5 Common Questions That Investors Ask Fund Managers

Alright, people, welcome back. Let's talk about what I would consider the top 5 investor questions I think you and me will get on a first-time fund. There's going to be different questions for bigger funds later on, but these are the most common questions that I see that you should be prepared to answer with incredible and great answers from any investor any time of the day. Like, it shouldn't surprise you. That's the purpose of this video. I don't want you to be surprised. Maybe we'll add a few more. I said 5. We might do 6 or 7 questions. We'll see how we go, but let's just dive in. No particular order here of importance, but I wanted to make sure we hit all of these as we dive in and as you're thinking about your fund. The first question or line of questioning will be around other interests. So, you know, Mr. Pennington, I love your fund here, but tell me what else you— what else are you involved in? Are you going to do this full-time? Do you have another job? Do you have other sources of income? Walk me through Where your interest is at. What they're gauging for and trying to see is how focused they're trying to look for your focus level. If you tell somebody, yeah, you know, I'm doing this on the side, my other business is awesome, I love it, blah, blah, blah, blah. That might turn the investor off. That would turn me off as an investor. I've invested in a handful of different funds. If the fund manager isn't even going to focus on this thing, if they got 10 other things, oh yeah, we're doing another fund, we got this other thing going on. They're too scatterbrained. I don't want to invest in that person. They want to see a high level of focus. Now, you might be doing a lot of things, but they still want to see a team or at least someone is heavily focused on their investment. This is going to be their full-time thing to make sure this is done the right way, has good performance, is really done the right way. So that's one of the biggest lines of questioning. Is this your focus? That's why I, when people tell me, you know, I want to do a fund that's We're going to do real estate and we're going to do crypto and we're going to do venture capital. What that shows to the investor is you're not very focused. Now, you might be able to tell a compelling story around why those things make sense. But a lot of times an investor is going to say, really? You're an expert? Because I'm looking to invest in experts. You're an expert in real estate? Oh, and you're also an expert in crypto and you're also an expert in venture capital? Like, BS. Like, I'm not. I don't believe that. And so this is actually something that I struggled with for a long time was being focused. I started 6 different businesses my first years of college. I thought it was so cool to tell a girl on a date that I ran 3 companies and it sounded cool on a date. And in reality, it's the stupidest thing you can do. If anybody knows anything about business, it's impossible to catch 3 rabbits at once. You catch 1 rabbit at a time. Being focused is massive and smart investors are going to ask you that question. Now, question number 2 kind of dovetails with this as well. Talks about, and the question is, how much of your personal money do you have in this fund? So I'm going to write this on here. Personal money. And I believe you should have money in the fund. I personally, if I'm looking to invest in the fund and the fund manager is not, if they're going to put $0 into the fund, that's a big red flag. Really? You don't believe in it enough to put your own personal money into this thing? So hopefully you and the general partner say, yeah, we are, you know, we've put in X number of dollars. Now, if you feel like it's not a lot of money, maybe it's your first fund and you don't have a lot of money to put into this thing. Another great example of an answer to this is we are putting in a significant amount of our personal wealth. Of my personal, you know, I'll write out personal net worth into this investment. Hey, Bridger, how much money do you have in this thing? I've got a significant amount of my personal net worth tied up in this thing. I believe in this thing. It's— this is 100% true. My money will be right along aligned with your money. Now, as you get bigger, maybe you can tell them the amount. Like in my fund, me and Dan are partners. I think currently we have between the two of us $1.4 million invested in the fund together, roughly $600,000 to $700,000 each. That's how much we believe in this fund. Okay? Our money is right alongside yours. If you lose money, we lose money as well. We're right alongside you. What it shows is aligned interest. Again, back to number 1, that we are focused on this investment vehicle. But that's a great answer. If you're starting out, you don't have a lot of money, it should be, don't lie about this, it actually should