Category: Investing Page 2 of 3

Venture Capital

The Stages of Venture Capital Investing

The following is Part 2 of my five-part series on the roles of angel investors and venture capital investors in emerging technology sectors with explosive upside potential, such as the nanotech, cleantech, biotech, information technology and new media sectors. In Part 1, I gave a general overview of the playing field. Below, I examine the stages of an emerging growth company’s lifecycle and the types of investment that it hopes to obtain at each relevant stage. Introduction Many investors are confused by the differences between angel and venture capital. This isn’t surprising; the categories are overlapping and are used inconsistently. However, there are some broad generalizations that can be drawn, typically based on the timing of the investment and the purpose of the investment in the company’s lifecycle. Depending upon the timing, you can draw some basic conclusions as to the type of investor that will be involved (e.g. single angel vs. angel consortium vs. venture capitalist). And, in each category, you can glean the form the investment will take (e.g. common stock vs. convertible debt vs. preferred stock) and the size of the return investors can expect. That is, if there’s a return–very few private emerging growth investments are actually a success. More below the fold. Seed Round The earliest investment stages are usually characterized as seed rounds, proof of concept investments or angel investments. These investments usually don’t occur until after the target entrepreneur has tapped out his friends and family in what’s usually called a “friends and family” round. The money you invest is intended to allow the founders of the company to do their initial research, to complete the initial programming or to apply for the initial patent(s). Companies at this stage usually don’t have a saleable product and don’t have very many employees, other than the founders/inventors. Traditional venture capital funds very rarely invest in seed rounds. Rather, seed investors typically consist of angels that is, wealthy individuals or groups of individuals that are willing to invest their own money and take the extreme risk involved in making equity investments into companies that often only have a good idea. Occasionally, a seed investor may be a publicly or privately funded incubator established to help entrepreneurs or scientists get their ideas off of the ground. In the seed round stage, the amount of the investment is typically small, say $100,000 to $500,000, seldom more than $1,000,000. Also, the investor usually takes common stock in the company–the same stock that the founders get. Alternatively, the investor will take a convertible note that allows him to have the protection of debt at the beginning but with the possibility of converting and receiving the upside of equity. Typically, the conversion will occur in concert with the closing of the next round of investment and will be at the same per share price used in the next round. Often, you receive some sort of additional incentive for making a seed round investment such as a conversion discount or grant of warrants. Investments at the seed stage are extremely risky and are subject to significant dilution when new investors come in during later stages. Consequently, angel investors look for returns of at least 10x their initial investment, and sometimes as high as 20x or 30x their initial investment.

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Early Stage Venture Round The next stage of investment is early stage venture capital. Investors usually aren’t interested in making this type of investment until the company has a proven product and a business plan. However, it isn’t necessary that the target be profitable or even be producing its product. The funds invested will be used to mass manufacture the product, market the product, build a sales force and further develop the product. Typically, these sorts of investments are made by early stage venture capitalists, larger angels or angel consortiums. Early stage venture capitalists and angel consortiums usually have smaller funds to deploy which makes them more suited to making the relatively smaller sized investments found at this stage of a company’s life. In this stage, the amount invested is typically in the $1,000,000 to $5,000,000 range. The investors will almost always be purchasing Series A preferred stock of the target. This type of stock is superior to the common stock held by the founders and any seed round angel investors and will typically come with dividend rights, liquidation preferences, some form of anti-dilution rights and a right of first refusal on stock sales by the founders and seed round angels. Often, the investors will also receive pre-emptive rights, redemption rights, drag along rights and other rights and preferences. Investors at in early stage investments will typically look for returns of at least 5x their initial investment and would gladly accept higher returns. Growth Stage Venture Round After the Series A round, there may be multiple additional rounds of equity financing. These types of funding are often called growth capital or mezzanine financing. Usually, the company seeking this sort of investment will either be close to profitability or will have a clear path to profitability and the funds are meant to allow the company to expand its sales force and marketing efforts and ramp up its revenue growth. The money may also be used to develop additional products or to research expansion ideas. These investments are usually made by the larger venture capital funds and the amount invested can range from $1,000,000 to $25,000,000 or higher, depending on the company and the market opportunity. The investor typically will receive additional rounds of preferred stock–for example, Series B or Series C preferred stock–and each successive round will generally have superior rights and preferences to the prior rounds. Investors at this stage may still look for 5x investment returns, but depending on the opportunity and the trajectory of the company, may settle for 2x or 3x returns. Bridge Round Occasionally, investors will be willing to invest bridge capital into a company in the growth phase of its life cycle, or one that’s on the cusp of the growth phase. This investment takes the form of debt that “bridges” the gap in funding between rounds of venture capital financing. These investments range in size depending on the company and the market opportunity and they’re made by all types of investors, depending on the size of the investment. The lender may be an existing investor in the company or it may be a new angel or venture capital fund that’s contemplating making the follow on round. Usually, the debt will be represented by a convertible note that will automatically convert into the next round of preferred stock, sometimes at a discount. Also, investors will usually want some sort of warrant coverage to provide equity upside in the deal. Investors at this stage expect a blended return that takes into account the interest rate on the debt and the potential value of the equity. These target returns vary greatly, but often move in the 12 percent to 18 percent range. Buyout Capital Round The final stage is characterized as acquisition or buyout capital. This is used by the company to purchase the assets or stock of other businesses that will then be absorbed into or added onto the target company. The investors may be the company’s existing venture capitalists or it may be a private equity fund that’s building out a platform in the company’s industry. In the latter case, the investment may come with a right to purchase the company outright in the future. This type of financing also occurs when a company’s angels and venture capitalists start planning their exit strategy. By putting together the right pieces it may make the company more attractive as an acquisition candidate or perhaps more eligible for an IPO. In the next three parts of this article, I’ll explore angel investing, angel syndicate investing and venture capital investing, in greater detail and I’ll discuss the important characteristics of each mode, including typical legal and business issues.

