How To Start A Private Equity Fund From Scratch
Summary
TLDRThis episode offers a comprehensive guide to launching a private equity fund. It covers the essentials, including structuring entities, attracting investors, and making pitches. The host shares insights from his experience running funds and learning from mentors. The script also introduces the 'Fund Launch Formula', a strategy to successfully start a fund by finding a great deal, framing it, pitching to investors, and setting up legal documents. The importance of collaboration within a fund's ecosystem of money raisers, fund managers, and expert investors is highlighted.
Takeaways
- 🚀 **Starting a Private Equity Fund**: The episode focuses on starting a private equity fund, discussing structuring entities, finding investors, pitching, building a track record, and teams.
- 💼 **Private Equity Defined**: Private equity deals with privately held companies, typically investing in mature companies or distressed businesses with potential for turnaround.
- 💹 **Private Equity vs Other Funds**: It differentiates private equity from hedge funds, venture capital, debt funds, and real estate funds, each playing a role in different stages of company growth.
- 📈 **Fund Structure**: The fund structure typically includes a general partner (GP) who manages the fund and limited partners (LPs) who invest capital, governed by an LPA and PPM.
- 💰 **Fund Manager Compensation**: Fund managers typically earn money through a '2 and 20' model, receiving 2% management fees and 20% of profits after returning investor capital plus a preferred rate of return.
- 📊 **Incentive Alignment**: The fund structure aligns incentives, with fund managers earning more as returns exceed certain thresholds, encouraging higher performance.
- 💵 **Fundraising Strategy**: A successful fundraising strategy involves finding a compelling deal first, framing it attractively, then pitching to investors to secure commitments before finalizing legal documents.
- 🤝 **Collaborative Effort**: Success in private equity often involves collaboration, with roles including money raisers, fund managers, and expert investors, each bringing unique strengths.
- 🌐 **Finding Deals**: Online platforms like BizBuySell and Empire Flippers can be useful for finding businesses for sale, which could be potential deals for a private equity fund.
- 📚 **Educational Resources**: The speaker offers further educational content, including a free training, a Facebook group, and a podcast, to help individuals interested in private equity learn more.
Q & A
What is the primary focus of private equity funds?
-Private equity funds primarily focus on investing in privately held companies, often providing capital for growth, expansion, or restructuring.
How does the structure of a private equity fund typically work?
-A private equity fund typically has a general partner, who manages the fund, and limited partners, who are the investors providing capital. The general partner has control over the fund's investments.
What is the difference between a general partner and a limited partner in a private equity fund?
-The general partner manages the fund and makes investment decisions, while the limited partners are investors who contribute capital but have limited control over the fund's operations.
What is the role of an investment advisor in a private equity fund?
-An investment advisor, or registered investment advisor, provides investment advice to the fund and is typically compensated with a management fee. This role is separate from the general partner to ensure compliance and专业性.
How are private equity fund managers typically compensated?
-Private equity fund managers are often compensated through a '2 and 20' model, where they receive a 2% annual management fee and a 20% share of profits above a certain threshold.
What is a preferential rate of return in the context of private equity funds?
-A preferential rate of return, often set at 8%, is the minimum return that limited partners must receive before the general partner can receive any profits from the fund.
What does the '2 and 20' model refer to in private equity?
-The '2 and 20' model refers to the typical fee structure where private equity fund managers charge a 2% annual management fee and take 20% of the profits as their share.
How does the fund launch formula work as described in the script?
-The fund launch formula involves four steps: finding an incredible deal, framing the deal with financials and pitch materials, pitching to investors to get soft commitments, and then setting up legal documents to formalize the fund.
Why is finding an incredible deal the first step in starting a private equity fund according to the script?
-Finding an incredible deal is the first step because a strong deal gives potential investors confidence in the fund's potential for success, making it easier to raise capital.
What is the significance of getting soft commitments from investors before setting up legal documents?
