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After The Exit
#6 - High Net Worth Spending, Your Rich Life, and Alternative Investing w/Tad Fallows of Long Angle
01:06:54
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Foreign.
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B
Welcome back to after the Exit where we dive into everything wealth related. And if you sold your company, you may feel these certain feelings or topics that you want to talk about, but you can't. We're going to get into them. Some of them are kind of awkward, but we tried to get into as many as possible. This episode though we talk about executive health. We both did our annual checkup. What does something like this cost, what our results are and our lifestyle changes. Now we, we both did goal setting. We did it with our partner and we planned it out how you can too. We dive into that. Then lastly, two years post exit the things that we've learned. So this is cool. We're going to dive in and jump on in. All right, thanks. I like that you got the long angle hat on. How do we get one of those? Is there a long angle shop?
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A
Did you give Brett your size information when he asked for it?
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B
I don't remember getting that size.
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A
Yeah, you should. I will. I'll tell him that. You guys tells me you don't have your Stanley's either.
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B
I moved a couple times, so I don't. Yeah, I mean it's possible it went out as well, so maybe it's. But let's, let's just talk. Let's just jump in about long angle though real quick because Ted Fallows, you were kind enough to be transparent about yourself, whereas normally we keep it anonymous. But you ran a business, sold a business, started long angle as the super high level. Actually, you know what, I'm sorry, let's just go into the company first and that's how we get into long angle. So how did you come into wealth to be direct here?
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A
Yeah, no problem. Well, thank you so much for having me on here. So my journey to wealth is maybe similar to yours and a little bit more abrupt than most where I bootstrapped a software company shortly out of college with two friends of mine, Andreas and Sriram. And I think we bootstrapped it rather than raising venture partly because of the TAM that we were in. It was not that big a market. It was sort of 100 million maybe if really squint a couple hundred million, but not the kind of multibillion dollar TAM that was going to attract vc. And then partly the timing of when we started it was in. We would have been raising in 2007, 2008 and markets were closed then. So I think it ended up being a healthy thing of having to be cash flow positive the whole way. But because we were bootstrapping, we basically Paid ourselves next to nothing for the whole 10 years that we were running it, but then retained pretty much all of the ownerships other than what we gave to the employees, that when we finally sold it to a strategic acquirer in 2016, you very got your deferred compensation for the value you've been building for the last 10 years. So that was kind of the professional background.
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B
You guys didn't pay yourselves at all?
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A
No, it varied. I mean, we paid ourselves something, but maybe 30 grand one year, maybe 45 another year. We had a number of employees who are making multitude multiples of what we were making, but we were sort of the swing factor. So I'd say the last couple of years we're paying ourselves maybe 150, 200,000, but for probably seven or eight out of the 10 years, it was in the five figures.
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B
Did you always know you wanted to sell or have an exopath?
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A
I would say for the first five or so years. I had been in consulting for three years before that as an analyst. And so my thought was, hey, I don't really want. The standard path after being an analyst is that you'd go to business school for a couple years and then you'd come back and kind of get on the partner track. And I actually love being consulting. I did that for three years out of college and I thought that's what I would continue to do. So I figured I would just go work with Sir Andreas for a couple years, have a good time, try and start a company, and then that wouldn't really work out. And then I would go back to consulting. And so I'd say even for the first five years or so, it was one of those things of like, hey, this will just be a good experience. Got to work with my friends, learned a lot, had some good experiences before I start my quote, real career. Probably around five years in, it got to the point where both there was enough sunk cost and sunk effort and time that it no longer would have been as fun if it had ended up winding down at that point. And then I would say the last couple of years, as we sort of stepped back and looked at, we said, hey, 90 plus percent of our net worth is in this one illiquid micro cap stock. So at that point we were like, hey, we should really look at selling this. And I'd say that sale process, I don't know if that's something you want to get into on the show here, but it was a pretty long process for us. It was probably two or three years from when we started looking at it until we finally closed the deal. Not that we were actively in that process the whole way, but really love the investment banker we worked with. I can give him a shout out here I was Alan Censoria at Software Equity Group. You know, we first got in light touch with them, as I'd say probably three years out and you know, had just a couple conversations and he was like, hey, this is really interesting company but you are not ready to sell and you got to change, you know, if you eventually this will be a good thing to sell, but here's the stuff you need to do today to set yourself up for a good exit two or three years out. And you know, a lot of that was around getting our records in a better place of like, hey, you know, when you're in diligence, they're going to ask you, you know, show me your lifetime revenue from every one of these 200 customers, show me what it was on month by month, basis, et cetera. And you won't be able to have that. So yeah, a lot of putting together, you know, improving those records. And then also I think for us the TAM was probably our biggest potential issue. You know, we had great customer, you know, 99% customer retention, great unit economics, solid, you know, 40 or 50% a year kind of growth. But you know, there's a question of hey, is your TAM only going to be $20 million, nobody's going to want buy it or is it really going to be at least in the low hundreds of millions? And so we also did some things around, especially proving out that we could sell internationally. So I'd say for the last couple of years went from basically only selling the US to selling in 20 or 25 countries now still didn't become a big portion of our revenue is maybe 10 or 15%, but that more than doubled your TAM because we basically proved, hey, we can sell this in Europe, we can sell this in Australia, we can sell this in South Africa, Japan, et cetera. And then we also came up with some add on modules and again they were relatively small in our total value at the time we sold it. But they proved that there was a lot more revenue to be had there because we could cross sell our existing customers some of these add on modules. Anyway, Alan did a great job giving us that background there. And then the actual process was probably a full year from when we actually contracted to start working with them. And we're putting together our decks and they start the outreach till the point where we actually closed the deal for. Probably a good thing is our company was 100% virtual the whole time. So, you know, we had 75 employees, but everybody was working from home. So I think it was extremely stressful for, you know, me and our leadership team who was in this diligence process, but not at all disruptive to the company because, you know, 90% of the company had, or the employees had no idea we were going through the sale process. So it wasn't until we finally announced it, you didn't have that period of kind of people wondering who these bankers are coming in, out and why the management team is suddenly on the road and won't say what's going on.
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C
So like 10 years, that seems like kind of a long time to bootstrap and build a company, I think. Yeah, I mean, that's a decent hold period. So I guess was it just the last. Would you have sold it sooner if you could have? And you said the last few years you were getting it ready to sell, but if it was, would you have sold it earlier?
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I mean, I don't know that we grew. It really was a pretty consistent 40 or 50% every year. And so if you look five years in, it kind of wasn't worth that much. We were growing that rate through the end. And so I think it's always that trade off, right of hey, if I hold on another year, it's going to be worth 40% more. But at some point you're worried, is the music going to stop? Is it going to be a good M and A market? I mean, I was very worried about the growth slowing down because, you know, let's say you had $10 million of revenue growing 40% a year. If you grew that only to 12 million the next year, at 20% growth rate, the company's probably actually worth less, even though, you know, it's a larger company. So it was a bit of trying to figure out, you know, how long can that balance between growing your ARR base but not losing that momentum. So yeah, I mean, I think four or five years earlier, it just wasn't. You would only have been selling the kind of technology in the team. You wouldn't have actually been able to sell the business as a going enterprise. It probably took us three to five years before it was really a viable business. It was like, okay, the first year we made 30 grand in revenue, then 45 grand, then 80 grand. And so even though there's a large percentage rate, it wasn't very much in absolute dollars.
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B
What did it feel like when you get to that finish line. Because two years of a process and thinking about it, I'm sure you're like, what could I buy? What could be worth how will this change my life? All that stuff.
