I’m often asked how to go about sourcing investment opportunities. In my opinion, the ability to build relationships and connections is absolutely fundamental to success; the ability to establish a wide network of entrepreneurs and investors can help you to start developing a stream of opportunities far more lucrative than a simple retail bond or savings account. The ability to attract and capitalise on these opportunities is an important part of pursuing financial independence, but one which requires work to develop.
An old colleague of mine was always keen to travel the world, but was often lamenting how expensive it was. His plan was to beat the ‘rat race’ of everyday employment by putting together real estate deals, financed by third party investors, and then providing management services on which he would charge a percentage of any revenue received.
This friend would often talk to me about how to use outside investment to buy properties for sums of money which seemed absolutely fantastical to me; he would have no trouble looking at properties valued at one, five or even ten million pounds. His plan was to put together glossy marketing brochures to attract investment, purchase the properties then rent them out to tenants with the aim of increasing the capital value over time. While the investors would be on the hook for hundreds of thousands of pounds worth of capital, my friend would be able to acquire equity in top end properties without the need to spend a lifetime saving for the deposit and paying it off.
In theory, this would be a win-win situation; my friend would receive a solid income and equity stake in high end London properties, and his investors would receive a constant flow of great property deals.
At the time, I remember telling him that I thought he was mad – after all, if things were really that easy, then surely every Tom, Dick and Harry would be following the same model? On top of this, it seemed highly risky to me – what if he was unable to source tenants, someone damaged one of the properties, or one of the investors wanted their money back suddenly?
Despite this, I was interested to see how things turned out, and we kept in touch for several years after I moved on from the company, swapping emails and occasionally running into each other at various events. A few years later, he approached me with an opportunity, or rather a connection. He introduced me to a friend of his who wanted some funding for a new project he wanted to try out.
Having spoken to me at length about my thoughts on business, and having reviewed various investment opportunities together, he’d passed this one along to me as it didn’t meet his requirements. The project was a piece of software designed to carry out translation work – the team was looking for funding to improve marketing and promotion efforts, and was also offering a small equity stake for someone willing to take on the commercialisation of the product.
The team was looking for around £25,000, and to make it worth my while was willing to offer an interest rate of 10% a year. While the deal seemed reasonably straight forward, I recognised the value in carrying out some due diligence, and promptly spent a few days writing up a whole list of questions I had for their senior team which I later spent an after talking through with them. As it turns out, I wasn’t tremendously impressed by the answers they gave, and so decided not to move forward with the investment.
In this case, the opportunity wasn’t one which I chose to pursue, but it was the relationship I’d developed which allowed me to review it in the first place. Big money makers don’t put their money in bonds or fixed income products sold on the high street, they put exclusive deals together which make them big money. By adding value in one relationship, I was put forward as a potential deal maker in another relationship for an opportunity which I would otherwise have been oblivious to.