Passive Investor Spotlight: Hitting it Big Through Venture Investing With Dan Schulte

This is the Invest Like a Billionaire podcast, where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you'll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra-wealthy, discuss economics, and interview successful investors. All right, welcome to the Invest Like a Billionaire podcast. We're really glad that you're here with us. I am Ben Fraser, one of your co-hosts, joined by Bob Fraser. And today we have a very fun guest, um, that we're excited to introduce here, Dan Schulte. So do you want to give a little bit of dance?

What are we doing here first?

I know, what are we doing here? So the Invest Like a Billionaire podcast, um, we've said this in past episodes, but really the whole goal here is looking at how do the ultra-wealthy invest. And so Invest Like a Billionaire and emulating the best strategies, the tools, resources, and tactics that, that the ultra-wealthy are using to grow and protect their wealth and making those applicable to, you know, maybe the average investor, if you want to call that, or a retail investor, an individual. And we've, we found that there's a very big gap with the way that the ultra-wealthy invest versus just the average investor. And that gap is generally alternative investing, right? Which includes real estate, private equity, hedge funds as well.

And so most people think of investing in stocks and bonds.

Yes.

When the ultra-wealthy think of investing, it's— yes, they have an allocation of stocks and bonds, but heavily into alternatives, which is primarily real estate, private equity, and hedge funds.

Exactly.

So we want to explore and educate these, in these areas.

And one of the really cool segments that we do in this podcast is called our Passive Investor Spotlight series. And so that's what we're doing today. This is our first one, and what we want to do is, is talk with individuals who have had success passively investing in these types of investments, alternative investments, and to learn from them what's, what's worked for them, what's not worked for them, uh, How do they hear about these investments? How do they look at their allocations? How do they look at risk? And so that's what we want to do in this interview and just ask these kind of questions that we're all curious about. This is not a thing that you have to do alone. And so we can learn from each other and learn from the failures as well as the successes of other investors.

So hopefully successes.

Hopefully successes. We learn a lot from failures too. Yeah, you do.

Actually, you learn more from failures. Exactly. They're just painful.

We have Dan, and Dan actually is an accountant and lawyer. So you worked for an accounting firm, large accounting firm.

Did my 2 years, yes.

For many years, as well as worked as an attorney for a while. And then, you know, kind of the last assignment you did before coming to Aspen was Waddell Reed, which is a $150 billion money manager. Correct. And you were the general counsel.

Correct.

So, so you, you know a lot about investments, you know a lot about the law, you know a lot about a lot of things, right?

And, you know, the— and the probably the dis— and just the, the caution you have in the, in the, the distrust I have in the public markets. Maybe, maybe, maybe that might be too strong a statement, but that's kind of what led me to passive.

So, so explain that.

Well, so, you know, I guess seeing what I saw as general counsel, I mean, we were the firm that, um, the, you know, they tried— the regulators tried to pin the flash crash back on us in 2010. And so through that investigation, you just see a lot of the things that go on in the market that other people don't realize, that in turn make you really a little bit more cautious about—

it's a little bit rigged and a little bit gamed.

Exactly. And yeah, because, you know, that you've got the fast traders and you've got everything else. And so even though it's supposedly efficient, you don't— I don't feel as comfortable putting all of my eggs in that basket.

Yeah. So that, that would kind of begin your journey to look at alternatives.

Yeah. And even more bizarre, I guess, from an insider's perspective, what really brought me back to alternatives is that we had a few mutual funds at Waddell Reed that got to be so big that we actually started investing in alternatives inside a mutual fund, which— what do you think about that headache? But, but then when you see those returns and those multiples, That's what really draws you back to the power of alternatives.

So inside your mutual fund, you started doing alts and you realized that they were superior. It had some superior characteristics.

Correct.

And so you said, hey, let me, let me look for more of this.

Right. And then as part of my personal journey in terms of looking to invest more in those, that became a problem because in terms of my job at Waddell Reed, I was very limited on what I could invest in. So that helped me kind of decide to, to move on. Out of that public realm and go into more of a private investing scheme.

So, so just today, you know, stocks and bonds and you said you have no bonds, no bonds right now, pretty much stocks and alts. What's your allocation percentage?

So if I look my total portfolio, I am probably 20% stocks and 80% alts.

So super heavy alts. And you've been doing this for how many years? Alts?

Probably 10. 10 years, 10 to 15 years. I mean, smaller when I was at Woodhull and Reed, and then as I moved out, my percentage has grown bigger. And actually, I would be in a higher percentage probably if it was just me personally, but I moved the allocation a little bit more to the public market just in case from an estate planning standpoint something happens to me, then my wife has at least a liquid basket.