be a significant amount of your, maybe you only got $10,000 to your name. Okay, put a significant amount of that towards this investment. Another common question, number 3, is is all around the mechanics of the fund. I'm just going to write out mechanics of the fund. There's like 5 different questions here. So I'm just going to— this is the general, but hey, how do the lockups work? Lockup provisions. How do distributions work? How does, you know, compliance, reporting timeline? How does your fee structure work? If you can't confidently explain how a lockup, a distribution, your compliance works with KYC, AML checks, Reporting, fee structure works. If you don't even understand how your own fund works, you're going to be pretty embarrassed in a meeting. I've seen some people, they will read your fund docs and they'll be like, well, on page 98, it talks about this lockup provision of X, Y, and Z. What are your thoughts on that? And if you don't know what page 93 says, you're going to look like an idiot in your own meeting. Make sure you read your docs. Okay. Read your documents and understand your documents. If someone says, what's reporting look like? Well, yeah, we plan to do some reporting. It's very vague. It's like, okay, no, we do reporting. And like my fund, we do reporting twice a month. 2 times per month, you get a full statement done from our third-party administrator, NAV Consulting. They actually give you a full statement. Once per quarter, we actually do a full quarterly review. We actually— and typically we do a Zoom call as well. So we'll send you a full document and we also do a Zoom call. You can hop on and talk to all the general partners, ask questions, make sure you're in the know. And then every year, we do a full year-end review and summary. So that's our reporting schedule. 2 times a month, you get a statement. Once a quarter, you get a full investor, like, breakdown of the quarter, what's going on. And then once a year, you get a full yearly review. OK, great. How do distributions work? Great question. Distributions, we plan to do distributions at the end of every calendar year, December 31st. You know, you just see the confidence behind, I know what I'm talking about. How does the lockup provision work? Your money joins, it's 12 months. Once you join, you're in the fund for at least 12 months. After 12 months, you have 90 days. To give us notice and you actually can withdraw from the fund at the quarter mark. That's how our fund works. Additionally, you can add more money. So every quarter mark, you're welcome to add more dollars to your investment as well. It's how our fund works with an open-ended vehicle. Oh, great. Okay. Very cool. Make sure you know your docs, the mechanics of the fund. Don't look like an idiot in your own meeting. Number 4 is going to be around referrals or track record. Hey, Mr. Pennington, I love what you guys are doing here. Are there people that I can talk to, you know, current investors or other people that you've worked with in the past that I can talk to and just get a sense of how it was working with you? Have some people prepared from referrals, like almost like an interview. Have people prepared that people can talk to in here. Or, hey, what are some previous deals or track record that you've worked on? Have some of those ready to go. Oh, this is a deal we did back in 2017. We did X, Y, and Z. Or we— my partner over here, he did some deals. Maybe if you don't have a track record, Find a partner who does have a track record and leverage their track record. Oh yeah, Dan, I always— because I don't have it personally. I don't have a track record in crypto. We own a crypto hedge fund right now. But Dan does. Oh yeah, Dan, he had the largest crypto mining facility in the state of Utah in 2014. Full warehouse. They had all these GPUs and miners and all this kind of stuff. And they actually just started to plug them in and started mining Dogecoins and Bitcoins and all sorts of cool stuff since 2014. They've done an incredible job. Dan has been in the crypto space for a very long time, almost since the beginning of crypto. And wow, that's so amazing. Oh yeah, we helped this guy out. We helped him launch his thing. Anyways, we can talk through that. Be ready though with your background and track record. If you feel like you are weak in this area, find a partner who is not weak. Find a partner who has this that you can leverage in here. All right, and number 5 is around other competitors. I'm just going to put competitors. Be ready to talk about competitors. This is a question I don't want you to get thrown off by. Investor asks you, hey, thank you. This, you know, this venture capital investment sounds awesome. This fund is really cool. I've liked your structure and you've got all this other stuff answered. Great. Tell me about some of your competitors. What are some good things and bad things about your