How to Become Ultra Wealthy (4 Methods)

there are only four paths to getting ultra wealthy I crossed $100 million net worth by age 31 and then I started acquisition. comom our investment firm I spent the next year studying how to go from 100 million to a billion and there are four paths we'll start with the first so in the first path you have other people's money being invested into your business now let's look at some of the business Titans that followed this path so here you can see three pie charts with 177% 10% and 4% if I were to show you this

and say do you think the people who own these pies are very rich you might think well no they own so little of the pie but if I then said this is Tesla this is Amazon and this is NVIDIA would you all of a sudden then think oh wait this is Jensen hang Elon and us some of the richest people in the world who are all stiil billionaires and now at this point multi-billionaires and these incredibly successful people understood the first path of getting ultra wealthy which is the combination of other people's money into your

business now the way that it works is that you raise funds by selling a percentage of your company so what this does is that it actually dilutes you as a Founder meaning you no longer own own 100% of your company but now you might own 80% of a company that now has an extra $20 million for example that you can then use to grow now there are some businesses that this is the only strategy to successfully realistically accomplish the goal and then there are some businesses that this would be a terrible idea to pursue now

one thing that I think took me way too long to understand as an entrepreneur is that every single business incurs debt the moment you start it the question is what type of debt you're going to incur and so for example if you bootstrap a business as then you take no outside Capital when you start it you just fund it yourself and you own it you grow it organically then the debt that you take on is going to be that you're not going to have enough money to get the best talent in the door and so

you're going to have talent debt you're probably not going to have enough money to get the right technological infrastructure in place to to to run the entire business so you'll take on technological debt right and you can go down the line and start thinking about all the other anel non-financial versions of debt now businesses that choose to take on financial debt choose to take on that debt instead of the other types of debt because of the nature of the competitive dynamics of the market they're in and so those types of businesses typically are in businesses

that take a tremendous amount of capital to start up uh and scale or they are in winter take all markets where speed is the primary objective of the business so that they can capture the opportunity and then fundamentally become monopolies of a new type so Facebook for example became a monopoly of attention to a large degree now because there are other social media platforms they get away with that but they have created a big moat around all of the attention that exists in media and so for them there's only one real big social network that

was going to exist and so they then captured it of course LinkedIn was like well is there a version of that we can do for business professionals and then they captured that now can you imagine now another professional social media platform being like oh we're we're now starting up it's like there's no room for you right it's already done that that market is captured and so when the there were other companies that were competing for the same Market and the people who were able to raise the most money spend the most money the fastest attract

the best talent were able to capture it the fastest then sealing their competitive mode to keeping that as a long-term Cash Cow over the Long Haul which means that those businesses lose a tremendous amount of money for a short period of time and then they were able to kind of get over the hump and then become cash machines and so for example Amazon was unprofitable for 9 years famously and there's an interview of Jeff basos getting grilled on uh on The Tonight Show I think with John Jay Leno is it J Leno yeah with j

Leno and he's like you guys don't make any money and Jeff Bezos just gives us he does his like weird laugh uh and he's like yeah we don't but we could we just choose not to because we get better Returns on our Capital by continuing to expand our um our infrastructure so that we can eventually support literally delivering things the next day to every single customer in America not withstanding the fact that they have the single most successful subscription in history in Amazon Prime more people are subscribed to Amazon Prime than own a Bible they

have over 300 million subscribers that's almost every single person in America is subscribed to a digital subscription for $99 per year which I think now is$ 135 to have the ability the privilege of shopping on their platform and getting faster shipping and so when basos was making the investment of capital into the business he asked the question not what do I think is going to change in the next 10 years he said what things won't change in the next 10 years and so he realized that there are some fundamentals that will never not be true

people will always want things to be faster people always will want things to be easier people always will want things to be risk-free and if you can create an outcome that is desirable fast easy and risk-free then you have an incredibly valuable business and so this corresponds with the value equation in the $100 million offers book and so time delay is speed ease is going to be effort and sacrifice perceive like of achievement is your risk and then the dream outcome is making sure that you're not just making things fast easy and risk-free that no

one wants right and so that's the dream outcome component and so getting things to your door a lot of people want that if you can do it faster they like that more if you can make it easy for them they like that even better and if you can make it so that the purchase they had is very likely to be good aka the entire review system that Amazon pioneered reviews were not a thing think about how crazy this is they were not a thing and a lot of people were afraid and pushed against basos when

he wanted to roll out reviews because they were afraid that sellers would hate it but he bet on the fact that customers longterm would want the transparency so in Jeff bezos's very first capital round that he raised he sold 20% of the business for $1 million to around 50 investors and so imagine the return on that today for that $1 million for 20% of Amazon it's more than he still controls to this day for context and he took that to buy the initial inventory get the uh website established hire the first developers to get this

going and so if you're going to take on financial debt use other people's money into your business if you have a market that must be captured quickly in order to get a network effect of some sort or you have huge amounts of capital that are required to make the business start to begin with so if I wanted to start call it a a pharmaceutical business then I would probably have to have capital for an extended period of time to start a new drug to do the research and then maybe five years after we get the

licensing then have the ability to print money but that Capital would have to come from somewhere and so unless you start as a billionaire to begin with which you absolutely could do that hypothetically but the vast majority of these businesses are not started by billionaires they're started by everyday people who have a good idea and then they go to people who have capital and say hey I will give you a piece of this upside now this is the uh live fast you know Die Hard uh style of making money the reason it is that way

is because it will typically be very investor favorable uh especially the earlier it is because they are taking on more risk and so the big thing about these Mega wealthy paths is that the underlying thing that occurs in all of this is one return on invested capital and two the risk that you're taking in order to validate or justify that return so some guy in 1995 says he's going to start a bookstore on the internet whatever that is and you give them a million dollars it's like I need 20% of this thing at least because