Okay. And so your alts, most of mostly heavy in real estate.

No, I think more probably in the last 2 or 3 years, probably more heavy in real estate, but more private equity venture tech is the bigger last— like I said, last 2 or 3 years, it's gone probably from 0% real estate to 20 to 25%.

And all your alts, they're passive, right? So you're not— meaning you're not an operator, you're not running the business.

Correct.

Correct.

The one investment that I had that we were kind of the operator, that one, that one was a restaurant business, which ended not so well. So I'm more straight into the passive business now.

So I want to take a quick step back because you were general counsel at Waddell Reed for 15 years, right? Correct.

From IPO to when I left in '14. Correct.

Okay. And so there is a long stint there of kind of corporate America. Yes. And you kind of alluded to it, it seemed like, but did kind of the light bulb moment with Alt and kind of the realization of Hey, there's some really real ability to generate passive income and stability in my investing portfolio. Did that kind of allow you to step away from corporate? Was that kind of the driving mechanism or what was kind of that whole process like when you decided to step away and then you kind of started a private equity investing firm, right? Right.

Yeah. And so yeah, that was kind of the impetus for me to finally say, number one, I can go do this passive investing and probably eventually quit my day job. And so, and in order to do that, I want to do it while I'm 50 as opposed to when I'm 70. And so, that was kind of the final push, seeing the opportunity and being able to make those investments.

Right.

Yeah. Right.

So, how do you find your investment operators? How have you picked? And you've had, I mean, how many alternative investments kind of are you in right now? What's the number?

I'm probably at 100 K-1s right now. So, probably 100.

Would you recommend that?

Well, so I'm a little bit different in terms of I do everything in buckets. So in terms of I have my tax-deferred buckets, I have my taxable buckets, I have certain trusts that are set up. And so it's not as concentrated as it seems, but I've, to your point, in the last 2 years, I've started to whittle down what my investments are.

So you wouldn't recommend someone else to do a hybrid?

No, it just kind of turned out that way in terms of, And then with COVID normally you have 5 or 6 exits a year that kind of whittles that down. And so that's a little bit behind. But no, I wouldn't recommend that. I mean, if my perfect world, I'd probably be in the most— be in 20, probably.

Okay, gotcha.

Yeah.

Can you talk a little bit about your allocation strategy? You mentioned the bucket. So how do you look at when you're evaluating an investment, what are the factors that you're using to determine, is this going to be a fit for me? Where does this fit? And what are kind of your primary objectives? You're looking for the income, you're looking for more growth, you kind of have a balance there?

Well, first off, the investment is something that has to interest me in terms of— someone might bring a great, like, say, biotech opportunity. Number one, if I don't understand it, and two, if it doesn't really say, wow, that's something I really want to be involved in, I'll pass. But in terms of how I think about it, I generally think about I want a certain percentage of my investments that are in a taxable account to probably generate income because that's something I want to supplement whatever else I'm doing. And then if I look at something and I think it's a, like a tech and a— so, so real estate's probably in that taxable bucket. But if it's something that's like a venture or private equity or a tech investment, moonshot. Yeah, I tend to— I'll put that in a tax-deferred account because then if it is a home run, then I, you know, could put that tax-deferred dollars to work again. The only caveat there is you have to be a little bit careful, obviously, because of it. That goes to zero, you don't get to use that tax loss in a tax-deferred account. So, you kind of have to figure out, it's kind of a hard dynamic to say, is this investment really going to succeed? Where do I put it? Because if it doesn't meet that test, you really shouldn't be in there at all. So, it's just kind of a balancing of what do I have now in taxable versus non-taxable?

Okay. So, most guys would be thinking, how do you find these deals?

Right?

So, how do you find them? And then number 2, there's They would probably be thinking, how do you evaluate these things? I don't think, you know, do you have an edge just because you're an attorney and you know all this? So you're like super smart and normal people can't do this? Or, you know, so how do you find them and how do you get comfortable writing a check?

Well, so when I first started, it was more of a word of mouth. CPAs or attorneys would refer deals to you.

So you'd know they were in something, you would ask them about it, that they'd say they're in something.

Yeah, or at some point people know we're looking for deals. Get phone calls.

Yeah.