-Getting soft commitments from investors before setting up legal documents allows fund managers to gauge interest and validate the fund's structure and strategy without incurring unnecessary legal costs if the fund does not proceed.
How does the script suggest finding the necessary expertise to run a private equity fund if an individual lacks the experience?
-The script suggests finding partners who can fill the gaps in expertise, such as a money raiser, a fund manager, and an expert investor, to form a team that can successfully run and grow the fund.
Outlines
💼 Introduction to Private Equity
The speaker introduces the topic of private equity and how to start a private equity fund. They mention that the episode will cover structuring entities, finding investors, pitching, building a track record, and team building. The speaker shares their experience and knowledge from running funds and learning from mentors. They also highlight the success of a student who raised over 11 million dollars for their private equity fund. The paragraph ends with a discussion about the role of private equity in the business growth cycle, distinguishing it from other types of funds like hedge funds, venture capital, and real estate funds.
🏢 Understanding Private Equity Fund Structure
The speaker explains the structure of a private equity fund, starting with the general partner and limited partnership entities. They describe how investors commit capital to the limited partnership and how the general partner, or fund manager, has control over the fund's investments. The importance of governing documents, such as the Limited Partnership Agreement (LPA) and Private Placement Memorandum (PPM), is emphasized. The speaker also touches on the concept of control that the fund manager has over the fund's capital and how it differs from the limited partners' involvement.
💰 The Financials of Private Equity Management
The speaker delves into the financial aspects of running a private equity fund, focusing on how fund managers make money. They explain the common '2 and 20' model, which includes a 2% management fee and a 20% share of profits. The concept of a preferential rate of return (pref) is introduced, where investors receive a percentage of returns before the fund manager takes their share. The paragraph also covers how returns are split between limited partners and the general partner once a certain benchmark is reached, incentivizing the fund manager to achieve higher returns.
🚀 The Fund Launch Formula
The speaker outlines a strategy for launching a private equity fund, called the 'Fund Launch Formula.' They argue against the traditional Wall Street approach of setting up legal documents first and instead suggest finding a compelling deal first. The formula involves framing the deal, pitching to investors for soft commitments, and then setting up the legal documents. The speaker shares a story about raising funds for a Lamborghini to illustrate the point that confidence in the deal is crucial for raising money. They emphasize the importance of having a good deal that investors can believe in.
🔍 Finding the Right Deal and Building a Team
The speaker advises on finding an incredible deal as the first step in starting a fund and suggests resources for finding businesses for sale. They also discuss the importance of building a team with diverse skills, such as money raisers, fund managers, and expert investors. The speaker shares their experience of partnering with an expert investor in real estate to complement their own skills in fund management and money raising. They encourage the audience to think about who they can collaborate with rather than how they can do everything themselves.
🌟 Conclusion and Call to Action
The speaker concludes the video script by summarizing the key points of starting a private equity fund and encourages viewers to explore more resources on their platform. They mention a free training, a Facebook group, and other online content aimed at helping people understand the private equity and hedge fund space. The speaker invites viewers to subscribe to their channel and reach out for more information, emphasizing the community aspect of learning and growing in this field.
Mindmap
Keywords
💡Private Equity
💡Fund Manager
💡Limited Partners
💡General Partner
💡Investment Advisor
💡Management Fee
💡Carried Interest
💡Fund Launch Formula
💡Deal Sourcing
💡Soft Commitment
Highlights
Introduction to starting a private equity fund and its various aspects.
Explanation of private equity and its role in the private growth cycle of companies.
Differences between private equity, hedge funds, venture capital funds, debt funds, and real estate funds.
The structure of a private equity fund, including general partners and limited partners.
Governing documents of a fund: LPA (Limited Partnership Agreement) and PPM (Private Placement Memorandum).
How private equity fund managers make money through a 2 and 20 model.
The concept of preferential rate of return (pref) and catch-up in private equity funds.
The waterfall sequence of returns in a private equity fund and how it incentivizes fund managers.