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A
Yeah, I mean, it had been so stressful. I'm sure you guys went through this where, you know, we not only were in the diligence process, but we just moved, you know, from California to Texas. My daughter was 6 months old, my son was 4. We had some extremely serious health issues in our family. We were trying to remote the. Before we moved to California or to Texas from California, we still had a house under construction there. It turned out our contractor was stealing from us. So we had like four or five things, any one of which would have been a kind of life consuming thing. And so I. Yes, and also because we were bootstrapped, we never had money in the bank account. Our best case, we were at sort of three or four months of payroll in the bank account. There were times when we were down to five or ten grand in the bank account and a half million dollar paycheck coming up at the end of this month. And that was probably part of the reason we sold it too. It was one of those things where we were always cash flow positive. But our accounts receivable got super high, which was not because our customers didn't pay. You know, we had well under 1% that were actually unpaid, but because they were universities and hospitals like the state of Nebraska, the state of Texas, the federal government, these guys would take, you know, three, six, nine months to pay because it was just sort of like they weren't even trying to drag it out. It was just like lost in some system somewhere. So you had like millions of dollars of AR out there that you wanted to collect, but you had to meet payroll this month and you know, again, by the end it was in the numerous hundreds of thousands. And so that was also just a monthly source of stress of hey, we can't collect enough checks this month. Not to worry about it. Which again, fortunately the music never stopped on that. But you kind of felt like you were pushing your luck at the end. So I would say it was just a huge relief. I didn't have this massive spending I wanted to do. It was mostly just trying to take the stress down so I could focus on some of the more important family things. Again, sorry, health issues and having little kids.
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C
What was the first fun thing you bought when after you sold your company?
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A
I'm not a big stuff guys. Like I didn't get a fancy car Or a watch or any of that stuff. Well, the big splurge, which was not right away, this was a few years in is we got a really nice vacation house in Santa Barbara which has been like, I would recommend that, that to anybody. It's you know, beautiful ocean views, like swimming pool, you know, hot tub, all that sort of stuff. But it actually works out super well because there's a great rental market there. So when we're, you know, is way more than I would feel responsible owning just for my own usage. But it actually is cash flow positive because we're not, you know, we're not there that much. We live in Texas, so we go whenever we want to on vacation and have, you know, sort of a ridiculous house and then otherwise it's a great rental property. So, you know, like there's a lot of entertainers and musicians who come up from LA and I'll rent it and so yeah, that was definitely our single big splurge.
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B
Wow. Yeah, yeah, yeah. I mean that's quite a few Teslas or Rolexes or whatever. Not yet, maybe jet worthy, but yeah, maybe close.
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A
I don't know. It's an investment. Yeah, there we go.
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B
Did you move to Texas thinking about taxes or. No, because obviously that's something people think about to optimize.
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A
It was not for taxes. We'd lived in Southern California, both in LA and Newport beach for, I don't know, probably five or 10, pretty much the whole time I was building the company. And then it was, you know, ended up being very fortuitous timing. But it was about a year beforehand, right before we sort of started that serious diligence process. My wife had gotten a job here in Dallas, so we moved here to follow her job. You know, ended up working out great from a tax perspective, but that was not the motivating factor.
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C
What are your thoughts for like moving for tax reasons? I mean you move not because of it, but you got the advantage. So you kind of feel what it's like to do that. So would you recommend that? What do you think in terms of.
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A
Yeah, I mean, I would say, you know, from a purely financial point of view, like you certainly recommend it. It basically bought our entire house here. And I've got, you know, great five bedroom house and a great school district that, you know, I love and have no desire to move from and you know, basically pay for the whole house not paying your 13% to California. So I'd recommend it that way. And also I would say I think as much as. So the taxes are a difference the housing is actually not that much cheaper, you know, anywhere. If you want to stay in California, like you could get a house in, you know, Fresno or somewhere else that is like not very expensive. But you know, if you're in an area you want to live in, whether that is, you know, Dallas or LA, either way you can easily be paying $10 million an acre. So it's not. The housing's not necessarily that much cheaper. The general cost of living though is much lower, whether that is the, the schools, eating out nannies, any other stuff besides taxes. So financially I think it's a clear win. I think in term, the biggest thing I would say for those who are thinking about it is I feel like there is this perception that you are trading off cost of living for quality of living. And I just don't find that to be true at all. I absolutely love living here. And I would say professionally, there's probably a certain set of things where you need to be, as certain stated, to do them. So if you want to start the next OpenAI, you have to be in the Bay Area. You're not going to find like that depth of AI talent and that amount of VC in Atlanta or somewhere else. But the same way if you want to start an investment bank, you'd have to be in New York or that kind of thing. I mean, if you want to start an oil and gas enterprise, you gotta be in Texas. But if you leave aside the kind of handful of jobs that are sort of location dependent like that from a quality of life perspective, the restaurants here are excellent. There's great museums, there's a great symphony, there's great sports teams. The level of diversity of my son's best friends, one of them is of Chinese descent, the other one of Indian descent. A lot of our friends lived in Manhattan or Hong Kong or wherever it was before moving here. So I think kind of have this perception coming from the coast maybe that in the middle of the country you're going to give up quite a bit of quality of life. I think that might be true if you're single. I'm not sure that I would love being here sort of on the dating scene, but if you're in a stage of life where you're married and especially if you're raising kids, I think also this sort of. I don't know if either of you guys have kids, but the sort of prevailing expectations around how present you're going to be with your kids are just much different here than I experienced either living on the east coast or California like in the sense of, you know, if you've got a four year old soccer game, that soccer game's at five o'.
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Clock.
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I'd say most of the dads are there. Even if they're a partner at the law firm or they're an investment banker or something like that. The kind of expectation is, hey, yeah, it's fine you're leaving at 5:00 clock to go see your kid's soccer game. And I didn't really feel like that was sort of the way it worked necessarily in la.
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B
I feel like what I'm hearing and maybe, although I'm curious on what your thought is too, I feel like you're pushing the quality of life part like almost 70%. And then you mentioned like. Yeah, yeah, I mean, there's definitely an alpha of tax and because it paid for a house and that's awesome. But you know, 80% of what you just talked about is because you guys wanted to move there. It's good for the kids, good for wife, career and family and all that other stuff.
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Yeah, no, that's true.
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B
I mean, which maybe is different than, I think what you hear though, a lot of flip side. I mean, you hear the Puerto Rico stuff and Nevada and whatever else. Which is the number one is tax, which. Yeah, I mean, that does feel a little bit tricky if you don't actually enjoy the place, assuming you have to be there for a couple of years or whatever and really establish a life there.
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A
Yeah, I think that's true. I wouldn't do it just for, I mean, it's sort of like, what's the point of having a lot of money if you don't enjoy where you're living? But I mean, our acquirer was in the Bay Area and I remember telling my manager, he's like, oh, well, you know, you should move here, move up the career ladder. I was like, you would have to pay me four times as much to get me to move there. Like totally leaving aside the cost of living, like the idea of living in Silicon Valley versus here, I just enjoy it so much more here. So for me, as I said, it was not tax motivated. And yeah, I think that's more the cherry on top as opposed to the core reason.
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B
Did you think about that, Ryan, on your exit?
