The 4 Paths To Mega Money | Ep 975

Poor people stay poor because they want a fast way to get rich and instead the richest people that I know I pick one of these four paths Play it for a decade and then end up with more money than everyone else that is just chasing for shortcuts And just a fun reminder for you no president no economy is gonna make you rich You have to do that for yourself. So in this video I'm gonna show you the four paths to mega money and I'll show you how to pick the right path of the right time for you Let's get into them.

You've got your money in your business You've got other people's money and other people's businesses and then permutations of those and so your money your business Right is a bootstrapped business if you have other people's money and your business now you're raising capital If you have your money and other people's businesses now you're investing Finally, you have other people's money and other people's businesses, which is fund Management now to give you some proof points around this I actually looked up the top 11 richest people currently on the Forbes list And I'm gonna tell you where they are.

So you've got Elon Musk. He's a race capital guy Almost every single company's had he's raised raised outside capital and then he's continued to fund it and grow it Larry Elson who's number two raised capital Mark Zuckerberg raised capital Jeff Bezos raised capital Larry Page raised capital Surgey Brin raised capital Steve Balmer bootstrapped Microsoft bootstrapped a lot of people don't know that Underneath of that you got Jensen Wang raised capital Warren Buffett investing Michael Dell bootstrapped the Walton's as in Walmart Bootstrapped and so that's the top 11 wealthiest people in the world now You might have noticed that fund management wasn't there if I go like six deeper You'll find people who did fund management now one of the interesting things about each of these constructors There's a little bit of risk and there's a little bit of trade off with each of them and I personally have done one two three and four Believe it or not and so I'll actually walk you through my own examples and which one's right for you So let's start with number one bootstrapped Who's trapped just means that you fund the business from your own savings and cash flow You have no outside Investors and you grow through reinvesting your own profit You have a website and you've got a cell phone and you've got skills and you start treating one for the other Get a little excess money take that excess money and then continue to build now typical examples for this are Usually low cost businesses to start a lot of times that's services So agencies home service businesses B2B services professional services things like that sometimes nowadays I should do this with software it didn't used to be that way But now it kind of is education businesses e-con brands if you do dropshipping If you don't you drop shipping you have to front some capital in order to get the you know first inventory started Local businesses Most normal companies now to be fair that scope is continue to broaden because the cost of entering businesses Continue to drop now for me personally my first brick-and-mortar business was a gym And so that was bootstrapped I use the profits from that to start prestige labs which is a supplement company which is bootstrapped I started at Allen which is software company which is bootstrapped And so all this companies were bootstrapped today acquisition.

com is taking some of that capital Investing it into others people's businesses While also having some companies that we start de novo from our hold cup Which is kind of sell my bootstrapped and also kind of reinvesting our own capital So you can see how some of these these boxes merge now who is this right for So if this is your first business I recommend starting with bootstrapping and the main reason is just that you want to pay off ignorance that the last thing You want to do is take your you know your friends and families money and then lose it because you don't know what you're doing That's my opinion everyone you know your results may vary you can stick to of the names on that list that I mentioned Jeff Bezos the people that he knew invested Bill Gates the people I think he had rich parents.

I'm sure they helped him out in the beginning I don't know the actual public documentation of that But I think he had a little bit of help in the beginning there But the thing thing here is that like I don't think you're going to want to go raise the ton of capital for everyone You know maybe even VCs if it's your first shot again You know your results will vary your life is unique But the main thing is that bootstrapped will typically be the slowest of the four paths And that is usually because it takes money to grow and if you have to make the money to grow It's almost like having a car factory built inside of the car It's very difficult to do humans do it.