no one's ever done this before you've never started a business before what's the internet and are people even going to buy stuff on it right so there are so many unknowns here that it makes sense that they had a tremendous amount of compensation for the veritable guarantee that they would lose the money they were going to give and that's probably part of the reason that Jeff basos didn't just raise it from his friends and family despite the fact he was a Wall Street and uh Insider so he could have easily gotten the million dollars uh

from probably a handful of people but he also probably knew that there was a very low chance of success which I think he says in his early interviews he figured that there was a low chance of actually making this work and so when you follow this path the other people's money into your business path there's really only two big kind of potential outcomes one is as a Founder you're going to drisk along the way which means that sometimes you will get something called secondary so when an investor puts money into a business they're going to

appraise the business based on how quickly it's growing how How likely it is to continue to occur and uh well for them the ease of investment is uh High because they just have to make the investment but the still the fundamental value equation exists for them as investor where your business is the product itself and so let's say that we have a business before the money that is worth we'll call it $10 million and then they say I want to put $2 million into your business so if they put $2 million into your business this

misses is now a $12 million business where they now own 20% and then everyone else now owns 80 and so the founders the original shareholders are going to get diluted it means that they now own a smaller percentage but now the business has more Capital that can help it grow now a different path to this is instead of putting 2 million into the business they could have put let's say $1 million into the business and say we're going to pay the founder over here into his personal bank account $1 million and so that's called secondary

and then most people don't even say primary but it's kind of almost assumed that money is going into the business when you're raising round around of funding and so some Founders will drisk along the way because at some point you know when you have a billion dollar asset and you have $100,000 in your bank account some investors will understand that the founder themselves will become a little bit volatile and so they want to give them a little bit of money so that they're not constantly freaking out and actually can make better quality decisions so it's

not uncommon for Founders to take a little bit of chips off the table as they continue to scale and raise funding now this is along the way they're making this money but they still have this monster asset that's worth billions of dollars or hundreds of millions of dollars and so there's basically two paths from there for them to actually get paid path one is that a big private Equity Firm which is now kind of a a new thing is that there are some firms that can buy billion- dooll businesses and not have them be public

this is a new thing of probably the last call it seven to 10 years where there's enough private funds and enough private money Sovereign wealth sometimes overseas uh that can take down companies of this size when I say take down I mean put the capital in and buy it so a simple example of this would be like a company like kajabi uh which is a uh a learning platform where tiger Capital came in and bought majority of the business and the founders basically now a minority and they kind of had a full exit and almost

all of that cash went to the founders and very little into the business and so in that setting it's like they had a lot of capital they bought this company and so now they're you know what's their exit and so most of these paths especially when you're raising funding most of the time is going to be some IPO so an initial public offering that then allows those shares to be made public which allows the person who owns the whole pie and all the shareholders to have liquidity meaning they have access that they can either sell

those shares or they can lend against those shares either way they have a way of making money from the business not counting distributions which many businesses that are like this don't ever give distributions because they continue to reinvest the capital in the business because the returns from reinvesting the capital are superior to just getting a dividend and so one of the difficulties with raising money is the nature of the money that you take on and so all of these are completely unique deals depending on the risk profile of the company the risk appetite of the

Venture Capital firm or whoever is making the investment and how what their investment thesis or philosophy is and if you look at a 100 different VCS you'll have a 100 different investment philosophies in terms of what they're thinking about now all of them just want a big company of course but how they're going to get there is different so there are some firms that only take on one company in a specific space and they say we're going all in on this company and we're going to provide all the help we possibly can to help them

grab right there are some companies that say we want exposure to this entire market and we're going to take a bet on 10 different companies in this market with the hopes that one of them will win so they don't even care that they're competitive they just like we want to make sure that we're with the winner whenever whoever the winner is and so if you're in the latter example each of those VC checks might say well we have to 10x this business in the next two years or it's going to massively lose valuation and so

they will force the founders to take aggressive growth measures that may sometimes be not in the long-term benefit of a the founder but B the business which might mean that they're over spending on Advertising they're over hiring on talent that they let the culture uh you know get diluted or suffer because they can't have enough filters in place because of the rate or the pace of growth that they are requiring and a lot of this growth is almost artificial because they're just injecting so much cash into advertising oftentimes to get the business to grow that

they actually didn't solve the core fundamentals of the business so one of the the dark sides of this that doesn't get told is that as you do more and more rounds each VC or venture capitalist often times gets a board seat or two board seats and all of a sudden you might find out that you have a minority of your business and you no longer have voting power and you can get ousted from your own business from the investors that invested money in and so a classic example of this was Steve Jobs there was a

period of time where he ended up getting kicked out of Apple for years before being able to come back now mind you at that point it was still a public company and it had a board of directors but it works the same way with a private company I have a good friend of mine who raed a uh who who exited had a had enough of an exit it was a billion dollar value valuation he didn't get a billion dollars but he had enough of an exit that he could retire and uh he continued to work

but then they just said we don't want you to work here anymore and so he got fired and then three years later they asked him to come back and so it's very common to think oh this founder doesn't really know what he's doing but the thing is the founder always knows the heart and the pulse of the business because you're the one who knows each of the problems and why everything exists the way it does in terms of wealth creation when you take let's say a hundred of these bets you can get supremely wealthy so

believe it or not uh venture capital is the highest returning asset class of all asset classes the problem is the amount of capital that you can allocate into that asset class typically is very closed or very small because most of these funds and good companies are oversubscribed there's many investors who want to put money in when these deals are really good or the likel that the business succeeds feels really high and so what happens is uh you may take 100 bets and the winner you have may offset the losses but you're still never going to