And what happened is, is that some of those were more hit and miss because to your point, it's hard to do the due diligence by yourself. It's hard to dig down if, if there's not an institutional look looking at the evaluating the investment. And so what I did is kind of morphed a little bit. I found 3 or 4 or 5 private equity venture capital funds that I invested in. And then what they do is they allow you to do co-investment opportunities where that if they're doing an investment, piggyback, you piggyback, you do a sidecar. And the thing about— I like about that is, number one, you see it, you get a lot more deal flow. You see a lot because they see deals.

They got—

they got the deal.

And you can look over their shoulder.

Exactly.

As they're doing the due diligence and be confident that you don't have to ask all the questions.

Well, yeah, because if they're investing, usually they're not offering the sidecar unless they're investing. So basically they're investing my money in the fund and then they're saying, hey, by the way, we're doing this investment, we think it's a great deal. Do you want to— do you want to invest additional money outside the fund? That way, you know, one, it's passed their test, they're going to invest in it. So you have some comfort. Plus, you know, their people have been through everything and they've seen, you know, 1,000 deals and they've done 1,000.

You started doing this while still working your corporate job?

No, this was a little bit after. So, so immediately after I left my corporate job, I did a number of deals on my own with some degree of success, but just figured out I wasn't seeing enough deal flow. And not seeing and not having the benefit of somebody else looking at it as well. So then I kind of gravitated more to the fund investment with the sidecars, and then I still get calls about other deals. But now I have a little more— as you do this and you learn and you fail and you succeed, you have a better sense of what to look for. Yeah.

So at what point do you get comfortable? I mean, because you're not really doing, you know, the due diligence that a venture capital firm would do, right? So what, what are the kind of the key kind of things that you're looking for that kind of flip the switch where you're ready to write a check.

So if I separate that between non-taxable and taxable.

Yeah.

Taxable, I like the fact if they're paying a pref, they're paying some type of income because as you know, you can't lie.

Cash don't lie.

Cash don't lie. Exactly. Never go broke taking a profit, right? And then on the non-taxable side, it's just as you do enough deals, you kind of get comfortable. You know, do they have monthly recurring revenue? Do they have, Do they have a product that's protectable? Do they have something they could patent? Do they have, you know, what's their growth strategy look like? You kind of get a feel. But at the end of the day, it's about the people. Do you understand the operator and what they're doing? And the good thing is, if you do this long enough, you start to see some of the same operators because they'll do an exit and then they'll go to a different company. And then you have a bet.

That's when you know. Yes, I know what I'm going to get.

Right.

So you're betting on the jockey, right? Versus the horse they're riding.

Yeah. And that's not to say that sometimes you don't take a zero. You know, that's not what you want to do. But I mean, if you do enough deals, you know, a 10 times— and 10— a 10 times return wipes out a zero pretty, pretty quick.

Pretty, pretty good.

Pretty good. So as you kind of learn to, you know, and the hard part is you have to remember not to focus on the— you tend to focus on the ones that didn't perform so well. And the only regret you have usually on something that does really well is you regret not putting more—

why didn't I put more money in?

But, you know, you can't turn that clock back.

So what I think is really interesting is a lot of investors that we talk with at Aspen in the kind of journey of passive investing and growing in altcoins, most of them start in real estate and then kind of gravitate more to the private equity, venture capital, and then some even kind of hedge funds and beyond. But you kind of seemed started with kind of the venture capital, private equity side of it. Was that kind of like the first big, uh, kind of—

yeah.

And I think that's more because of my background. So when I was at the accounting firm, my area was in entrepreneurial services. So I saw the operators and I saw that You know, and I didn't really have a real estate background. And then when I went to a law firm, we did IP, I did IPOs for 4 or 5 years. So that was just more my orientation and what I understood. And then you probably, as you start to look for passive income and cash flow, you kind of tend to gravitate back towards real estate. So I kind of went backwards only because that's what I was more familiar with. Yeah.

So when you were looking at those types of opportunities, were you looking at early stage, kind of growth stage, late stage when you're investing in these funds as well as the sidecars?

And so when I first started out, it's more of a seed fund round because that's the people you really get introduced to.

Okay.

And then as you kind of go into the fund standpoint, then you start seeing the sidecar opportunities, you kind of go up, you kind of go up the food chain because they're not really bringing you in until it's a, till it's a Series A or convertible. So, so I've probably gravitated more now towards away from seed and more to later rounds just because you have a better certainty of what the concept is.

Yeah, seed is risky.

It's risky.

Super risky.

It's super risky.

Yeah.

But return's great too. Yeah. Yeah.

Can you talk about what, what did you see in that? You've been doing this for a while now. So what, you know, what was the outcome from some of those earlier seed stage funds?