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C
I did think about doing that at one time and then, I think, you know, to Tad's point, it's kind of like, why have a lot of money if you can't do what you want anyway, this is, you know, I'm where I want to Be. So why would I put myself in a place I don't want to be for several years just to save some on taxes where. I mean, I can tell myself that. But then if, you know, you tell someone else like hey, if you just move to this place for a couple of years, you'll get X million dollars. You know, I think 90% of people will be like, of course I'm going to do it right when you put it that way. But I think yeah, for me it was more like, you know, this is where I want to be. Why do I have all this money if I'm going to go somewhere I don't want to be for some period
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B
of time or whatever?
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C
Not that I couldn't be happy, you know, in other places like, you know, maybe I'd go to Dallas and love it like, like dad. But I'm good where I am for now.
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A
Yeah.
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B
Yeah. In the end then you could buy your Santa Barbara vacation house too.
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C
That's right.
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B
Yeah. That's interesting thought. Okay. One of the things that I feel like has happened over time is spend like it almost feels like when back when running the business it was like the amount of time that I give the business to work on things and to execute on things is the amount of time that gets soaked into it. Like if, if I have to leave at 2 o' clock because I gotta catch a flight or something, I actually get all my shit done before I gotta leave. But if I give it until 8 o' clock then that's how much time's gonna soak up. And I feel like money is in a way kind of like that. I couldn't imagine what I spend now compared to five years ago. I mean it's just, you know, day and night because of that. So my first question, Ted, is just like how do you think about spending now and you know your journey since exiting to today?
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A
Yeah, it's a great question. I would say, you know, as I said, I'm not somebody who like had a big pent up desire for luxury cars. But I think, I don't know, we probably all of us think oh I'm not into fancy stuff. But then we have like our categories and when you add up all those categories is a lot of stuff. So I'd say, you know, for me it's like. Or for our family travel is a big thing. You know, we love going to Europe and, or wherever. We just did Christmas in Australia. I mean I did Costa Rica before that. We didn't. So last year I think we did Did Australia, Costa Rica, Austria, Switzerland, Italy, I think last year. And so doing that partly, I think we tell ourselves, oh, it's great for the kids, get that international exposure. I think it's probably more just that we really enjoy doing that and then having a nice vacation house. Something else that is important to me, like to go out to eat. So even if I don't like fancy clothes and nice cars, there's plenty of other things I enjoy spending money on. In terms of how we think about it, we had probably about three years ago now, my wife and I were just sort of looking at each other like, man, every time the credit card bill comes in, somehow it's like 25 or 30 grand. And what happened? And it was like this series of exceptions, like, oh, well, there was a property tax bill this month and then there's a big insurance bill that month
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B
and then there's always a one off.
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A
Yeah, like, oh, we just booked all of our summer vacations this month. But it felt like every month. I was just surprised by it. So what we did is I invested, probably took a few days, I've just sat down and basically for the last six months just tracked, okay, what was literally every dollar that we spent, like what category was that in? I used a tool called ynab. You need a budget. I think that's more designed like for trying to get out of credit card debt. But it's like a pretty intuitive web based thing, has a lot of links to other tools. And so anyway, I just looked at what was the actual spending over a long enough period of time that you averaged out all of those sort of, you know, annualized or biannual payments. And then we kind of step back and say, okay, like that is the level of spend. It's like more than we expected. But which of these things are actually align with stuff we care about and which don't? I would say most of it aligned with stuff that we cared about. You know, it was like, okay, we're spend an enormous amount of money on kids activities, whether that is the nanny, the sports teams, you know, the tennis coach, the math coach, the summer camp, et cetera. But we're like, all right, well that's, you know, we've got money. Like the most valuable thing we could do with it is, you know, try and invest in our kids. Then the other big categories were, you know, travel. There were a couple of categories we looked at and said, okay, that really seems like too much. Like, all right, if we're spending two or three grand a month to Eat out. We don't really need to be eating out that much. That's not that valuable to us. Let's make that more of an intentional thing. We're going out with friends, not just a default.
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B
Were you spending a lot to actually cut that? Because I went through the same exercise and I looked at it and I was like, ah, this felt higher than I'd like. But I didn't feel like it was excessive. So I guess it was tougher to actually cut. In reality, the two things we cut
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A
were one was eating out and the other was clothes. I actually, I said I don't like clothes, but that's a lie. I do enjoy.
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B
Turns out you did like clothes.
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A
And especially I like buying suits and nice ties and stuff like that. And I was like, this is absurd. I never wear suits, I never wear sport coats. I just think they're cool. And so anytime I have an occasion or there's a sale collectible, buy it. So I really dramatically cut back on the clothing spending. And, you know, now I'll maybe once a year, like, you know, do a nice clothing shop, but. But really not that much. And I think I found with the restaurants looking at it, it was actually the over the top meals that were really driving the price. It was not like we spent 70 bucks to go this place, but it's like, oh, this is like sushi place. You know, it's like 600 for the two of us. We got the omakaze and like, you know, the wine pairings and that kind of stuff. So. Not that we never do that. But yeah, I'd say those are the two categories where we actually saw a reduction of spend.
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C
What about Amazon? Because I feel like those are so easy now with the app and everything to just make a purchase and buy. I know that's where I kind of rack up and I don't even realize all I'm spending. I'm like, oh, I need this. I'll just put in an order.
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A
Yeah, I found as I looked at it, it's sort of the opposite of what you'd hear from like a Sue's Armon or stuff. Those little like ten and twenty dollars purchases don't really feel like they add up that much. It seems like it's really the big ticket items, at least for us. Like, okay, if we're all going to Austria for two weeks, that costs a ton of money. But I could buy an enormous number of printer supplies and new hats and things like that without really coming to that same one. So it was the handful of big categories for us as opposed to the little stuff. I find worrying about if I'm going to go out to buy a cup of coffee is kind of stressful and I don't think really puts, at least for me, doesn't really move the needle in terms of total spending as I was kind of looking at the categories before this and really half of the spending is just in vacations, kids activities and our nanny. And so those are things like they're all optional, right? Like we could choose not to go on vacation if one of us wanted to stop working or stop doing stuff, we wouldn't need a nanny. And again, the kids activities, this is not school we send to public school. It's just sort of all the ancillary stuff around that. So yeah, those three kind of big ticket ones.
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B
Ryan, what do you think about your spend when you looked at it?
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C
Yeah, I mean I think Amazon for me kind of adds up. I buy more than just $20. Stuff you're buying, stuff I'm buying is
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B
a lot more costly. Buying tanning beds, I mean I usually
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C
buy everything on there. So that's a big one. But I mean travel is a big one for us too. I, you know, one thing I, I decided was I, I'm kind of over flying long haul flights in coach. So that adds up. Especially when you get the kids and you get the kids on flying business class as well. That, that adds up. So I think those, you know, those are some of my biggest areas of, of spending. What about you?
- [23:50]
B
Mine? I was surprised by food. I definitely eating out. I was like, Whoa, it's like 3K or so. And you know, monthly, you know, maybe around 25 to 30 and I think as an aggregate it was surprising. And then when I went down into it, I mean I think almost half was housing between two places and then the others, yeah, more shopping and sort of family related events and stuff. We don't have kids but we'll host things with families or tons of gifts for extended family and all this other stuff. So not in a bad way. I think it's just more of a shocking thing. Like I wasn't planning on cutting some of that. I do get annoyed by the little, the little pokes of stuff. For example, the eating out one, you know when you see like DoorDash is like 60 bucks for two people. But you're right, like it doesn't add up as much. But I did, I told Ryan. I did delete Amazon off my phone though because I felt I was so impulsive with buying Stuff I just pop it open, I buy it and I forget about it. That the website kind of sucks. So I literally stop and I don't even go to it because it's not that great. I have to go on my laptop, so it's helped.