get richer than the guy who's has a fully concentrated bet on the one business and so there's 99 entrepreneurs who failed and didn't make money but one of them who still gets even richer than the Venture Capital investors who put who put money in they use that one winner to offset their losses whereas if you were the only guy who went all in on that you don't have losses to offset you just went all in and the reason you would take path one is because you have a business model that requires you to grow quickly

or have tremendous amount of capital for an extended period of time before it could become profitable and using other people's Capital rather than saving up let's say 10 lifetimes worth of earnings to start a pharmaceutical company uh makes sense if you've ever heard of like XYZ company raises money at a $500 million valuation they're not saying they sold the company for $500 million they're saying that the founders diluted themselves and the other investors by some percentage and it could be as little as one or two% um at that valuation so for example if you had

a $500 million company uh and you sold 2% of that business then you would have $10 million in cash that you could then put inside of the business to then help it grow but you'd only sell 2% for that at that valuation and so hopefully this puts some uh relative numbers to some things that you've heard before so let's say that you don't want all that risk I guess we're going green now uh you have your money and your business and so this is probably the most common path that entrepreneurs take and I will say

that a lot of the entrepreneurs that I aspire to and like to model tend to fall in this bucket now within this model I want to make a very big Point Clear which is that many people who are bootstrapped or could otherwise be bootstrapped businesses as in the founder themselves funds everything and doesn't take outside money they sometimes act as though they are venture-backed and that they must grow at all cost and they chase growth for the sake of growth and my first big thing that I will share with you is that Rush is imaginary

99% of businesses don't need to have some aggressive growth timeline because whether you're starting a Chicken Shack or you're starting a lawn care business there's no network effect that you're going to build up you just have to keep out competing and doing a good job in the local area or in the service vertical that you're concentrated in in order to achieve good returns for the business and so if you look at Chick-fil-A with estri Cathy they had a competitor at earlier on in their career called Boston Market some of the older people in my audience

might have remembered this I used to go there after baseball games um and Boston Market was kind of like chicken and homestyle cooking and they were a direct competitor with Chick-fil-A now they raised a gazillion dollars and went super super fast and everyone told Chick-fil-A that they should do the same thing but estra Cathy being a lot more prudent of a man who was not who didn't want to take that kind of debt on who didn't want to just chase some imaginary um title for ego he said we just need to get better and if

we get better our customers will demand that we get bigger and fast forward 10 years after Boston Market was you know kicking the tail off them and was a Wall Street darling they eventually went bankrupt meanwhile Chick-fil-A 75 years later has 2600 locations and they're all privately held and they have no debt and so now you might think well I don't want to wait 75 years it really depends on what kind of vision you have as an entrepreneur because you know for me my belief is like if I could build something that outlasts me I

think that would be amazing um and sometimes the way to build something for the long term is to not build it for the short term which is not fast and growing at all cost because sometimes you grow bigger by giving yourself the time to grow longer yeah and I share the story because this is how I've started every company that I founded so I haven't founded a company and taken on Capital I have invested and co-founded um but I if I'm if I'm the sole founder of the business I have typically bootstrapped it meaning I

I funded the original business so when I had my my online uh Fitness business was my very first business uh that was just me and I spent the $5,000 so start that up um my gym cost me uh I think $37,000 total to start my first gym and sign the leasee and get it kind of outfitted um so that was on me that fronted that capital and when I opened up each additional location it was the same thing and there's a key point there that I'm going to talk about return to invested capital in a

second so stay tuned um the the next thing I had was gym launch which was started by me Prestige lab started by me Allen started by me acquisition. comom started by me and funded and so when you do that you don't have any delution but you also have complete control and so if you can think long you can grow big now back to the return on invested Capital every business you want to have a compounding vehicle within it so what I want to do is walk you through uh a little company example that will illustrate

this so let's say we have company a and we have company B and let's say this is year one year two and year three all right so let's say year one company a sells 100 customers Company B sells 100 customers next year for company a they lose 100 but then they sell 200 customers so they're plus 200 and then minus 100 right uh yes so like they lost 100% of those customers they still did 200 Sales okay this company gets plus 100 and then minus Z so they're now at 200 in total 100 from the

first year 100 new customers from the second year and let's say year three company a sells 300 new customers and now also loses the 200 customers from the year before and year three they uh Company B sells another 100 customers but has the 100 from year one and the 100 from year two now both of these companies are going to have 300 customers in that year which business would you rather have hopefully if you watch anything that I talk about you would want company B why because this is a company that is stable that will

continue to grow year over year over year and they don't need to necessarily grow they don't need to grow faster if they just do a good job and keep the customers they have they will just consistently grow year-over year and I'll tell you this knowing that no matter what happens you will always get bigger is a very nice value proposition for an investor or for you as an entrepreneur and so the key is that you want to have some sort of compounding vehicle within the business and so to accomplish that there are pretty much only

two ways to do this so the first is that you sell stuff that people never stop buying and so that can either be a recurring or reoccurring membership so a reoccurring business might be something like Coca-Cola right where you start drinking Coca-Cola and you go to Costco and you buy it when you go to restaurants you buy it and so you buy from a number of different places now you're not on a subscription for Coca-Cola but you might just buy it on a regular basis and so because of that once they acquire you as a

customer you keep paying them Starbucks is the same way once someone goes to Starbucks the average customer spend $14,000 in Starbucks they just keep buying products from them right you're not on a subscription but you do keep going back the other version of this is something like Netflix where you have subscription you have a membership of some sort and people stay on and keep paying and so in either of those situations as you acquire customers the business just keeps growing and so every new customer you bring in just grows this big bolus of people that

over time makes you more and more money now the second scenario is where uh and I this happens all the time in Like Home Services uh solar you know Roofing uh a lot of a lot of real estate adjacent type stuff uh where you have a business I mean even physical products can be this way um where you have a product that doesn't have a lot of return business so if you buy a house and sell a house it's like maybe somebody comes back to you 3 or 4 years later there's nothing wrong with that