The importance of not charging a management fee when starting out to attract investors.
The fund launch formula: a counter-intuitive approach to starting a fund.
Step one of the fund launch formula: finding an incredible deal.
Step two: framing the deal with numbers and pitch deck.
Step three: pitching investors and getting soft commitments before setting up legal documents.
Step four: setting up legal documents after securing enough soft commitments.
The three distinct roles in a fund: money raiser, fund manager, and expert investor.
The importance of collaboration and not trying to do everything alone in a fund.
Resources available for those interested in learning more about private equity funds.
Transcripts
boom people welcome back to the show
today we're going to talk about how to
start a private equity
fund we've had a lot of people ask us
about this specifically in private
equity
so today's episode we're going to go
through all of this what you can expect
when starting a fund how to structure
the entities how to go out and find
investors how to pitch those investors
how to build a track record how to build
a team we're gonna do all
that inside today now for some of you
people that have listened to this show
for a while they're avid listeners that
have been through the journey with us
a lot of this might be review so if it
is you can just skip the next step but
if you're
new this is gonna be really valuable
content stuff that i've learned over
running funds over the last four and a
half years
i've learned from incredible mentors my
dad who runs a deca billion dollar fund
my
brother who runs 100 million dollar plus
funds as a securities attorney
we've had a lot of experience in the
fund space
in setting up funds like this and
running them and actually we have one of
our students that actually
they have a private equity fund they've
just raised over 11 million dollars
for their private equity fund should be
pretty exciting to see their growth over
the next couple years they're doing this
let's dive into it
[Music]
first question bridger what even is
private equity right what do you mean by
private equity what's the difference
between private equity
hedge funds venture capital funds debt
funds real estate funds
let's walk through it so right here you
have your
public public market public growth cycle
this is your
private growth cycle over here on the
left over here you have early stage
companies so these are these are way
early this is idea stage
two you know very early implementation
you
these companies hopefully do well they
come up they mature and then they're
distressed if they're mature enough and
do really well sometimes they can go
public they can have an ipo
event here they go public and now
they're in the public markets so where
does
private equity play well it's in the
name private equity deals with
privately held companies private equity
will work
in the private sector and typically
they're going to come in right around
here as a company comes through idea
stage you have
venture capital you have early stage
venture capital here a lot of times like
a series a
b c coming in here
and then they will get to a point they
can either sell to
us a private equity firm or sometimes
those vc companies
will take them public or with a private
equity company together we'll take them
but that's
some some cases that's the exit for this
now that's typically what they people
think of private equity you see
huge funds like kkr you see blackstone
uh use obviously bs blackstone good
acronym right there for blackstone bs
managing hundreds of billions of dollars
doing this we have a massive
scale however private equity can work in
a lot of different ways
i have seen a number of private equity
companies that
come in and they are not looking at
high-tech
a lot of this is kind of the tech you
know silicon valley
style right you get your your seed round
series a b
whatever and then you go ipo and you
become billionaires there's a lot
more that goes on the world than just
that and so i've seen a number of
private equity companies
that come and they will find companies
that have grown and maybe are distressed
they're down here in this spot they will
buy that company
and work that company up and just treat
it as a cash flow business they're
they're going to take that company work
it up
either have it cash flow or work it up
and sell it to a bigger private equity
firm or if they really want to get
ambitious can ipo as well
i've seen other product companies have a
good buddy his entire
fund goes and buys up funeral homes
they buy mom and pop funeral home some
of you guys have heard this example
before but they buy up mom and pop
funeral homes they're about
you know one to two million each they
buy them up they found that they could
sell those
companies as a conglomerate about seven
or eight of them to a larger private
equity firm for
almost double of what they purchase them
for they'll buy up seven or eight
different
funeral homes group them together and