We have human factories inside of our humans weird stuff right But in in in business design it's much much more difficult right It's slower to build the capital reallocation machine while also building the machine that makes the capital to begin with You kind of have to have both now the main advantage of this is that you keep the control and the equity So you have a whole you know bigger slice of the pie you decide the pace the strategy And ultimately you can exit on your own time horizon or never exit it all right And the goal is that you design a compounding vehicle which is either recurring or reoccurring within the business And then you let that over time do the heavy lifting that's the end goal now a lot of first businesses don't have any of those things But you you know five dollar self or two and you make money there's nothing wrong with that here's some of the trade-offs When you bootstrap you incur more debt than any other vehicle now you're like wait a second I thought I was you know using my own money to start this thing Yes, but you incur every other type of debt and oftentimes every other type of debt is harder to pay off than money is So what do I mean if you're starting with your own cash It's very difficult for you to attract like a star talent team of 10 people that all need a million dollars plus per year to work And actually grow this thing if you were venture back you can do that with some stock and then also decent cash compensation And so that becomes harder to do so you incur lots of management and leadership debt if you like Can't get the high enough level of the softwares that you need in order to build your software company or whatever If you start low You're going to have some technical debt that might incur as long the way same thing with your data debt So you're going to have lots of debts that money could have otherwise solved for you But you don't have money as one of the things that you're in debt for now to be clear There are pros and cons there like the pro is that You can stay alive a lot longer because you typically keep your cost basis a lot lower The downside is is that it goes slower And so your capital constraint will oftentimes limit the size of what you can pursue from day one If you wanted to start an AI robotics business to go global It would be incredibly unlikely that you would succeed because the amount of capital It would they would cost to just build one robot let alone many robots as you scale And then you functionally probably lose money on building that first robot and then after you lost money That first robot you'd some have to get more money to then build more robots It's very hard to do without outside injections of cash And so this box does constrain to a degree what kinds of opportunities you can pursue And there's a reason that some of the biggest people in the world start here Which is a perfect segue to okay, so what is other people's money into your business?

This is raising capital right So you start and you run the company but you raise capital from investors Who buy a slice of equity to fund the fast growth Normal examples of this are tech platforms, social networks, marketplaces, manufacturing, pharmaceuticals Where it takes years and years and years to get a drug pass And then it makes money, typically anything that has huge amounts of upfront costs Then increasing margins or gross margins later And or winner take all dynamics Meaning you have to lose money for a long time to get the whole market And then all of a sudden you have a network effect and then everyone buys from you Amazon famously lost money for like a decade plus Before they really started turning a profit Facebook too lost money for a long time But they were mapping networks So who should take this path?

If you have a very big dream of what you want to build And there's functionally no way to make your thing profitable Without using other people's money Like you will just you know you're going to lose money for a year, two years, three years In order to actually have this thing work Then you have kind of like a predefined path that you're going to have to raise capital So I've experienced with this because school is venture backed Right And so we raise capital at school to continue to grow the company And we're able to give pricing which is absolutely absurd Like $9 a month which by the way is very little with inflation It's basically free In order to get as many people who want to start a business The all the tools they need to do it Now the main advantage of this is that you start with a bigger thing You can hire the top talent, you can outspend competitors You can be negative in your acquisition cost I mean you can lose money getting customers Right You can build infrastructure faster than you could with your own cash alone And on a personal level you can incur way less personal debt Because you know there be no way that you would be able to fund a lot of this head of your own pocket Now if you can if you're already rich Then you can take on raising capital style big opportunities And then fund it with your own cash And that's really an amazing combination But not available to most people But this allows you to pursue narrower opportunities And one of the advantages of that is that it actually prices a lot of people out of the market So to agree There is an element of risk with raising capital Because typically the opportunities that people pursue are high risk High return opportunities But there's typically far fewer competitors And so you know you can count the number of competitors Who are well funded even in a space maybe on two hands If I said how many social media marketing agencies are there You're going to need a lot more fingers And so within our car analogy example You actually just start by building the car factory And then even though you know you're going to lose money up front Once the car factory is built You know that every single car you're going to make X dollars a profit Right and that is how you end up recouping it And justifying the return to the investors Some of the trade-offs here are significant You now have two customers instead of one In bootstrapped your customer is just the end customer Right when you have raising capital Your customer is both the end customer And the investors are venture capitalists And so that's one element is that I have to serve two masters Which can oftentimes be at odds Which is a bit of a pain The second kind of big downside Is that you're going to dilute your own equity Here you have 100% of the pie Right whatever you make is yours and that's your pie Now you can give profit shares You can give equity slices to key teammates or partners or whatever But they're usually in the business They're actually helping you succeed within the business Whereas when you're raising capital A lot of it's going to depend on the terms Sharon, my partner, tells a story about his first exit ever He learned what a ratchet was Which is that he had a very large exit in his first company That he started in his teens That then I think he exited around age 25 It was many tens of millions of dollars But because there were liquidation preferences And ratchets on those liquidation preferences The investors got paid out first and With some excess And so when he saw this very big number The amount that he and the other founders were left with Was left now to be fair he did fine But it was less than what he thought he was going to get Now as you continue to scale this Typically for you multiple rounds Each person who's going to put money in Also wants to seat at the table Quite literally a board seat Which means that over time You can absolutely get voted out of your own business Which happened to Steve Jobs Right and so like these are real risks that happen Like you can lose control of your own company And a lot of this is going to depend on the terms Of other people's money If someone gives you a trillion dollars For 1% equity in your business That's an amazing thing If someone gives you ten dollars for 90% equity That's going to be kind of tough And so this one is very much the devil's in the details And the your ability to raise Is in the combination of two things Your ability and track record is a founder And the size of the opportunity That the investors believe you're going after And the likelihood that they believe that you can actually hit it And I'll say the last downside here Is that typically venture money Is kind of grand slam money It's like they just want you to swing for the fences And know that they're going to have a lot of people strike out But the economics of having somebody get a thousand decks on their money Allows them to have many losses But if you're the person who takes the loss And equals one is and it's 100% of your life That is where there's a sea of tombstones Of failed ventures and founders Who gave 5, 10 plus years of their life And pretty much work to job But with way more stress for a long period of time And then end up having nothing to show for it Which is tough And they don't even have the story of the big success at the end So this is actually far more common Than the big headlines that we see And the reason those things make big headlines Is because they're rare Which brings me the third way of making mega money Which is investing Now this is the one that probably a lot of people have More familiarity with It's your money and you're investing into other people's businesses So you take the cash you earn actively From other places And you buy pieces tiny chunks of other people's companies It's kind of the equal opposite of raising capital Now you don't have to buy into venture type products You can just buy cash-filling businesses You can buy public stocks You can buy real estate There's a lot of different things that you can buy With money Now the clear thing here is that you don't run them You fund them So me personally I buy kind of I'm split in my investing So I have ACQ ventures Which is our venture arm So that's where we are basically the raising capital partners For SMB tech And so that's exclusively what we invested Because we understand it well And then on the other side We have kind of the private equity style investments that we do But we also add some sort of service Because we have a whole service layer at ACQ And so those are typically more cash flow investment businesses But also obviously have enterprise value And so who should take this path?