but you probably wouldn't describe that as a recurring or reoccurring business and so instead if you owned a business like that what you'd want is a growing network of people who never stop selling for you so here you have customers who never stop buying and here you have a distribution base of people who never stop selling and so for example Prestige Labs the sub company we had um people who go to the gym and try to lose weight that's a very cyclical thing people try to lose weight for a little bit and then they fall

off um and that's common now that being said what can make the company more stable is if have a thousand locations that are consistently selling product every month now the who they sell it to might change but the fact that they are continuously selling becomes the node of kind of recurring revenue or reoccurring Revenue but just one level chunked up and so this is a distribution based model this is a customer-based model but both of these compound and so when I look to invest in a business or start a business I try and solve for

this once you solve for this growth becomes inevitable right and because of this when I was 26 or 7 years old was the first year that I made like a lot of lot of money and I took home um I think just under $17 million in profit personally uh in income and so um this stuff absolutely does work so this is just like armchair e theory that I'm just like talking about something I haven't done um which I can understand any skepticism around that um because of a YouTube video on the internet that being said

the key to growth in this path so when we're at so when you're in this box it's your business and your money your key your path to growth is something called return on invested Capital so it's roic now return on invested Capital basically is how much money does it cost me to make more money and so for example there are multiple levels of this within a business and so if I have a brick and mortar business you're going to have the lowest level of this which would be LTV lifetime value to CAC which is how

much does it cost me to get a customer versus how much do I make from that customer over time right that's the base unit of economic Arbitrage in the business this is how you make money fundamentally now leveled up from this you have roic which still talks about the same concept return on invested Capital how much does it cost me the return this is basically LTV capital is the cost right it's just one frame so I'm trying to give you the real terms rather than just use some of the the third grade third terminology so

that you can actually learn it all right so return invested Capital typically will describe the larger unit so if my my uh my massage business for example cost me $10 to get a customer worth $1,000 then that would be an amazing LTV to CAC but the question is how much does it cost me to open a massage studio well I I mean this doesn't take into account the lobby the buildout the licenses the recruiting costs administrative costs Tech costs um you know construction whatever right and so at this point it's like okay maybe I have

amazing El to C but my return on Capital might be not as good or it might be amazing right and so here is basically the bigger money multiplier within the business over the longer term and so let's say that we have a business that does $1 million Topline and we own the whole thing okay million dollar Top Line and let's say it makes $250,000 in profit okay now if we are entrepreneurs then we have two options we can reinvest that in our business or we can put it into another business or another asset but if

we know that our Returns on invested Capital are very good then it would behoove us to put it into our own business and so let's say that my return on invested capital in my brick-and-mortar chain for example is that I get uh um let's say that it costs me to open this Million Dollar business it cost me 50 $50,000 it's an S $50,000 to open a store and within 12 months it makes $250,000 back and if you hear that and you're like whoa that's amazing this happens all the time this is not that uncommon I

mean I told you about my gym cost me$ 37,000 and I was making 20,000 a month within six months and so uh you absolutely can have these kind of uh these metrics okay so at this point what would make sense for me well I should probably take my 250 and basically this times five and then this gives me this times 5 and all of a sudden the next year I make 1.250 million and what I do the next year this is how compounding occurs so then I I split this up and what would this allow

me to do I would open up 25 locations and then that would make me 5.25 million in net income right now of course when you're at this point the constraint will quickly be operational constraint you'll actually have a people issue of trying to staff all these things get all the locations signed um and this is why some people turn to franchising and things like that so that they can expand a little faster and that being said it is the most expensive form of equity because you're giving away basically the entirety of your business for a

percentage of the top line but then you have to still service all of the locations almost as if you own them and so I'm not the biggest fan of franchising there are times where it does make the most sense but most times it's because Founders are in a rush and so if it's your first business ever my strong recommendation is that you start here because you have to pay down so much ignorance debt so much so much tax from the universe for not knowing what you're doing that the last thing you really want to do

is risk the money of your friends and family that's just my two cents you can do whatever you want um that is my opinion if this is your firsttime business I would strongly recommend doing your business with your money because there's so many things that you don't know and you have to pay down your ignorance debt you have to pay down the cost of not knowing what you're doing and I i' rather you do that on your money than someone else's now if you do start to have this business that starts doing well and you

start having this exx cash are $250,000 in the example I just gave let's just do a different color to keep things keep things zesty so the third path is that you can have your money with other people's businesses so remember here we had our $250,000 in profit from this business that we created well of course we could put it into our own but if we put it into someone else's then we want to understand what our return profile is going to be and so this is what I would consider the path of the investor and

so if the first you know category is the path of kind of like the venture-backed entrepreneur the second path is the bootstrapped entrepreneur the third path is the path of the retail uh or just traditional investor you have some extra cash and you want to put it into something else so for example you guys have probably seen the show Shark Tank where there's five sharks that are all wealthy people and entrepreneurs come to them and they in in their companies now what they get what they get what they give is money and help and what

they get back is some percentage of The Upside depending on how the deal is structured and so those sharks tend to have less time and so what they're compensated for is risk and so when you become an investor your Chief form the the chief thing that you give is that you drisk the founder and you incur some of that risk you shoulder some of that risk not in exchange for work or time but in exchange for Capital which fundamentally means I took time somewhere else I did work somewhere else and I'm going to throw that

into your business so that I can offset your personal risk now the benefit of an investor is that you can diversify to a wide degree meaning you can take a 100 bets you can take a thousand bets so every single share that you own in a public traded company is a small bet that you're making as an investor and every share that you own of a a privately traded company works the same way it's obviously not privately traded but just off Market uh it works the same way now investors in general tend not to be

