How To Start A Private Equity Fund From Scratch

Summary

This 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

00:00

💼 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.

05:00

🏢 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.

10:02

💰 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.

15:02

🚀 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.

20:04

🔍 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.

25:04

🌟 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.

Keywords

💡Private Equity

Private Equity refers to investment funds that directly invest in private companies or buy out divisions of public companies, with the goal of reorganizing the companies and reselling them for a profit. In the video, private equity is described as dealing with privately held companies, often coming in around the growth or mature stages of a company's life cycle. It is distinguished from other types of funds like hedge funds, venture capital, and real estate funds, each of which operates in different sectors of the market.

💡Fund Manager

A Fund Manager is an individual or a firm responsible for overseeing the investment portfolio of a fund, such as a mutual fund, hedge fund, or private equity fund. In the context of the video, the fund manager is the general partner who has control over the fund's investments and makes decisions on behalf of the limited partners, who are the investors contributing capital to the fund.

💡Limited Partners

Limited Partners are the investors who commit capital to the fund in exchange for a share of the fund's profits. They are called 'limited' because their liability is limited to the amount they have invested, and they typically have no management control over the fund's operations. In the video, it's explained that limited partners put money into the fund, and their capital is managed by the general partner.

💡General Partner

The General Partner is responsible for managing the operations of the fund and making investment decisions. They have control over the fund's assets and can direct how the capital is invested. The video script mentions that the general partner gets discretion over what happens inside of the limited partnership and has significant control over the fund's activities.

💡Investment Advisor

An Investment Advisor provides professional advice on investments. In the context of the video, the investment advisor or registered investment advisor is an entity that gives investment advice to the limited partnership and receives a management fee for its services. This entity is separate from the general partner but is often owned by the same people.

💡Management Fee

A Management Fee is a regular fee charged by the fund manager to the investors, usually expressed as a percentage of the assets under management. In the video, it is mentioned that many funds charge a management fee, typically around 2%, which is taken off the top before the fund goes out to make investments. This fee is used to cover the operational costs of running the fund.

💡Carried Interest

Carried Interest, often referred to as 'carried interest' or 'carry,' is the share of profits that the fund manager receives after the investors have received a preferred return. The video explains the concept of carried interest as part of the '2 and 20' model, where the general partner receives 20% of the profits after the limited partners have received an 8% return, and then splits the remaining profits 80/20 or 50/50 depending on the performance of the fund.

💡Fund Launch Formula

The Fund Launch Formula is a strategy outlined in the video for starting a fund. It involves first finding an incredible deal, then framing it out, pitching to investors to get soft commitments, and finally setting up the legal documents. This formula is presented as a counter-intuitive approach to traditional methods of fund launching, which often start with setting up legal documents.

💡Deal Sourcing

Deal Sourcing is the process of finding potential investment opportunities. In the video, the presenter emphasizes the importance of finding a good deal as the first step in launching a fund. Deal sourcing is about identifying companies or assets that can be bought at a price below their intrinsic value with the intention of adding value and selling them at a profit.

💡Soft Commitment

A Soft Commitment is a non-binding indication of interest from an investor to invest a certain amount in a fund, given that certain conditions are met. In the video, the presenter discusses getting soft commitments from investors before finalizing the legal documents, which helps validate the fund and its investment strategy to potential investors.

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