So some of you, surprisingly, this— some of the seed investments are— have been some of my best performers. Now, I haven't— I can't say I've cashed any of those out yet, but I called today on the way into work, coincidentally, that one of my seed investments that we thought was going to go to zero in COVID has now been valued at 10 times what— 10 times the value when I invested. And it's the ones that, you know, you thought were going to be winners that, that ended up being zeros. But from a seed perspective, I probably only had one that's gone to zero, and that was a COVID casualty. Everything else, I've been lucky. Wow. Interestingly enough, it's the some of the later rounds that I invested in that unexpectedly had the plug pulled on, you know, just in terms of they didn't see a runway. They, they brought an institutional investor who didn't like where it was going. And then they, you know, at that point they control the board. They do what they want.

So, so what's the best deal you ever did?

The— well, I always want to say the best deal is the deal I haven't done yet, but, but probably the best deal was actually a local deal through through one of the funds and it was a sidecar investment. And so I got to double down on both my fund investment and sidecar and it ended up being, believe it or not, a 100% IRR return.

Realized? Like that's—

Yes, realized.

100%? 100%.

Because it was a short timeframe. Yeah, it was like it was a huge boom in a short timeframe. It's just one of those—

What sector was it, tech or?

It was automotive, but it was tech. So, and then I, but to put that aside too, we're kind of in the middle of an investment now in the mobile home space that's being recapped. That's gonna be 5 times as well. We've been getting the preferred the whole time. We're doing a recap, taking 2 times the money out, and then we'll get a second bite of the apple probably in a year from now. So that might end up being from a volume perspective, my best exit.

Okay.

Yeah.

Could you just real quick explain what a sidecar investment is? I think, you know, a lot of investors may—

Well, and I'd probably use that interchangeably. It's a piggyback. But it's a piggyback. It's basically saying, say a company, say a fund's doing an investment in, maybe they're doing it, companies do a $10 million new investment round where the fund might come in and say, hey, you know, we really only wanna do 7 of that. But can we offer that other 3 directly to our fund investors?

Right. So you invest in the same terms alongside the institution and just supplement their round.

Right. And it's just— and to me, when you see those, it's kind of like ding, ding, ding, ding, because you know something good's going on there. Because number one, the fund's done the diligence. It's a solid company, usually in a later round. Plus, from— if you're that fund manager, you don't want to put your investors at risk. Risk in terms of, you know, unless they think it's a good deal. So you kind of have a kind of a—

is there going to be lower in the capital stack? The fund generally, is it?

Well, no, just they don't want to blow up their investors on, you know, they don't want to blow up their investors by bringing them into a side deal that's on top of their fund deal. So you have just have a better sense of comfort that they're giving you. This really is a solid opportunity to pay attention.

Yeah.

Yeah.

Okay. What are the worst deals you've done?

Well, worst deals I've done. Was again, not more, it started out as a passive investment and then we ended up being the operator and that was a restaurant deal. So that was the worst deal. And then just in general, I've had tech deals where I was a seed guy and I think it's a solid investment and just that you made a bad judgment on the operator. Yeah. And that was in the aviation space. I'm still, you know.

Now I would say you're not a tech guy. What the heck are you doing in that?

Well, exactly. And so to me, that's why from that experience is where I really pivoted to, okay, I'm gonna go invest on the tech side with the tech fund guys, right? And if I can do a sidecar on top, then you'll stay in town.

Besides that, where you're— you might be a lead investor, it's going to be something you really know, right? You know the space.

I know the space.

You get your head fully around it and the operators and the risks and everything, right?

And, and one of my newest ones is, is, you know, we've been in the wine business for 10 years, and one of my newest investments is guys that I've invested with in the past. Their family is starting Irish whiskey distillery, which if you understand production, you understand distribution, you understand branding, you get the space that they're in. And so I was comfortable doing that because I know all the hoops they have to jump through. So if they give me a status update and there's— I'm going to know right away what the issues are. Yeah. Yeah.

Could you talk a little bit about how you vet a sponsor or an operator, right? And especially in a venture deal.

Sure.

That's something that I think a lot of our a lot of listeners and just investors in general feel like, what do I really look at? What do I look for? How do I find the ones that are really going to be the winners? And what do you look at and what have you seen that's actually worked? And then things maybe you thought originally would be good indicators but ended up not being.

Well, everyone always has a good story. And so people are good at telling the story. What I found to be most indicative of success is it's their second or third deal. Like most tech guys, track, right? You know, they're— they do— they build something up, they exit. In the middle somehow of that exit, they come up with a new idea, and then they go start something new. Feel really comfortable about those guys. If it's somebody new, obviously you make the— you call the attorneys, the accountants, everybody you know to try to figure out what has this guy done and, and do I trust him, right?

