We Workshopped On Businesses for Free

I'm about to roll a clip from a live event we did last week at our office. Many people charge thousands of dollars to do workshops at their studios. I've seen people do this online. We said, what if we just flip it on its head and just do one for free? We talked about incentivizing teams, how to structure asymmetrical risk in their fund, how to avoid bad funds and good funds. We talked about all this stuff that I think you'll really enjoy. With that, let's roll the clip. Okay, let's talk about due diligence on deals. You mentioned this, Ginger, right? How do you do diligence on other funds and also furthermore just on your own deals? That sound fair? Good way to look at it. Anybody else interested in that kind of question? Hit this for just a— I'm gonna go quick, okay? I'm gonna go like 2 minutes on this. We developed a framework that I thought was very useful and I'm gonna share this with you guys. So on the deal phase, if you guys can see here, got my fancy iPad. All right, I'm gonna roll down to risk control return. Anybody heard this concept before of asymmetrical risk. You guys heard of that before? It's a finance term. Some of you guys in finance have heard of this before. This is the concept, and I'm going to change colors here. I'll go black. Most of you have probably heard high risk, high reward or return, right? Sorry, I'm drawing and typing at the same time. High risk and then low risk, low reward. Asymmetrical risk is, can you find some things that have relatively low risk, for relatively high reward. Number 1, is it possible? Number 2, can we find it? The answer is yes and hopefully yes on the second one. This is what— this is where fund managers make all their money. This is why fund managers exist. You are trying to find things at asymmetrical risk. I was with Ray Dalio just a few months ago, status alignment. I was with Ray Dalio at a Greenwich Economic Forum. It's a small club. I paid $15,000 to be there. It was 200 of us. I got to meet Ray Dalio. It was really cool. He talked about this concept, so I'm status aligned in the room. He talked about this concept. He goes, we try to find in Bridgewater 10 to 15 uncorrelated assets that, and we found we can, if we have about 10 of those, we can lower our risk by 80% without losing our reward. That's how he structured the best, one of the top-performing hedge funds of all time. Okay, so is this possible? Yes. This is what fund managers do. This is what we are trying to do. Furthermore, I'll give you another example. Simple example, house flippers. Anybody flipped a house before, by the way? A few of you guys.

Okay.

House flippers. If Bridger Pennington went and flipped a house and I'm pitching you to invest in me flipping a house, I'm just telling you straight up, it's going to be high risk. I'm terrible with my hands. I'm just not a handyman. My family makes fun of me all the time. I'm just not. And I'm like, well, screw you guys. I'm just going to make money and I'll hire a handyman to come fix my gutter. Okay? That's how it goes in my family. They all literally, my brother always makes fun of me because he's really handy. He has all the tools and everything. And I have I have the tools, but I just like don't know how to use them really. And I just like, I'll just hire somebody. Okay. If I flipped a house, it would be high risk and maybe high reward, right? It would hopefully go well, maybe medium reward, right? Probably a lot riskier. However, who's flipped a lot of houses in here? Who's flipped the most? Just throw it out. How many houses have you flipped? Who raised their hand? Who's flipped a house? So you find flippers or you fund them? Okay. Well, somebody that we have, I have a buddy, he's flipped 300 houses. For him, flipping a house is low risk. The average house flip is about $65,000 a person makes on a house flip. In America, that's a good that's a household. It's an average. It's because they're in a market that's pretty fractured. It's hard. It's and when I talked about remember big fund managers versus small fund managers, they're in a small. It's it's a single family house. It takes a lot of energy and time to flip that house. When you get to bigger markets, you get what they call efficient market theory, where markets are perfectly efficient when you have huge amounts of money and they're super liquid. Down in small markets, they're usually very inefficient and fractured. Hence, we can find places that have asymmetrical risk. Y'all following along? Yeah. So when I look at a deal, this is how I do it. Okay. Uh, I'm gonna look at a deal. Anybody have a deal they're underwriting right now? Throw it out. Just yell it out. Anybody have a deal they're underwriting? Jerry's got a fingernail business, like a nail salon or what?