they can sell them for 16 17
even 18 million dollars to a larger pe
firm
that's all they do that is under this
realm i have another group they do
just amazon businesses they go find
these 20 year old kids that are running
an amazon business they're making okay
money they've already set it up
they will use a private equity fund
model to
go and purchase and acquire 5 or 6 or 10
or 20 of these amazon businesses
group them together and they because
they're under one roof
they can take a lot of the fixed costs
down
and they're actually pretty good at
running these amazon businesses and can
scale them
to really good levels and cash flow
those businesses pay off investors and
i'll show you what that means in a
minute but is that making sense where
private equity fits in
hedge funds typically play here hedge
funds will play in the public
space venture capital plays down here
real estate funds obviously play in real
estate
but that's kind of your realm where
you're at now first let's start off with
how an actual private equity fund is
structured
okay how is it actually put together and
how do
you or me as a fund manager make money
doing this by the way private equity
fund managers
are usually every time you meet one
they're usually very very wealthy people
and so let me walk you through how that
structure however gets paid all right so
down back to the white board here
white board of truth and justice what we
call it
we've got our general partner now again
i'm going to explain to you how 99 of
all funds are structured there are other
ways to do this i know you're going to
have in the comments you could do
another way
yes but this is the most common
way to do it so let me explain to you
first thing you have is your
general partner okay this is an entity
all right
and then you have a limited partnership
okay i'm gonna do lp limited partner
ship this is also an entity these have
these squares here these are entities
what happens is you have investors or
limited partners will put money
their capital they will commit to
the limited partnership okay and now
this is true for hedge funds for venture
capital so if other people that have
watched this channel you've seen this
before
this is true for all of these types of
funds but today we're talking
specifically private equity so we're
gonna use private equity examples okay
limited partners will put money
into the limited partnership and
you as the fund manager over here on
your general
partner you are the managing general
partner of
a fund okay this is you over here and
the general partner gets discretion over
what happens inside of the limited
partnership
and that's all described in two
governing documents called your lpa and
your ppm
okay lpa stands for limited partnership
agreement
ppm stands for private placement
memorandum
you don't have to memorize those but
these are the two governing
documents of your fund we call them the
bible
and we call them the bible because just
like the bible it has all the rules all
the bylaws all the covenants
that you need to keep and obey inside of
your fund
now the amazing best thing about funds
okay
this is why most successful people in
finance and other places
end up running a fund this is why a lot
of people end up into this space
is because inside of your lpa and ppm
it will say limited partners put in
let's say this guy puts in 20 million
and this person puts in let's call it 5
million
and this person puts in 25 million okay
a 50 million dollar fund
this will say the general partner
has control and can do what it likes
with that pool of money
okay and you these guys are are truly
limited partners you as the fund manager
are the general partners so you can
decide
down here you can go hey we're gonna go
buy up uh company a
and we're gonna buy company b and we're
gonna merge with company c or whatever
it is and you have say over it
one of your biggest limited partners
this guy right here 25 million dollar
partner
could call you up bridger i don't like
your decision here i don't i don't think
this is right
um blah blah blah you say thank you for
your opinion
but you're a limited partner i really
value your opinion i thank you so much
but
we with our you have hired us to make
decisions on behalf of you
now if we did something illegal if we
broke our lpa or ppm that's a different
story right
maybe we have some legal stuff there but
if we've done everything right
they have no say over what happens
inside of your fund you have a hundred
percent control
over that money that's the reason eight
guys on wall street eight guys and gals
on wall street can manage
you know let's call it 10 billion
dollars and they have 100 control over
that money
even if their investors are yelling and
mad and whatever you saw in the big
short right you saw michael
bury all of his investors were yelling
at him so you got to get out of your
short position he said no
he said i'm staying in my short position
i believe in what we're doing and i'm
going to stay
right that's the same thing that happens
it's a beautiful thing