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C
So you have cut back spending just by removing it off your phone?
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B
I don't know. We'll have to see. We're still early in the year now. But I don't. My sort of like going to ramit thing, like my rich life isn't. I think we more value on the housing side and going places. But we don't spend on first class. We'll do like maybe premium economy or I guess no more exit rows either. The door got sucked off. So.
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C
Yeah.
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B
Ted, how do you fly then? Are you first class for the family or.
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A
Yeah, I was going to ask Ryan that. His comment about flying business. I cannot bring myself to do anything but coach. I just. I feel like really going to get there at the same time as everybody else and I'm going to get there just as safely and yeah, it's like $4,000 a person to fly to Europe. It's funny, I was talking with a friend of mine from college and I was appalled that he'd spent ten grand to fly somewhere. I was like, why on earth would you do that? It's like, well, I'm not going to die with $10,000 left. It's not my last 10 grand. Why wouldn't I do it?
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C
Well, if you take multiple trips, it's more than just 10 grand, right?
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A
You may.
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C
What I find is the biggest thing for me is the sleeping aspect. Being able to get a good night's sleep, especially for the kids and me and the family, I think makes a massive difference when we get somewhere. So you're not just like a zombie, you know, when you get somewhere and you. It kind of gives you an extra, you know, day, day and a half in a place, you know, feeling better than you would otherwise.
- [26:29]
A
Yeah, I think that's. That's smart. I've kind of taken the opposite thing of. I figure I just. I've never been able to sleep on planes and I don't enjoy it. So I just work the entire time. Even if I'm going on vacation somewhere, I've just got my laptop and I'm going to do, you know, eight hours of work. So I actually feel like when I land, I'm like, wow, I got much more done than I would in a typical day because I didn't go graze in the fridge. I wasn't checking the mail. I wasn't doing anything. I was just there pounding away at emails because I got nothing better to do. So that's how I've tried to take that.
- [26:57]
B
It builds character. When your elbows are really tucked in, you got to type and someone leans back and bends down the screen, and you got to fight through it. What is your TED then? What would you consider your rich life spend then? Like, what is the area that you get a big return from?
- [27:15]
A
Yeah, I would say, you know, certainly the place in Santa Barbara, we love doing that. And the travel, as we've all been talking about here, you know, I think that's especially important to my wife, but, you know, I really enjoy it, too. But I think that's something that we feel.
- [27:28]
B
Is it the hotels and activities then that. Cause you said that was a big.
- [27:32]
A
I would say it's partly just the number of trips that we're going. Yeah, I'd say we spend. We get nicer hotels than we do airlines and not staying in the cheap hotels anymore. But then it's like, okay, well, I want to fly into Zurich and want to fly out of, you know, Vienna, and now I got to rent a car between them. That's going to be like four grand. Because you're going point to point and like, everything in Switzerland is, you know, unbelievably expensive. And yeah, you're eating out at all the meals. So I don't know that it's any one thing so much as. Yeah, but it probably would be the. The hotels there.
- [28:02]
B
So.
- [28:02]
A
Yeah, I think that I'd say the other thing that is probably, again, both for my wife and me is just not worrying about money. Like, not. That's probably the biggest difference from before of not being stressed about it. Not like, okay, well, are we going to be able to cover this credit card bill or are we going to, you know, do we have to decide between taking this trip here and, you know, sending the kids to private school or going to this camp? Like, you know, we choose to send them to public school, but it's not because, like, we couldn't afford the private school. And, you know, again, we've got, like, mortgages on the house because we locked in the debt super cheap, but not feeling kind of tight about it or worried about the bank balance or, you know, needing to kind of float a line of credit to cover certain things. So I'd say that lack of stress is the biggest luxury item.
- [28:48]
B
Yeah, that's awesome. We were talking about that the other Day with like menu items, like being in a restaurant, not having to look at the price of a menu is a small but very luxurious feeling thing.
- [29:00]
A
And also if you have kids, think having a nanny. My kids are now 9 and 12, but we still have a full time nanny. So they're in School from 9 to 4, but we need her before school and we need her after school. And then during the day she do our grocery shopping for us. If the car has a recall notice, she'll go take it to the dealer and deal with them or whatever, pick up the medication. So there's a lot of that sort of time that you get back and just then having someone. So if the kids are sick and they need to stay home, we have the nanny to do that. You know, that's a big luxury item too.
- [29:33]
B
Does she live with you?
- [29:33]
A
She does not, no.
- [29:35]
B
What does something like that cost is like a range.
- [29:37]
A
I mean that's going to depend a lot on where you live. I'm sure it's a lot more in California than is here, but I think we pay about 1,200 a week for that.
- [29:44]
C
So I don't work and my wife doesn't work. So it's hard, harder for us to justify having a nanny. And I think if we both worked
- [29:52]
B
we would probably consider something like that.
- [29:54]
A
I think if you've got little kids, I definitely recommend the night nanny.
- [29:57]
B
I've heard about that as well. What about on the income side? So I think one common feeling that happens after selling the business is awesome. You pulled forward so much income and it's in the bank. And this is cool. You log in all the time, you're like wow, that looks really great. But then you're like, whoa, wait a second, I need to figure it out. I know there's dividends and things like that, but there's no check every two weeks. And this is, this just feels very awkward and I feel like a lot of people start craving cash flow, you know. And maybe this is where people that get into these like plumbing businesses and all these other like interesting service related things or buying other stuff. And I guess this gets into investing and so on we'll get to too. But have you thought about an income level where you feel good that's above your spend as well? Because Ryan and I were talking about this and it's like maybe it's a break even, right? Where it's just even. I tend to feel like I need more of a cushion. So I thought like 500k years, like that's a Great cushion, feels good, you know, and it just mentally is satisfying, but it's not needed and maybe it's also excessive. How do you think about that? That's a great question.