I felt something was gonna happen in '08, '09, '10, '11, got out, completely removed myself, went out and played, came back, looked for opportunities and, uh, run across, uh, from my fashionista wife, a problem in the artificial nail industry. She said they were terrible and unhealthy. Found a cosmetic dentist who had a solution, making a custom fitting from a scan that was removable and reusable. And I wasn't interested too much at that point. But then he said, well, they're spending $5 billion to $10 billion a year. I took an interest. I studied it. I have a capstone project at the University of Utah. Building out the proper production lab to produce these products. Now, we put them through proof of concept, they work well. We thought an Avon, a Nu Skin, an Mary Kay would be excited because it's a great lead generator. They are excited, but they don't want to produce them. So I was excited because it's very low risk. Our proof of concept showed that 60% of women want to try them. And over 75%, once they try them, want to use them forever. That's a scan that keeps them in. It's a low amount of capital for the people that build the production footprint. And then there will be ancillary business.

$3 million. Okay. That gives us good context. So explain now the deal. Like, so if I'm investing in you, am I investing in the company? Am I investing into patents? Are we investing in a franchise? Like, what are we actually buying and investing into? Give us the deal and then we're going to run through it right here.

We're seeking $3 million to establish the lab that the capstone design team at the University of Utah is going to set up the blueprint for. And we're looking to put some equity into that. That'll be an initial investment. Whoever comes in with that will have an opportunity to participate more as the company grows and splits into divisions. For continuation maintenance products.

Okay, so hold on, am I correct? $3 million investment to buy the lab, the lab equipment to produce, and then that's gonna dovetail into the full company.

Right.

Is that correct? Good summary? Everyone got that? Okay, we're gonna do this together. Thank you, Jerry. Congrats, by the way, it's a very cool business, it sounds like. This sounds very interesting. We're gonna double-click, I'm gonna come back to you in a second. Okay, so let's just, with the basic knowledge we know as of 45 seconds, What I like to do here, I like to put down all the risks that are associated with this potential deal. Things that we can control, if you can see here, and things that we can't control. Both are important. Just because you can't control it doesn't mean it's not a risk.

Okay?

Both are important. We're going to run it through and see how sensitive we are to these risks, and then we're going to drive a worst case, a base case, and a best case scenario out of them. Hopefully this makes sense. So let's start with the risks though on your business. So I know it's going to crush. The upside's amazing if it all works, but walk me through, maybe yell out crowd, what are some risks associated with this investment? And we'll bucket them into things that we can and can't control. Operator risk. Perfect.

Yeah.

And that's something we can control. So operator risk, like who's the actual team behind it? That's a risk. Are they going to actually produce? Are they going to work hard? Like what are they going to do? Keep yelling them out.

What else?

What are their risks? Sales.

Sales? Yeah.

Can they actually sell this thing?

What else?

Yeah, unknown competition with like that are also developing. Is there a lab at BYU developing the same thing or at Utah State? Do we know those? And around the whole country, around the world, is somebody else gonna come and disrupt us? Keep going, yeah. Yeah, will women actually adopt this? Now you mentioned you think so. There's cases that show that, but it's still a risk, right? Adopt, sorry, I'm trying to write and draw at the same time. It's pretty fun. Adopt. Fun challenge for me. What else? Operator risk. These are some good ones. Sales, underwriting comp, you know, adoption risk. Let's go things we can't control. What are some risks that we can't control that are still important? Yeah, recession. What if we dip into a recession right now? Supply chains. Yeah, what if we hit this trade war like we talked about earlier? Supply chain is just fractured. We can't even sell overseas. There's just all global trade just halts. Yeah, regulations. What if there's some new laws that come out that For whatever reason, there's some glue on here that hurts some ecosystem and whatever, and we can't use it anymore. Regulators, wars, we can go down the list. We could do this for an hour. There could be a war could break out. I mean, we could have— anyways, a lot of stuff that could happen. Sound good? Give you a sense. I'm going to go quick through this, but you would do this on your own deal. Then what we do next is say, okay, let's look at things that we can and can't control. Let's run it through a sensitivity matrix. And let's see what drives out, pending all variables are the same, how it drives a worst-case, base-case, and best-case scenario.

