Episode #630 - The Mindset For Success with Victor Menasce, Senior Partner at Y Street Capital

Welcome to this edition of the million Dollar Mastermind podcast. This is where we pick the brains of high achievers from all walks of life and get their hard earned real world insights on winning. I'm your host, Larry Wydell. A lot of it has to do.

With the Bible says, out of the abundance of the heart, you know, the mouth speaketh. But if you haven't prepared, if you don't have that preparation, that knowledge, that study, that research, when you open your mouth, you're in, in that setting, the, the veterans, the pros can tell just that quick in an instant if they're going to take you serious or not. And that's the way, that's the way you and I operate too. That's why, that's why I drive my staff, my support team nuts to get people like yourself in front of the camera because there's, you can't. I can't get blood out of a stone. You know what I'm saying? And when, you know, one or two times I've had people sneak on that with the fake credentials and by the time the. Well, usually that never lasts more than a half hour because I'm so exhausted trying to come up with a question that would elicit some, some kind of answer that doesn't sound, you know, reveal. Not sound, but reveal how ignorant these people are. They're just mouthing words and cliches they've heard. You know, it's, it's funny to me, but you know, when, when people like yourself will say something that other people say, when they say it, it's like a cliche. But when you say it, because you've lived it, you know, you've used, you know, that concept from, you know, for 40 years for success or 30 years, when you say it, it's like a foundational concept. You know, when they say it, it's a cliche.

Yeah, it's, it's really owning it. And, and is it part of you or is it just some. Is it a suit that you're wearing for the day? And it's, it's vastly different.

And do you have, you wrote a book? And the book is called Magnetic Capital and it's really intriguing title. How to raise money. The money you need for any worthy enterprise. And so hang on just a second.

Yeah, you had it almost right. It's how to raise all the money for any worthy venture. Yeah.

So obviously you've got principles, guidelines, things like that that you've used. And you know, I'm jumping ahead on the story, but what Are some of those things that, you know, principles that you, because if you're like me, you feel like, you know, kind of realize at some point you're sitting on a lot of information that a lot of other people could benefit from, and if you could package it up in an interesting way, you'll save a lot of, save a lot of people a lot of time and we can have, you know, more things get done out there in the world, you know, but. Go ahead.

Yeah. So the genesis of the book, I raised learned to raise capital in the tech industry. I've done five M&A deals, did one IPO, you know, a couple of startups. And so I learned to raise money. And one of the hardest things to do in the world is to go out to investors and ask them for, I don't know, 2 million, $5 million for an idea that maybe someday might make you some money. Whereas in the world of real estate or in the world of business, where there's a track record, there's proof of revenue, all those sorts of things, it's a whole lot easier. So what happened was I learned to raise money in the tech industry, and then when I moved into the world of real estate investing, I relearned the process all over again from scratch. And when I did, I looked back at it retrospectively and said, wait a minute, this is exactly the same. If all of these principles are in play, raising the money is relatively easy. And if one or more of these principles are missing, then raising money gets hard really fast. And so that really was the, that realization was the genesis of the book. So if it works in tech and it works in real estate, and it works raising money for a charity, what are these principles? And. Right. And if you like, I can go through them quickly or.

Sure, yeah, let's, let's, let's roll.

So number one, you've got to have relationship. So, you know, would most people part with hundreds of thousands or millions of their hard earned life savings with someone they had no relationship with? No, most people will not. Right. So it's focusing on the genuine aspect of relationship. I'm sure you've encountered people who, who are out there using people, they're out there networking, which to me has a very utilitarian feel to it. Guess what? People don't want to be used.

Right.

And especially people with money are sensitized to that because their guard is up. They know that someone might be wanting to gain a relationship with them simply for the fact that they have money and they don't want to be used any more than you and I do. So, you know, what is the basis of that relationship? And you can get different things from different relationships. You might get advice or access to opportunity or introductions or credibility or a friendship or maybe capital. But all these different things from a relationship. And if you're walking around just looking to see who has dollar signs on their forehead, you're using people. And so don't do that. So relationship was the first. Principle number two, how do you go about with.

How would you say, where do people go wrong with relationship versus using people? Where do they get off track on that?

You think there's many different ways, but it starts with, I mean, I'll put this in the context of a romantic relationship, and certainly the women will get it, but most probably the guys will get it too. That relationship follows a natural progression. Right. And if you skip steps in that natural progression, you go from a natural relationship development to creepy in a heartbeat.

