In this episode, I’m catching up with my good friend Dinesh Gauba. Dinesh and I have done countless deals together where we’ve had the opportunity to leverage and share our networks, our resources, and our knowledge of different spaces.
What makes Dinesh a uniquely great investor is his incredible sense of deal flow. Though he got started in real estate, he also has extensive experience as an angel investor. He sees opportunities everywhere, knows the ins and outs of private deals, and is one of my favorite people to bounce ideas off of.
Today, Dinesh joins the podcast to talk about what he learned from the early investments that didn’t work out, the questions he asks as he considers taking on deals in a group, and things you can do to make sure that your portfolio never keeps you up at night, no matter how risk-averse you are.
- How to collaborate and partner with people on investment deals.
- Why so many people get gun shy after one investment fails and how to move forward if a deal goes wrong.
- Why it’s so important to build a trustworthy team of people you can invest with and stick with them.
- Why the best lifestyle investors are also lifelong learners.
- Key differences between investing in private deals vs. publicly traded companies – and the value of both.
- How Dinesh uses what he calls asymmetric risk reward to make life-changing bets without sacrificing his financial life in the process.
- The questions Dinesh always asks before investing in a new company or going in on a group investment.
- Hacks you can use to piggyback on other highly successful people’s investments.
- How investing becomes fun once you get out of survival mode.
- Steps you can take to optimize your cash flow and ensure you’ll always have liquidity when you need it.
TweetablesAnytime you can align yourself with people that have knowledge and expertise that you don't, you can accelerate your results. - Dinesh Gauba Click To Tweet
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Connect with Justin Donald
Justin Donald: Well, I am so excited to be spending time with my good friend, Dinesh. It has been really a little bit of time, generally, you and I have been catching up on a pretty weekly basis, maybe a few times, but we’ve both been pretty busy. I was busy with the book launch, you were busy with a bunch of things going on as well. And it's nice to reconnect. We got a chance to catch up a little bit earlier this week, a couple of days, earlier this week, my friend.
Dinesh Gauba: Hey, Justin, good to see again. It’s been a while.
Justin Donald: I'd love to know what was going on in your world right now.
Dinesh Gauba: Yeah, it's been a wild year last year, as you know. We did a lot of fun stuff together, fun projects together and there's more coming, I'm sure. And I've been pretty actively investing really, that's the bulk of where I spend my time is looking at other opportunities and building relationships and finding places or ways to add value in existing companies that I'm invested in or in new ventures that I'm planning to be involved in or that I'm considering. So, that's one of the things that keeps me excited and motivated.
Justin Donald: Well, you do a great job of that. I mean, I think it's really important to have deal flow, very few people have deal flow. And so, to me, whenever I find someone else that just has a tremendous amount of deals at any given time, like that is such a fun person for me to interact with, and that's you. I mean, you have so much deal flow, it's incredible. And you and I have done so many deals together, I mean, at this point, it's almost countless, I mean, easily double digits of deals. And some, I've gotten you in, some, you've gotten me in and it's been cool because we've been able to leverage and share our networks, share our resources, just understanding knowledge space.
Dinesh Gauba: That's the fun part of investing.
Justin Donald: It's been really cool.
Dinesh Gauba: Collaborating with good people, both on the opportunity side and on the investor side. And, yeah, it's been awesome working with you on that and kind of bouncing off ideas and brainstorming and just looking at perspectives, just making sure we can analyze or look at a deal from each other's perspective and poke holes at it and share our concerns and share our understanding of the good and the bad, which is always great to be able to do that with you, that's a lot of fun. And there's not a lot of people that I get to do that with, in general.
Most of the time, when I'm investing, I'm kind of doing it on my own and I don't really have that interaction with a lot of the deals that I do. So, most of the time, it’s just looking through all the stuff that I get and the due diligence. And sometimes the deals are very tight, like, there's no allocation, I'm trying to get in and there's no time. It's interesting, the variety of stuff that I'm involved in.
Justin Donald: Yeah, it's interesting because, same for me, like for a while, I was just investing by myself. And it can get a little boring if you're not having people to bounce ideas off of and so, it's been so much more fun for me to kind of grow my network of people that I trust, that are trusted advisors and peers and confidants that I can run my deals by, get their perspective. And they're not just going to tell me what they think I want to hear, they're going to tell me their real opinion. And you're great about that and you're great about picking things apart and saying, here are the concerns as I see them.