Hey guys Real quick Many of you guys are getting started in business And don't know But other entrepreneurs have already tried to help And so 3.6 million copies Were donated by other entrepreneurs in my book launch And I'm donating these books as well And so if you're starting in business And you would like the ultimate business back back All three books This one shows you how to figure out what to sell This shows you how to get people to find out about it And this one shows you how to make money from it And when you have all three You can actually get started All right On top of that If 30 days of school that you can get Absolutely free And all of this including the books Including school Including shipping is 16 bucks Yeah Like we lose money on this So go grab it It's the ultimate thing I can give you My gift Enjoy If you go there And it shut down It's because we ran out But as long as the link still works There's books Well once you have meaningful access cash And you want the upside Without the day-to-day operational responsibility Then this is an interesting path And so the main advantages are that you have Diversification So you're able to make many bets Instead of kind of a life or die bet with a single company But whenever you distribute your bets You also decrease your upside Right So Dale Carnegie had a famous quote which is Put all your eggs in one basket And then watch the basket And so that's him talking about this Right Boost wrapping You're raising capital For your own business That's you putting all your eggs in one basket And trying like hell to make that thing work With investing You're kind of You're spreading it out But when we look at the most successful investors They typically aren't nearly as diversified They're typically way more concentrated Which then allows them to maybe maybe make Five, seven, eight Significant bets that they believe they have Alpha or upside on Above the market And so with investing I think that of the four of these Arguably the easiest lifestyle Kind of decision because you have no boss And you're technically other people's boss And so you just write checks You can inform what you want the person to do To be clear you might not have a majority That's going to depend on the terms But when Layla and I sold the company And we were just a family office This is all we did And I'll say of my entire life The most chill period And sometimes I think to myself like What was I doing?