- [31:10]
A
I mean, I would not say I've like fully thought it through. Everything you said there I can empathize with. I don't have a great framework. I'd say for the first, you know, we worked at the acquirer for like the first five years afterward and it was kind of an evolution of why I was doing that. I would say, you know, at the beginning, the first couple years I really thought like, hey, I'm gonna, you know, I'm gonna knock it out of the part here. I'm smart, I'm hungry, I'm ambitious, I'm still pretty young. Like I can, you know, I'll go C suite here. You know, I want to be CEO of this company eventually. And then. Yeah, so that was probably the first couple of years and then I realized after that that it was very well run for, you know, a $40 billion company. But the way you, you know, run and, and the way one succeeds at a very large company is different than a small company. And of did not enjoy as much the activities that were required to be successful in a, you know, large organization with tens of thousands of people and lots of cross functional alignment and that sort of thing. So that was the first couple of years. Then the next couple of years it was, you know, we did a. We didn't have an earn out on our sale but as a, you know, retention incentive they you know, gave me and my partner quite a bit of restricted stock. And then it so happened that the company that acquired us was super successful over that period. So by the last couple of years, you know, that stock ended up being a big portion of the purchase price. And it would have been kind of crazy to leave before that had vested because it was, you know, meant. Yeah, it would just been sort of too much money to walk away from. And then the last couple of years, I think I probably, you know, should have left earlier. It was a little bit aimless where like hey, I don't, I was probably more inertia. Like I don't really want to be here. I don't really, you know, I'm not looking to go the distance. This company now there's not this like gigantic amount of stock that I'm sort of waiting to vest. But you know, it's not that hard. The people are pretty nice. Like it is nice to just get a paycheck, you Know, what else am I going to spend my time doing? So I think a little bit of inertia there, and that's where I ended up starting this other organization is kind of a way to spend my time, which we can get into. But yeah, I would say so. For a long time I actually was making a paycheck. And then my wife, she is much smarter and more talented than me. And so she has a very successful executive career. And so her income has always been much more stable than mine. Of me starting the company of basically paying ourselves very little, then getting this one huge payout and then getting a solid income and lost stock for a while and then stopping getting a paycheck has been much more volatile. But so between me working there for a number of years and then her having a great career, we haven't really had to step back and say, okay, well, would we be comfortable just living on the dividends or would we say, okay, a 4% withdrawal rate or a 2% dividend rate, or do we go heavy into, you know, manufactured housing and try and jack up the cash flow? Like I've sort of thought about all those, but not thoughtfully through. I mean, I think where I would, you know, where we've always felt is, hey, we want to be in a place where every year we are bringing in more, more cash either through earned income or passive income than we're spending. Like not having to sell, count on capital appreciation and sell off assets to, to cover the bills. I think what I would like to get to soon is that just our passive income more than covers our expenses. So that, you know, she really likes her job. She's very good at it. I don't think she would stop. You know, she's not doing it just for the money. But to know, hey, you could stop anytime you want to, you know, if it stops being fun. I think any job is more fun if you know that you're don't have to be doing it and you're doing it because you want to be there. And so I think I've started to be thinking about, I think that's more of a portfolio allocation decision where historically, you know, we have had almost all of our assets in high appreciation, low cash flow investments. And those have been great with the way that the property market and the stock market has done for the past 10 years. It's been a smart place to have it. But I think our total yield on our portfolio is probably under 1%. It's like half a percent or something. So it's not actually like you're getting this big dividend check once a quarter and be like, oh, that's awesome. So I think especially as interest rates have gone up recently and you can get in these relatively safe private credit deals at 12, 15% kind of yield or I mean, there's a lot of different ones, again, different asset classes you get into that are paying kind of anywhere from 5, 8, double digit kind of percentages. I've thought about, should we reposition to just get more of that passive cash flow, even if it's not tax optimal?
- [35:37]
B
Interesting. How do you think about that on the income per spend side?
- [35:42]
C
Yeah, I mean, I think, you know, having more of it coming in than worth spending, that's kind of the place where I want to be and we're, we're kind of at that place and not worrying about having to sell assets and, and that type of thing. I think that's, you know, that's kind of how I think about it now. You know, I know, dad, you do a lot with alternative assets. And I'm in some private credit and some, some other, you know, alternative assets. I'd love to hear your thoughts on, you know, where you think the opportunities are, you know, which, which assets are, you know, the most interesting and, and kind of how you think about that.
- [36:18]
A
Yeah, I mean, I'd say from, from a pure cash flow perspective, I think private credit is very interesting right now where, you know, you can certainly any asset, you can go further out the risk spectrum and raise either your cash yield or expected returns. But I think given that it correlates reasonably well with overall interest rates, you can get, I think again without getting that aggressive, let's call it 10% or maybe more in private credit. And that's not something, those are kind of percentages that in the days of zero interest rates, I think would have involved significantly more risk. I mean, maybe they didn't actually, that risk didn't actuate and the economy did well, so those companies didn't go bankrupt, I think. Nevertheless, I think that's an interesting asset class. I mean, in general, I think if we're kind of talking generally, I'm bullish on a lot of them. I would say the one asset class where I'm not doing much buying today is real estate. And I think our portfolio has historically been very real estate heavy because when we were looking at it, for example, when we bought our Santa Barbara house, we said, all right, we can borrow money at 2.5%, I can borrow $5 million or 2.5% and lock that in for 30 years and the government is spending money like a drunken sailor. There's no world where inflation is going to be lower than this cost of capital. Why would I not take this, lock it in and just leaving totally aside any income this is producing or any personal value I'm going to get out of this, it's almost certainly going to appreciate faster. In a price perspective. The timing probably turned out to be that was a very long term bet. It turned out to be very fortuitous timing where all of a sudden inflation did take off like a rocket. Interest rates fall to quickly. But just in general it seemed like a really good setup for real estate. I feel like it's kind of the opposite now where interest rates have gone way up but prices have not corrected. And so it's kind of, it feels like the opposite side of that equation of why would I lock in 7 or 8% debt when it seems like the Fed is very serious about bringing inflation down. And real estate is historically expensive compared to people's incomes or compared to GDP or compared to other factors. And I understand why sellers are not coming down because if you look at it from their point of view, well, my costs are locked in. If you're in California, there's also Prop 13. So not just their interest rate being locked in, but their property tax being locked in. They can easily afford to sit on that property. But then it becomes sort of irrational for me to buy that property and pay twice as much property tax and pay twice as much interest on the debt and all that sort of thing. So say that's the one asset class where I'm kind of. Not that I think prices are going to fall, but I just doesn't seem that well set up for long term gains. But I think there's a lot of kind of whether you look more on the whole spectrum of private equities from traditional PE to venture search funds, GP stakes, a lot of various ones there. Or you look on the private credit side or other things like oil and gas, I think there's a lot of ones that have, I think high expected returns as of today.
- [39:17]
B
Yeah, I'm a noob on the alternative side. So like I hear it a lot about private credit. Right. For other people that are, you know, maybe considering some sort of alternative. Let's just focus on the private credit side because it seems like as a flip of real estate, right. Credit's harder to get to. People are offering it out to businesses, real estate, whatever it is. How do you think about, let's say you're looking, you want to allocate 5, 10% of your portfolio or something like this to something like this. How do you think about getting into it for someone who's new here and you know, what do you look for?
- [39:49]
A
Where do you find these deal, all
- [39:50]
B
that kind of stuff?
- [39:51]
A
Yeah, happy to talk about that. And I would say maybe just one step back in terms of yours. It may also be worth talking a little bit about the framework of, you know, what are alternatives because I think it can, you know, sound more confusing than I think it really needs to be. And I would just to kind of. We can dive deep into private credit as an example. But I think any of this, how you approach it would be true for all of them. I would generically put them into three buckets. Like if you think of your conventional investments as you can invest in stocks, you can invest in bonds and you can invest in real estate. On the private side, you're basically, you roughly have three categories as well. You can do private equity of some sort. So rather than public equities or public stocks, you're buying private ownership shares in companies. And all these different terms I was using, like private equity search funds, venture angel, they're largely just the size of the companies you're buying where private equity, if you're giving your money to one of those big PE shops like, you know, probably you guys may have sold your businesses to, you know, they are buying hundred of million or billion dollar kind of companies. And as you get into things like, you know, as you know, angel and venture, just much earlier stage companies, search funds are more like micro cap private equity, but they're all basically buying shares in privately held companies. Private credit is really just the equivalent of bonds where you've got either putting your money in a bank account or you know, buying government bonds or corporate bonds, private cred. It just means you are lending directly to private companies or you're hiring a third party to, you know, do that lending for you. But it's private lending there and then there's sort of this whole suite of stuff that is more like kind of miscellaneous or all others that take some of the most interesting ones where you can get into different kinds of arbitrage things where you're doing time arbitrage like you're buying, you know, you're giving, telling somebody, hey, I will give you liquidity in various ways, you know, in return from buying your assets at a discount. And you know, some of those discounts can be very aggressive, whether they are just contractual kind of things. Where like options are sort of more complex version of options or whether they're just some trading strategy of hey, this guy's running a hedge fund and he is market neutral. But I think he either has some qualitative insights or quantitative models that are going to allow him to trade in some market. Whether that's the stock market, forex, crypto, energy, you name it. There's kind of tradable market. So I'd say those are kind of the three big categories of them. In terms of getting into it, I think that first of all, I don't think you should feel a compulsion to do private market or alternative asset investing. I do a lot of it and they have done very well on average. But nobody should feel like, oh, I have this FOMO and I need to do it. If you are comfortable and don't have the ability to do private market investing, well, there's nothing wrong with having your 8020 portfolio and just being in stock and bonds and real estate. And I think that's with a tee up that to do it successfully, I think you need to really, you need kind of access and insight or ability to diligent stuff. Because if you buy stocks, all the research will show. If you pick 50 random stocks or throw darts at the wall, you're going to do almost identical to buying an index fund because there is the SEC regulating everything, making sure by and large that there's full information and no fraud. You've got all of these market makers and people doing diligence, making sure there's price discovery and every possible orientation is baked in there. So it's a efficient liquid market. And even you spend all your time studying the market sheets. It's going to be fun, but you're not really going to get an edge because you're just competing with other people doing that. But in the private markets, you don't have that same level of common shared information, you don't have that same level of price discovery, you don't have that same level of access. If I think Apple's good and you think it's good, we can both go buy Apple. But if I want to invest in Sequoia and you want to invest in Sequoia, we got to find a way to get into Sequoia. Or if I want to buy OpenAI shares, I can't just call up my broker and say I want to buy shares in OpenAI as obvious examples. Then you can get much more tertiary. Maybe you looked at it when oil prices were negative, $40 a barrel or whatever. It is. We probably looked at and said, hey, this seems like a distortion here. I would love the ability to, I want to take the other side of that trade. I think oil is worth more than negative $40. I want to find a way to kind of go long. And there's probably some public things you could do, but I think those would be examples where you see that sort of illiquidity and access are you looking for.