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Where to Sell Gold

What to Expect When You Sell Your Gold
Selling gold that you have in your possession is usually a pretty straightforward deal. You take or send your gold into a dealer or shop, they test the fineness, and then give you an offer based on the quality, quantity, current spot price, and how much they need to profit to cover their overhead. One of the most important things to keep in mind when you are selling your gold is that you will probably never get spot price for your bullion, and you won’t get anywhere near spot price for scrap gold. This is simply because places won’t be able to resell your gold for much over that price.
For most people selling jewelry, or some other sort of gold that either isn’t in coin or bullion form, the gold dealer might make you an offer from anywhere between 20% and 80% of what they can sell it for. The lower end of this range would be from pawn shops late at night, or from ads you might see on TV where you can mail in your gold for cash. The higher end of the range will come from jewelry shops and specialty gold buyers. If you have a lot of gold to sell you can get a higher premium on it.
If you are selling gold coins, you might be able to get higher than spot price because of the numismatic value of the gold, but that’s unlikely as most gold coins have essentially no numismatic value. The same goes for very fine jewelry, especially if it is very old or has some sort of documented history tied to it.
Places to Sell Gold
One of the first places that come to mind when someone thinks about where to sell gold is a pawn shop. Pawn shops are well-known for buying pretty much anything, but if you go into almost any pawnbroker’s store, you will find an expansive jewelry counter with plenty of gold. Pawn shops are one of the most popular places for selling gold because you can walk out with cash for your gold 20 minutes after you walk in the store. This can be handy in a pinch, or if you are just looking at selling gold jewelry or other pieces of gold you might have around your house.
Most major cities have dedicated gold buyers. These are people who make a living off of buying and selling gold, and they are always in need for more supply. Finding a gold buyer around your area isn’t very hard, most of the time, they advertise pretty heavily because they know there are plenty of people out there who have gold, but they may not be willing to part with it at a certain point in time. Later on down the road, they might think, “Hey, I’m wanting to sell my gold, who should I call?”, and the branding that the gold buyers have done around town would likely pay off. Coin shops are usually good for selling gold, especially if you have gold coins, since they probably already have their own list of gold buyers, allowing them to give you money that day, then turn around and unload the gold on another buyer soon thereafter. It’s possible to sell scrap gold at coin shops, since most of them have the right tools needed to gauge the quality of gold that you have, but there are better places where you can get more money for when you want to sell your old gold.
Jewelry stores will often advertise that they can buy gold, since they do use so much of it anyway, especially the stores that specialize in creating their own jewelry. If you plan on selling gold to a jewelry store, call around to get their current offer prices before driving around town to 5 different places just to hear 5 different answers. Larger jewelry stores will usually tend to give more money for your gold than both smaller stores, and chain stores.
If you have a lot of gold for sale, you might be able to sell it to a gold investor. These investors are looking for physical gold to hedge against inflation and the stock market. Generally, they will not be interested in a couple of gold rings, but they would certainly be interested if you had gold bullion for sale, or a large amount of gold from the Treasury, or just investment grade gold in general. Finding a gold investor can be difficult, but if you talk to your financial advisor, they may be able to point you in the right direction, or they may know someone looking for some gold for sale.

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Best Place To Sell Gold
Figuring out the best place for selling your gold can be very tricky, since it does depend on a variety of factors.
• Location – Selling your gold in a large city is a lot easier, and can potentially bring you more money since there are plenty of other people who want to buy gold as well, driving up prices.
• What’s in demand – In a down economy, bullion gold will be in higher demand than treasure gold.
• Supply – If there are a lot of people in a certain area looking to exchange their gold, you will still be able to find someone to buy it off of you, but you might get a lower price than you normally would.
• Season – The closer you get to the holidays, the more people are trying to spend money on gifts and parties instead of scrap gold or investment gold. At the same time, people looking to get extra money will be selling gold and the prices will go down.
• The kind of gold you have – If you have gold that is considered investment grade, sending it into a “mail-in your gold” program makes little sense. The same thing goes for very nice gold coins, taking them into a pawn shop when you can sell them to a coin dealer isn’t the best way of going about things.
• Who you sell it to – Jewelry stores may not be able to handle a large amount of gold, or may shoot you a lower price than normal if they think they can’t use it right away. The individuals you sell your gold to are all in their own unique markets and situations.
If you have gold bullion or proof gold coins, you can easily get 90% of the spot value, most of the times closer to 98%+ of spot value from people looking to buy gold as an investment. These people realize are buying not to turn around and sell it right away, but they are going to hold onto it. Since historic rates for gold have been trending higher, investors can afford to pay near spot price for your gold now, then sell it years down the road, hopefully for a profit.
The best place to sell your gold if you have jewelry or other small items could very well be a nice pawn shop. Pawn shops that cater to people looking to spend a decent amount of money can afford to give you more money for your gold than you might be able to get elsewhere. If they have their own gold smelting operation, or can sub-contract it out, they stand to be able to make more money the more gold they get, so they offer a higher price hoping to outbid their competition.
Selling gold coins to a coin shop is usually your best option when it comes to how much money you’ll get from selling, how easy the people are to deal with in regards to knowing what the coins is worth, and the ability to possible consign your gold for a certain percentage if the dealer would rather go that route.
How to Get the Best Price For Your Gold
Getting the best price for your gold depends a lot on who you sell it to. Besides the obvious differences in the people who buy gold as an investment as opposed to pawn shops and online gold companies, and what they can offer you, there are a few tricks you can use to make sure that you get the highest amount for your gold.
1. Call around – This is probably the best tip that can help you get the most money out of trading in your gold. Call around to jewelry stores, pawn shops, coin dealers, and gold buyers in your area to see what kind of price they can offer you for your gold. This works well when you try to sell your scrap gold, when you have a gold coin or a piece of gold jewelry, you may actually have to take it in so they can put a solid price on it depending on the condition.
2. Check online – There are plenty of places online that can help you find the best place to market your gold. Online gold buyers may enable you to send your gold in by insured mail, send you an offer, and if you accept it, send you a check. These mail-in programs are probably the most convenient way of selling gold online.
3. Take in your gold for an appraisal – If you have a lot of gold and you aren’t sure whether it’s 14k or 24, or if you have gold coins and you aren’t sure of their value, take it to someone who can give you an honest assessment of what the gold is worth. By having a firm number in your hand, you will at least know if someone is making you a fair offer, or if they are trying to lowball you when you sell your gold.
4. Always negotiate the price – When you sell, you’ll usually be able to talk to someone with the authority to make a deal with you. They do have to make a profit, but their first offer will always be their bottom price, with a little bit of negotiation, you can get them to raise their offer. You’ll win because you get more money, and they’ll win because they will still be able to sell your gold for a profit.
Selling Gold Online
If you decide that selling your gold online is the best way to go, you are going to have to choose among many different gold buying websites. These can be divided into two basic categories: scrap gold sites, and bullion gold sites.
Scrap gold sites will buy just about anything. If you have old jewelry, medallions, coins, even bullion – they’ll buy it. The down side is they are also likely to give you a really low price. Their typical customers aren’t investors – they are people who happened to have gold and now need cash, and are usually desperate. Hopefully you’ve taken our advice on buying investment-grade bullion and aren’t in that boat! Worse yet, you really have to read the fine print with these operations. Some of these placed let you ship the gold to them for free, but essentially hold the gold hostage if you don’t accept their (low) offer, charging you a high shipping fee to get it back. Especially if you’re dealing with small amounts of scrap gold this can devastate your returns and you’re almost stuck selling to them.
While the number of “mail-in your gold” ads have gone down over the past year, there are still plenty of TV spots that run which promise a lot of money for your spare gold. These services usually give you the least amount of money out of any buyer, mainly because they have to pay a lot of money for every TV commercial that they run.
Selling your gold at a scrap site is probably not the best idea for most people, especially if you live near a pawn shop or any of the other places listed above, since you will get quite a bit more money from those places. If you do decide to exchange your gold at one of these locations, be sure to check around for some customer reviews before you send anything in. People tend to talk about how much they were offered from online gold buyers, which means you can get a basic idea how much they are giving per ounce of gold.
The other kind of site is the bullion gold site. Most often, these are the exact same sites that you purchased your bullion from in the first place. In fact, some will even store it for you between purchasing and selling back to them (for a fee, of course). Almost invariably these guys only accept identifiable investment-grade bullion, including the common bullion coins and marked bars from well-known mints suck as Perth and Credit-Suisse. The good news is they pay top-dollar for this gold, often at or barely under the spot price. This is why you bought investment gold in the first place.