Okay?

And let's see if we can minimize some of these risks. So this is what I would do on a deal. Like if I was working with you, I'd say, all right, Jerry, let's look at operator risk. How can we mitigate that risk as a company? So you got a partner with really good experience.

Yep.

That does really well. Yep. Cool. That'll help all those. And then we can go down sales risk, adoption risk. So we're going to see if we can minimize some of these risks and then we're going to go through and say, okay, let's run a worst base and best case scenario for it. So let's go back to your partner might be interesting. So if we run a best, like you land, like your partner just crushes it, best case scenario, we do what? Like we're a billion-dollar company or like what's the best?

Billion.

I know. Yeah, we know.

Yeah.

And we're going really quick here. We're going, yeah, kind of a simple example. Yeah. So best case, If you land the right partners, we're hitting $1 billion. Our base case, kind of in the middle where we think all things being equal, where do you guys end up in a couple of years? Kind of base case. Okay. So let's call it $10 to $20 million. It's kind of our base case. Worst case, I mean, it goes to zero, right?

Probably.

Don't think it goes. So what is the worst case then? Do you have patents and stuff you could sell off? Like, let's say, and we're talking partner risk here. Let's say your partner dies. Let's say, you know what I mean? Like, let's say you get cancer, partner dies, whatever. We got to dissolve or wind this thing down. What is the worst case scenario that happens with this tech? Can we sell the patents? Like, what's kind of our worst case here? The But as far as an investor, I'm investing in this business. What's my dollar amount worst case? Is it zero? Or do you think there's actual, like, no, there's hard value here that the worst case we'd still— yeah, we have liabilities too. Is it $50 grand is our worst case? All right, I'll throw like $50 grand in here. Does that sound okay?

Be the pessimist.

Okay. Well, this is healthy to do. So then we run through each one. Okay, what if a supply chain issue hits us? We're going to run the same thing. So how sensitive are we to that? And maybe we're not sensitive. You know what? We don't need supply chains because we do everything here in Utah, very local. And it's still all this. We're not sensitive. If someone asks you that question, no, we're not sensitive at all to supply chain. So great. You've already mitigated that risk. So anyways, is this making sense as an analogy here? So you run through your own deals with this because this is what investors will ask you. How sensitive are you to recession or regulators? Oh, we already ran a sensitivity matrix. You want to see it? This is what we think. This is our worst case, base case, and best case scenario based off of that. This helps you do a lot of deep underwriting on your deals. Sorry, I'm pointing at this when I should be pointing at this, to how to do this. Is this making sense? So when I'm underwriting a fund, back to Ginger's question, how can I look at their worst base and best case scenarios and how sensitive are they to these risks? And do they actually have asymmetrical risk in this offering or is there no asymmetrical risk? Have they underwritten this thing wrong?

Right.

Do they actually, like me flipping a house has no asymmetrical risk at all, right? So what we'll do, usually put this in an Excel spreadsheet. It's much easier. You know, a business like this, probably guessing a little bit more. A real estate fund though, not as much. You can put— you can plug in rent rolls, operating costs. I mean, you can plug in and do a full— essentially it's your pro forma and you're running a pro forma for a worst base and best case scenario. When launching a business, you can still do the same thing or buying a business. Okay, what are my current operating costs, my risks there? How sensitive am I to these effects in the market that happen if you're running a crumble store? You know, you can do, you could run most of those pretty well through this. Any follow-ups to that? Does that make sense? Yeah, usually you're gonna spend some time building out a big Excel spreadsheet. I'm kind of doing it by hand here, but you really, and you're trying to put as many hard numbers as you can into this model to really try to find what it is. Team, we had a question on team. Who asked that one? In a fund, I see these 3 distinct roles in a team. So there are your expert investor, your fund, what I call, this is your person that's amazing at doing the certain deals. You have your fund manager, and And you have what I call the money raiser, a person that's very good at raising capital or meeting people. This could be 3 people. It could be 10 people, could be 2 people, but each one of these roles need to be solved. Now double-click on me. What, what specifically, maybe this, I'm going to ask the group your question, because a lot of people had partners in here. Maybe go a little bit deeper on us finding partners, finding team. Um, so the problem was one of, uh, part of our group. Um, he manages basically event and wedding, buildings, and he's having a hard time finding people that will run each facility because he has a kind of people he's given equity to, and they're just not getting the, the vision and the output that he would like. Um, and so just that part. Does everyone hear that okay? So managing multiple locations, is it your question? Whose question is it then? Somebody else in our— in your group had this question? Anyways, we won't call on them. We'll keep them private for now, but running different locations, different teams, hard time building those sub-managers, that second tier of management. Who else has done this in this room? Who else has built like a second tier management sub-teams? Yeah. Do you want to answer this question? So you have a leader of a Crumbl store.