And I mentioned this in my book, I talked about the power of having more than one mind. And I even talked about relationships that I have with people exactly like you, where you have two minds working on something, you're ultimately going to have better results in that scenario than if it was just one person kind of going through and doing the due diligence and vetting a deal.
Dinesh Gauba: Right. That’s the power of collaborating. So, I’ve always been big on that and when you can collaborate with the right people and trustworthy people, that's the biggest thing is finding those people that you can trust to give you the right advice or to give you good input, that's not always easy. So, that takes a while, but it's been fun working with you on it since we've managed to develop that relationship, which has been exciting.
Justin Donald: For sure, and it also helps that we've had a really good track record. So, as a team, we're a good team.
Dinesh Gauba: Keep your fingers crossed.
Justin Donald: And our results speak for themselves. So, I'm thrilled about that. Yeah, right, we've got plenty that's still out there that needs to come to the finish line, but the signs are really good. So far, we don't have anything that is a dud that we know for sure. Everything has signs of life or has very vibrant results, thus far. And so, I'm pleased with that, but any investor loses money at some point in time, the goal is that, if you look at it, this is like, combat, you might lose a battle, you just don't want to lose the war.
And any investor is going to lose a battle, they're going to lose an investment, something's going to go wrong, something unforeseen is going to happen. Or maybe it was just bad due diligence on their part and they learn that lesson for the next time, but a good investor can invest in a way where the portfolio is performing really well as a whole. Can you speak to that, because you've had a lot of success in your personal life and in your professional and investment life?
Dinesh Gauba: That's a great point and actually, it wasn’t always like that. I've had some early investments blow up on me and the key is to really learn from each one and to figure out how you could do it better. I've learned a lot from the previous investments that I was doing earlier on and both about people and about deals and how to look at things and how to analyze or how to verify my mind. My motto is trust, but verify as much as you can in the deal. And I started off very early in real estate and I went through that cycle of, like, boom, bust, and bought some things right at the peak of the boom and had that whole experience.
And one thing I learned is that, a lot of times, if you have a loss early on, you get scared and a lot of people get very gun shy to take another shot at it. And that's where a lot of people get stuck, as they're too worried or scared to lose. And of course, nobody likes to lose, but I think it comes down to what you just said earlier, is figuring out how to get comfortable with a certain amount of loss, as long as your net is going up. And you can't win at any shots you don't take.
So, the way I look at it is take as many shots as you can with the best information and the best knowledge you can get around it and diversify it across enough different time and industries and asset classes, that net, you should be getting ahead. And then that thing I feel like, over time, it's allowed me to expand my sphere of what type of stuff I invest in. So, I started in real estate and then, after that, I started angel investing into companies and then very quickly learned, like, oh, shoot, I lost one or two early on, actually, the first one I lost on was a real estate deal, it turned out to be a total fraud.
And you think you do due diligence, but there's only so much you can do if the person on the other side turns out to be a criminal or just goes crazy. It's something I learned along the way that people will be people. So, that's why I always say, be comfortable losing what you're putting in, not that that's ever your intention, but you'd never want to put in so much that you can't sleep at night, if you lose it. And I learned that the hard way early on, I made some larger investments at that time relative to where I was at, and some paid off and some didn't. And the key was to not get bogged down by the ones that didn't.
And that's a psychological game, as much as it is, anything else, you just have to master your mindset and make sure you're always moving forward and not getting stuck on the loss and learning from it and how to protect yourself better the next time. There’ll still be losses along the way, but that's the key lessons that I learned.
Justin Donald: That's right. That's good. And you brought up so much good stuff, trust but verify. And I think that's important. You got to look at a deal and you got to pick it apart and you got to say, Hey, what are all the things that are wrong in this deal? And what should hold me back from making this investment? And then, you've talked about how you have lost and there's only so much due diligence you can do, so you do the best that you can with the information you have and then, some, you're going to lose and hopefully, most, you're going to win.
