5 Ways To Close More Deals This Year Feat. Richard Wilson

Talk about navigating the three trust curves in our investor club a lot. And the trust curves are trusting the team, trusting the industry, and then trusting the actual deal. Which means that's why everyone raises capital from friends and family. First, they already trust you, the leader or the team. Then you go to people who are in your industry and you don't have to teach them what a medical office building is. You don't have to teach them what stem cells are. You don't have to teach a dentist why this dental clinic is a good investment. They're going to know more than you do potentially about why it is. Because they've already sold their dental clinic chain to a dso, so they're going to be able to add strategic value and take less of your time. And if you're not local to a deal, you better be pretty high on those other three trust curves or just wasting everybody's time. If you're going out there as an investor and you're looking at deals where you don't know the person, you don't know the industry, and you're not local to the deal, you're going to lose your money or you're just throwing a dart. And if you're raising capital, don't waste anyone's time going to them. If you don't have some sort of elevation on one of those three trust.

Curves, how many of you have raised capital or believe at some point you will need to raise capital, find an investor for a new idea, or may sell your business? Most likely everyone here will need to do one, if not all of these things at some point as you grow. Dan Sullivan is famous for saying there are two types of knowledge, specialized and worthless. Today we're going to be spending 10 minutes gaining specialized knowledge on five ways to close more deals in 2021. From someone who closed on over $260 million worth of investment commitments in 2020 and has already closed on millions more in 2021. Richard C. Wilson started his business in 2007 and over the past 14 years he has hosted 150 Live, recorded 2,300 videos, written 14 books, and met with more than 3,000 investors in person. So between the investors he directly advises the company he owns or is on the board of. He has helped close over $1 billion of deals during that time. Richard is the CEO of the Family Office Club with over 1,000 members paying a subscription membership to be part of the network to raise capital something and over 2,750 registered investors. He also operates the fast growing www.investorclub.com portal for investors, which he expects to be the future of where most of his energy is spent. In Richard's 10 minute talk today, he's going to share five ways to close more deals in 2021, pointing out what is most critical when working with private investors worth anywhere from 2 to $200 million in net worth. This information could change the valuation you get for your business or make the difference of getting the next capital raise or sale of an asset done or not. So please help me welcome Richard C. Wilson for his 10 minute talk.

Thank you Tim. Thank you Mike. Appreciate being here today and doing this 10 minute talk. And I was speaking to Joel yesterday on how to make this relevant to everybody. And it doesn't matter if you are not planning to sell your business or not planning to raise any capital for your business or real estate this year. These strategies can be helpful to you if you're an investor looking to get investments done this year or through genius network ideas that you're going to be making enough money to start making investments next year. So and I try to make this super practical, practical for everybody here and relatable. And one thing I want to point out before I get started is that the final idea is the most valuable one. So I'm going to kind of rush through the first four, but obviously I'm happy to take any questions at the end. First of all, I have found that right now with Biden coming into administration that tax efficiency is on top of a lot of investors minds. And if you're looking to raise capital or you're a high earner yourself, it's become more important recently because of upcoming tax changes that have been promised by the administration. So just know that every deal that you invest in or you prepare to invest in or that you offer someone else to invest in can be made more tax efficient. A year ago, even after running our Investor Club for 13 years, I didn't know a lot about these strategies. So I started in Q4 last year doing a 100 tax expert interview series and we've done 40 of those interviews now and I've already seen a massive ROI on building relationships more quickly with investors, on my tax efficiency and how we structure deals that we're trying to get done. The most recent example of this was a dental clinic I invested in last month. We were able to protect the same amount of income that put into the deal. So I put in $200,000. $200,000 of my income is protected from taxation on that income. So what that means is that you essentially only invested 130,000 or 110,000, because otherwise that money would have gone to the IRS. So you don't need as big of a return to get two times your money back on the investment. So for those of you that like cash flowing investments, conservative collateral investments that have assets behind them, securing your investment, this is a way to take a boring investment and make it a lot better. The number two strategy is that when dealing with operating businesses, gross revenue royalty deals are king. We've closed on seven gross revenue royalty deals. We're looking to structure another four to five this year. And if you don't know what that means, it essentially means that instead of holding equity in a company or while holding equity, you get paid off the top line, not the bottom line. If you're an investor, that gets paid through a gross revenue royalty. So that means every $100 of revenue that's made, you get $2. If you have a 2% gross revenue royalty, this is great, because whether the business makes money or not, you're getting paid. You can usually get these paid out monthly or quarterly at the slowest. And the great thing about it is that many CEOs love their business and they think they're worth $8 million in their valuation. But investors look at it and they say, well, you only did a million in revenue. I think you're worth about 1.5 million, three times profits. And so to get past this, you could say, okay, well, let's agree on something in the middle. A $5 million valuation set up a gross revenue royalty at 2%. And then once I get all my money off the table, my equity goes down from X to Y, or after I get double my money back from the royalty, my equity goes away. If you've seen Shark Tank a lot, you know, Mr. Wonderful is famous for setting up these types of deals, and we found these to be very successful in getting deals done. And probably 60 to 80% of any of the deals that we're involved with these days are set up as a gross revenue royalty on the operating business side of things.

