is a great starting point so it's rixon r-i-x-o-n dot capital.

14:58That's it. No.com, no.au. Log on there. All our details available. I'm the founder and managing director and portfolio manager. I speak to all investors. $50 ,000 or$11 million investment. I'm the guy you speak to and I'm the guy who'll answer your questions. So it's very personalized between us. Well, Patrick, this has been great. Rick's in capital. You have what I would say rated number one mustache of 2025. You can add that award to your website, by the way, in case people can't see you. I know it's part of your signature look. We talked about this earlier. I like that. I've been thinking about that since we talked and you really need to have some sort of separation between you and everyone else in the world.

15:45The look, whether you dress a certain way. I was talking to someone recently. They're like, I dress in these type of clothes because when I go to an event, I stand out. And so I enjoyed what you said. I just can't grow a mustache. It's just not really awful. But I really enjoyed the conversation, learned a lot. And thank you for joining us today on Founder's Story. Thanks so much for your time, Daniel.