Strategic Investment Insights from GoBundance’s Deal Lab Workshop

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In an intensive two-day workshop hosted in Austin, Texas, Matt King, CEO of GoBundance, delivered a masterclass on strategic investment evaluation. The event was centered around the principle that acquiring wealth is essential for achieving freedom, with leverage and knowledge serving as the critical pathways to this end.

King’s teaching emphasized the importance of a clear Mission Statement or Investment Thesis as the foundation for any successful investment strategy. He introduced the concept of “FAST NO, SLOW YES” to describe the ideal approach to evaluating investment opportunities, advocating for a methodical and informed process that values patience and thoroughness.

The workshop explored a variety of investment structures, including the advantages of Joint Ventures for achieving simplicity and control, and the strategic use of Mezzanine Debt to balance risk and reward. King also shared invaluable advice on negotiating terms to avoid undue risk, inspired by the wisdom of Warren Buffet.

A highlight of the workshop was the emphasis on aligning investment decisions with personal goals and values. This personal narrative underscored the importance of purpose-driven investment strategies that not only seek financial returns but also contribute to fulfilling life goals.

King offered deep insights into the mechanics of investment, from the importance of leveraging relationship capital to the intricacies of due diligence. Attendees were equipped with a comprehensive framework for assessing potential investments, emphasizing the necessity of alignment between the investment’s structure, the integrity of its operators, and the investor’s personal mission.

This workshop distilled actionable strategies and insights for navigating the complex investment landscape, blending strategic acumen with personal integrity. Attendees left with a robust toolkit for evaluating investment opportunities, ensuring their decisions are both informed and aligned with their broader life goals.

Below is a summary of my notes and aha’s from the event.

Basic Assumptions:

• Wealth Leads to Freedom
• Leverage Leads to Wealth
• Knowledge Leads to Leverage

How does this investment create more freedom for me?

Journey for Today

1. Set you Mission Statement/Investment Thesis
2. Build Your Toolkit
3. Filter Options
4. Scale Up

All family office capital should be FAST NO, and SLOW YES.

• Never a NO without information or feedback
  • Give the sponsor a reason for your No
  • Keep the door open with sponsors
• The best capital in the deal is the last money in
• Protect your capital so it can be placed in the right deals

 Never sign a personal guarantee without getting something in return

• Get a fee
• Get GP equity
• Get a LOC from the bank

 Warren Buffet

• Rule #1: Don’t lose money
• Rule #2: See Rule #1

Why Joint Venture investment?

• More rights
• Simplicity
• Makes sense for the following
  • Flips
  • Small deals
  • Big deals
  • As an investor, it can give you more rights and make the deal more simple; you are the only investor
• If you are the money, you always want a path to control

Mezzanine Debt

• Below the bank
• Above the equity
  • Limited upside
• Recent Real Life Example
  • $9M investment as mezzanine debt
    • 18% preferred return
    • 2.2 MOIC minimum
    • Interest is all accruing

Intercreditor Agreement

• Allows you as the lender (mezz debt) to step into the borrowers shoes and cure any defaults

Ask of Family Office CEO

• How do you think about risk?
  • Risk is a lack of knowledge or lack of control. We don’t take risks. We always have a path to control.
  • For the small guy, focus on the KNOWLEDGE

Use your RELATIONSHIP CAPITAL

• If you have a deal presented to you and it is not in your wheelhouse, send it to your relationships and get quick feedback
• Ask others who are experts; gather their knowledge

Set Your Mission Statement

• Someday Goal
  • $50,000 per month in MRCF
  • “Actively work” no more than 25 hours per week
• Lifestyle Goal
  • Travel 12 weeks + each year
• Family Goals
  • Take at least 1 week vacation together each year
  • Monthly family dinners
  • 1:1 trip with each kid every year 

FOMO is not an investment thesis

Ken’s Mission: (borrowed from fellow GoBundance member and FRD Band mate, Jeremy Mathis)

To be a loving, present, and patient husband, father and friend who influences, empowers, inspires, motivates, and has an impact on not only my circle of influence, but also circles that extend beyond that. To listen so well that I help people in ways they don’t even realize they need it. To help more people and to help people more.