And you brought up a couple other things. Number one, if you make an investment that keeps you up all night, every night or you're constantly checking it every day or you're thinking about it all the time, you put too much money in. That's it plain and simple, it should not consume your life, you shouldn't be thinking of it 24/7, that means you need to de-risk. And then, I also like what you said because I believe in my portfolio, it's the same thing. it's to create the cash flow that you need to cover your expenses, ideally, your lifestyle, but get your expenses first, then get your lifestyle. And then, with whatever is over that, you can either use that for increasing your lifestyle to match that income. Or what I like better is buying more assets that produce income, so that the asset cash flow can increase your lifestyle to where you want it to be.
So, think about it this way. You said, hey, I like to diversify and I do, too. I like to figure out what's one area that I can do really well at, I can get the cash flow that I need, I can then diversify across other asset classes, other asset types, and I can earn cash flow or passive income across a number of different sources. That way, if anything goes wrong, which we've both had happened to us, that it doesn't put us out, we still have other resources. So, maybe that asset didn't work out, maybe that investment went bust, but we've been able to have enough cash flow in enough different assets that you find in that scenario.
Dinesh Gauba: Yep, exactly. And that was a big part of that is also the trusted network. So, a lot of my deals come from trusted sources or a lot of the partners that I'm invested with. And a lot of investment comes down to the people that are involved in whatever the investment vehicle is. So, I think it's important to build on that. When I find a good team or a good partner to invest without scaling that up over time as I build confidence, as opposed to trying to build that with 100 different people because that takes a long time.
So, it's about kind of finding that balance, where you get comfortable enough when something works and then you double down on the stuff that works and cut the stuff that's not working. And I kind of apply that same thing to most of the investments that I do. And I think it's similar philosophy that VCs use in venture investing and private equity groups use to take the winners and double down on those or whether that's a company or it's a relationship, that's where I choose to invest more of my time and obviously, the more of those that I can build over my lifetime, the more powerful they get because it has a snowball effect.
Justin Donald: Yeah, and it's interesting because you talk about how important it is to develop these relationships. And I also know that you're a student first, you're always learning. And so, it's actually pretty funny that you and I met at a mutual friend's investment conference or Capitalism Conference, Ryan Moran's event, and it was really fun because, number one, we're both there to gain a greater education and to share knowledge that we have. And then, two, we connect on just a lot of levels.
So, we start talking and it's like, oh, my goodness, I can't believe we have so many of the same philosophies and guiding principles and strategies, it was really kind of eerie. We joked about it for a while, where it's like I've never met someone that holds so close to them the same philosophies and strategies that we do. And so, we hit it off really well, really easy became fast friends. And really, since that day, I mean, we've been talking probably every single week since or close to it. And so, that's neat, but I love that the whole way that we met was because we were taking our education seriously, we were taking our network seriously and being intentional with our peer group and those that were going to influence us and getting around people that have different perspectives, unique investment perspectives. So, I love that about you.
Dinesh Gauba: Yeah, it's always been learning, right? I'm always just trying to read and learn. I'm fascinated by the amount of information that's out there and the amount of stuff you can learn about and we were so blessed to be in a time that we are in now, where information is so easily available. And it's overwhelming, sometimes, the amount of information out there, but the beauty is the world is your oyster, you can learn about anything and really start to find opportunities everywhere. And that's the thing.
I actually, intentionally don't read the news for that reason because I don't want to fill up space in my brain from stuff that doesn't lead me to anything positive or productive. So, I think that I have limited time, I'd rather spend it on building relationships with people or feeding my mind with something positive and something that's going to hopefully open up to other opportunities. And that's how I've been able to find a lot of my opportunities or investments. It's very interesting how a lot of them have come about, it's basically on that principle of always wanting to learn and connect.
Justin Donald: Well, I love that because most people go to school. Those that go to college, they stop learning after college, that's it, they're in their corporate job and there's nothing wrong with that, but people get comfortable and they get complacent and they just do the thing that they've been doing for however long, routine guides their life. And I love just your mantra, which I share myself and that is to always be learning, to be an eternal student, to be a lifelong learner, and to be on a journey to have never arrived, but to always be on a journey or what else is there that I can learn and that I don't know.