that and that's why most people
most successful people in finance end up
in
the fun space are you with me so far is
this making sense okay you got your
general partner
your limited partner ship and your
limited partners now there's another
entity you'll set up
called your investment advisor
or registered investment advisor okay
investment advisors if you're under 150
million dollars
registered investment advisors if you're
over 150 million dollars this is another
entity yo
it's usually the same owners so you'll
own part of that and part of the general
partner both are managing entities
of the limited partnership and i'll
explain why they're separate in just a
minute
um this is where you file with the sec
and uh
you are an invest you give investment
advice to the limited partnership and
they pay you a fee
a management fee uh for doing so let's
talk about that actually right
now okay i hope you guys are with me
we're moving fast here if you want you
can go
re-watch this or go wind back i'm not
going to keep going over stuff so you
guys can watch it again
so now let's run through how private
equity
managers make so much money how does it
actually work how is everyone paid
when the assets or business make money
so i'm gonna draw a timeline here from
zero to let's call it uh 25
okay uh zero right here let's put like
we'll put 10 here
we'll put like 15 here okay and we'll
call this
just return okay yeah you could we can
use irr or
your yield api is a lot of metrics we
can use i'm just going to make it simple
and just call this a return
okay um so we got a 10 return a 15
turn or 25 return or a zero percent
that's what we're looking at on this
timeline and for this example let's say
your fund
got a 22 return
this year you guys did pretty good you
got a nice return and you now need to
decide how that's all going to be split
up to investors
now a lot of people right now but
bridger it's just that it's a 2 and 20
fun
blah blah it's a little more complex
than that and let me walk you through
what's inside of actually a 2 and 20
model
a lot of funds up front we'll do
something called a prep now in my phone
this is what we do we have an
8 it's a preferential rate of return
meaning
the first eight percent of all returns
goes to my limited partners it goes
right to my investors so for example if
this year
we only got a seven percent return we
were right here
my investors would take all seven
percent
because they get what's called a pref a
preferential rate of return
for risking their money in the fund
after the pref and my fund we do a
two percent catch up is what it's called
so the next
two percent of all dollars come to
the general partner okay if we hit that
certain benchmark so for example if this
year we only hit
nine percent the first eight percent
would still go to the limit partners
and the next one percent would just come
to me as the general partner is that
kind of making sense
now in my fund once we get above
a ten percent return we start splitting
80 20. 80 to the limited partners
20 to the general part now in my fun i
added one more thing one more tier of
this waterfall so we do an
80 20 split until
a 20 irr once we hit that return 20
return we then split 50 50. so it
incentivizes me as the fund manager to
get even higher returns if i get over a
20 yield or return to our fund
i then start taking 50 instead of just
the 20
and the idea there was to align our
incentives
with our investors so back to our
example if we had a 22
return first 8 percent would go to the
limited partners
next 2 would come here from 10 to 20
we would split 80 20 so that would be
another eight up here
another two down here and then up from
20 to 22 we would split
50 50 and that would be one up there
and one down here so at the end of the
day in this example
my investors would take home a 17
cash on cash return they would take home
and i as the fund manager would make
five percent is that kind of making
sense you guys following me so far
now you might be saying well bridger i'm
not in this whole game to make five
percent like that's so small no yes you
are
okay you're not making five percent on
your money
okay you are making five percent
on the entire fund so if you look at
steven schwartzman and these other big
fund managers that manage let's call it
a hundred billion dollars
who would like to make five percent on a
hundred billion dollars
right i would right that sounds great
right
this is the ultimate leveraging other
people's money opm model out there is
that kind of making sense that's why
fund managers make so much money now
before i go any further you might be
asking well bridger what about
management fees and i didn't forget i
wanted to save that for the very end
a lot of funds as well will also down
here charge
usually about a two percent management
fee
and they take that right off the top
before they go out and make you know all
this this waterfall sequence is called a
waterfall what i'm explaining here
the management fee typically will go to
your investment advisor