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Pros and Cons of Places to Sell Your Gold
• Jewelry Stores – Pros: Plenty of jewelry stores to choose from, helpful staff in a professional environment, usually you’ll get a fair price for your gold. Cons: Some stores may not be interested in buying, you will get below spot price.
• Pawn Shops – Pros: You will get money for your gold immediately, you can negotiate the price, they will take about any kind of gold. Cons: Most pawn shops will give you below spot price, there may not be a lot in your area.
• Gold Investors – Pros: Usually will give near spot price for gold. Cons: Most of the time they are only interested in investment grade bullion or coins, may be very hard to find an investor in some areas.
• Coin Shops – Pros: They will offer a decent price for most gold coins, you might be able to consign instead of sell outright. Cons: Only interested in coins made of gold for the most part, there may not be too many in your area.
• Online Gold Buyers – Pros: Very convenient, usually don’t even have to leave your house to get your money, great prices from investment gold sites. Cons: Offer you the least amount of money for your gold (from scrap gold sites), it can take a couple of weeks from the time you wish to sell until you have your money.
So Where Should I Sell My Gold?
If you have investment grade gold bullion, the best bet would be to find a gold investor and sell your gold to them, or to sell directly to a large bullion dealer/mint. You’re going to get pretty close to spot price, and they will be interested in any good gold that you have. For scrap gold, if you can find a jewelry shop buying gold at a decent price, they would probably be your best bet, you’re not going to get spot price, but you’ll get more than at most other places. If you can’t, pawn shops in large cities that deal with a lot of gold or similar specialty gold buyers are your best bet. Avoid anything that starts with shipping scrap gold so your gold can’t be held hostage with shipping costs.

Stock Exchange

This Is Everything You Need To Know About Owning A Listed Company

Perhaps the biggest financial event for millennials this year is the listing of Snap. The concept of owning a piece of a company that is a daily part of our lives is apparently the reason why a great deal of millennials started investing in the stock market.

If the listing of a millennial-owned, millennial-driven company could lead to so many of us taking interest in the stock market, then surely the listing of more millennial-owned companies should be much sought after.

Citi bank

Meet Donna Nemer. She is the Director at the Johannesburg Stock Exchange (JSE) and a former Managing Director at Citi bank in New York. Donna found herself in the world of global banking when she realized that it would afford her the dream of working and travelling extensively throughout the world.  We decided to tap into her well of knowledge to learn more about what it would take to get more millennial-owned businesses listed on a stock exchange.

Millennials are known to be the entrepreneurial generation. An article by Fortune has labeled us as “millennipreneurs,” as we are starting more companies, managing bigger staffs, and targeting higher profits than our baby boomer predecessors. How important is it that startup founders think about the possibility of listing their companies as they grow in profits?

The growth of small- and medium-sized (SME) businesses is crucial to the health of emerging economies, as these companies are key employers.

It is with this in mind that the stock exchanges such as the JSE created AltX. The AltX is for companies that are well established, but not yet ready to list on the JSE’s Main Board.

Given our tough economic climate, many countries are increasingly looking to SME businesses to promote growth and make a dent in the unemployment figures. However, access to financing remains a challenge that hinders expansion for many businesses, as banks are increasingly unwilling to lend to smaller businesses.

This is where a listing on AltX can be an exciting opportunity for smaller businesses to raise capital. With this said, it is important for stock exchanges to attract SMEs and market to them in the way that they need to be marketed to. We need to be speaking the same language as them, using more online and digital platforms and using faster and better technology, making it easier for them to do business with us.  Access to capital markets is critical to small companies that are looking to expand their brand and grow.

We are very proud of the track record of AltX in that over a third of the companies that have listed have successfully grown and migrated onto the main board of the JSE.

When can a startup founder start considering listing their company?

The decision to list your company’s shares on a public market is a significant one. It must be based on an honest and realistic assessment of your company. A listing on the JSE improves the ability to access capital to fund acquisitions and organic growth. Local scrip or local fund raising can be used to fund the company’s expansion plans.

As your company grows and matures, listing on the JSE may be the best vehicle for your company to raise capital, improving your profile.

The minimum criteria to satisfy a listing are as follows

Share Capital
R2 million ($151,000)

Historical financial information on listing
Minimum of one financial year required

Profit forecast
One full financial year required unless three year profit history is provided

% held by public shareholders
10% ( applicable on listing)

Board of Directors
Competition of the AltX Director Induction Programme (this can be done prior to or after the listing)

A listing means that the company will go public so even if a company meets the listing requirements, timing is important.

Finance

Key considerations for going public include:

Financing:

Have other alternative financing sources been explored and/or exhausted?
Does your company need public financing for growth?

Management:

Is your management team experienced and balanced?
Does it include directors and senior executives with a proven track record in managing public companies

 Business Plan:

Is there a well-developed business plan that identifies potential revenue and income as well as the resources necessary to sustain growth and success?
Is your company prepared for the compliance and disclosure requirements that public companies are required to follow?

 Growth Potential:

Is the market size for your company’s product or service sufficient to sustain the growth plans and expectations that will attract broad investor interest?
Is your company profitable, or has its product reached commercialization with evidence of market acceptance?

 There are also other factors to consider such as transparency and costs. When it comes to ownership, the owners and founders of the company must consider how much control they want to retain. When a company goes public, a reasonable percentage of shares must be publicly owned and tradable.

Can you briefly take us through the Initial Public Offering (IPO) process.