So that's, that's kind of ultimately track record comes.

Yeah. So, you know, and you have a, you know, you have a gut feeling, but in terms of someone who's a brand new operator and a brand new new space or has never done this before. You just don't know. And I've been lucky with a couple, but most of them, it's more, you know, you just, you come, you become a little more jaded as you do it and you start making that additional call. And if it doesn't feel right, you walk away and you're going to miss opportunities, you know, but maybe you get the guy's next deal, right?

Yeah.

So, uh, how do you work with financial advisors? Sounds like you don't.

I don't a lot. Just in terms of, you know, as I, as I went through this and I got to the point of estate planning, I do have a really good financial advisor now on the public, public side, but it's more of a discretionary, okay, here's your bucket, uh, you know, in the public market. In terms of the passive stuff, I don't, I don't use financial advisors at all. What we tend to do is there's— you tend to, as you start to do investments, you tend to do and there's exits, you tend to get to— you tend to get to know the other investors. And so that's a, that's a whole nother network like that you can rely on them in terms of, hey, I don't know, I know you were in that— we were investor in this deal, you were in this space, and I've got this new deal, take a look at it for me. So I mean, so you kind of figure out who to call, who's— who your subject matter expert is. A lot of it's just based on investing with them in the past.

Yeah, it makes total sense. So who, who is your— describe your kind of inner circle when it comes to protecting and growing your wealth? You know, advisors, attorneys, accountants, mastermind groups. Who's your— who do you rely on?

Well, you always have— you always have to have a great account. So I have a— I have a great accountant who, who kind of helps me structure in terms of, okay, where do you want to get to? How do you structure this? What invest— where should this investment live based on what it is, what you're trying to accomplish?

Primarily which bucket, the taxable, the non-taxable?

Yeah, primarily there.

I think, I mean, yeah, can you develop that a little bit more? Like how do you define a great accountant, right? For someone that—

So I define a great accountant as not someone who's just keeping score at the end of the day and doing the tax return. It's someone who say, who I can call on a random question and say, okay, here's what I'm looking at and here's the attributes of this investment. How is that, if that's a success or a failure, how's that going to run through my tax return, one? And what else should I be thinking about in terms of structure? I mean, to me—

So more at a strategic level than just a tactical—

Yeah, value add. Here's what I'm looking at You know, and if it goes wrong, you know, how do those losses affect what else I've got going on? Because part of what I go through is trying to figure out how do I lower— how do I make my taxable income as low as possible? Yeah, you're never looking to, to realize losses, but you know, in the private equity curve, if you can use those losses along the way to offset other gains until that turns, you know, the whole hockey stick approach in terms of how a PE, you know, value runs across how it runs across growth. So that's the main thing. We say, how's this going to affect me? And is it worth it at the end?

So who else? Who else is in your core, your circle?

Well, I've got a bunch of guys just from previous lives. Like, I've got— there's a bunch of senior execs that all left Waddell Reed at the same time. We tend to have all kind of gone on and done our own thing. So I don't know. I guess you could call that an unofficial mastermind group. Group because they were across different sectors. They were in investments, they were in distribution, they were in sales, they were in accounting. And so that's kind of my—

do you get together on a regular basis, kind of share ideas or thoughts and that kind of—

well, we kind of tried that, but we're all kind of— we're not that structured, so we just, we just, we just have random phone calls, you know, and late at night, weekends, whatever the case may be. But that's, that's a, you know, hey, if you're looking at this deal— and, and that's a lot of the deal flow, you know, right? They're in their own markets, they're in their own things that they like to look at. So if they see a deal that they like, they'll pick up the phone and say, hey, Schulte, you want to be in this deal? Here's what I've done.

Other advisors, attorneys?

Uh, attorneys, not so much, just because I can wear that hat. Um, uh, so mainly, you know, people I've invested with, people I've worked with in the past, uh, accountants. And then, you know, on the public side, I do, I do have a good financial advisor. So, um, yeah, yeah, you kind of get help wherever you think you need it. And it's, you know, I mean, even picking up the phone and You know, seeing someone who's involved in the investment or another investor, they're also a good, you know, person to pick because people like to talk to each other. I mean, that's one of the things I've learned. I've always, you know, was always more of a, you know, tend to try to do things on my own. But the more you do this, you more realize people kind of do want to help you because they figure out it comes back to them in terms of other advice or other deals that they may see.