the wealth wealthiest people in the world and so this is why in my opinion real estate has created more millionaires than any other vehicle but private Equity has created more billionaires than any other vehicle and so it's because of the nature of the concentration of risk and reward and so when you are when you are the business that goes all the way to the investor you might represent one% of their portfolio so you might have a they might have a huge win with this business but it's only going to be 1% but if if it's

your business in either of these scenarios then you're probably going to have a Big Slice of that pie which means that their 1% win might be a 20% win an 80% win for you but what we don't see is the other 99 entrepreneurs who just go to zero and so this is where I think that from a personal level you have to know what you are shooting for because if you're like I just want to get rich then investing in sound assets that can give you a good return over a long period of time there's

probably no sure way to become wealthy to become the richest person in the world or the top hundred richest people in the world you will almost invariably have to do one of the other two paths that I just described the fourth path that I'll show you last is one that also gets you on the top 100 list too and I'll share how that works in a second but the beauty of being a traditional investor where you take your cash and you invest in businesses is that it's Unlimited in its scalability it's for the most part

passive with the exception of the active work that you have to do in finding sourcing negotiating the deals which is is work uh but typically less than running a business um and so since I am an active investor why don't I share with you some of the things that I look for in businesses that I invest in now to be clear this will be my investment thesis there are many so for me I create content like this so that I can get exposure to entrepreneurs so that they can come towards acquisition. comom and say hey

I'd like to do a deal with you or I'd like your help to help us scale and we happily do that and this is how we get to know businesses at early stages so that we can be with them throughout their careers I mean the smallest company that we that we started working with had done $2 million the year before and this year we'll probably finish around 110 million in revenue and that's mind you over years not like a couple months all right and so number one is that I try to invest in uh High

cash flow businesses that are profitable so I like getting distributions every month because it offsets my principle and it tells me that the business is doing well uh very on a much faster feedback loop so number one is I invest in high cash flow businesses and mind you this is in my active arm at acquisition. which is kind of our private Equity portfolio we have a venture arm which is acq Ventures uh where we write smaller checks for smaller slices of businesses where we are not involved and our primary uh value ad is risk and

a light amount of help compared to what we do when we're heavily you know investing in a company where we're taking you know 30 40 50 you know plus percent of the business in those instances we're going to be working we're going to be recruiting we're going to be work you know we're going to be leading the the strategy that business versus just saying I believe in this entrepreneur in this team I believe in this concept and I'm willing to write write a check and take on some risks so I can get exposed to some

upside so this is my private Equity thesis the second is that I want something that can grow and so fundamentally for growth there's only two ways that a business can grow right we can increase the number of customers or we can increase lifetime gross profit or LTV per customer so we can get more people or increase how much they're worth and if we see a path that's very clear that we can say oh we know how we're going to get this company more customers or we know how we're going to be able to double triple

quadruple how much customers are worth which one will immediately make us more money but then also allow us to spend more money to get more customers so school for example is uh one of our largest Investments at this point um I wanted to take a very big swing on something that I think could change an industry and it's an industry that I understand very well uh which is education and media and I feel like very I have Edge there I understand it now could something happen it could go wrong maybe but in the last year

we you know 6X uh the business so it did uh we had a good year um and so with school it was like okay do I clearly know uh how we can help it get more customers yes and so that was fundamentally what we drove now the lifetime gross profit is very much product driven which is not the role that we decided to take on for this particular investment but I did know that I have a huge part of my audience that wants to start a business and so I said okay well I don't have

something for people who want to start a business all my stuff is really for business owners but people who want to start businesses still want to learn about business before they start businesses and so I wanted somewhere I could say well if you're not sure go there and if you're not even sure about that just read some of these books so you can get a little bit more context on what you could potentially sell the third thing that I look for is focus and I talk about this a lot which is is the founder someone

who can say no who's focused on a specific Avatar specific customer has lived the life or the problem of that customer and I don't want to have to Niche slap a Founder all right so Niche slap is where they're like I sir I do everything for everyone which really means nothing for no one and so the benefit of being very focused on one specific customer Avatar or ICP ideal customer profile depending on what Market you listen to uh if you have that you can solve people's problems far better because you can be more nuanced in

the solutions you provide you can also charge more because the actual value is higher and you can tend to acquire customers cheaper because your messaging will be more targeted and the target of your advertising itself can also be more targeted so both the words the offer the deliverable the pricing all of this is a strategic question which is why I want to make sure the strategy of the business makes sense and then fourth and this is probably the biggest one of all of them if we're being very real is jockey over everything now now I'll

put one caveat out which is I'm not going to try and enter a market that I think is going to die so if someone's like hey I have a new gas powerered car that probably wouldn't be the bet that I would make if someone says hey I have this brand new print newspaper that I want to start probably wouldn't be the bet that I would make but if they're in a market that I don't foresee is going to disappear tomorrow then all of my emphasis is going to be on the jockey which is how good

is the person the founding team um for the business because the thing is is that the founding team is going to encounter innumerable problems as they try and scale this thing and you have to trust their ability to solve problems because it doesn't matter how good the idea is your ability to consistently solve problems in a cash efficient manner is how you can grow a business over the long term and so you want someone and I I'll use Uncle Warren's you know three three big three big values is you want someone who's incredibly industrious and

hardworking you want someone who has very strong ethics and someone who's competent and intelligent right and so you have competence you have work ethic and you have integrity and so he famously says well you know if uh if you have just uh competence and work ethic but you don't have integrity you've got a crook who's working really hard against you he's like very bad he said so if you are going to have that you'd rather have somebody who's really competent but lazy and disintegrate because at least that way he's not going to do you as

much damage right so you want to have all three now what's Difficult about this is that even one of those three things is hard to find somebody who truly has character even when the chips are stacked against them because that's the only time that it matters or someone who has tremendous work e I think especially especially when it matters most in the business when when things are tough or you're going through a growth period that's just like it's just requiring you to work 20 hours a day because you just you just there's there's not enough