Interact with the Primary Markets Team of the JSE
Decide where your company will feel most at home – on the main board on the smaller AltX board, which is for small to medium companies
Find a sponsor (Main Board) or a Designated Advisor (AltX)
Submit all required documents to the JSE Issuer Regulation division
Embark on a capital raising roadshow
Finally, List

What is the most interesting Initial Public Offering (IPO) process that you have been a part of and why?

All IPOs are different and I must confess that I have found them all exciting.  To see the company CEO and executive team, together with advisors, accountants, legal advisors all together to open the market is truly exceptional.  Here in South Africa we call the sound of the kudu horn and beat the African drums to announce our listings which is not just steeped in our cultural heritage but gratifying after all the hard work that goes into a listing.

That said, two recent listings stand out for me personally.  One was the SA listing of AB InBev, a large multi-national company that, while acquiring SAB Miller, listed on our local market.  It was one of the largest listings in JSE history and really put the high quality of our country’s capital markets in the international spotlight.

The other one would be Choppies, a Botswana based retailer that listed in SA and raised capital for its African expansions strategy, thereby demonstrating the role that the JSE can play to grow intra-African trade and investment ties and positioning SA as a regional financial center.

 In your experience do first time founders usually get support from a leadership perspective when they list their companies? Especially considering the age of some startup founders, like Evan Spiegel of Snap who listed his company at only 27.

There is no question in my mind that first time founders gain enormous insight and experience when they open their companies up to public shareholders.  Firstly there is the requirement for a much higher level of transparency and disclosure which go way beyond what is done when companies are in private hands.

The need to explain strategy and performance to a broad range a stakeholders requires founders to be open, honest, to really understand their business and to publicly demonstrate the duty of care that he or she has.

For some founders, this comes naturally but for others, the support from the executive team, the outside accountants, legal advisors and others are critical to their success and being able and willing to accept that support is an important character trait.  There are plenty of examples of both successes and spectacular failures as far as this goes!

 Lastly, what is the best advice on money that you’ve ever received and who was it from?

I’m an old fashioned investor that believes in diversification and investing in real assets, as opposed to financial assets.  It’s typical of all that we learned in my generation.  Time will tell if it was good advice!

VC Fund

Dividends and Preferences: How to Invest in a VC Fund

So you always wanted to be a partner in a venture capital fund? Well, here’s how it works. The following is Part 3 of my five-part series on how to invest in early stage technology companies as an angel investor or through an investment in a venture capital fund. Privately held companies in emerging technology sectors–such as nanotech, clean tech, biotech, info tech and new media–frequently have exciting upside potential that can only be fully harnessed by investing in them when they’re in their infancy. In Part 1, I gave a general overview of the playing field and in Part 2, I examined the stages of an emerging growth company’s lifecycle and the types of investment that it hopes to obtain at each relevant stage. Here, I’m going to explain how you can invest as a limited partner in a venture capital fund. When you invest in a venture capital fund, your role in the early stage company will be completely “hands off.” You’re investing in the vision and/or track record of the venture capitalist and will rely on the venture capitalist to make and manage your investment decisions. It’s crucial that you match your investment goals with venture capitalists sharing similar goals. For example, an investor that wants to maximize exposure to nanotech and its commercialization would not want to invest with a generalist venture capitalist or a venture capitalist focused on the Web 2.0, SaaS or cloud computing sectors. Before you invest in a venture capital fund, there are several things to consider which I detail below the fold.

VC Fund Structure

1. An investment in a limited partnership in a venture capital fund is long term and illiquid. Long term in this case typically means it will be 10 years before all of the fund’s investments will be liquidated, sometimes even longer. Money will only be distributed to you as the venture capital fund liquidates these individual investments. There’s no easy way for you to get your money back and there’s typically no market for you to sell your limited partnership interest.

2. You’ll be required to qualify as an “accredited investor.” For an individual, this means you must either have a net worth (or joint net worth with your spouse) in excess of $1,000,000; or have income exceeding $200,000 in each of the two most recent years; or joint income with your spouse exceeding $300,000 for those years; and a reasonable expectation of the same income level in the current year. Some funds have even higher net worth thresholds. If you’re unable to meet the fund’s investment criteria, they won’t accept your investment.

3. The fund will require you to make a sizable upfront investment coupled with a substantial commitment for future investment. Most funds require, at a minimum, a $100,000 up-front investment with a minimum commitment in the $500,000 to $1,000,000 range. These numbers vary greatly depending on the size of the fund and the experience of the venture capitalist, however, they very rarely fall below these thresholds. The remaining bulk of your commitment will be tapped by the venture capital fund over a period of four to six years known as the “drawdown” period.

4. Investing in emerging technology companies is exceptionally risky and there’s a strong possibility that a number of the venture capital fund’s investments will be worthless and that none of these investments will see significant returns. The risk of losing all of your investment is higher when investing in a venture capital fund than when investing in public equities. However, it’s probably lower than if you invest directly in companies as an angel or angel syndicate. The reason for this is twofold: You’ll have exposure to a larger number of potential and actual investments through a venture capital fund; and the venture capitalists are theoretically better at identifying emerging trends and companies that are good bets than angels or angel syndicates. Now, if you meet these criteria, can afford to have your capital locked in for a long period of time, and don’t mind the risk of substantial losses, the potential benefits are substantial–annual returns can often reach up to 30 percent for successful venture capital funds. If you decide to pursue investing in a VC fund, you’ll be given a private placement memorandum that describes the fund’s objectives, the experience of the venture capitalists and the terms of your investment. It also includes a comprehensive “risk factors” outline that provides extensive detail on the various risks that you’ll be assuming. You’re also given the subscription agreement you must complete to make your investment and a copy of the limited partnership agreement that will govern the legal terms of the fund. Familiarize yourself with these legal terms and consult with your attorney and other professional advisors before you pull the trigger. Bear in mind, the terms of the limited partnership agreement are typically not negotiable. This makes a certain amount of sense since the venture capitalist fund will usually have 20 to 30 different investors and may talk to hundreds of potential investors. These investors commit at different times and commit different amounts of money, so it would be extremely time-consuming and arduous to negotiate separately with all of them. Now, if you were going to commit for a substantial percentage to the fund, then you’ll have more latitude on terms and conditions. However, the typical individual investor is investing a relatively small amount when compared to the public pension funds and other large institutions investing and, consequently, he/she has relatively little bargaining power. Fortunately, the terms of venture capital funds don’t vary much from “market” rates that have evolved over the last 20 to 30 years. This can make it easier for you because you can simply check to see if the terms you’re being offered are in the market range. A few of the most common economic terms are the management fee, the carry, and reinvestment rights. Typically, governance rights for limited partners in venture capital funds are minimal. The management fee is the lifeblood of a venture capitalist. This is the money that they live off of from day to day. Usually, the management fee will be a percentage of committed capital. That is, the total capital that everyone has committed to the fund, not the capital the fund has actually drawn down. Traditionally, this fee has been 2 percent but anything from 1.5 to 2.5 percent is common, depending upon the size of the fund. With a larger fund, the percentage may be lower and vice versa for a smaller fund. This fee is taken annually and can add up relatively quickly. For example, if the fee is 2 percent, on a $200,000,000 venture capital fund, the venture capitalists collect $4,000,000 a year for 10 years-–or $40,000,000. And this is completely independent of whether they make good investments. Occasionally, the management fee will be capped at actual budgeted expenses or will scale downwards to reflect the fact that more work is required during the funds early years; however, a flat percentage is the norm. The carry is the second form of compensation for venture capitalists. However, unlike the management fee, the carry is directly tied to success. The carry is the percentage of the fund’s profits that the venture capitalist gets to keep, typically 20 percent. Often, the investors are guaranteed some ordinary rate of return on their investment (eg, 6 percent or 8 percent) that the fund must first deliver before the carry will kick in. However, the latter distributions will be tiered up so that the venture capitalist ends up with 20 percent of all profits. Occasionally, there may be some deviation from the 20 percent figure, but this is rare. One thing to look for is whether the fund looks at the profits of the fund as a whole or on the profits from each individual investment. If the former, there’s often a “clawback,” so that if an early portfolio company has a home run but all the rest are losers, you’ll be able to take back the excess profits that are distributed to the venture capitalist. Reinvestment rights are the right of your venture capitalist to take profits from early successes and reinvest them into new investments rather than pay them out to you and the other limited partners. This may be a good thing for you because it means you have more capital at work and, in a sense, this is free to you since the management fee doesn’t apply to reinvested money. On the other hand, it may be a good idea to take some money off the table. Some form of reinvestment right, at least for the first few years, is relatively common. Just make sure you understand what it means to you. The next part of this series will look in detail at angel investing and its important characteristics, including typical legal and business terms.