competitors? What are some pros and cons? How do you guys differentiate yourselves from the 20 other VC funds in the Valley? And if you give kind of a vague answer, well, they just stink and we're smarter than them. Like, it doesn't show expertise in a field. You should be able to name a handful of competitors. What they do well. What they don't do well. I've even seen people, why would, you know, if you couldn't invest in your own fund, what other competitors would you invest into? It's an interesting question. And make sure to have an answer for competitors in the space and the market that you are in to make sure you understand competitors in your field. Okay, so step 1, we got other interests, personal money, mechanics of the fund, referrals, competitors. I'm going to give you a bonus one here, number 6, so you are not thrown off guard. What happens if you die? It's a serious question. I know it's, oh, whatever, we are not going to die. Really? Well, you are raising $30 million. It's a serious deal. What happens if you guys get hit by a bus or you disappear or something? I don't know. Something happens to you. The first time I got asked this in a meeting, I kind of got thrown off guard. I remember like, oh, I mean, I don't know. We haven't thought about that yet. I was like, oh crap. And we went back to the drawing board. Like, what does happen? Oh, this is what happens. We actually built out a full called a key man provision. And you actually can get key man insurance as well. But this is a full step through. Okay, so and right now, like in our fund, if me or Dan die, what happens is we liquidate the entire fund. And we actually just pay back all of our investors. So, everything gets liquidated. We just pay back investors. We have certain individuals. We have a law firm. So, if both of us died, we have like a pecking order of like, who's next? We have like our one guy, he would do it. And then if he died, you know, maybe there's a catastrophe, the next law firm would do it. And we have a backup law firm. Then we have another firm. Like, we have this full breakdown of what would happen if— That's awesome. One of us died or 5 of us died, we had this, like, really a catastrophe happen, how do we do all that? Make sure you have somewhat figured out and just, it shows, if you can answer that like on the drop of a hat, it shows, wow, these people have thought through this. They are, they know what they're doing. The quality and speed. And I'll do this right here. Boom. So, I'll tell you this. In Black Card, me and Lincoln have interviewed, I don't know, let's call it over 100 fund managers. They come and pitch us and talk to us about their funds. One of the biggest feedbacks we give— it's really funny about questions. We try to drill them with questions. We're trying to poke holes and drill them and really drill into their funds. One of the biggest things that we get feedback on is people, number one, just don't know the answer. But more often than not, they kind of know the answer, but they spend 7 minutes Explaining the answer, and actually the more you end up keep explaining it, it feels like you're covering something up or trying to like I don't know figure something out. It's like if I asked you how much personal money do you have in this fund, and you go on and on. Oh yeah, we put money in here. We donated this, and we just keep talking and talking. It almost feels like you're covering something up instead of just saying how much money do you have? I have a significant amount of my personal wealth in here. I really believe in this thing. We're going all in on this thing. Like, this is a fund that's doing about— I'm putting a significant amount of my own personal money in here. Bam! 15 seconds. Answered. Or, hey, between me and Dan, we have $1.4 million in our fund right now. It just shows so much confidence when you just answer a question in one sentence. It's like, next question. It's like, oh shoot. Hey, what happens if you die? We have a full key man provision. We have key man insurance. We have a full breakdown. What would happen next is this person takes over, then this person. And then our law firm helps out and we have a full liquidation of the fund. It's like, what? These guys know what they are talking about. Okay. Have, you know, be just Johnny-on-the-spot with the answers. Be quick. Be concise. It makes you stand out like crazy. Hopefully this video helps. There is a ton more questions, but I wanted to give you some core things. Other interests. Make sure you have a focus on the fund. You have personal money invested. You understand the mechanics of your fund. You have referrals and a track record. And then you understand your competitors. And I love this one as a bonus. If you die, what happens? Some people like to throw you a curveball there. On that one. You guys are amazing. Let me know if you have other ones down below. I'd love to hear them.