Bridger Pennington shares the "100-to-1 rule" from a $2.5 billion fund manager: evaluate roughly 100 deals before picking one. Investors typically start with a $100k-$250k trial check, then commit 10 times more on the second investment, then 5-10 times that when fully confident.
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So actually last week I had a very cool opportunity to sit down with an incredible man. We had lunch together for about almost 2 and a half hours. We sat down and talked. This guy manages a multi-billion dollar fund and we sat down and I was able to ask him any question I wanted to about setting up a fund, starting it, structuring it, how to build it, how to find investors. It was an incredible interview. I loved every second of it and it's helped me a lot with my current fund I run right now. and the new fund we're actually launching right now, which is pretty exciting. I'll keep you guys posted on this new fund we're doing. I can't spill the beans yet. My partners would be really mad at me if I spilled out what we're doing, but it's gonna be pretty exciting. So, but we talked, and this is what I've heard from other fund managers that manage massive portfolios and huge funds. They always talk about this 100-to-1 rule. This works for hedge funds, venture capital, real estate funds. The 100-to-1 rule is this, and he goes, and this, I was sitting at lunch and I asked him. About— we were looking at doing real estate. So different properties we're looking at and all this stuff. He goes, the one thing you need to understand especially in your first couple deals or first fund is you need to follow the 100-to-1 rule to a T. And I was like, what do you mean? He goes, you need to look at 100 properties before you put and buy one, okay? That's how meticulous you need to be and how much you're cherry-picking what you're doing. And I think that's true for every type of fund. Venture capital, you need to look at 100 different companies before you invest in one. Same thing's true with private equity and hedge funds. 100 different trades you could do and you pick one, okay? That's how meticulous you need to be, especially at the beginning of your fund. A lot of us are just starting our first fund. It's your first kind of go at it. You've only got 1 or 2 shots at making it work. Okay, if you raise all this money from these investors, they trust you and they're doing all this great, you know what, I'm going to trust Bridger, I'll put some money in, and you kind of do an okay deal on the first one, and maybe you lost a little bit of money here, and you do the next deal, it's okay, they're not going to pony up again and give you money in the future. You've got to hit a slam dunk on your first couple deals, because what happens is for most investors, they start, even guys that can write huge checks, I mean massive, multi-billionaire, they will give you usually a trial investment on your first fund. They'll give you some, I don't know, let's call it $100 grand, okay? Yeah, I'll give you $100 grand, maybe it's $250, okay? These are high net worth, maybe even family offices will do this, right? Yeah, you know what? We'll do $250, $500 grand. You're a new fund manager, let's just give it a shot. If you do good with that little bit, right? If you're good, back to a, you know, parable or Bible story. If you're a good servant with that money, you will get more. So typically the second investment will almost be, and I was talking to this fund manager, he said this, it'll be typically 10 times the amount of what they put in on the first investment. So if they put $100 grand in, next investment will most likely be $1 million, and next, or $2.5 million on number 2 investment, okay? So maybe your first fund or first closing, whatever it is for your fund, they'll give you a small trial run, usually second investment is 10 times, and then The third investment is usually 5 to 10 times that, okay? So third investment, and that's when they really pull out their big, the pocketbook. That's when they pull out their checkbook and say, you know what, we're gonna give you, you know, a $10 million check here. We're gonna give you a $12, $15, $20, $30 million check. Usually by the third investment is when investors really will pull out their checkbook and really be confident. So back to the beginning, Make sure that first investment is good. And that's why we talk about find, on the Fund Launch Formula, find that incredible deal. Step 1 of the Fund Launch Formula is find that incredible deal. When we're talking about the 100 to 1 rule, that's what we mean. You've looked at 100 deals, 99 of them were good, maybe 30 of them were terrible, 30 were great, and 30 were, man, these were really good deals, but you're gonna just take the one best that you know you and your team can deliver on. And at a minimum, you know, a very small investor, we're going to get you a minimum of 14% return, right? That's your— I'm going to die before you get less than a 14% return, but our goal is going to get whatever your fund is going to— it's 22% or a 25% or a 16% return, whatever it is, and that you do that by the 101 rule. I've met with multiple high net worth individuals, they always talk about the same thing, is pick out the 1 out of 100, and you need to look at legit 100. Don't kind of do 100. Don't say, well, we've looked at 25 and this is probably the best one we're going to get. Look legit. Legit walk 100 properties. Look at 100 trades. Have 100 investor pitches before you pick the one. When you do that, what happens is you learn. First, you learn a lot and you know that one deal when it comes. And then after you've done this 100 to 1, you can probably do 50 to 1 or 25 to 1, right? And you can start, you have this, you'll eventually build this entire system inside your fund. We have this in my fund right now. We get this big funnel, all these deals come in, and we quickly just throw 'em out. Bam and bam, here's a good one. Bam, we're gonna do that deal. We throw some more out and bam, that's a good deal because we've put our system so much in place. So this gentleman runs a $2.5 billion fund, right? And he says, we do the same thing. We've just gotten really good at it. Our systems are so good. We look at every deal we possibly can and we kick out 99 and we keep 1. And we put an offer on that 1 and sometimes we even lose that 1, right? We look at another 100 and we pull it out. As you grow and develop and build your fund, you'll get way better at doing this 100-to-1 rule. But I've heard this from multiple fund managers, from multiple high net worth individuals. They all do the same thing. They are looking to cherry-pick deals and you should be that meticulous about the deals or trades or debt that you do inside of your fund. A little bit shorter episode today. Hope you guys enjoy it. Let me know if you have questions, comments, whatever it is on this video. Thank you guys, see you in the next one, bye. Bye.