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Number three, consider using equity warrants instead of Equity. So when you invest in a company, you may or may not be getting that royalty. Obviously I encourage you to do so. And then you could get an equity warrant. And in this way you're getting a piece of the company that could be activated within a certain period of time or activated when the business is sold. And if you can combine tax efficiency with that and a royalty, it can be beneficial because again, it can get past an argument on valuation and then the CEO isn't paying out dividends. You're just waiting until that equity warrant is activated. Also, if you have an advisory board or board members, you need to compensate. Typically, giving people an equity warrant is not a security that holds current value until they activate the warrant. So I would not take tax advice over any event or zoom call you're ever on unless you figure out your exact situation. But most of the time you could do that as a way to reward somebody for helping you get to the finish line or having it be somewhat performance based. And the warrant is triggered by meeting some sort of goal and then they get equity in the company or equity at the exit. The fourth strategy is making sure that if you are an investor and you're going to take a little bit more risk than a very conservative cash flowing real estate deal or something of that nature, that you really focus as an investor on what you know best, what is, as Dan Sullivan would say, what is your unique ability? What industry do you create your wealth in? Where do you have an unfair advantage and where could you step in to be chairman, CEO, or at least have the brain to know who you need to hire to run that company if things go sideways. Most investors get burned the hardest when they take something more than a very conservative cash flow and investment risk, or even when they do that sometimes and it's not in their industry and it can't add strategic value. Look at the flip side of that coin. If you're raising capital and you're not the investor, you should only be going after investors who know your industry. One, they're going to respect your intelligence and hard work. People who don't know your industry are not going to realize why your medical office building is a great investment if they're not familiar with that space. It's they're not working in healthcare or a doctor, or it's gonna take them longer to understand that. So we talk about navigating the three trust curves in our investor club a lot. And the trust curves are trusting the team, trusting the industry, and then trusting the actual deal. Which means that's why everyone raises capital from friends and family. First, they already trust you, the leader or the team. Then you go to people who are in your industry and you don't have to teach them what a medical office building is, you don't have to teach them what stem cells are, you don't have to teach a dentist why this dental clinic is a good investment. They're going to know more than you do potentially about why it is, because they've already sold their dental clinic chain to a dso, so they're going to be able to add strategic value and take less of your time. And if you're not local to a deal, you better be pretty high on those other three trust curves or just wasting everybody's time. If you're going out there as an investor and you're looking at deals where you don't know the person, you don't know the industry, and you're not local to the deal, you're going to lose your money or you're just throwing a dart. And if you're raising capital, don't waste anyone's time going to them if you don't have some sort of elevation on one of those three trust curves. The final strategy that I think is most important that's been most exciting that we've developed over the last few years has been emphasizing how to approach a deal where you save investor taxes, you save the CEO of a company equity, and as much as you can turn it into an income investment. And when you have that trifecta going in a deal, it makes everybody lean forward because even sophisticated investors see thousands of deals, only maybe 50 out of literally 1000 are going to be highly tax efficient. And if you can make it so that a company owner is not being diluted, they're much more likely to say yes. So I'm flying to two different cities this month with a manufacturing company, a chain of medical care facilities, and it might take us 11 months, it might take us three months to structure the deal. But we're using this exact same idea. It's the same idea we use in closing the dental clinic deal where somebody was going to give away 10, 15, 20, 35% of a retail location or 35% of their whole business to do a one time raise of a million dollars. But if they already have revenue and they're already doing several million a year, there's a way to structure it so that you give the investor no equity. The CEO of the company doesn't get diluted at all and that gets them to lean forward and listen, you go and you structure it because of bonus depreciation or NOLs or things we don't have time to go into. But there's different ways. If you're buying equipment or if you're in an R and D business or manufacturing or anything with medical equipment or real estate that you own or you do tenant improvements on which are improvements on pieces of real estate. Those are all chances to make a deal very tax efficient. So getting the investor to lean forward by making it very tax efficient, the most tax efficient investment they've seen all year, telling the CEO, hey, don't give away 25% of your company, you might regret that in 10 years when you go to sell it and then structuring it as an income investment, as a gross revenue royalty or venture debt or some sort of debt with collateral behind it. If you can do that, then in my experience, you're going to close more deals more quickly. And it's a way to approach $30,100,000,000 plus net worth families and get them to respond to your otherwise cold LinkedIn message or email because nobody else is offering to save them 20% equity on every location they open or on their business. So I think that's just a little bit under 10 minutes. But that's what I wanted to convey today, which I know is a lot of information said pretty quickly, but thanks for your attention and happy to answer any questions you have.