So we have made our lives a lot harder by, we are across 4 different states for 12 locations. So we have multiple management teams. for 4 states, but it's a pretty small portfolio, right? And so now it's where we are being approached by funds that do want to invest in us, like Shadler was mentioning. And the thing that we're tripping over is, okay, how do we standardize this so that we can scale? And how, so if a deal comes across our table that we can actually give investors that opportunity. So I was actually just leaning over to him. I was like, how would you answer who's the fund manager, who's the money raiser, and who's the expert investor? And I think honestly, in a lot of ways, we're trying to answer this question right now. So it's an easier story for us to tell as we go fundraise for this.

So a couple of questions here on, let's start with, stick with this for, and we'll kind of hit both these, I think, for a second. So building a second tier of management, right? How do you incentivize? And anybody can go hire people. I've done the same thing. You can hire. How do you actually really get a quarterback that's incentivized, that's going to go crush it and not go start a competing business? 2, because in some businesses, like, well, screw you, I'm just gonna go start a competitor, right? How do you give them enough economics that they're gonna stay with you, but not too much where they're taking the whole business, right? And how do you properly incentivize? Anybody else want— anybody want to answer this question? Anybody got any ideas that have done this before? It's a hard question. That's why I'm like, I don't want to answer it. Just kidding. I know, but I know there's some experienced operators in here that have done this. I always look to incentives, right? Incentives drive behavior very directly. Incentives drive what people do. Oftentimes in my business, we have about 60 employees. When there's an employee like moving around doing stuff, I always look and I always go back like, what's the incentive? And I'm like, crap, it's my fault. I've given them an interesting incentive. They're incentivized in a certain way that probably encourages— maybe it's not that they probably should stay with what they're doing, but might give opportunity for this other behavior that I don't like.

Right.

And we've had some operators that crush it. We've seen a lot of success with— you guys have given up equity, you said? Well, what if they're not good? What if they just don't work 6 months from now? We found a lot of success in doing what we call rev shares. Anybody done these before? So a revenue sharing agreement, or phantom equity is what people call it. And then later on, it can convert to equity. But for example, let's say we're looking to do a new deal together, a new side business.

Great.

Let's do this. You know, we're taking a lot of risk on you as the operator. I want to see that you can prove it, prove yourself. So what we're going to do, we'll do a rev share. We'll give you, you know, whatever the number is. Let's do it 60/40. 60% is going to stay with the management company, like the parent company, and 40% is going to go to the new person in the form of rev share. So 40% of the revenue after fees, or let's call it net distributable income, will go to you as the person. It's just like equity. But if you quit, if you leave, if you don't show up to work, this can get taken away. Furthermore though, if you stay and do well, if you're here for 2 years, this will convert to full-out equity. Or if we sell the entity at any time, that converts to equity on a sale. So it acts just, if you're with us, it acts just like equity. If you sell, you get the upside, you get everything. But if you quit, it just goes back to the parent company. That's helped us a lot. We've, with Funnel Launch, we've done this with a number of our people that have been high-level people. We've had a few people quit or move on and their equity came right back. Their phantom share came right back to us. Very useful.

Yeah.