- [44:16]
B
Obviously, where to find these deals is one thing which I'll, you know, longangle.com, which we'll get to. The community that you started is a great place that you guys funnel in deals that you've looked at and, or whatever you could say there. But then are you looking for like red flags in a way? Is that. Or is it you've created a set of benchmarks that you're comparing deals to and that's where you're saying, hey, look, they either meet these benchmarks or they don't. If they do, great, I'll diversify and add them to the bucket. Yeah, yeah.
- [44:45]
A
I think what we found is it's something where it kind of builds up over time. I think kind of what you're talking about, benchmarks there, we're probably looking at 50 plus deals every single month. And so it's one of those things where, like, if you have looked at, I don't know, 50 private equity deals, you'll start to see, hey, you know, this is a typical track record. You know, a lot of people taking the same strategy have maybe delivered anywhere from 10% to 15% over their last five funds, depending on the market cycle and things like that. And maybe a typical volatility range is that 10 to 15%. And standard pricing structure is 2 and 20. And then that allows you to see, hey, this guy here, he's delivered actually 22% net returns over the past six funds and he's only charging a 1 in 10 fee structure. And he has 50% of the funds already investing in seeded assets. I think you start to get that pattern recognition of. If you just see one fund in the abstract, it's very hard to say, hey, do these terms make sense or not? But whether that is real estate, private real estate, or private credit or private equity or any of these, there are standards and typical. And so I would say the categories that we have learned to look out for or that what you're looking for, characteristics. One would be the track record. You know, is this the, you know, first time or the second time they're doing this? Or has this organization done it for a long period of time and are they managing a similar amount of money? I think like what you'll often see especially in say venture capital, somebody like blew it out of the water with their first fund. But the first one was like a million dollars of their own money. And then they did a friends and family round of like $10 million. And then they did friends and family of $20 million and now they're trying to raise 200. It's like, well, you're not going to get your 100x return on $200 million the way you did on $1 million because that you just sort of can't put that same amount of money to work. And you're trying to, you know, you won't get your deal flow, won't work there. So you know, looking at the track record, the fee structure again you see fees all over the place. Especially if you look at real estate, I think there's, it's like this just sort of death by a thousand cuts of fee where they'll say okay, you know, we charge a 1/2% management fee and then we charge a 2% acquisition fee. And then if we refinance the properties, we charge a 2% refinancing fee. And then if there's construction, we charge a 7% construction oversight fee. And then there's this, you know, revenue collection fee and then there's our carry. And some people will get ridiculously aggressive with their carry where let's say 20% is typical. Some funds will say okay, there's a preferred return of say 8% so the outside investor gets the full first 8%. Now Ryan may charge a quote, catch up on that where he then gets the new 10% returns and you go 80, 20 beyond that. Whereas I might not charge a catch up and we're just charging 20% from there on out. Other people will start to get this tiered thing where you know, above doubling your money you start to pay 30% fees and 40% fees. And so you can see them all over the place. And I think the sort of more retail oriented the products like if you see a, you know, alternative asset kind of publicly advertised on, on some, you know, website, the fee structure is generally going to be a lot less aggressive. Or if the guy who does it is a social media personality who's you know, always out there kind of from the beach in Maui talking about, you know, this, sorry, seems like a multi level marketing scheme.
- [47:58]
B
Are you talking about what's his name? What's that Guy's name.
- [48:01]
A
I mean, there's a lot of these, I think. So you're sort of, you know. Yeah, maybe you're like Grant Cardone's Cardone. Not that it's like a scam, but your fee structures are like a lot more than one needs to be paying. Tax structures, again, can be all over the place where again, that's probably the biggest advantage of real estate. It's got great tax treatment. And that kind of depends on you as a person. Like if you've got a bunch of IRA money where it's all tax protected, like it's fine to be in a very tax inefficient structure versus if you're, you know, living in a high tax state like California and you've got a lot of earned incomes, you're in a high tax bracket, then you got to be more thoughtful of it. But I would say, you know, my perspective, one is just seeing a lot of deals so that you, you know, can kind of put them in context. I'd say second, it is having expertise to diligence a particular kind of deal where if you are looking at a crypto hedge fund versus a mineral rights deal, life settlements, private lending, venture capital, they're kind of apples and oranges. And so I think you want to make sure you know what your circle of competency is. And there's kind of always going to be the temptation of like, oh, this is some like, it's investment in Portugal. Like, that's cool, that's sexy. It's like overseas, but, you know, and so it can kind of seem exciting to get into the further field asset classes versus like, well, I ran a SaaS company and I know all the SaaS numbers and like, I've already seen that. But I'm probably going to be a better SaaS investor because I know it inside and out than, you know, buying farmland or something that I don't know the dynamics of.
- [49:26]
B
So many ways to slice it. Ryan, have you gotten into. I know you're on the angel side too, but so are these other ones.
- [49:33]
C
Yeah, I have. I mean, one thing I'm curious about, you know, Tad is on the private credit side. So I've used like there's a site called Percent, which is kind of a marketplace of private credit and things like that. What I found is really hard is, you know, they have fund managers and you can look at that and see their track record or whatever. But do you ever look at the individual aspects of the deal to see, you know, what's the risk of lending to, you know, small business in whatever area or whatever. Are you looking at that level when you're diligencing? Because I found it, you know, for me, anyways, it was really difficult to, like, evaluate the risk of, of the individual deal. Be like, I. I don't know, great. This is. They're all paying like, you know, 12 to 15%. But, like, you know, what's the risk here?