Why am I back doing this When I don't need to do it anymore But I want to make a key point here Is that this is by far the slowest Number one And number two Almost no one makes their money this way They have already have a high active income And then they begin investing And if you're like Well, I'm going to be like Warren Buffett Well, did you buy your first stock Two weeks after Pearl Harbor When you were age seven No And did you do it in a world where there wasn't a Robinhood And you actually had to figure out How to do mail-in ballots And call someone as a seven-year-old To our 11-year-old whatever it was To make your first bet Probably not Because you're like I want to be like Mozart And you're age 30 And you want to start investing And it's like Well, here you had like 19 concertos By this point Because he started age seven So I wouldn't say Oh, let me look at what The top person in this field did If you were not that person And so the whole point of this video Is to figure out what path is right for you And to be clear, Warren Buffett is a very famous now But like Until he was 60 I don't think many people even knew his name 60 Right And he's made the vast majority of his wealth From like age 80 to 95 So I think how crazy it is So if you're like I'm in this for the very, very Very, very, very Very, very, very long haul Then this is a good path for you And especially if you're somebody Who wants a little bit more of a lifestyle Um, where you're like Okay, I just have to get my My passive to exceed my active costs Then it's like great And if you get better and better at that game You'll have more and more Then you'll have nothing else to do And you'll just keep playing the game Just for the love of the game But it does take time It's unlikely that you're going to get these 50, you know, 50% 100% plus annual returns Even Warren for a very long time Didn't get those types of returns And even in the beginning He was still combating I think 50-ish percent Um, but he was the best in the world And then once he had more capital His returns decreased And a great note on this is that In, in, I would say, Main Street Real estate is the number one most common path For creating millionaires But not the most common path For creating billionaires And to me that is kind of like a great Kind of cherry on top for this little bucket Which is that it is a great way To build and store wealth It's being smart with your money And allocating it appropriately It's unlikely to be the thing That gets you all the way to the top Unless you have a very, very long time horizon And let's be real You have to live to 95 Like Warren Buff to hit the list Like that's real Like Charlie Munger was 99 when he died And so like in a very real way Like they had, like if they had died at 74 I don't know if we talk about them as much Because they wouldn't have had all the company That happened after So like this is a long, long game Finally That leads us to number four Which is fund management So this is you take other people's money And you invested in other people's businesses You raise a pool of capital for investors Which the fancy were that is LPs Or limited partners And then you use that money To buy pieces Or control of other people's businesses Now Depending on the way that you do it You can also use debt there too So let me give you a visual of This is potentially one of the highest leverage scenarios It's like this on steroids Basically And so let's say that you want to You want to raise a hundred million dollars Now I'm going to use big numbers Because I want you to think bigger Anyways rather than thinking in small numbers All right So in order for you to raise a fund with a hundred million dollars It's typical That the person who raises the fund Puts about 5% of the total funds raised in So you put five million dollars in You raise 95 million dollars of LP capital That means limited partner capital So other people put their money in And then This is where it gets even crazier So this is a hundred million dollars in total Right But then you say You know what We're going to buy 300 million dollars Of businesses But we're going to use 200 million In debt To buy these businesses And so think about the leverage That you get from your 5 million Able to buy 300 million dollars for the stuff Now when this 300 million dollars Let's say it just grows at 10% a year Let's say you're not amazing You're just matching the S&P All right In seven years you'll double Right So this is now 600 million dollars Seven years later Now if you had a 10% return for private equity That'd be bad But I'm just going to give you like the base case of like You're not that good at this Okay So that means that you have a 300 million dollar delta So we got to pay back Right We got to pay back the debt So we have to take our 200 million dollars out Because we got to pay the debtors back Now they have some interest in some other stuff there too Right Then we got to pay our LP's back All right We got to take We got to take this back Now sometimes there's a hurdle rate Which is a minimum return You give these guys saying I don't get paid until X happens That depends But typically in private equity it's 6 to 8% Somewhere in there And then whatever is left over here You then have a split With them LP's And then GPU So let's see what happens when you actually invest this money And then wait Five to seven years Now let's say because you're in private equity And you're investing in non-public markets You get a better than public market return Which is basically the baseline Like no one wants to get A public equity return And they have their money locked up for You know five to seven years So if you got a 20% annualized return For six years You would have 2.