Great job, Richard. We've got a lot of good love and chat and a lot of people were talking about just how clear you were speaking. So this is complex stuff and just being able to break this down and tell it the way you told is fabulous. So let's bring in any comments, questions. We got Jim do, he's gonna come up here and share some big ideas. Come up here, Dr. Jim Do.

I lost the jacket, so you can be in the jacket club. Great job, Richard. Amazing stuff. And just to piggyback on that is when you're doing any of these deals, there's so much opportunity if you have the right team in place. So just what Richard said about using warrants, or you can use synthetic equity and if you have a financial expert who knows how to value those, can value those way before the triggering event and they may not be worth much at all. So we've helped clients do this, of course, with the help of tax attorneys. Putting that into a Roth IRA that then could be 5 million, 10 million, $20 million in the future can be a huge way to even more maximize that idea of using Warrants or synthetic equity. The other idea that I had that along the lines of what Richard said is when you're doing real estate investments, a lot of people are investing in syndicated real estate funds and they're not all created equal from the fees and the opportunities, but also from the tax planning. So there's a couple funds that I know of that have done very extensive planning so that they can qualify for something that's called 199 cap A, which is the qualified business deduction, 20% for pass through entities. And just by doing all the things they needed to do to qualify for that puts them head and shoulders above other syndicated funds, just from the tax perspective. So what Richard said is amazing, really good stuff. And think about having a team together so that you can take those ideas and maximize your after tax returns.

I got a quick question for you. Is synthetic equity the same as phantom stock?

Well, I don't want to go too.

Far off on a tangent.

Yeah. So we're talking about derivatives, financial instruments that are derivatives. So owning a warrant or synthetic equity is you're not really owning the equity, you're owning a derivative or a instrument that allows you to turn that into equity in the future. So phantom stock is more about having something that replicates the stock performance without giving equity. So they're a little bit different, but same kind of idea is these kind of derivatives can be really smart. They can also be really dangerous if you don't understand them.

All right, good.

So anyone else questions or do you have any comments with what Jim do just talked about? Dr. Jim Do, Richard, I saw a.

Question from Aaron here in Jocelyn about how do you keep a dilute founder from being diluted if you're using an equity warrant? Well, it would keep them from having to pay out dividends until the sale or could be triggered by performance. Like Elon Musk is hitting benchmarks and he's unlocking stock shares. But all of these tools I mentioned can be used for the benefit of the investor or the CEO or it could be made very fair. So you could use these tools as a CEO to raise capital and give away no Equity and own 100% of your company until your point of sale. Or as an investor to get a deal done, you could convince the CEO to give you equity warrants in lieu of equity and then they might agree to the total picture because otherwise they might not like having to pay out a big royalty plus give you full equity, et cetera. So these are all tools that you can use and you can make it Much more beneficial for one side or the other. But the goal here is make it very beneficial for both. So the deal just gets done and you don't waste time not getting the deal done. After meeting with people. And Genevieve, which I'm sure I just said that name wrong because I heard the more sophisticated person say it earlier. Had a question about what are your favorite industries to invest in? And probably 25% of our activity is in health. Healthcare, medical practices, medical SPAs, dental clinics, MRI centers, urgent care centers, things of that nature. Also, manufacturing is a favorite area because there's lots of equipment, there's real estate involved. And the new tax credits that Biden is most likely going to roll out, which I think he's calling it Made in America tax credits, are going to focus on manufacturing companies and minority owned manufacturing companies. And my unique ability that I came up with through strategic coach was crafting a unique position that systematically attracts pre qualified clients. And so my unique ability is really marketing and positioning. I just happened to use that in the family office industry for a long time. And so I look for companies where I can add my unique ability. Plus they need some capital or they need to structure a deal to be more efficient. So for me, it's going to be different than where someone else should focus. But my hint would be where you've created your wealth or where your unique ability is. Yeah, that's great.

Thank you.

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