Yeah, that's an interesting question. Do they get the tax depreciation of the asset underneath it if they're not on it? Probably not. I don't know, actually. Anybody answer that question? Anybody know? Yeah. Just put it in the contract that they get part of that depreciation. Yeah. So that would be one way to do it. Thank you for the answer. I'll share one other example. I think my dad is here. My dad, I told some stories about, is here. Mr. John Pennington. Stand up, John. Clap it up for John, everybody. He made it. We can give John the mic here in a second. I think you shared this with me. Within a fund, everyone wants, especially with your capital raisers, this is a great thing to do with capital raisers. Everyone believes they can go raise you a ton of money. Like this person, oh dude, I could raise you $15 million, like no problem. Okay, great. Or I can raise you $100 million. So what we've done a few times in our firm, we've done something like this. We've said, hey, okay, great. We're trying to raise $50 million. We're going to give you 25% equity to this person right here. Okay? Contingent on them raising this $50 million. And we're going to set timestamps. And it's— this is going to work like a reverse vesting schedule. If you raise the $50 million, great, you get 25%. However, if you raise $25 million over the next year, your equity is going to work pro rata backwards. You're going to get cut in half. So you'll go to 12.5%. Does that make sense? If you raise $0, you know, zero, you just don't do anything, we can cut you all the way down to like 1%. Something like that. That'd be a reverse equity. And actually, that's been very useful in the capital raising space because it's like, hey, just earn your spot and you got 12 months and 18 months and 24 months. They're a partner. They're with you. They're a full functioning partner with you. Their main responsibility is to raise capital. They also have other responsibilities. They're on your team. They're going to help with all facets of your startup business. So they're a partner with you. Their main role is to raise capital. And if they don't raise capital, they get cut back over time.

Sorry.

Then we're talking about the owner's exemption. This allows someone if they're like, I'm allowed to pitch my fund and sell a security because I'm an owner of my fund in some states or some situations without a license because I have what's called the owner's exemption. However, if I hired you to go sell my fund for me and sell a security for me on my behalf, and I'm going to pay you a fee or a commission for doing so, you have to have a license to do that. Those are a few examples of stuff you could try back to incentivizing people in the right way. We've seen rev share has been very useful. Underwriting that, that person is hard. Like we said, the holy grail question. Yeah, Dad, go ahead.

So on the clawback on that, on the 25%, what we found years ago, and I taught this years ago, is if you give that person the 25% day one, they go home and tell their spouse, hey, guess what? I'm a 25% owner. I'm an equity owner. Right. And they walk and talk the first day as an equity owner. Most people would say, well, when you raise $1 million, we'll give you 0.5%. Then when you raise $2 million, we'll give you 2%. They would step into it. And that situation, which you put it like that, it doesn't— well, the person doesn't go home and tell the person, their wife or their spouse, hey, I'm a 1% owner. But they do when they're a 25% or a 5% owner. And so the next day they walk and talk and act like they are, which they are, 5% owner. So there's a claw back. They get clawed back. So what I'm trying to say is you want the person—

The psychology.

The psychology. The next day they're out like, I'm an owner, dude. You should invest in this, in this fund. And that's, that's the ownership thing. And the thing about it is they will never— these are salesmen. These are marketing dudes, ladies. They will never tell their spouse there's a clawback because in their mind it's irrelevant. They're— of course they're going to raise the $50 million. So why would I tell my wife there's a clawback? I am a 25% owner or whatever, whatever it is I am day one. And so that's why it's worked now. I have used the clawback now with friends who are getting married in a prenuptial agreement.

Okay.