If it does not serve to accomplish your Mission or fulfill your Purpose, you should leave it for others to do that are better qualified, because it may be their Mission/Purpose. Eliminate everything outside your scope as best you can.

How will the investment plan help support your mission?

• $50k MRCF will help me to eliminate the financial pressures of life and give me the flexibility to travel, give back my time,  and spend time in wonderful places with the people who are most important in my life.

Inventory of What You Have to Offer

• Strengths
  • Extremely disciplined
• Skills
  • Highly Organization
  • CCIM / Financially savvy
• Connections
  • Many; and this is my superpower

Set a goal to underwrite X number of deals in a year

The more deals you underwrite, the better you will

 Money is usually attracted, not pursued. – Jim Rohn

 A Fund of Funds is a “layer cake of fees”; all this does is decreases your returns

• MK will NEVER invest in a fund of funds
• There is always a way directly into a deal if you really want to be in it

Always Ask

• Are management fees on called capital or committed capital; avoid any fees on committed capital?
• Are management fees on equity or value of the project? You want it to be on Equity only
• Is the Pref simple or compounded?

“If I am investing my money, ALL questions are on the table. There is nothing off-limits.”

• Look up Institutional DDQ (due diligence questions) if you want an extremely thorough list of questions to ask

Syndication	Funds
+Deal Selection	+Diversification
+Capital deployed immediately	+Regulated oversight
+Isolation of risk	+Audited financials
+Potentially better returns	+Professional management
-Concentrated risk	+Economies of scale
-Time pressure for quick raise	-Blind to deals
	-Losers pull down winners
	-Pressure to deploy

Order of things to consider

1. Who brought me the deal?
2. What is it / Does it fit my thesis?
3. Who is the operator/team?
   1. Experience/Knowledge
   2. Integrity/Reputation
   3. Track record (wins, losses, patterns)
      1. Paper wins, or
      2. Realized wins (full cycle from capital raise to closed out deals)
      3. How have they done relative to Proforma before the deal?
   4. Skin in the game
   5. Team (who are the key people)
      1. Succession plan
   6. Communication (ASK for prior investor communication to be given to you)
   7. Personal (is their family in the deals?)
      1. Meet them at a restaurant or coffee shop
         1. How do they treat other people?
      2. Walk them back to their car
         1. Is it messy?
         2. Is it all dinged up?
   8. Ask for the Organization Chart
      1. How many direct reports do they have?
      2. Too many direct reports is a reason to say no.
4. Run background check on the operator
   1. This will show past investor lawsuits
   2. MK can refer us to someone if needed

Also look for (potential red flags)

• Over aggressive assumptions
• Misalignment of interests
• Fee whipping a deal
• Sponsor not understanding tax consequences
• Lack of humility from sponsor
• Exit plan (is it credible)
• Who is outsourced team
  • CPA
  • Auditor (is there one?)
    • What are reporting requirements
  • Legal Team

AHA: For deal underwriting / financial analysis

• Ask for the model IN EXCEL
• Spot check for errors in calculations

AHA: Create an entity that has NOTHING IN IT

• Use this entity to sign all your CA’s

Rule of 72

• The Rule of 72 is a simple formula used to estimate the number of years required to double the value of an investment at a fixed annual rate of interest. By dividing 72 by the annual rate of return, investors can get a rough estimate of how many years it will take for the initial investment to duplicate itself.
• 15% return = 4.8 years to double
• 20% return = 3.6 years to double

If you are going to invest in a fund that has a sidecar opportunity, invest as little as you can in the fund, and as much as possible in the side car.