Stock Market Analysis

Navigating the Markets by Fusing Fundamental and Technical Analysis

As we end the year, the Eurozone debt crisis has taken centre stage. Even for the most hardened technical trader it has been difficult to ignore the fundamental noise emanating from Brussels.

This reached fever pitch after the EU summit on 8-9 December was deemed a massive failure. So as we enter a New Year, traders who want to keep their profits need to get used to fusing fundamental and technical analysis when they trade the markets.

This is fundo-technical analysis in action, which makes up the basis of my philosophy for analysing markets: fundamentals determine the medium-term trend, while the technicals point to shorter-term price movements. For most retail FX traders it’s the short-term movements where you make or lose money. Thus, although you may know all about the weak outlook for the currency bloc and the fact that Italian bond yields are surging this means nothing to you because you can’t make profits from this information alone.

Hence the question on every good trader’s lips is “what now?” Since we are at such an important level for EURUSD I have decided to look at point and figure charts to see if there are any key support levels that jump out at me. I like using point and figure when we get below these key levels because it strips out the noise in the market. Usually around big moves prices can become sticky as traders get nervous about breaching such a key support zone. Thus, prices can move up and done like a yo-yo and you risk firstly losing your nerve that you made the right trade and secondly, getting taken out by the whipsaw price action.

So, if you think that EURUSD is going lower then point and figure (“P&F”) charts are a good way to pick significant support and resistance levels since P&F charts strip out time – they only show you price. As you can see in the chart below, the next key level to watch is 1.2900, below here opens the way to 1.2600 and then we are back to the sub-1.20 lows from the peak of the Greek crisis back in mid-2010.

So what are the future fundamental and technical risks that could impact the currency’s movement from here?

Looking at the fundamental factors first, Italy has EUR 112 billion of debt to auction in the first three months of next year, the EU authorities have so far failed to come up with more money for the bailout fund and the currency bloc is expected to experience a mild recession in the first six months of 2012. So from a fundamental standpoint the outlook is fairly gloomy.

But what does the euro’s technical history tell us about where the pair might go? On a very long –term basis the euro is actually fairly strong within its range. Back in 2001 EURUSD was trading at 0.85. But since 2002 (with a little help from global central banks to get going) the euro has been on a long-term up-trend. In the medium-term after peaking at 1.60 in 2008, the pair has been stuck in a range between 1.50 to 1.19 – the July 2010 low.

The break below 1.30 is significant not just because it is one of the lowest levels in this pair for nearly a year, but also because it opens the way to 1.20. This is a level that hasn’t been convincingly breached since 2005. When it broke below 1.20 back in July 2010 it didn’t last long and the single currency soon bounced back. This is a major support level and it also coincides with the 200-week moving average.

So, if we are to see EURUSD fall below this level then something serious is going on. Perhaps a failed Italian debt auction, a disorderly Greek default or even a break-up for the currency bloc could be triggers. While all of these events are possible no one can predict with any certainty when they might happen. Also, because they would also be first-time-ever type of events then it is difficult to know how to price in the probability of them happening with any type of accuracy.

Interestingly, the average EURUSD rate since 2000 is 1.2425, according to Bloomberg data. And in the current environment where the politicians seem to have the will to save the Eurozone although they lack the way out of this crisis, we could see this pair meander back to the mid-1.20’s over the next few months if sentiment does not change.

But we can’t forget that the euro is a strange currency, it can prove very resilient and in recent months it has not declined in a straight line. So traders beware. All of the fundamental and technical analysis in the world can’t protect you from unusual moves in the market and if you trade euro then your trading plan needs some contingency built into it to account for central bank and petro-dollar reserve diversification, which tends to be euro positive.

So traders, if you are hooked on the news coming out of Europe and think it will end badly, don’t think the euro will follow suit. Short-termism is the name of the game when it comes to the single currency and it could be more like death from a thousand cuts than an outright collapse.

Dividend investing

Dividend Stocks for Beginners

Investment is one of the crucial decisions to make, whether for personal or business purposes. There are many things to consider before you make it, especially if your company will benefit from it. One of the best ways that those companies do is invest in dividend stocks. But you need to have more information about this matter. You need to make sure that it can be a big help to your company, especially if you are a beginner.

Dividend stocks are an extra payment, which is made in additional shares rather than a payment of cash. Thru this, you can generate your income, and it will help you grow your savings collection for long years. This is a big help to increase the share of your company regularly.

Why should you invest in Dividend Stocks?

Investment is essential when you decided to make the right decision. If you are in the field of business, you need to be wiser enough so that you are assured that it will grow and it will be a big help to your business.

Things will be easier if you have enough knowledge about dividend stocks. It is also helpful if you are guided by those who are expert in this field. Here are some of the reasons why you should invest in dividend stocks.