- [50:17]
A
I mean, I would say we have learned our lesson. We've done about 50 of these investments. The single worst performer has been one that was private credit to an individual company. And, you know, because as you're saying, well, there's both just more risk in general. The same way if you're stock investing, you wouldn't put all your money just into Microsoft because, like, you know, you could put into GE 10 years ago, and that seemed like a great bet or Enron, and, you know, you kind of have that idiosyncratic risk that you want to blend across. And then also, you know, unless it's like a company where, like, your brother is running it and you really want to spend the hours and hours diligencing it. So what we do in not just private credit, but private equity, you know, real estate, any of these asset classes is to go with a fund manager who has a strong track record and has, you know, we can get an aggressive fee structure and all that sort of thing, but to basically take advantage of, okay, this guy and this team, you know, these 20 people at, you know, call it like Golub Capital, or, you know, more than 20 people, dozens or hundreds of people. You know, this is all they do. They cultivate relationships with private equity firms that need to borrow. They have seen, you know, they have all the data. They've seen exactly this track record. And so you can get the sort of upside of this less liquid, less efficient asset class, which, you know, should have some inherent alpha that comes with that illiquidity and, you know, the inaccessibility, but you get some of the advantages of efficient operation. So I would definitely not do, you know, myself trying to pick private credit loans. You know, again, that has been, you know, we did that once and, and learned the lesson that that was not the right way to go there. And again, I would say the same thing on, you know, maybe real estate. If you're buying like a.
- [51:55]
B
Are you. Were those deals individual? Like, you see the guy's name? Or like, all right, John Anderson here is opening up a Cannabis store on 16th street he needs $15,000 or like, what was it? How did the dashboard look? I guess the process. Ryan.
- [52:12]
A
Are you talking with Ryan about how he does this?
- [52:14]
B
Yeah, yeah. Ryan on your, on that percent one.
- [52:16]
C
Yeah. I mean, yeah, pretty much just kind of. Yeah, those, exactly. Those types of like, yeah, it's cannabis and they're lending to. I mean, none of them were like lending to like an individual necessarily, but it was like, we're going to invest, you know, we're going to lend money to, you know, the cannabis industry and it's going to be, you know, X number of companies or whatever it is. A lot of them are rolling private credit funds as well. But it sounds like tad, like your strategy is to bet on the jockey, not bet on the individual asset.
- [52:46]
A
Yeah, yeah. And I'll give you two reasons why I would argue that what you're doing is not the right way to go to be, you know, direct about or not the way I would go. One is by definition, if you're looking on some public website, like if you're buying real estate on LoopNet, you were buying the properties that everyone else in the world looked at and knew well and decided they did not want to buy at that price. The same thing, this deal is like the deal that nobody else wants to fund. And now it's available to anybody out there. So that would be sort of my generic thing about an open access website like that or marketplace like that. And then the other thing I would say is like, I'll give you an example of just the cannabis lending spurred it to me. You know, we did investment with a cannabis lender named Chicago Atlantic and they have, you know, their interest rates are super high, their yields like a solid 12%, you know, 1% every month. And then it kicks off additional like equity, occasional equity warrants, where it's okay, we'll lend you money at this rate, but rather than charging you, you know, we're not going to charge you 20%, but we'll charge you 12%. And then we also want some warrants and occasionally those pay off. And so, you know, your blended revenue will get more and, you know, 15% plus there and there. As you probably know, cannabis has had all kinds of problems. A whole bunch of borrowers had defaulted and a lot of these cannabis lenders have gotten into trouble. And Chicago Atlantic's portfolio is just pristine. And I was talking with the GP there, I was like, how did you manage to do this? How are you getting 12% consistent yield plus upside and lending in the sector? That's been tough. And he's like, well, when we Looked at this, we said, hey, there are a couple of kinds of markets. There are limited license markets, there's a given state, I don't know if this is one, but let's say Maryland is a limited license market where only seven players have the right to grow cannabis there. And so if Ryan wants to start a cannabis this, you know, dispensary or a grower there, he can't get a permit or he has to buy it from an existing one. And then if you look at California, it's an open access where if you follow all the rules, you can open your cannabis dispensary, you can open your grower. Well it is far more profitable and more stable business to be a limited licensed market. So Chicago Atlantic looked at ahead of time said hey, we are only going to lend it, you know, we are not going to lend in California because as just far higher risk, the economics there are not as good. Like I never, you know, now that's explained to me, I could say that. But if I were on a website trying to pick out, you know, do I want to lend to the one in LA versus Springfield, Missouri, like I probably would have picked LA because it seems like, you know, a healthier city and a better dynamic and I would rather own real estate in LA than Springfield. But actually that was the wrong way to look at it. And so I think we're much better off picking, hey, you know, this guy is super smart. He has thought about all the dynamics here. Now he's picking the right ones. Plus if it goes bad, you know, if you look at the sort of top tier private lenders, they have these, you know, they should be great and basically never make a bad loan. But everybody's going to make some bad loans. And they'll have these workout teams where if you don't pay they both can get super aggressive. You know, at 12:01am they're sending you the demand letter and then they are, you know, filing their, you know, they perfected their liens and they're filing their claims and they can actually take the keys and run this thing and they have relationships with, you know, other buyers where they can resell it to. So even where it defaults they're making a profit. Whereas if I'm just, I mean I remember way back when there was, I forget the name of it. It was that like peer to peer lending thing that I dabbled in where you're basically making these like just. Lending club. Yeah, lending club. I'm like every time somebody didn't pay
- [55:59]
B
that guy Took my money, he didn't pay me back.
- [56:01]
A
And like lending club wasn't going to do anything about it. They weren't going, you know, I can't call him and ask for money. It's just like, sorry, like you're out of money. Whereas if you're some aggressive private lender, or not even aggressive, just a professional private lender, where that's all you do, you have teams of lawyers that go take possess teams of operators, you've got investment bankers and sort of, that's your business. So that's why I would argue for the bet on the jockey, not the horse strategy.
- [56:25]
C
That makes sense. So your worst performing asset was individual private credit. What's your best performing asset?