Yeah, I've never, I've never heard anybody say that better. Congratulations. That is very well said.

Right, and so just don't go to creepy. And yet how often does someone approach you and friend you on LinkedIn and two seconds later they're soliciting you? Yeah, that's creepy.

Yeah.

Right? Yeah, just don't go to creepy.

Yeah, just don't go to creepy. You meet the girl, you know, see if she wants to go get some coffee. She says yes. And then, you know, the next thing is, you want to get married. You know, it's like, wait a minute, can we have the coffee first? You know, you know, it's, it's just way well said on that. And so keep going. So after relationship.

So number two is trust. And this is more than just, are you dealing with an honest person? It's a psychological contract with a lot of layers to it. So it's things like, can I trust you to put together a good plan? Can I trust you to attract the right talent? Can I trust you to execute the plan? Can I trust you to communicate in an open and transparent way? Can I trust you with my money? Can I trust you with small commitments? And on and on and on. Any one of those is, is missing, and it starts to chip away at the trust.

Right. And how do you build trust with people you don't know yet?

You know, through relationship and understanding. If you've, if you've got alignment of values and, and you have those conversations, you build credibility with people. It's, it's not. Doesn't happen in a heartbeat.

Can I Put, I'll put this on the table. I've noticed in relationship to this, in dealing with million dollar earners, if I have a group of 100 people, one or two of them are a million dollar earners and I ask them, I call, leave a message, call me back or ask them to do something, you know who does it? The million dollar earners. You know, if they say they're going to do something, they do it. They remember the appointment. If they're late for an appointment, they call you. If something comes up and they can't make it, they don't like wait till you chase them down later and then you say, oh, something came up. No, they're proactive in and because to me that's a sign that the high achievers value the relationships and value that credibility. They don't want to tear it over something simple like that. But I don't know if you noticed that, but the most reliable people to me are the highest achieving people.

I would agree with that. I would agree with that. And so, so many of the folks that I interact with are that way. They're just decent people on every level.

And, and it's kind of, that kind of goes against the conventional thinking that a lot of people have that people who are on top, super successful, arrogant, pigheaded, selfish, cut corners this, that, the other. But then when you break into that circle yourself, you find some of the nicest, most reliable, friendly people in the world, which is directly the opposite of what the world would, would assume a lot of the time.

Yeah. And look, I think, I think there's a natural part of human nature that in the absence of information they fill the void with something random.

Yeah.

And, and just because they don't know. Right.

Yeah, well said. And so let's go on now to the next one.

So number three is results. What's your track record? Right. So show me that you know how to make money. Show me that you know how to make it right. If you get in a tough spot, all of those sorts of things and you know, you might have someone listening in the, in the audience saying, well wait a minute, how am I going to raise any money if I don't have a track record? How can I get a track record if I can't raise any money? I'm stuck. And while that might be true, but maybe you're thinking about it in a very limiting way, what I've always done is align myself with folks that have that track record so I can in fact borrow from their credibility.

There you go.

Right.

And you do that by building the right kind of relationships.

Absolutely. One of our partners so far has built 10,000 units in his career. He's a master builder. I haven't built that many. I'm not ashamed of my track record, but when the question of track record comes up, I push him to the front because he's got, he's got the most to offer.

Right.

And it's perfectly legitimate. This is a team sport.

Yeah. And most successful businesses, you know, if you're going to do big things, you, it's, it's a whole lot easier if you got a team and, you know, and it matters who's on the team. And of course, the, the better you do, the easier it is to get quality people to want to be in business with you. And all of that makes your life a whole lot more smooth, let's just say, like, like that, you know. And so how many. Where are we now in our progression?

So that's number three. Number four is a compelling opportunity. This is where most people start. They think it's all about the deal. I've got a deal, you want a deal, and it's never about the deal. I mean, yes, you have to have an opportunity, but what does that mean? It's a little bit in the eye of the beholder. So for example, for one person, that definition of beauty, what is that? You know, is that image on the magazine cover beautiful? Well, for them it might be, say, a medical office building at an 8% cap rate at 80% occupancy. That might be their definition of beauty. For someone else, it might be a storage facility with great value add opportunity. For someone else, it might be a land development deal where you're. You have the opportunity to get a multiplier on the land value by re entitling it. It's all in the eye of the beholder. I've had some investors that say, I'm sorry, I don't do land. Okay, cool. And that's perfectly fine, you know, and so it's really understanding what that is. And so for us, it's making sure that we can communicate it in a fairly simple manner so that it's easy to understand, because a confused mind will not buy. Number one.