or registered investment advisor
remember what i talked about earlier
that other entity so that will take the
management fee just for giving financial
advice
and the other stuff here which is called
carried
interest that's a key word carried
interest goes to the
typically the general partner will take
this
now you as the fund manager participate
in payton both so with a management fee
that takes up this to probably about
maybe six and a half percent after you
adjust for everything
now the reason i left this off the
beginning my funds currently
i do not charge a management fee and i
did that because one of my mentors
advised me said bridger when you're just
starting out
you're starting your first fund people
are skeptical people
don't believe that you're going to go on
do you do so to catch
attention one strategy is you don't
charge a management fee
then when i was starting my first fund i
went out to investors and i said hey
i don't make any money i make zero
dollars
unless you make eight percent first
there's no management fee there's no
hidden fees
i literally will not make a single
dollar until
you make back at least eight percent
first
and that was a compelling pitch for
investors and they saw the confidence
that i had for this fund and they
decided to put money into what i was
doing all right is this making sense so
far
now you're probably sitting there like
bridger hold on okay i get it that's
kind of the structure i understand the
structure but how do i actually
start the name of the video is how to
start a fund
and what's been interesting is over the
last couple years you know i've ran my
funds and i've started to interview
other people on this channel and show
that have all actually gone out and
started
their own funds and i i try to only
interview people
that did it unconventionally where
regular people like me and you don't
they don't have the ivy league degree
they don't have the
big wall street experience they're just
regular people that decided
to use this incredible business model to
go out and scale their business
and what was funny is i after listening
to a lot of these entrepreneurs
found a pattern for how they went and
launched
their funds and we we coined this
pattern the fund
launch formula because time and time
again
every entrepreneur that had a successful
fund followed this formula
almost to a t to get their fund off the
ground
the fun launch formula is a little
counter-intuitive as well to what
traditional
wall street will teach you of people on
wall street if you go watch other videos
of their content
they will tell you all right so if
you're going to start a fund you've got
to hire some lawyers first thing is get
some
lawyers you're going to spend anywhere
from 30 to about 60 000
on legal fees go set that up first
then you go pitch investors um you
hopefully have you know investors you're
building your team you're building up
all the stuff there
and if investors don't like it well
shoot you're gonna have to go back to
the drawing board and you
still have to cover your 30 to 60 000
legal fee
this thinking is why a lot of funds have
failed in the past and i've actually
seen some of these funds fail
is because they follow that so i want to
show you a new way a better way to go
about
launching a scaling fund i use this to
launch my funds my dad uses to launch
his funds and a number of other
entrepreneurs have used this for me to
do it
you guys ready to get into it get a
little drumroll here let's dive into the
fund launch formula and what's inside
so when i was starting my first phone i
went to one of my mentors i asked him
i said hey i don't have the crazy
experience i don't have the wall street
you know
whatever no one's going to invest with
me i i don't have what it takes
he says bridger i want to give you an
example i said okay he goes imagine
we just found a lamborghini
aventador okay a lambo we found it in
billings montana
we can buy it this weekend for 50
000 and let's just go with me as an
example let's say everything checks out
on this lamborghini we've had a mechanic
look at it we've had other people look
at it
this is a legit lamborghini the lady
she's selling it she just is she's gonna
go into bankruptcy she needs the cash
by saturday morning and she's willing to
sell for 50 grand
additionally we have already found a
buyer
on monday morning that'll buy the car
for 200
000 in california it's all checked out
it's all
guaranteed the only problem you have
is you can't use any of your own money
you need to go raise
50 000 by saturday morning
this was the situation he proposed to me
he said bridger could you go find
50 000 by saturday morning and i thought
about it and at first i said no way
he said no really you're going make a
hundred and fifty thousand dollars
this weekend could you go find 50 grand
by saturday
i thought about i thought about a former
boss college professors an aunt a
grandpa a great uncle a friend from high
school
anybody i could find i thought through
and i said you know what
i'm gonna make 150 grand this weekend