- [56:31]
A
There have been a number. A lot of them are new and so you kind of can't speak to that in particular. But I think the private credit funds and a similar thing which was a sale leaseback deal where you know, I mentioned that basically you've got private equity, private credit and like other or you know, arbitrage kind of strategies. But a lot of these things also become kind of hybrids. So like sale leaseback. We did a deal there a little while ago that's been doing very well, which is kind of a hybrid between debt and real estate where technically you're buying the property but you have this like 30 year relationship with, with the borrower. So it looks a lot like a bond where you have the stable yield. But anyway, that that's been going well. We had one that was very interesting where it was. I can't give a ton of details because some of these sponsors basically are like, hey, we're only going to deal with you if you can sort of keep everything discreet because you know, this market only can handle $20 million or not 20, like say half a billion dollars of capital and we can print 30% a year returns on half a billion dollars. But if it gets much bigger than that or if we attract a lot of competition and other, you know, players figure out what we're doing that's, you know, they're going to arbitrage away our profit source. But it was basically a trading strategy that you know, had a fairly niche market that was very opaque. Like I can't just go, you know, trade there. I had to have to post, you know, $10 million of collateral. I'd have to understand the dynamics of that market. You'd have to do a bunch of stuff like that. But if you're a sophisticated operator and these guys have just been in that market for decades, Then they are just returning very solid, very low volatility, very uncorrelated numbers. Now I'd say those kind of trading strategies, those are some of the toughest to underwrite. We looked at another one that was basically, I mean, it sounds silly when I explain it, but it was a AI driven crypto and forex hedge fund and they'd been returning 13% a month. And we're like, wow, like 13% a month. My first reaction is like, too good to be true, not even worth looking at. And then my second reaction is like, well, but if it really were true, that be worth looking at. And you know, like the guys who are running it were, you know, big names who, you know, kind of were in my network and had worked at, you know, reputable companies, like maybe this is that one, you know, white whale that actually can return it. And so, you know, we had a really interesting deal team that we put together of some members who either had personally, you know, been forex traders or run crypto hedge funds and stuff like that and so understood the markets. And as we really dug into it, they were like, hey, this is not fraud. Like these guys, you know, really are doing what they said they're going to do. They have been posting these returns because like they're in these separate managed accounts and they're audited and like they're held with, you know, reputable brokers. Like, there's not any kind of cooking the books going on here. But the demonstrated volatility looks nothing like the actual risk that's being taken. And the way they kind of explained it is basically simplistically, the strategy is I've got a hundred bucks and I'm putting $1 on black. And if I win, I'm walking away and I take a 1% gain for the day. If I lose, then I'm going to put $2 on black. If I lose that, I'm going to put $4 on black. And then I win my $8 bet again. I've made $1 for the day and I walk away. So it looks like I'm returning 1% every day. And it's like a really smooth trend line and there's no volatility, I never have losses. But then you're going to get to that one day where you bet $128 and it turned up red and now you have a total loss. And so we ended up walking away from that one and did end up blowing up very shortly after, you know, we declined to invest in it. So I'm not claiming we have prescience there but my, my point was more that that's where the diligence on these kind of the more esoteric it gets, the more important I think it is for you to have people who really understand that particular industry. And again these issues of like limited license versus open license cannabis or these issues of, you know, amount of book at value at risk in your crypto portfolio and who your counterparties are and stuff like that is I think no one human is going to get all of that. So I think you need to find a way where you can either just stay in the stuff you know really well or if you want to go broader kind of piggyback on the access and expertise, you know, to go into further afield.
- [60:40]
B
It's got me fired up on alts. I need to start reviewing some long angle deals. Ted, you want to talk about we got to play long eagle, right? I mean Ryan and I have both been in it for quite some time. We do the trusted circles actually. Let me step back my kind of one sentence summary which tell me if this is right or wrong. But it's just you know a lot of high income earners or post exit people, you know, you deal with these problems. It's kind of why we do this because it's interesting. There's a lot of questions you can't necessarily ask anyone and people can ask it in the community and they can talk to each other, they can communicate. You guys have some cool deals that you, that you post in there. And then there's the trusted circles thing too which we enjoy as like a get together and be able to talk in a smaller group setting repeatedly every month. Is that fairly accurate? I'm not breaking any rules or what am I missing?
- [61:33]
A
Yeah, no, I think that's right. I mean the reason that SRAM and I started is it was basically to do with our exit where as I mentioned since we bootstrapped it the whole way and weren't paying ourselves anything, we basically added went from having very little money to having all these questions of estate taxes and alternative assets and not spoiling the kids. All the stuff you guys are talking about here just kind of on one day and we felt like all the advice from that was coming with, from somebody with a product to sell and like I didn't want Goldman Sachs telling me like how to think about these things and I also didn't want to hear about it from somebody who was not in that same situation. But I wanted to talk with guys like you who are like, hey, I'm actually in this situation. I'm actually trying to work it out myself. I don't have any financial interest in what I'm saying, but you know, we're talking about together. So that was really kind of the genesis of it. And then yeah, the sort of four things we do there is that online discussion group, sort of a private version of Facebook or Reddit or something like that, the live events. So like our happy hours or our zoom based meetups or guest speakers or the annual conference this fall, the syndicated deal flow that we were talking about a little bit and then those trusted circles, the sort of small groups of eight other members who meet on a recurring basis. So those are kind of the four parts of it.
- [62:46]
B
That's super cool wrapping up. Do you feel like you've found, you know, you've got a small team with long angle, you're spending a lot of time on this. I'm sure you've got other things going on too. Do you feel like you found fulfillment again with this or is it not the same as before?
- [63:02]
A
Yeah, I really. No, I really have. You know, I am not paying myself anything doing it. You know, we've got team of about 15 people and so we are paying the team. But for myself, what I'm, you know, the big thing as I mentioned is that, you know, when I was at this, you know, $40 billion company that bought ours, I just didn't love the sort of big organization I discovered. Why I really liked and why I liked our company before was having that small, you know, I've got a dozen people or I've got 50 people and we're just sort of like hands on in the problem solving or building this. And you know, we're growing, we're hiring the people that we like, we're finding new problems, we're figuring out how to solve those problems. I just like that activity. And I'm not sure if it's like a kind of save the world kind of thing. Like our last one was helping medical research software. So I think there was a kind of very obvious, if we can help cancer researchers do their job better, we're really advancing the ball. But I think even aside from that kind of fulfillment, just the I enjoy the activity of building a company and working with people I enjoy and feeling like we're succeeding. So I found a ton of value there. And then I'd say, you know, specifically what I do is, you know, one of us interviews every potential member. So I've probably interviewed a thousand different members at this point, just got to meet all kinds of interesting people, you know, like yourselves. So that's super fun. And like, you know, when we were in Switzerland this summer, I was like, hey, I'm gonna get a meet up of all our Swiss members. So, you know, got to like go out to dinner with a bunch of guys in Zurich who, you know, I had not met in person. And so, you know, and I was following my wife to some work event where I didn't really want to be there. So I was like, you know, I'm just gonna organize an Orange county meetup and we did a nice dinner in, in. In Newport be. I love the meeting the people. And then I think tangibly, that deal flow, I invest a big part of my portfolio in that. And so again, that was stuff I did not have access to before or didn't have access to a high quality version of. So that's another kind of very. I guess it's a combination of that concrete financial benefit, but then from a fulfillment perspective. And I don't know if you guys feel this way or sort of itching to start your next thing, but I think I just discovered I like the act of being entrepreneur. Entrepreneur and building something.
- [65:07]
B
Yeah, yeah. It's a question I think we always go back and forth on. Or maybe I'll speak for myself, go back and forth on quite a bit as far as that building phase or, you know, being passionate about hobbies or, or making the hobbies the job or. I don't know, there's a lot of different avenues.
- [65:23]
A
I mean, I will give the plug that it is more fun the second time around. I think partly because it's less stressful, like to your point of like, hey, you know, I've got a bunch of passive income. Or like, you know, even if you're paying yourself just a little bit, that's kind of just adding to the bottom line. So I think you, you know, don't have that sort of like, hey, what am I doing here? Am I just being a clown who's like, working from his basement and like, doesn't want to get a real job? And then also I think you're a lot better at it. Just sort of. You've done all these things before and you've got some pattern recognition of like, hey, you know, it's stupid for me to spend this much time deciding what printer to buy. I should just buy a printer and like, hey, you know, I really need to think ahead of time about making sure I'm in a decent sized tam or you know, hey, this is how one sets up an accounting system. And I'm not wasting five days trying to decide what my chart of accounts look like or whatever it is. I think it's just you can really build on that. Whatever you learned the last go around makes sense.
- [66:14]
B
Tad, appreciate you joining us on after the exit. I think people will find this super helpful. You guys can check out longangle.com as well. I forgot to plug the retreat. They're doing annual retreats now, too, so there's so much in there. And I believe, I mean, you're on LinkedIn, and you're pretty active everywhere on there, too, so people can follow you and connect with you if they want.
- [66:36]
A
Yeah. Thanks for having me here. This is a pleasure.
- [66:39]
B
All right. Appreciate it.
- [66:40]
A
See you guys.
- [66:40]
B
On the next episode.