It's the same type of, same type of thing. You know, where the woman doesn't want to leave her job. He's retired. This guy's retired. He wants to travel the world. He wants to marry the woman who's in her 50s. She's in a great C-level position. But if she, she's not ready to retire, but if she quits and goes and gets married and gets divorced in 2 years, she can't get her big C job back. So it's a big risk to her. So she won't sign a prenup. This is actual couple stories. And I told my partners, I said, listen, guys I knew, listen, do a clawback. Say if we get married, then, you know, if we get divorced the first year, I owe you $100,000. Second year, $200,000, $300,000, up to 10 years. And after 10 years, there's no, there's no prenuptial agreement. It's a clawback, right? Kind of a situational clawback. So you walk and talk. So Both of them got married, right? And one had a divorce 2 years in, and the other one has been married, you know, for a long period of time. But they were not going to get married because neither one of the wives are— and they were, they were older women, great career women— couldn't sign a prenup because the risk was too big. And some of the guys are raising capital for you. Most salesmen are hired guns. Most people treat salesmen as hired guns. I'm going to hire you. You're going to do some work and I'm going to let you go. I'm going to hire you. And they just kind of bop around to companies selling, right? If you find a great salesman, a great marketer, you want to keep that person. You want them in your fund 1, fund 2, fund 3. And but you don't know if they're good. Like you said, you give them the percentage, then you claw. If they don't do good, then you claw them back and then try the next one, claw them back again. Then they got to go. But if they did, they succeed, then you found a gem and you've changed the psychology of a salesperson To I am an owner now, not just some hired gun.

So that's the well done. Clap it for John Pennington, everybody. Well done. Well done. Hopefully that's somewhat useful on partners. Okay, we'll move through some of these as well. Well, actually, Dad, we got you here for a minute. This is a good question. I think that you can. I was gonna. I was gonna share your answer, but you can answer. This is the question around Joe asked this: small investors versus big investors. Do you want to explain your question again, Joe? And then struggling with. We've got a big fund right now that's coming in at $270 million and struggling with pitching the need of GP. So we got an investment into our GP, and that's a $10 million, um, ask that we're looking for. And when the big money's coming, and we just got $35 million on another fund, they're looking at us like, you don't need us. Why do you need us on this small stuff? But that's what we're needing to raise right now for our operational capital. The mix of And so you're raising $10 million for the GP to like be— to buy into the actual GP. Okay. So you're raising, if I drew it out like this, you've got, this is your GP, you're raising $10 million and then you've got a, your limited partnership, you've got about $250 million committed to this thing. $270 million. $270 million. Sorry, I keep saying $250 million. $270 million coming in from one check writer. Right. Um, furthermore, are you trying to raise small people here? On this, or is that going to capitalize the whole? It'll be a single investor fund. So you're now wondering on the ten million, this group, this ten million here, they're like. So you're pitching me right now, and I'm like, why do you need my ten million? You got two seventy coming in. So answering that question. Well, and answer the question: Why do you need the ten million actually? Because we need operational capital. We need to hire a couple engineers. You need ten million to do that though? Well, so part of our problem is we're needing to lock up locations. So we just locked down Ohio that cost us $3.5 million and we're building out an $8.2 billion power plant. So the expense is massive. But why are you doing that out of the GP? Why wouldn't you just do that out of the LP? Why wouldn't the LP be the one who buys the land? Why don't you raise $10 million in the LP and then that can get the LP going and get this started and then the $270 million can come in later and you could be partners in that fund. We like having the funds in-house. To be in the GP. So now they're partners with you in the GP. Okay. Interesting. What do these guys think? The $270,000. They'd rather have you guys do all the upfront work and they're like the last check-in that capitalizes it. Interesting.

Okay. Is the fund going to reimburse once this is up and running? This is spent and you buy some assets. Are you going to put that in the fund and have the fund reimburse you?

Yeah. Yeah.

But you get that yearly, 2% on a quarterly basis. You get half a percent every quarter.

Yeah, I wouldn't do that. I mean, it's good for you. I mean, They were fine with that. Okay, well, I guess you can take it, but most funds take 0.5% per quarter. There's been a few funds around here that have taken like 5% upfront. That's what most funds do. There's been a few funds around here that have done, hey, it's 2% management fee over 5 years. And so we're just going to call it 2 times 5 is 10. We're going to charge 10 upfront. I'm not going to say any names.

No names.