like dang straight you know what like
i'm like you know what
i'm in i was like i actually i think i
could find
50 grand by sorry and i said again it's
100 percent guarantee there's no
chance i lose he's at 100 guaranteed
and i said yeah i think i could do fifty
thousand dollars he goes what about a
hundred thousand dollars let's say let's
say she had to raise her prices a
hundred thousand dollars
you've got to raise by saturday morning
still you're gonna make
a hundred grand spread on this
deal by monday morning could you find a
hundred grand
and i said yes so dang sure i'm gonna
stay up late i'm gonna be i probably
won't sleep for four days straight but
yeah
i i you know what i could get a hundred
grand if it's a hundred percent
guaranteed and he goes why and i said
well it's it's a hundred percent
guaranteed you just told me
this is foolproof there's no way
anything falls through the cracks
and he goes aha there it is and i went
what do you mean
he goes you just said it yourself he
said three minutes ago you were telling
me that you were so worried that you
don't have the track record of the team
or all this stuff
and all of a sudden you're telling me
you could raise a hundred thousand
dollars by
saturday because why
the deal was so good the deal
was foolproof he said more often than
not the reason
people can't raise money is because they
do
not believe in the deal enough
themselves
they have not found a good enough and
good enough deal and when i say deal it
could be a business you're
buying it could be a trading strategy
whatever it is and private equity be a
business you're buying
they are not confident enough to go
forward
with that deal and scrape and stay up
all night like you were with that
lamborghini deal
he said bridger step one of any fund
you're starting or anything you're doing
step one is find an incredible
deal and i put deal in quotes here but
this this could be the company you're
gonna buy if you have
that good of a deal and there's a lot of
them
out there a lot of the other things will
fall into place
so i said okay well i got a great deal
lined up let's say hypothetically
what's next and most people at this
point want to go and set up legal fees
okay i found the great deal i found the
company let's hire some lawyers let's
spend the 30 grand
and hold on before you go out and spend
the 30 000
to go set up your your legal team and
all that kind of stuff
step two is frame the deal
out so you're gonna get on an excel
spreadsheet you're gonna put out all the
numbers you're gonna
you're gonna put together your pref and
your catch up in that 80 20 splitter
maybe it's 70 30 split
what kind of management fees you're
going to charge all that kind of stuff
you
frame out you start putting your pitch
deck together
which leads you to step number three
which is
go and pitch investors but wait bridger
i can't go pitch investors i don't have
my legal docs done this is actually how
my dad raised their first
hundred million dollar fund this is what
he told me they did
they went out they would go find
investors
and typically investors are used to
hearing the harvard guys pitch this is
how harvard guys pitch they go hi
you know so and so mrs johnson we're
very sophisticated we're from harvard we
have a great idea over the next
18 months over the next 18 months we're
going to go out we're going to find
great businesses and bring them together
and we theorize that we can go do all
this
mr johnson says great thank you so much
have a nice day
my dad would walk into that same room
say hi mrs johnson we're not from
harvard
however we have just found an incredible
deal here's our entire pitch deck
we need to close on this business or
this real estate deal whatever it is by
the end
of the month now you're smart you've
seen things before you've worked in
business you're obviously have a
successful career you won't be where
you're at do you want to get in or out
you can poke holes yourself in the deal
we're closing on this deal
by the end of the month and mrs johnson
would sit down and look at the deal and
say hey bring on a friend or whatever
consultant you need to
we believe this deal is bulletproof
and she'd sit there and look through all
the stuff and all the documents and all
the all the stuff you framed out
and they would say hi mrs johnson we
haven't done our legal docs yet it's
going to be done in a couple weeks
but if everything checks out can we put
you down for 500 000
has a soft commitment that you'll go
towards this deal and she'd say one of
two things either
yes yeah put me down for a soft
commitment for five hundred thousand
dollars or
number two well i don't know if i'm
ready to invest yet
and if they got the second option they'd
say well why not what's
holding you back from doing this deal
and she'd give them a few different
reasons maybe maybe she didn't like the
frame maybe she didn't
she wanted a different type of deal and
you can take those notes and say well
mrs johnson if in a couple months if we
come back and we bring you a different