people but you need the business requires it right now or you just have someone who's exceptional product or Prospect knowledge that they that ingly gives them that gives them tremendous Edge over their competition because they they understand everything down to um I love this uh analogy that a VC who invested in a Regal which is now you know in a pretty tough situation but for years was a a cash C Business Regal Cinemas um he said when he talked to the founder he said that guy understood the cost of everything down to the colonel of

popcorn he said he just knew everything about the business he said he's like and there was really no reason that I should get into Cinemas he's like but when I saw this guy talk about it he was like he was so energetic and so passionate about it and clearly had good character and he just understood the business so out he was like there's no way this guy's not going to make money in it and he did and that and that is a great example of a business that required a ton of capital to start opening

a movie theaters cost a ton of capital and so it makes sense that that business owner even though he knew everything about it probably been there for a long time he still asked for investors rather than saying you know what I'm going to take another 10 years to save all the money on my own just to start one when he's like you know what I could leverage other people's lifetimes of work so that I could basically be at year 10 at year one and have a smaller slice of a much bigger pie and so fundamentally

betting on the jockey the is the highest leverage bet you can make because you're betting on someone's ability to solve problems in a dynamic environment and businesses if anything think it is dynamic so the environment may change the market May shift uh some of the variables or assumptions that you thought were going to be there aren't and some of the most famous Founders were companies that started not even with that intention like slack was a video game uh uh company that eventually just had this engineering slack thing well slack thing right this engineering messaging tool

that ended up being good and then they shifted to that right because they just had exceptional Founders who were able to Pivot and be adaptable and so in some ways betting on the right jockey is almost like insurance for an investor it's like I just think this guy is brilliant and hardworking and I think when something happens he will figure it out and so when we're looking at all four of these things it's a high cash a business it has high growth potential there's a focused founder and they they they they exhibit High character High

work ethic and high competence then it's like okay well if there's companies that meet all of these criteria which is still rare what makes you pick one versus another and so for us we operate under at acquisition. comom uh one thesis which is the theory of constraints which is that a system will grow until this constraint and then it will grow no further and so once we find what the constraint of the business is then we attack that constraint with all the resources and all the brain power and all the money we have to try

and solve that constraint to then unlock the next level of growth until the next constraint and so to give a simple example if we were to Simply 10x advertising for you know a lawn care business if they don't have 10 times the salesp people to take those leads the next con like us just blowing the doors off the front end is just going to lead to the next constraint then we have to hire more sales guys but even if we did the marketing and then we did the sales then we'd have to hire more guys

to do the the to mow the Lawns right and so the constraint will continue to move down the the pipeline until the entire business is DEC constrainted and then you will realize the throughput increase of having this huge influx and so for us if we understand the business well so it has all of these things and it happens to be in a space that we feel like we understand better than other people then that's where we will be more likely to take our bet and the better we understand it the bigger the BET will make

and so to give you context on this the company Founders within our portfolio uh not including school because this metric would be stupid if I put School in there uh the average founder in our private Equity portfolio has had a 13x return on equity and so think about it like this if your company was worth $10 million when it started your slice I'd have to the circle would be much bigger than this page your slice of equity let's just not draw to size right your slice of equity later would be worth aund 30 million and

that's at the point right now today of making this video and so uh independent of how much they quote sold to us they are significantly wealthier than they were before and I think we may be the only private Equity Fund that even tracks what the return on Founder Equity is and that's because longterm I believe that me getting great deal flow from Founders who want to do business with me is the long-term strategy that is going to make acquisition. comom into a Powerhouse um with a new model of private Equity as an investor you can

think through these things and invest in companies that meet these requirements and ideally are in companies that you have some sort of edge in that you understand better than other people the final way of getting ultra wealthy is other people's money dot dot dot dot dot and other people's businesses you're like wait a second okay so you've got other people's money and your business that's raising funding you've got your money in your business that's bootstrapping it you've got your money in other people's business you're an investor and then you've got other people's money and other

people's businesses which makes you a fund manager so let me explain for example when I sold gym launch and Prestige Labs I sold those to American Pacific group in 2021 they are a $500 million fund which now has a second fund that's another 700 so they it have $1.2 billion under management now they bought gym launch and Prestige Labs together as a package for $ 46.2 million now that check they did to me represented a small amount of the overall funds that they had and so let me show you exactly why people who run funds

make a huge amount of money so a typical fund manager typically not always but it is common for if you wanted to raise call it $100 million okay let's say that that's the amount of funding that you wanted to raise a fund manager which would then be typically the general partner the GP would put something like 5% in so they would contribute $5 million of their own capital and sometimes it's between multiple partners to fund the the 100 million cuz most investors want to make sure that you have some skin in the game that you

care all right now that means that they're going to get $95 million from other people's money okay stay on track with me now the question is what is a $100 million buy me well in private Equity $100 million can then lever so you can leverage this and get $200 million in debt to buy $300 million worth of businesses so think about the leverage here you put $5 million in and you're able to buy $300 million for the businesses so then the question is okay but then what do these guys get for taking this risk great

question so the typical front structure is something has a has a two in 20 structure this kind of industry average there's obviously some that are different than that but this is the most common structure and so 2% the first number that people say it's like what's the structure if you hear someone say 2 and 20 one in one and 25 whatever what they're referencing is the management fee which is charged off of funds raised every year and then the 20% is off of the profit that's generated at the ultimate conclusion of the fund all right

so let's say 10 years from now we've exited all of the positions that we had and we turn this $300 million of companies into $900 million so over 10 years let's say we triple the money in general we triple the triple the value of the companies okay now what do we have to do well over let's say this is 10 years over the 10 years that 2% equals so this is management fee equals $20 million so you get $20 million in management fees just for that 10 that 10-e period of time now mind you you