  • Dividend stocks will produce consistent income streams, and it has the potential for outstanding and longstanding compound returns.
  • Thru this, you can pay shares to stockholders, reinvest in the business, or buy back your stock. Reinvesting is essential for the growth of your business, and at the same time, it can help to maintain a competitive benefit.

As a beginner, you need to have enough reason before you decide to invest in one thing. You need to consider your company. Make sure that you will get a significant advantage in the investment that you are going to do.

Stock Investing

Important Dividend Stocks Dates

If you are one of the beginners in this field, then you should remember some of the important dates for dividend stocks. You need to be aware of this date because it will help you to determine if you will receive the stocks on the next payment of dividend.

  • The pay date is the day when you need to pay the dividend to the shareholders.
  • Record date occurs in two business days after the date of ex-dividend. In this date, you will determine if you already get the dividend.
  • The ex-dividend date is the first day of the trades of stocks without the dividend. When you purchase a shares before the date of ex-dividend, then you are entitled to the payment of dividend, but when you purchase after the date, then you are not going to pay on the cycle of dividend.
  • Settlement date occurs in three business days after the date of the trade. It represents that the purchase is being finalized and you will have the record of the shareholder in the book of the company.
  • The date of trade refers to the day when you purchase the stock.

The given important dates about will provide you with an assurance that you have to undergo the process of dividend stock. It would help if you remembered those dates for you to be guided appropriately by your payment.

Advantages of Dividend Stock for Beginners

Dividend stock is one of the recommended investments for beginners. This will give them a great advantage that will assure them that they have made the right decision. Here are the benefits of choosing dividend stock for beginners.

  • The track of growth record because dividend stock will assure you to have consistent growth to your business or income. The good traits that these investments have will ensure that this is the right thing to do.
  • When you are a beginner, you are aiming to have a good growth to your investment. You don’t also want to fall by a lower amount. In dividend stock, you will have low instability.
  • If you are in a company, you aim to have continues good record. This investment will help you with that goal because of the sustainability traits that it has. It will provide you a firm track record about the payments of dividend.
  • Consistency is one of the excellent characteristics that this dividend stock has. Thru this, you are assured that the growth of income to your company will be achieved.

Dividend Stock Investing

Things to know in Dividend Stocks

Beginners should have some critical information that will help them understand the investment that they are in. It is essential that you are knowledgeable enough about the dividend stock to make it successful. The following information will serve as your guide to do the right thing in the field of investment.

  • Dividend stock is not only about income. Beginners should know the importance of dividend income trap, which is referred to stocks with remarkably high shares.
  • You need to know if you will get paid. Your brokerage account probably has several dates, and you need to pay attention to this detail. This will give you awareness about the process of payment.
  • It would be best if you also enrolled dividend stocks in a DRIP (Dividend Reinvestment Plan) for the all-out prospective.

The investment will not be possible if you will not become wiser in choosing the right choice. You need to have enough information before you go for investment, especially when you are a beginner. There are many things to consider for it to be successful. The given information above will help you a lot, and you will be assured that you have made the right decision.

Dividend stock will assure you that you are on the right track. This is the best investment that you are going to make for your company. You will never regret choosing this because it is proven and tested for many years. Do not hesitate to trust this because the information given to you is reliable and proven.

How To Pick The Right Stocks

How to Pick the Right Stock – The Do’s and Don’ts

Picking the right stock is a crucial step when it comes to investing in the stock market. The stock you invest in will determine whether you are going to gain or lose money in the future. Sometimes, a stock might seem the perfect one at a particular moment, but it turns out to be a loser in the new few weeks or year. Alternatively, maybe you didn’t put high hopes and a lot of interest in a specific stock, but you end up regretting it when it turns out to be a winner stock.

The stock market has never been a game of luck and will never be. To make the best out of the stock market, you need to adopt an excellent investment strategy, which involves picking the right stock at the right time that will help you generate high profits in the future.
If you are a stock investor, or just getting started in the stock market and want to know how to pick the right stock, you can start with this guide. You will find all the dos and don’ts when choosing a stock.

How To Pick The Right Stocks Intro

What to Do When Choosing a Stock

Buy what you know

As a general rule, it is very beneficial to start with a company or industry you are familiar with, for many reasons. The more you know about a particular company or industry, the more your head is in the game. For instance, if you are in the medical field, you will more likely have a better idea which pharmaceutical companies are on top of the industry and how effective they are in terms of customer service and sales. Also, bear in mind that any nonpublic information you receive in an official capacity might be considered insider information. But still, any public information that is not widely spread can give you a significant advantage.

On the other hand, make sure to avoid the hype because you might end up losing money when these emerging companies turn out to be losers. Many investors fall into the trap of buying a stock that they don’t fully understand, and just because a particular industry went viral at that time, which might not last for long periods.

Consider price and valuation

Expert investors often look for individual stocks that are “undervalued” or “cheap.” This generally means that the different investors are paying a fairly low price for every dollar a company earns. It is measured by the price-to-earnings ratio (P/E) of a stock price. (it is the share price of a company divided by its net income). When comparing the P/E ratio results, a stock price is considered cheap when it is below 15 and expensive when it is above 20. But still, there is more to consider:

  • Expensive doesn’t necessarily mean bad, and cheap doesn’t necessarily mean good. Sometimes, the reason behind the low price of a stock is that the company is slowing down or growing less. Alternatively, a stock is expensive sometimes because it is predicted that the company is going to overgrow in the coming few years. So, if you want to buy a stock that will more likely be worth a lot later, look at the value combined with predictions for future earnings.
  • Know your stock. Generally, a company that is expected to grow significantly and rapidly in the near future will more likely be more expensive than an established company with a slower growth rate. Before locking your choice, make sure to compare the P/E ratio of a particular company with the P/E ratio its competitors of the same industry and check whether it is more expensive or cheaper than its peers.
How To Pick The Right Stocks Price

Analyze the financial health

It is essential to have an in-depth analysis of the financial reports of a particular company you are interested in. Besides, it is easy to find these reports since most of the public companies tend to release them quarterly and annually. Make sure to check the Investor Relations section in the company’s website, or look for official reports listed in the SEC online. To make your research even more efficient, don’t just focus on the most recent releases. Instead, put more emphasis on a solid track record with a consistent history of financial health and profitability, for long periods.