No names because we're streaming here. That's what they've done. And a lot of people signed up for that and they didn't realize what they were signing up for. They're like, it's a 2% management fee. I'm like, well, no, it's 10% day one. So you invest $100,000, you really only invested $90,000 day one. Oh shoot, you're in the hole. So anyways, most funds are 0.5% standard. It just helps help you grow. If I was to read, now you've obviously thought through this a lot, bringing people into the GP seems interesting. What are your thoughts on that? I would almost bring them into the LP or set up a parallel LP, like another LP here, because you want them to be limited partners. It's way better if they're limited partners when you're raising capital from them. They have an LPA, PPM. It's better for them too, I think. Because at $10 million, you're going to have— how many people are going to come in on that? So you have a possibility of taking 100 investors here. It's a lot of people in your GP. I would do it in your LP. I would set up even a parallel LP. And this could be phase 1. You raise $10 million here and this gets the land ready and does all the permits and stuff.

A lot of times GPs start their funds, they go out and buy assets, and then when the fund actually launches their first closing, the GP will take their assets they purchased Put the— into the fund. Okay. And take a piece of the, of the LP position. And now the fund, the funds own the assets, not just the GP. The key here is if you don't do that, the GP isn't correctly aligned with all the LPs. And so you have to correctly align the GP's interests with the LPs. So there's no— so there's less conflict of interest.

Right.

So let's say the GP held onto like, let's say, let's say a big, huge copper mine and the GP took the middle square of the copper mine where the mill is and then let the LPs own all the land around it. Right. And then the copper mine goes bankrupt.

Right.

Well, the GPs are going to keep that and they're going to try to sell the middle piece because there's a conflict of interest. Right. But if you can, you can't eliminate conflict of interest. You can just diminish it as much as possible. And that's what I think Bridger's saying here. And that's what I'm saying too.

The original question I thought you were asking, and you've shared this before, when you've brought in big investors as well, you've had to have the little investors still, even when you've, you guys have raised like a billion-dollar fund, you have to bring in little investors and explain why.

So you're going to raise a billion-dollar fund. So you're offering, you're offering, here's a billion dollars. And, uh, we do, we do a parallel structure. One's a 3 and one's a 3. And so what happens is institutions, they take 5 to 7 months to, Do due diligence, but you need to you need to go now. You can't wait five seven months, right? And you got five or seven big institutions, and they don't fly out to see you unless they can give you thirty million dollars. And when they give you thirty million dollars, they don't want to be more than thirty percent of your fund. So you got to have a closing of a hundred million dollars just to have that one come in. Okay, so that's number one. And number two is we've always you know we always kept all the small investors. And so what happens is in the first 3 to 4 months, all the small investors come up, come in, and we get to $75 million. And then in month 5, all the institutions start calling back, hey, how's it going? How's it going? And we say, yeah, we were already $75, $80 million. And they're going, oh crap, we need to hurry up and get in because you're going to be oversubscribed. So if you raise a billion, you know, $85 million is high net worth individuals, but they're the catalyst. You understand what catalyst is?

Yeah.

Right? A catalyst isn't the engine. A catalyst gets the engine going, and then the engine takes off and does all the hard work. But the engine can't move without the catalyst. The catalyst seems to me is all your little investors come, and we tell them, listen, if you wait to the fourth closing six months from now, you're not getting in because when we have a dude that's going to give us a thirty million, eighty million, hundred seventy million dollars, we're going to oversubscribe. You're not getting in. So you better get your you high net worth. You better get in the first three or four months because if you wait to month four and that gets them going, yeah, I gotta get. I gotta get. And they get there. You get seventy five, eighty million. And then, aha, all these guys come in and then you hit a billion. That's how we've used it as a catalyst. And right in between there are family offices. You have the high net worth, you have family offices, you have institutions. Institutions take a long time to do due diligence, a long time. But once they do, that's great. If they call you back in 5 months and you've raised zero, they go, well, we're still looking at it. I'm going to give a few more weeks. We'll call you. But they call back and you have $85 million. They're going to hurry up and in one more month, they're going to start writing you checks.

It always— yeah.

First check's the hardest check. It always is. No one wants to be the first check. Everyone wants to be the last check in.

Right?

Yeah.

Well put.

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