98 on the money So functionally you're 300 million Right That you bought Now it becomes 900 million Ooh More All right So we got to pay back our debt So we have our 200 million that we got to pay back in debt Now there's going to be some interest on that Let's say that we got to pay them back $100 million in debt payments Okay, so we have that too Now we also have our LPs $95 million that they put in So we got to pay them back that And then there's some minimum return That we promise them before we participate Which for us is going to be about $40 million if we have a 6% prefer hurdle that goes back to them So that is all guaranteed to them Now after that It just depends purely on the nature of the asset class And what you're investing in And you work kind of proprietary blend of whatever There's going to be some split of the profits here That goes to you The GP, the general partner That's the operating partner The person who runs the whole fund And then some that goes to the LP Or limited partner And so let's say that you had a 50-50 split here Let's just call it Okay That means that after we add all of this stuff up This slice here Is $465 million Remember we started with $5 million?

This is how you get mega rich Now to be clear All of this is in yours Maybe two-thirds of that is in yours But either way Even if you had 10% of that And you got $46.5 million You did pretty good On your $5 million investment Right? If you got 20% Now you're looking at $90 million Even better on your $5 million investment You see how this stuff adds up And that's because this is leverage Now when we look back at our original kind of sheet here With each of these four paths You have to decide on what's best for you If you have some proprietary way That you know how to source deals And you have a good way of finding capital Which by the way If you're like, I don't know how to raise capital You absolutely do know how to raise capital If you have good deals One of the best piece of advice I got from mentor of mine Is that there is no lack of capital in the world Only a lack of good deals And so if you find a good deal Capital will appear Right?

If you come to me and say I have a guaranteed way Which of course don't use those words Because that's a great way to get good money to run away But if you're like There is an incredibly high Likely a chance that I have A 5Xing money in this way And here's the six different ways That I mitigate the risk And let's say those are believable And if we have that Then I'd be like Okay, well how much money do you need And that's how any good investor is going to ask the question Because when you do identify good opportunities You just want to back up the truck Now in that setting The higher believe it or not The higher the return And the more private the type of deal that you're doing That's more niche and specific to what you know Typically the better The splits that you can negotiate On the gplp split Of the profits after some certain point And so who should do this I think the best Like version of this Is where you build a track record You figure out proprietary deal flows And deal flow that only comes to you that no one else has And you have some sort of real edge In picking and improving those companies So oftentimes funds are Organized around us A singular thesis So for example at the very beginning I got approached by a walnut tree fund I was like I don't even know this exists But they explained how it worked Which is like it takes 30 years to grow a black walnut tree All the way to like full size But every year after year three It creates walnuts And so it cash flows every single year And then the end of the 30 years You cut the walnut tree down And you get this amazing walnut wood That you can then sell And the cost is really just the seed in the time And that was their entire business model And they'd done this number of times And they had these kind of staggered Tree ventages if you I'm using the wrong word But like the vintage of trees Every year they had another cohort And I was like this is a really interesting business And they had a fund around it Because I don't want to know Where the Venice Whale in tree farmers Or I don't have those connections I don't know how to sell walnuts at scale Can I figure it out Maybe is it worth my time?

Probably not Is it worth my money If it doesn't take my time Maybe And so the beauty of this one Is that you have maximum leverage And you can have the smallest personal checks You have huge potentials for upside There's also fees that you can put onto this Typically the better and the more trackered you have More you can add fees in I'd say your first time oftentimes you have less fees Just because you want people to come in And not think you're going to get rich on the fees They want to have as aligned incentives as possible With the investor Now oftentimes the GP ends up richer Than any single LP Obviously depends on how much capital gets put in That they take from Now the risks You have enormous responsibility And a very long feedback loop And you're accountable to the LPs And to regulators And to the entrepreneurs who are running the businesses And to some degree the customers that those businesses serve And so you have a lot of masters to serve in this time period And you can be rich on paper But the entire time you almost feel like a slave Which sucks And so your job becomes managing risk and reputation And people and portfolios Not just building one company And if anything you're almost building the company of the fund So I got rich Bootstrapping my companies I took some of my cash And invested in other people's companies That cash Continued to compound And I was able to invest and then co-found School where we raise capital I obviously promote school as well Which if you are getting into business You should check it out as 9 bucks a month I also have a really cool offer for you Also I had a bunch of entrepreneurs donate those books So this is also one of my ways of fulfilling that promise Now I've raised capital And then finally it's in fund management So we've raised capital for some of the real estate deals that we've done When we buy big buildings Which we do through ACQ real estate We've only done that privately Some of our high level clients and portfolio companies We are functionally general partners In some big real estate buildings Which you can check out Acquisition.