Let's hit the attorney thing a little more. So if, if you're talking to one of your friends who's not an attorney, how should they use attorney? Race?

I guess from an investment standpoint, it's mainly structure. So, I mean, if it's an LLC, what's the operating agreement say? How does the waterfall work in the documents the way that the proponent of the investment is describing it? That's the main thing. I mean, you don't really get the investment side from them. It's more of structure and do the documents match what the what the pitch book says, right? How's it actually going to work? I mean, at the end of the day, what's my exit going to look like? And along the way, does the waterfall accomplish what they say it's going to accomplish?

I mean, so many of the legal docs, you know, that I've written and that I've signed and that I've been a part of are all saying, here's all the reasons why you're a complete idiot if you invest. Exactly right. And so, I mean, it's all, it's all super cited towards the sponsor. And that's kind of the, that's kind of the— but we shouldn't be scared off by that stuff because that's, you know, the sponsors are trying to just stay out of legal action.

Exactly.

Trying to stay legally safe.

Well, and if you, as you start to do deals, you see enough deals that you don't do where you see the documents. The documents have really started from, at least from a private equity tech standpoint, have all really started to become uniform. And so you kind of, you know, the convertible notes all look the same, right? And so you can kind of get a sense of, other than the percentage difference in a discount or whatever, that after a while you start to say, okay, everyone's kind of using the same form. It's really more of a, from a seed investment or early stage investment, making sure the documents you know, someone who's not using the same tech, you know, the tech attorneys everybody else is using, making sure that those documents say what they're supposed to say, at least of what your understanding is.

So, all right, now kind of the gold, the gold. What's coming, you know, where, how are you positioning yourself for the future? How are you allocating? What are you focusing on? Where do you think the big wins are that you're positioning portfolio for the future?

Well, I mean, part of it is, is, is my— is when I, I became involved with Aspen Funds in terms of looking for, looking for income, also looking for growth in terms of— and so I'm really high right now in real estate, um, as an investment thesis, as an investment thesis other than retail. So whether it's industrial, uh, whether it's, um, service-related in terms of can I, you know, not retail, but, you know, being able to provide the space for someone who's, who's doing a service, uh, or just, just, just basic passive income, whether it's multifamily, whether it's single family.

So then all real estate sector you're pretty much bullish on, including commercial and—

yeah, even— yeah, especially residential. Uh, retail and office still a little bit, you know, not sure of, but everything else, I mean, industrial, cold storage, everything, all those industry, all those are just booming.

So you're sticking the fork in to capture that. Yes. And really high on Aspen right now.

Yes. In all real estate, just in a lot of that is where I've come into where I'm at in terms of as I get older and I start thinking, okay, if I get hit by a bus tomorrow, I don't want my family worrying about, you know, 12 years of exits, right? I mean, they got to ride the wave in terms of— so real estate's nice where you're going to get a— you can get a pref, you can get a return, you can figure out how to get income, but you can also get growth that's not a really long-term prospect. It's not a 10-year thing. It might be a 5-year deal.

So how do you invest across these asset classes within the real estate? Do you invest in kind of single operator, single asset class? You invest into a fund that invests in multiple asset classes, or how do you, how do you do that?

Well, and so I've traditionally done single, single operator, single asset. So whether it's a private REIT focusing on industrial whether it's Aspen Funds focusing on residential, whether it's a mobile home space, which is a single operator, whether it's, you know, storage, haven't really gone in. But again, I think probably kind of along the same spectrum, at some point if you run out of opportunities from a single operator, then you start to look at the fund and then maybe that generates more additional opportunities. So kind of the same timeline of how I started on venture, maybe the individual ones lead me to a bigger assimilator of products. And, you know, and I think that's something, you know, that we're looking— Aspen's looking at, right? And so it just makes sense because it just, it allows you to do bigger deals. There's so much, so many people chasing so many deals right now that you have to have the opportunity from maybe a, a bigger assimilator to, to go out and find those properties.

Yeah, yeah. We are seeing, you know, overpriced assets. You know, it's easy to find overpriced real estate right now, right? And really bad investments, even though the sector might do well. So, so, but there are— there's a lot of— there's a lot of nuggets out there as well, right? A lot of golden opportunities, right?

But it's just harder to find those maybe from a— from a single operator as opposed to someone who's looking across the entire landscape like we're trying to do.

And give us a couple sentences on the thesis. Why— why real estate?

What—

what's— what's in your thinking?

Uh, I, I guess for me, the real estate is, you know, valuations are always going to be good, so you don't have to worry about that income generation is good, uh, a lot of tax benefits, whether it's depreciation or being able to defer gains outside of—

but that's timeless. Why now? Why real estate?