Dinesh Gauba: Right, and I think for me that was my approach in college as well. It was like, I'm kind of self-taught, I did engineering school, but I can't say I was in class 100% of the time. I would just read the stuff and I was good at just teaching myself stuff enough to where I could do well in the exams and get through the class and take the concepts that I needed to take. So, I was never huge on just going and studying Master’s and PhDs because for me, it was like, I'm just doing this stuff on my own, I might as well just do it in my own time and structure and apply it in the real world.
And so, I started that early, I started investing, like, right after I got out of college, I remember kind of going through this obsessive phase of investing in the stock market in the mid-90s. And I got opened up to this whole world and it was crazy because I was young and I would wake up at 6:30 and trade every day and it was such a fascinating experience for me to learn about the markets. And of course, I made a ton of money, I lost a ton of money in the crash. And it taught me a lot of things. In fact, it led me to a point where I stopped investing in the market for probably four or five years because I got so emotionally scarred by the losses on all the gains that I had and how quickly I lost it that it taught me basically, how to do it the second time around, but try to do it in a different way to kind of build it over time and protect it as you go.
And so, after a few years, I restarted in the public markets and then, that's when I realized a lot of the opportunities, a lot of the gains come in the private markets. And I started getting more intrigued by finding and investing in earlier stage companies and then being in Silicon Valley, I'm just surrounded by smart people with ideas and companies that are starting, solving lots of problems. And so, I'm fortunate to be in a place where that's the general kind of energy here.
And it's been kind of weird for me the last year because I'm not out and about that much. So, I'm not engaged in those conversations as much on a day-to-day basis or in any kind of social events because there's just not much going on there. So, a lot of it is just me seeking it out and reading a lot and learning from different sources for things that I find interesting. And for me, investing, it should be fun. If it's not fun, then a lot of people, they like to hand it off to somebody and I always tell some of the students I mentor, it’s like, hey, it's your money. At the end of the day, if you don't take interest enough to learn about it and to manage it, then nobody else is going to take care of it with the same level of depth or same attention to it that you would.
And so, it's just better that you at least have a good foundational knowledge about how to invest and how to generate cash flow and how to redeploy that cash flow and just basic concepts that I see a lot of people miss, it’s like, they're fascinated when I tell them, Hey, I bought this, but I didn't pay for it. Like, what do you mean you didn't pay for it? Well, I didn't pay for it, I bought this investment that pays for it. And just that simple concept of just, I never buy stuff with my money. So, it's always just from my investment cash flow. If I ever want to buy anything, it's like, okay, I'll just find a way to generate the cash flow that I need to make the monthly payment and I'll take on the debt to make the monthly payment because I can generate a lot more on the investment side of it.
Justin Donald: It's so true and it's brilliant. Like I mentioned that in my book, that this is something that we share a similar philosophy on, where you buy assets that produce income, you want to get something, well, don't just buy it out of principle that could be earning you more money, buy another asset which is the amount of income to get it.
Dinesh Gauba: Yeah, and that's a shockingly simple concept to me, something that I see in so many conversations I’m in that people just missed that and they're always spending and they're trying to make more money to spend it. I’m like, you got it backwards, don't be spending it when you make it. Find ways to spend it on cash-flowing assets and then, you get a lot more freedom to spend it the way you want. And it's something that I think I learned early on, which I've been fortunate to be able to apply over time and it becomes very freeing over time when you can do that because you pretty much have the liberty to buy anything you want, if you can figure out a formula to do it that way.
Justin Donald: Yeah, and you and I have had a very similar experience where early on in our investment careers, we kind of got hit in the face with a deal that didn't work out. I actually think that a lot of the reason that I have had the success that I've had is because I went through a painful beginning where stuff didn't go right. So, it forced me to really learn and not just go on emotion, invest on this because it feels good and invest in this deal because my friend’s investing in this deal, but I also learned that if I just put it in the stock market and hope that that works out, that's also not the best way either because you're writing the ebbs and flows of the market. And you have way less control.