Right, there you go.

And number two, it's got to be resilient. It's got to be able to not just rely on a rising tide to lift all boats. There's so many examples of folks that have said, you know, drawn every graph upwards and to the right, and guess what? Life isn't always like that. So are you relying on the market, delivering appreciation, or are you in fact doing something that's going to create sufficient value that the project will stand on its own, almost irrespective of what happens in the market? Now, none of us are immune fully to what's happening in the market. We've had to put a number of projects on hold because of the increase in interest rates, and that's painful to do. But still you architect things so that you've got sufficient margin that you're going to be safe.

Right?

Right. So that's number four. Number five, you've got to have alignment. And what I mean by that is you've got to have a match between the goals for the project and the goals for the money, because money has an agenda associated with it. And if those don't match, don't take the money, it's not going to work. So what does that really mean? It means what is the size of the investment? If someone has a $5 million investment minimum and you're looking for 200 grand, it's not going to work because it's not worth the paperwork for them to make that investment. Doesn't matter how good a deal it is. What's the term of the investment? Is it tying up the money for six months or 10 years? Those are different. Right. What is the risk? What's the security? What is the control structure? What's the tax consequence? It's about a dozen of these. And the more sophisticated investors are more clear on their specific investing thesis and their investing criteria. And it's very seductive. Sometimes unsophisticated investors will often say, I want to make money. Okay, here you go. And that's. And it's simple. I don't like to work with unsophisticated investors because they are not clear.

Yeah.

But a sophisticated investor who knows what their investment thesis is, they'll tell you very precisely what they look for.

And the thing is about the. This specificity allows you to be clear and not have the understandings and not have the problems that come into so many of these things. And I can remember various times being approached by versions of hedge funds and people that have been my friends over the years, and they've gotten involved in these things. And so much of it was like, well, just trust us. We've got all of these famous people involved. You know, I just sound like a Bernie Madoff thing, you know, but all these big. Used to be really, you know, used to be head of the sec. Yeah. So was Bernie. And you know, all of these, you know, they're, and they're in it and you know, why would you question it? You know, it's like, well, what's any question you have? Well, like, well, you can come to them, you know, by coming in. You can come to the meetings. You know, they're going to have the quarterly meetings and forget the meetings. You know, it's like you can never get a clear answer going in. But it seems like you do find a whole lot more receptive buyer when you can give them the exact answer.

There's no, from our standpoint, there's no illegitimate question, there's no bad questions. We are accustomed to dealing with high net worth families. We strive to deliver institutional quality. We're not institutional size yet.

Right.

We understand the expectations of an institutional quality investor, so we strive to deliver that. And so there's no such thing as a bad question. Now if there's an investor that asks you 60 questions and then another 30 questions and in so doing communicates a level of nervousness about making any investment, we're likely to say, you know what, this might not be for you. Yeah, right. But that's really about understanding the fit. I mean, the way I think about it is it's literally like a pair of shoes. Because you can have the most beautiful pair of shoes. You're walking in the mall and guess what, it's your lucky day. They're on sale. Yeah, but if they don't fit, you're not a buyer. It doesn't matter how beautiful they are or how deeply discounted they are. And yet when we talk about shoes, people get it and you talk about money and people get all weird about it. It doesn't make any sense.

Well, the thing, the process of raising money, like you have these, this list of things, you put it in the book. How much of that did you know that you said you raised in the tech startup thing, you raised money five times. Okay. When you went out there the first time to raise money, how many of these did you know?

Very few. It was really learning through the process of trial and error, making mistakes. I mean, when we went to acquire IBM's embedded microprocessor division, which was a multi hundred million purchase, the first thing I did is I actually went out to a bunch of venture capital firms who in retrospect, didn't have the ability to actually fund the deal. Now, as it turns out, that accidentally turned out to be a smart move because I got feedback from folks who could never fund the deal. So I actually never burned any bridges, but I actually got the learning process from from having made mistakes in front of that audience.

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