frame to be different management fees or
different split or we find you a
different deal
at that point would you invest in the
zeal what else would hold you back and
she'd maybe give you a few more reasons
you can get direct feedback from your
investors
before you go spend the 30 or 40
thousand dollars
to go set up your fund so at this point
step number three
go and pitch investors get soft
commitments of
five hundred grand a million five
million ten million dollars go
and soft pitch investors
when you have an adequate amount of
money that you feel is good enough that
you've soft
raised then and only then go to step
four
and set up your legal docs okay and what
you'll do here
is you go and you hire a lawyer and they
yes you got to spend the 30 grand right
to go and do it and actually inside of
our we have a mastermind program we help
our students do it for a lot less a lot
of our students are spending anywhere
from eight to maybe 12 grand a set of
their fund but
typically off the street you're running
from 30 to 60 grand if you're not in our
programs
but that's what you do you go set up
your legal docs then you go back to your
investors and you say hey
time to put money in and the 30 grand
you just spent
is a reimbursable expense to the fund
it's a it's a startup cost and so you
put money down
what you just did is you investors
paid you to build a fund
for them they paid you to go out and
structure and put together
a fund that will benefit them boom baby
that is
the fund launch formula
in in about five minutes let me put this
together again step number one find that
incredible deal okay
two frame it out three pitch investors
four
legal docs now questions at this point
is bridger well wait
okay the step one how do i find that
incredible deal there's
a lot of great sites out there
bizbysel.com
empire flippers that are actually
brokerage services for
businesses even small scale businesses
that are being listed
to sell it's a great way to get your
feet wet however
if you're like me at this point you say
well bridger okay i get the idea i get
the frame i understand the general
partner limited partnership i understand
the split but i just don't know if i
have the network to raise money if i
don't know if i have the expertise to go
out and find and
buy private equity businesses that's
okay
no one does this game by themselves
there's three distinct
circles or positions inside of a fund
over here
you have your money raiser okay this
person
is a natural salesman already has an
incredible network has spent
spent the last 10 years building out an
incredible network of investors
the middle circle you have your fund
manager
this person is very good at operations
audit legal accounting
sec compliance all funds goes under this
circle
and then finally you have your expert
investor this is your chief investment
officer this person has done real estate
or bot businesses for 25 plus years
however they have no clue how to run a
fund
and they have probably no clue how to
raise money
currently in my fund for right now we've
we've soft raised on that fund
for about 18 million we're gonna be
setting up in the next few weeks myself
i'm very good at fun managing this
mental circle
and i've brought on another partner
that's very good at
is an expert investor we're doing real
estate deals i don't know the first
thing about real estate deals
that's okay because i'm pretty good at
running a fund and i'm actually pretty
good at raising money
and so i can compensate where he is not
good as
on that side of things again no no one
does this alone it's not the how
stop asking yourself how do i go and
find these deals
change your question to who
who can i find that can raise me the
money or who can i find
that can go be my expert investor
partner to go help me do this or who can
i find that can help you
run the fund and that's what we do
inside of we have actually a lot of
content stuff online we're trying to
build an online community
of people that we can connect these dots
one guy in our group they actually met
inside of our program our group
he's he was an expert investor the other
guy was a money raiser they came
together they've raised i believe
already over five million dollars
for their fund they're going out and
doing right now so again no one
does this alone so there you have it
that was a crash course on how to start
private equity funds
uh if you're interested we have a lot of
other videos that go in in more
depth than this video we have a one hour
free training if you want to click below
we have a facebook group we have a bunch
of other stuff online online programs
and stuff
shoot me a dm or message if you want
want more of that but go check out other
stuff on our channel subscribe
all this stuff and we have a podcast
everything else is out there to help
more and more people
understand what's happening behind the
curtain on these private equity
and hedge fund space hope you guys enjoy
and i'll see you next episode bye
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