I think, I think for me, it's— I just see the opportunities there in terms of residential is, you know, going to be— it's going to be hot, a hot market for a number of years. Uh, COVID has kind of put us in this, in this spot where everybody wants single-day delivery of goods. And so industrial all of a sudden is, is, is hot, both from logistically in cold storage. So to me, it's just like the right place, right time. And I don't think it's— we're going to see a while, I think, before valuations come down.

Yeah, yeah, yeah.

Very good.

Very good. Yeah. One thing that's kind of interesting that, you know, we did a survey with our audience recently and, you know, asked about challenges investing in alternatives. And one of the big ones, you know, was how do I find right deals? And what's interesting, what you kind of said was You know, you think about it from an active investor trying to find deal flow, but as a passive investor, it's also a challenge of having good deal flow, finding the best opportunities. And when you say when you're getting started, it's just investing kind of at a fund level or in a maybe not as specific, you know, operator-specific asset class, but kind of going, you know, one step back and investing at a fund. You kind of get into the network, you get into the space, you get into the world, and and just by association you start getting more deal flow. And that's really interesting to me because I think that's— a lot of people sit on the sidelines waiting for the perfect deal to just show up on their, on their desk.

Well, and I think a lot of it too is there's a lot of funds that, uh, go out of their way to say we'll provide co-investment opportunities. And I think that's the probably the best way to really start to figure that out, as opposed to someone who, who might never do that. And so then you don't really get into that because they're maybe they're very protective about their book and about their deal flow. But someone who's very successful is not going to worry about that because there's going to be enough deal flow and enough opportunity to bring everybody in. So it's almost like looking for that right fund group to start who allows you to do co-investment opportunities.

The co-investment opportunities, you got to have a pretty big checkbook, right?

Generally, I mean, you know, I mean, you might see someone who does a— like one I saw recently is only a $50,000 investment.

Co-investment as a piggyback.

Mm-hmm. Yeah. And so I think you're starting to see maybe those minimums come down. I mean, you still see some that are $500,000, but, you know, a lot of them, depending on what round they're in or what stage, you can get in at a smaller amount.

Okay. So here's the big question. So you've clearly been doing this a long time. You're heavily in alts. You know, have you beat the guys that are just in the market? Because the market's been on a tear. I mean, it's pretty hard to beat the market, the stock market. So, so One, has it worked? You know?

Well, whether I've— I've never actually done the math and said, okay, if I had all of it in the market, here's what it would look like. But I just, from a pure net worth standpoint, I know it's working because I mean, you know, I'm pretty religious about checking everything every month and, you know, doing the tally and it ticks up. So I feel very good about it. I don't have any regrets not being, having it fully Well, let me step back. Sometimes when you're in the middle of deals going on and other deals going on and doing taxes and K-1s, you might want to say, why didn't I throw it all on the market and go to Mexico? But I mean, from bottom line is it's also fun to be involved.

Yeah.

I mean, it's—

you sound like you're having a blast. You're, you're networking with people that you enjoy and you're doing deals that you like and you're working with entrepreneurs and sponsors you like.

Right. And so, and so it's interesting. It has been successful because I know what my number is. And it goes up every month. So I mean, I feel very good about that. Now, as I get older, maybe you take more and more off the table and you do more of an allocation to public or bonds just because you're worried about what might happen. But I think always having a good balance between the two, even I would never go below 50/50 in terms of alts versus public. Yeah, you know, but just because there's always so much more opportunity. Yeah.

So when you are kind of allocating across different strategies, do you I mean, some of these moonshots, right? You don't want that to be all of your investment, right? And then you have these kind of more plain vanilla income approaches. And then you have some fun investments like restaurants and like a vineyard and other things. So how do you kind of have like a fun bucket? Or you just kind of, if it's the right opportunity, and do you limit certain exposure to kind of more moonshot opportunities?

Yeah, I've started to limit probably the moonshot opportunities. Opportunities to maybe a smaller dollar amount. Yeah, because at that point, because if it is a moonshot, if— I mean, you might always regret, hey, why'd I put $50,000 in and not $100,000? But if it's going to be a moonshot 20-time return, then it doesn't really matter. Yeah, right. I mean, it's like you still accomplish what you wanted to accomplish. And so I mainly kind of— what I do is I'm always reallocating, but a lot of it, I'll look at an opportunity and I— if I know I have an exit that's relatively close to when they want the investment, then I'll I might be more aggressive about that in terms of I have a baseline. Yeah, I carry high cash balances. I mean, for a lot of people.