have employees you have costs and so fundamentally the management fees are supposed to help you run the actual fund without having to put more stress on the companies that you're buying the 20% so this is called the carry what's cool about this is that there's no tax with uh carried interest sorry the cool thing with carried interest which is kind of the The Profit part for the fund manager is that it gets taxed like capital gains and so basically they can make their income in a tax efficient manner so let's say that we sell our

all the companies and so we have to take out the debt that we owe right so we have $200 of debt that we owe and then we have to return the hund I'm just going to say rout numbers we have to put the 100 million back into the Investor's pockets all right so we have $600 million back now there's going to be some interest cost here so maybe it's maybe it's uh you know if it was over a 10-e period we'll say $100 million in in uh in interest payments that we had to pay uh

to also carry this debt okay let's just say hypothetically all right so we've got $500 million left over now we have our 20% carry which means that we're going to get $100 million for doing this so we took our five we got paid 20 and 100 in that 10-year period and and this 100 also post tax is $80 million and so all in all you're making $100 million plus with a $5 million Slug and so mind you this is when you start with $5 million what happens when you capitalize a fund and you put a

$100 million in and you raise a $2 billion fund well just multiply these numbers by 20 it gets really big really fast and so fund managers employ uh one of the key principles of wealth and I'll have a follow-up video on on on the principles of wealth but one of the key principles is leverage and so they have multiple forms of Leverage that they're able to multiply it's why acquisition. comom is two like in my opinion the two strongest forces in business are leverage and supply and demand and so supply and demand is this these

two little curves here and then leverage here is this fulcrum all right and so they first leverage their $5 million to get $95 million from investors then they leveraged the entirety of that $100 million to buy companies which then they use the companies they leveraged the companies to get the debt off of these initial cash checks that they can write and then all of a sudden that five becomes 60 times bigger in terms of the assets that you can control and so obviously APG ran this exact model and they had a $500 million fund right

um but if acquisition. comom one day in the future wanted to have have a fund saying hey uh I'll put money in and if you guys want access to deals that I have access to and want my team to work on for you basically then we would have some fund structure in place that would allow everyone else to participate and so a fund typically should get structured because you have one of two key things in my opinion this is now just me talking Alex's opinion you should have access to deal flow that other people don't

have so proprietary deal flow the recent proprietary deal flow is Super Value is two things number one is that you will get better negotiated terms on the deals meaning that you could buy assets for maybe less than intrinsic value or less than a competitive process might yield right like if you're in an auction you will pay more than if you're just making a one-on-one deal which is why when you sell a house you're like I hope a lot of people bid right that's really good if you're a seller really bad if you're a buyer right

and so you want to have deals that you can just be the only person bidding on it so that's thing one so so for example what that looks like is for acquisition. comom it'd be businesses that are applying on the site at acis.com saying yes I'd be interested in selling a business or I'd like you guys to help me you know help invest uh in the business to help it scale that's what that would be now the reason that it's proprietary is they're not typically going to other people they're not saying I want investment I'm

going to pick acquisition. comom of 10 people they're saying I want to work with Alex and his team right because of their proven track record the second thing that you want in my opinion U as investment thesis is some sort of edge you want some sort of Insider knowledge not insider trading to be clear Insider knowledge know on the industry or prospect that a company serves and so you will find that there are some private Equity firms for example that just specialize in manufacturing they're just really good in in heavy manufacturing businesses some uh private

Equity firms are really good at uh cpg so consumer package Goods direct to Consumer uh physical products e-commerce right there's there's whole whole fields of great private Equity firms around that and they typically have Founders or ex-f Founders who funded that with their own exits and then basically redo the Playbook with more leverage um there are some funds that just specialize in software right there are some funds that just specialize in Professional Services there are fun some funds that just specialize in media and so uh you want both propriety deal flow so that you have

deals that no one else has ACC to these are off-market deals right that they only want to do business with you so you can get better more attractive prices in terms and then you want to have a way to accelerate value so if you want to think about investing as a business right we have LTV to ca too these things are not uh the these things completely apply to investing business so the CAC is if I have proprietary D flow then I'm going to be able to acquire customers or acquire deals for lower prices and

on better terms and if I have a way to grow those businesses then I will have higher lifetime deal value than somebody who doesn't and so when you combine those two things you get better returns so you have more value on the buy and more exit value on the sale and that discrepancy is what creates the outsized alpha which beats the market and so fundamentally this is what this has been my thesis for acquisition. comom now I haven't talked about this as much publicly mostly because it applies to fewer people than the vast majority of

my content but our team decided you know what let's let's talk about what we do and so so within the private investing world the fund world there's typically kind of two big buckets you've got private equity which means that they are buying equities that are private or off Market which is about a 60 or 70 year old industry and then you've got VC or venture capital and within Venture Capital you have growth funds you have seed stage funds you have series a series B and these will typically be defined by their check size now an

interesting tidbit for you is I was talking to David Weissberg who runs 10x Capital uh unaffiliated with uh Cardone um he just actually owns 10x Capital kind of funny um and they he exclusively talks to LPS so big endowments that have many many many many billions of dollars and that's like his entire network good podcast if you want to check it out if you like really like high high level investing um and so they did a meta study and they found out that uh VC or vental Capital assets so think uh software companies in general

have the highest return of any asset class they average about 14% per year which is uh I think the second highest one is REITs so real estate invest trusts I think average like about 12% a year um and then you've got you know the Public Public Securities so normal stocks is uh is something like nine and change uh they kind of go down the the gamut of uh different asset classes now mind you this is just the class of assets not just a specific stock obviously in every one of those categories there's some you know

real estate buildings that have you know 100x and there's probably not 100x but have gone up a lot there's software companies that have definitely 100x um and even individual stocks that are not software that have also 100x right Tesla for example and most most of these still Follow That kind of 2 and 20 structure there are some like there's a there's a famous one that's 0 and 35 so like it's really about how you want to shift risk with the founders sorry shift risk with your limited partners to give you context private Equity tends to