  • Look for revenue growth. Stock prices tend to significantly increase when companies are generating more money in the long term, which typically begins with growing revenue. Analysts usually refer to revenue as the “top line.”
  • Check profit margin. The profit margin of a company is the difference between its revenue and expenses. Generally, a company tends to expand its margins when it is growing revenue while successfully controlling costs.
  • Get to know how much debt the company has. To do so, make sure to check the balance sheet of the company. A company with more debt generally have a more volatile share price because more of its income has to go to the debt payments and interest. Also, check whether a company is borrowing an unusual amount of money from its group peers for its industry. That would positively affect its price share in the short and long-term. 
  • Find a dividend. A dividend is an amount of money paid regularly by a company to its shareholders, and it is a sign that a company is in an excellent financial health. Make sure to look at the history of their dividend payments, whether they are increasing or not.
How To Pick The Right Stocks Financial Health

What NOT to Do When Choosing a Stock:

  • Don’t rely on price alone. Just because the price of a stock has dipped 10%, doesn’t mean that it is a bargain and you should buy it right away. It is very important to know the reasons behind its fallout and have a better understanding it is going to rebound.
  • Don’t count a lot on analyst recommendations. It is always a good idea to listen to the experts’ advice. They can provide you with valuable information about the health of the business. However, be cautious that they tend to favor ‘buy’ ratings. That is why a sell rating, especially a new one, might be a red flag from an analyst perspective. You should always keep an open eye on those calls
  • Don’t neglect the stocks’ volatility. Compared to a diversified mutual fund, an individual stock tends to be more volatile. So, make sure to check the stock’ highs and low within every week of the year to have a better idea of how the prices swing all year round.
  • Don’t forget to sell. You should always have a solid strategy when investing in stocks. You need to know when to buy a particular stock as well as when to sell it. To do so, make sure to set some criteria to know when is the right time to sell that stock: if the price goes high or down to a certain point if the particular company cuts its dividend, if an analyst depreciates the stock, etc. This will undoubtedly help you better manage your stocks and avoid rushing to selling over a short-term fluctuation in the market. When following these criteria, you increase your chances of success and minimize the risk of losing your stocks during unexpected events.    
Largest IPOs

Top 10 of the World’s Largest IPOs of all Time

IPOs of large companies are usually a good opportunity for investors to position themselves early in a high-growth company. If the circumstances are right, there is no better choice than the IPO to create new millionaires overnight.

Largest IPOs Big Company

An initial public offering (IPO) is when a company goes public starts to sell its shares in the open market for the first time. An initial public offering is one of the few times a company will sell its shares. After the shares are initially issued, they are traded among investors in the secondary market, which is called the stock exchange. An IPO’s main purpose is to raise capital for the shares issued by the company.

In this article, we’ll talk about the top 10 of the world’s largest IPOs. There are several different companies on the list, including four financial services providers, two telecommunication companies, two Internet-based “new technology” companies, an energy provider and an automobile manufacturer. Asia dominates the list: 3 Chinese companies hold the first three largest IPOs of all time.

1. Alibaba Group Holding Ltd. ($25 billion)

Alibaba Group Holding Ltd. (NYSE: BABA), based in Hangzhou, holds the title of the first-largest IPO of all time. This e-commerce giant was unknown outside China by the time it became public on September 18, 2014. When Jack Ma, the founder of Alibaba, failed to reach an agreement with the stock exchange of Hong Kong, he took the company’s initial public offering over New York. Alibaba initially placed 368.1 million shares at 68 US dollars with investors, initially raising $21.77 billion.

Then, right after four days, underwriters exercised the so-called “greenshoe” option to bring more shares on the market, which allowed the company to increase its IPO to up to $25 billion. Alibaba Group chose to list on the NYSE for its launch rather NASDAQ, and the Credit Suisse underwritten its IPO. The group owns large e-commerce brands such as Alibaba.com, Aliexpress.com, Taobao.com, and Tmall.com.

2. Agricultural Bank of China Ltd. ($22.1 billion)

A Chinese company as well holds the title of the second-largest IPO. AgBank became public on July 7, 2010, at a whopping $19.2 billion. Then, it had increased its IPO to reach up to $22.1 billion. In addition, Agricultural Bank of China Ltd. is a part of the “Big Four” banks in China.

Largest IPOs Agricultural Bank of China Ltd

3. Industrial and Commercial Bank of China ($21.9 billion)

ICBC is one of the “Big Four” as well and holds the title of the third-largest IPO of all time. It became public on October 20, 2006, raising $19.1 billion. A year later, the Chinese bank succeeded in increasing the IPO to $21.9 billion due to an over allotment option.

4. General Motors Company ($20.1 billion)

General Motors is a multinational automobile manufacturer. It was affected by the global financial crisis in 2008 during the company’s 100th anniversary. The US federal government, which intervened with $50 billion, saved the company. The American automobile giant November 16,2010 after recovering from bankruptcy. Only one year and a half later, GM succeeded in generating an IPO with a total of $20.1 billion; one of the fastest and most successful company profits in history. At present, GM owns Buick, Cadillac, GMC, and Chevrolet.

5. NTT DOCOMO Inc. ($18.4 billion)

Japan’s largest mobile communications group, NTT DOCOMO, went public in 1998 and generated revenues of USD £18.4 billion. Headquartered in Tokyo, the company is a subsidiary of Nippon Telegraph and Telephone Corporation (NTT) and serves more than 62 million mobile customers. This giant Japanese communication company was underwritten by Golden Sachs Asia. Also, it had been on the NYSE list until April 13, 2018, when it officially delisted its American Depositary Shares (ADS).

6. Visa Inc. ($17.9 billion)

In March 2008, the US credit and debit card provider Visa (NYSE: V) ventured into the stock market. The company placed 406 million shares at $44 with investors and private investors, initially raising almost $17.9 billion. Later, further 40.6 million shares were issued, bringing Visa’s total revenues to $19.7 billion with a 219% return after the first year. Today Visa has an annual turnover of more than US $12 billion, and the Visa share price is well over the $200.

Largest IPOs Visa

7. American International Assurance Group Ltd. ($17.8 billion)

Asian AIG’s subsidiary, American International Assurance (OTC: AAIGF) went public in Hong Kong on October 21, 2010. AIA raised more than $17.8 billion making it the largest publicly, independently pan-Asian group of life insurance to be listed.

8. Enel S.p.A ($17.4 billion)

The Italian energy supplier Enel S.p.A (OTC: ENLAY) became public on November 1, 1999, and raised roughly $17.4 billion. In 2010, the green power subsidiary Enel Green Power (EGP) went public, raising $3.8 billion. Enel has 72 million end users worldwide and works in 34 countries. This Italian firm competes in the electric and gas market in the whole Europe, North America, as well as in South America.