Terms to Understand

• IRR
• Can’t eat IRR
• Cash on Cash
• MOIC
• MOIC and COC are much more important than IRR
• Pref / Hurdle – essentially same thing
  • Pref is assumed to be paid during term
  • Hurdle is what must be paid before splits happen; might not be paid during term of investment
• Promote / Carry / Equity Split
  • Be aware if there is a “Catch Up” provision for the carry
• Management Fee
  • Asset Management Fees
    • Some sponsors will take an asset management fee AND pay a property manager a fee
    • Asset management fee might be 2% of equity raised
    • Plus 6% property management fee
  • Fund Level Management Fees
• Personal Guarantee / Recourse / Non-Recourse
• Side Car Deals
  • Typically when you have invested in a fund
  • Fund has deployed its assets across multiple deals (per its allocation terms in is operating agreement)
  • One of the assets needs to raise additional capital
  • Fund cannot directly contribute because it has already met its allocation; but it has rights for pro-rates investment, so it creates a side car deal and offers it to its investors
  • The sidecar may have same fees, or reduced fees
• A-symmetric risk
  • What risk a I taking for the opportunity make an outsized upside return
  • Should be MAX 5% to 10% of your deployed capital for the year for these bets (maybe a max of 1% to 2% of your net worth)

Financial Analysis

• Keep track of your underwriting
• Go BACK and audit what you assumed vs. how realty happened
  • Your underwriting, and
  • The sponsors underwriting
• Which levers are you going to pull
  • Tax savings
  • Cash flow
  • Long term appreciation
  • Overall return
• Generally speaking, don’t let the tax tail wag the dog on an investment
• Generally speaking, the longer a group has been raising money, the less interest MK has in getting involved
  • Look at the industry
  • Look at the story behind the raise
• 2/20 has been MK’s experience with average sponsor take
  • 2% management fee
  • 20% promote

 

• MK believes TEAM is much more important as a #2, than Numbers
• Pitch your deals to people you trust (don’t find a bunch of YES men)
  • Don’t surround yourself with an echo chamber of Yes Men
  • Matt could have told Ken whey they passed on Rhodium
• Find someone that passed on the deal (get their feedback)
• DEFENSE:  People to poke holes and reveal the land mines

Stay away from making judgements on anything; come for curiosity whenever possible 

The Opportunity Cost

• Does it require my time on on ongoing basis
• How much capital am I locking up (not available for other deals)
• Prevent me from taking a family vacation?

Matt King – “I think everything in life is as simple as just asking.”

Tell as many people as possible that you are looking for DEALS to increase your access to deals

• Draft for INVESTMENT UNDERWRITING CHECKLIST
  • Filter 1 – Does it Match My Investment Thesis (5-10 minutes)
  • Filter 2 – Team Alignment (45 minutes)
    • Have we invested with the team before?
    • Any new team members?
    • Check FB, X, LinkedIn
      • Who are mutual contacts
      • Who will know about them
    • Any red flags?
    • How many people are reporting to the leader (org chart)?
  • Filter 3 – Numbers (1 hour)
    • Min, Max investment
    • Expected hold period
    • Cash flow / COC
    • Preferred return
    • Exit plan (is it realistic)
    • Expected Sales Price
    • Calculation of Sales Price (cap rate, appreciation, etc)
    • IRR
    • Sponsor promote
    • Management fees
      • Asset management
      • Property management
    • Other deal level fees
  • Filter 4 – Due Diligence (1 hr – 30 hrs, depending on size)
    • Review of PPM
    • Pull title work?
    • Validation of key assumptions (do we agree)
    • Potential risks
      • How will these be addressed
    • Background checks on key sponsor
      • Let the sponsor know you are going to run the check;” anything you think I should know”
    • Is the team big enough to handle succession?
      • Key-Man insurance
      • Succession plan
    • Use social engineering to ask lots of questions (from people you know that have knowledge and expertise)
    • Questions
      • How much competitive inventory is coming to the market in the next 12-24 months?
      • Where is the debt coming from? How much leverage?
      • What happens if the market shifts and rates increase? What if you can’t refinance? What does that do to the deal?
      • How are you (sponsor) getting compensated?
  • Filter 5 – Defense
    • Pitch deal to multiple people
    • Seeking to find holes in your analysis
    • Where are the land mines
    • What did you miss
  • Gut Checks
    • Pay attention to herd mentality / group think
    • Find someone that has said NO to the deal

 

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