manage tends to manage bigger amounts of money so if you look at Blackstone has about a trillion dollar of assets under management Apollo has about 600 billion uh under management uh KKR has has $500 billion do under management so monstrous sums of money and there's a reason why private Equity has created some of the wealthiest people in the world the fund managers of these groups are all Deca you know Deca billionaires and above Stephen schwarzman I think is at 40ish billion just an absurd amount of money um and they do that because of all the

leverage that I explained earlier now Venture Capital uh tends to not always but tends to so if you have like a16z which is Andre and Horwitz has about 50 billion under management uh seoa one of the most well-known uh funds in the world has about 56 billion so they're about the same in terms of size so you can notice there's an order of magnitude difference in terms of the size but they're usually making bets on what the next Facebook is going to be whereas these guys tend to buy more traditional businesses that are already monstrous

and they do a little bit more of the financial Arbitrage meaning they're it's more about how they can buy it at one price sell it at another price or combine assets in a way that makes it a creative so a fancy word for just value additive to the overall Enterprise value whereas these guys tend to do zero mergers and Acquisitions and bet on the organic R viral growth of the companies that they take shares in and so these guys typically focus on inorganic growth and these guys F focus on organic growth meaning the company itself

grows and these tend to grow by globbing in multiple things together to make the overall entity bigger and so that's where like for example if I were to buy an auto repair shop I might be able to buy the auto repair shop at a five times multiple and then get debt for half of that so I put two and a half times uh their their income uh into the deal and then buy five other ones with that and then altogether sell them for 10 and I can triple my money in that period of time without

actually having grown any of the companies that's where it gets wild now in this game all they want to do is see this company just keep hockey sticking now if you're like okay well where does acquisition. comom sit within this world so we kind of sit in the the middle so obviously we have acq Ventures which is just traditional VC but our actual private Equity side we do little m&a um we like we do if it's if it makes sense and typically it's because it's like an adjacent purchase of a business that we're referring a

lot of business over to and it makes sense for us to just kind of bring them in more than we're like actively seeking out 10 follow-on Investments to glob together so we do less Financial Arbitrage and more value add in terms of our ability to help businesses scale and for us that's less Capital intensive and I would rather this is me personally it's it's I would rather allocate my team's effort to Growing something we're get it because is the most efficient form of growth in terms of return on Capital not the easiest necessarily but it's

the most efficient so if you can do it you do that but most people can't do it and so they just do Financial Arbitrage but there's nothing wrong with it's just a different way to play the game and so private equity for example will have traditionally somewhere in the neighborhood between five and 10 Investments for a fund so if you have a $500 million fund you're going to have five to 10 Investments and so the fund size will typically dictate the size of the investment or check that they're going to be writing Venture Capital um

and many times they have multiple funds within one kind of uh fund you know company that will be talk ones for seed companies ones for series A's ones for growth Equity uh so it just depends on um what stage of growth they're investing in but these companies can sometimes have 50 to 100 Investments per fund and so because of that there are significantly more hands-off and more betting on the few that go big knowing that they're going to have 99 losers and one Facebook that's going to make up for the whole fund here you really

can't afford to lose very much so here they're looking for the very consistent triples and quadruples and five X's here they're looking for one 100 or THX and then a bunch of losers that aren't obviously looking for losers uh they're hoping for more winners uh but fundamentally that is the difference in terms of the investment thesis and so if you are accepting a venture check you have to understand that those are the odds that they are playing with and that they're betting with on you that you like the thing is is for them you're 1%

bet for you you're 100% bet and so for the investors they can distribute their outcome and diversify which decreases their risk but also decreases their upside and if you happen to be Mark Zuckerberg then you will make more than everyone else who invested in you but you got to be Mark Zuckerberg and so if we think about the CAC of a requiring deals the same advertising laws always apply and so you're going to have so you're going to have four ways that you can get customers and then four other ways where you can leverage other

people to get you customers and so if you look at acquisitions.com if we find a company that we think is interesting we'll reach out to them I post content like this video to generate deal flow to get people to pay attention to what we're doing and show interest in our stuff uh we run paid ads for the same same reason um now if I were a traditional private Equity Firm um I would probably have Affiliates or agencies so these agencies basically function as uh Brokers right who will take a percentage of the deal um or

there are kind of outbound agencies that do this work to uh to kind of like um bird dog Deals they go and Chase out they do a lot of this outbound stuff on behalf of a priv firm to generate deal flow for them and so in all of the traditional advertising laws apply it's just that customers are now deals and products are now companies and all you're doing is adding zeros to your transactions and so APG to be clear used other people's money so they used you know endowments from Big universities like Harvard and Yale

and and you know the Teachers Fund uh to basically seed their investment and they pull all of those funds to then make the F or 10 Investments they're going to make and ultimately get a good return on it but it was other people's money and other people's businesses and so for that they didn't even have to start any of these companies and they were still able to make more money than most Founders do on their exits so APG bought my company other people's businesses using other people's money like the teachers endowments the uh the police

fund the fireman fund the the the you know Yale Princeton Harvard the endowments that they have they have these massive war chests of money that they give to these fund managers as a small allocation of their overall investment uh for their University or for their limited for their for their investees if you will um to get a return and so the key point that I think is very interesting here is that the fund manager of a fund like this will often make more money than any of the founders of the businesses that they buy and

so when I when I saw that I was like oh this is a very high leverage vehicle and so this is what kind of kicked off my journey to thinking through what are all the ways to make Mega Money and that was the point of this video and if you like this video and want to take any of these four paths to Mega Money and you want to compress the timeline that you achieve it in the number one video on my channel talks about exactly how to do it