Yeah.

And I have a baseline that I won't go below, but above that, I mean, I'm still pretty aggressive.

Yeah.

Yeah.

Do you feel like as, as you've been doing this for over 20 years, investing in these types of investments, do you feel like there's any challenge of overcoming hindsight bias? Or what worked for me at this point, you maybe may not work for me in the future? And even as your risk tolerance maybe goes down as, as you get older. You know, how do you kind of combat just, you know, taking the, the pen to paper again and just making sure you're not just relying on Laurel?

Oh yeah, just— well, yeah, that's a good question because a lot of times, you know, you— the mobile home space is a good example in terms of you have to know when your run's over. Yeah, in terms of— because you have an opportunity to recap and roll forward, but at some point you have to say, you know, I think that space is probably full fully priced, so I need to move on.

Yeah.

In the tech space, it's harder because you don't know what the next big thing is, right? Right. Whoever would have thought Zoom, you know, whoever thought that was— and so, so that's, that's where you kind of have to rely more on the, on, on the tech side, the fun guys, in terms of where are we going. That's what I like about real estate because, yeah, real estate, it might not go up in a straight line, but it's always going up.

Yeah.

Uh, they're not making any more of it, right? So And so that's, that's the other thing that's kind of pulling me towards real estate is, is not necessarily getting trapped in a space. Maybe, maybe the storage space gets overplayed, but in terms of residential or industrial, I think that market's just going to keep—

and real estate never goes to zero.

It never goes to zero, right? Yeah, exactly.

Yeah. So as you've kind of done this and grown, now you said over 100 different investments and you're saying, you know, it'd be nice to simplify.

That would mean, that would mean 1% of your capital deal, you know, and even, even 20 deals, you're 5%. So you're not, you know, you're— so you're very, very, very diverse, very diversified, right?

And so sometimes you think, well, okay, why am I wasting my money? So I've started to become more diversified in deals as I shrink them. It kind of know what to look for.

Yeah, yeah. Kind of where I was going with that is, do you— would you do it differently now, looking back? I mean, or was kind of that process of looking at a lot of opportunities and investing a lot things kind of got you to where you're at, to where you know what you like, what you're comfortable with, and then, you know, you kind of pare down from there? Or would you do it differently where, hey, I might just, I might just pick 5 operators I like and just invest more with them? Or, or was kind of that shotgun approach helpful in that, in that process?

I think the shotgun approach was helpful as I kind of learned what I, what I wanted, what worked and what didn't work. Um, I've gotten to the point though where I would rather I would rather— I mean, I've got, I've got a couple of fund sponsors that I invest with that have done very well, but that doesn't mean Fund 4 is going to do as well as Fund 3. And so I've kind of hit my max in terms of I might do Fund 4, but I'm only going to do X, as opposed to the fund sponsor always wants you to put in twice what you did the fund before, or 3 times the amount. And so I'm more of finding people who've had good performance and allocating to them. And probably shrinking the number of total investments and doing bigger deals with fund sponsors, but not overallocating to them. Yeah.

Yeah.

What's your favorite investment from just pure enjoyment standpoint? Would that be maximum return?

Well, I'm having fun at Aspen, so that's where my fun is at. But, well, it's kind of weird because the winery investment is probably— it would never go down as your best investment, right? But that's the one we probably have the most fun with.

Yeah.

But at the end of the day, I mean, if something— if there's a, you know, if you get a 20x return, I mean, that's, that's your best investment for a while. Yeah.

So, so, okay, last question. What would you say— how would you distill your success and maybe in, you know, one or two key points of what, what's been the most successful or the thing that, that helps you be the most successful in passive investing? What are the kind of few kind of keys that you always hold to, the tenets that have, have brought you to where you're at in investing?

Well, to me, what I've discovered along the way is that having a return, even if it's a dollar, right, knowing the fact that there's cash coming back, that, that's something that helps you sleep at night.

Yeah.

But other than that, it's just in terms of being diversified, being in something that doesn't go to zero, being in something that you know there's growth. And structure-wise, I mean, just being able to structure everything that I control my own destiny as opposed to I don't have a fiduciary, you know, I'm the fiduciary on my, you know, tax-deferred accounts. Being able to structure that and be able to pick the investments you want the way you want to do them. Awesome. Yeah. Okay.

Well, I think that's it.

That was juicy. Yeah.

It was fun.

Good stuff, man.

Yeah.

All right. Thanks for joining everybody and tune in next time for the next episode. And we're glad you're along the journey here with us.