9.  Facebook ($16 billion)

In May 2012, Facebook made the history: With an IPO volume of $16 billion, it was the largest IPO of an Internet company at that time. The shares were placed at $38, but the euphoria quickly faded. Its debut was riddled with questionable accusations of sharing information and trading issues. Investors who had subscribed sat on losses of up to 50% in the first few months. Only then, Facebook succeeded in monetizing its mobile users more effectively, and the Facebook share recovered again. As of April 2019, Facebook has 1.56 billion daily active users on average.

10. Deutsche Telekom AG ($13 billion)

Deutsche Telekom AG went public on November 17, 1996, raising over $13 billion, but the price quickly plunged in a straight line after it was issued. At the time, investors were worried about their heavy burden of debt, but Deutsche Telekom AG soon continued. Today, 68% are owned by public investors, and the state of Germany holds an additional 32% of the property. This German communications company owns T-Systems and T-Mobile. It is estimated that it has more than 156 million mobile customers with 29 million fixed lines of network.

Invest in Gold

Why Invest in Gold?

If you aren’t much interested in purchasing physical gold, you can take a different approach and purchase the shares of the mining companies that produce gold.  This is one way that you can cut out a lot of work and hassle on your part.  In the event that the price of gold increases, you can surely expect that the profit margin of the company will rise; consequently, the worth of the company as well as the share price will increase.  However, this may not be the case always.

As a result, there are quite a few factors that you should think about thoroughly and take into consideration while buying the share of a gold mining company.  Prices aren’t the only instances that you should concern yourself with.  You will also have to worry about structural failure, flooding and subsidence in the mines.  Management is yet another aspect that you will need to worry about when you purchase gold mining companies.  When the company or situation is handled or managed in the improper way, you could face negative publicity, along with theft and corruption.  In such cases, the unhedged gold shares might be even more volatile than the gold price itself. Hence, it’s in your best interest to plan and prepare well before investing in gold mining companies.

gold-rate

There are three types of derivatives that you should make yourself familiar with.  These derivatives are gold options, forwards and futures.  You can trade them on different exchanges all around the world.  You can also trade them over the counter, also known as OTC, and it goes directly to the private market. In the United States, COMEX (New York Commodities Exchange) and Euronext.liffe are the major market of trading gold futures. As far as India is concerned, these futures are exchanged in NCDEX (National Commodity and Derivatives Exchange) and at times, MCX, which is Multi Commodity Exchange.

In 2009, many gold future holders from COMEX had experienced a lot of issues in the delivery of their precious metals.  A few issues in this situation included unnecessary delivery delays and delivery of bars not matching with serial number and weight written in the contract.  Due to these issues, concerns rise that COMEX may not have enough inventory to back up its receipts in the market.

Many companies from the UK, Hong Kong, Portugal, Germany offer CFD (contract for difference) and spread betting on gold price. In case of CFD, the seller pays the buyer the difference between the present value of the gold and its value at the contract time. The situation is reversed, if the difference comes to negative figure; in that case, the buyer is required to pay to the seller.

Spread betting mirrors the CFD in many ways; it is a particular type of wagering where the pay-off is determined based on the precision of the wager which is quite different from a simple win/loss situation.  While investing in gold, derivatives, CFDs and spread betting might be very lucrative option if you don’t want the physical ownership of gold. However, they are very risky to invest in and you must be aware of that.

Real Estate

Create Value In Your Real Estate Partnerships

I have built my business buying foreclosures and invested millions of dollars in real estate transactions through forming partnerships. Partnerships can be extremely useful tools to enhance your real estate investing portfolio, providing you the means and opportunity to buy foreclosures or other properties you may not have been able to attain by yourself. Follow these simple but important steps to avoid extensive and expensive legal battles and in the end, become the ruin of your real estate business.

Your partnership is going to work best if you and your partners have complimentary skill sets that you each can contribute to the organization.  It’s vital that you bring in a partner who can complete the missing piece of the puzzle, while enhancing the pieces that are already present. For example, you may have the know-how to find and analyze the deal, the ability to finance the purchase but you may lack the construction funding and experience to finish the project. You partner search should fill in those gaps, handling the responsibilities needed to see the deal to a successful completion.  This enables each partner to have clearly defined roles, with little to no overlap. Too often, when too many people are “experts” in the same field, you can get paralysis by analysis, when each side tries to prove their superiority. This can lead to significant and costly delays for you and your project. It’s not about egos here, it’s about money.  If you want to stroke your ego, do it on the golf course.

RealEstate tip

Just like a marriage, real estate partnerships require the right pairing of personalities. While you should marry for love, partnerships should be formed with the goal of profitability. You don’t necessary have to like your real estate partner, although that helps, but you do have to have a mutual respect. If the respect is not there, RUN. Unlike a marriage, where not everyone has a prenuptial agreement, a dissolution agreement in a partnership is an absolute must. You may never need it, but like a good insurance policy, it’s there to save you money. If there comes a time when the partnership goes awry, not having it can potentially cost you thousands of dollars, not to mention the aggravation and stress associated with the breakup of the relationship.

Keep accurate records, no matter what structure you use. Have formal meetings set up with your partners on a monthly basis, and send out formal invitations to attend those meetings. They may think it’s silly, but keep doing it, and keep a record of your attempts and the meetings. This might sound strange, especially if your partner is a friend or close acquaintance, but by treating your real estate business as a business you will earn their appreciation over time and become to be known as a true professional.  More importantly, if something should ever arise that could fracture the partnership, you will have your bases covered because you kept your partners up to date on developments, good or bad.

The key to any real estate system is putting yourself in the position where you can choose your partner. When I am buying foreclosures or investing in distressed, mismanaged properties, I am choosing my partners. You should never be so desperate to do a deal that you decide to work with just anyone, or the first person who could come to the table with money.  A perfect example of this in my career was working with this investor named “Mike.” Just so you could understand how much money Mike had available, if you had Mike’s money you would burn all yours. He worked with some other real estate investors I knew and had always asked me to work with him on a deal. I choose to work with him on a project and we all made money, but during the process I got to see firsthand what is was like to deal with him. He would not follow through on payment arrangements, make double or triple the work and got involved in areas that he was not supposed to. I was happy to give him his check at the closing and even happier that I never used his money for any transaction I was involved in again.

Finally, this isn’t just about the “other guy (or gal)”.  Make sure you are a great partner and you will have people lining up and knocking on your door to work with you.  Always respect the other persons time; always follow through on your word; always try to make your partners the most amount of money you can.

Hyman Roth was loved because he always made money for his partners

The skill and knowledge of finding and structuring the right deals, whether I’m buying foreclosures or short sales, mismanaged investment property or estates, has enabled me to be in the position to pick my partners and not the other way around. Pick the right partners, and you will be able to achieve greater profits in real estate than you ever could alone. Most importantly, make sure you are they type of partner that helps your partners achieve the same thing.

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