So, I'm a big fan of private enterprises, private investments because there is more opportunity, there is more control, you can get better returns, but that doesn't mean the stock market doesn't have its place. There are still things I like to do with the stock market. I don't think it's the first place I would ever go with my money, knowing what I know today, but I do think from a long-term standpoint, once expenses are covered and if anything happens to me, my family's taken care of because I got cash-flowing assets. From there, I think it makes sense to invest in the stock market, a portion, not 100%, a portion of your portfolio and in it for the long haul, not the short haul, not because like the market tanked, so I'm getting worried, let me pull it out, or the market’s at an all-time high, everyone's loving it, so let me put more money in. Those emotional trades, those emotional tugs, that’s the worst time to go.
Dinesh Gauba: Well, that's one of the big differences between the public and private market. If I look back at all the times that I've sold out of a stock too early, I think I just kicked myself, like I have so many times when I can look back and say, Oh, I should have kept that stock or I kept it for this long. And then I sold it and then it just took off. It's almost like the market’s out to get you. So, I think having that balance between private and public is good because in a private investment, you don't have that emotional rollercoaster happening every day, where you're looking at it and you're seeing the value go up and down.
So, you have to kind of figure out a good balance between having liquidity and then having things that you're not emotionally attached to where, suddenly, one emotion changes and you cash out of it because, look at all the people that probably lost a ton of opportunity and money last year when the market crashed and when the coronavirus hit. It was unfortunate, but I remember so many people tell me like, Oh, it's just going to go down and the market’s going to crash and fortunately, I didn't listen to all of them and I made some good moves in that time, but I did get scared myself, too, and I had some large positions that I cashed out of.
And fortunately, I learned from my previous experience that I didn't cash out 100% so I kept some chunk of it. And it turned out, those things went up like seven X in like a matter of six months. And in the past, I would have literally just freaked out and sold it all and I would have just been sitting there going, Oh my god, I missed the whole ride. So, I learned over time, you can always diversify, you don't have to completely cash out of something, if you believe in it long term. So, having that long-term view actually helps you to stick through it or stick with it, if you have a good company you believe in, you have to have that long-term view. Otherwise, you really miss out on a lot of the gains. And that's what I like about private investing, is that you're kind of forced for the long-term view, you can't just cash out.
And so, things go up and down and over time, if you invest in the right things, I think one of the key things in private deals is really knowing when to get in and what stage the deal’s in and balancing that out with the number of deals that you do. So, having earlier stage deals which are riskier, of course, that's where the most gain can be made because you're getting in at the earliest at a lower valuation, but then, you need more of those deals to kind of normalize your return, meaning, if a few of them go bust, you still have others and it takes maybe one or two out of five or ten companies to make it to have a good return.
And so, it's about finding that balance of early stage, mid stage, and then late stage companies. And by late stage, I mean stuff that's closer to exit, it's not yet public, but maybe they're on their last Series E or Series F race and there's light at the end, where they're planning to either have some kind of acquisition or you can see they're going in the right direction to have a liquidity event. And so, I also weigh out how much I invest based on that.
So, my earlier stage stuff is usually smaller investments across many different companies. The later stage, I'll make bigger bets on those because they're further along and there's a better chance of liquidity. So, anytime I can do an investment where I can get my capital back sooner and redeploy it, I love that. So, that's why I like later stage deals from that perspective because I can get my capital back and redeploy it. Or if I do debt deals, like some of the deals that we've done, where in a fixed timeline, you're getting cash flow plus you're getting your return of your capital. Those are always good foundational deals to do and to build your base off.
Justin Donald: Yeah, there’s no doubt. And we've done some really unique structures, just some of the stuff that each of us have negotiated when, if I bring a deal to you and I take point on it or you bring a deal to me and you take point or we both take turns, I mean, we've been able to create some pretty lucrative stuff. And it's interesting because I do think that people should have an understanding and exposure to a lot of different types of investments.
So, most people have all their money in the stock market, and to take it one step further inside of a qualified plan, 401(k) something, where they don't get utility on it. So, it's tied up, they're not getting the benefit of it today, they have to wait until Sunday. And so, to me, it's hard to have 100% of your money in anything, but I've got no issues with the stock market, especially if I think things are underpriced, I'm happy to go in, like I did in March and April. I don't do a lot of that, I don't consider myself a day trader, I consider myself that I'll invest in long term and I believe in the strength of the US economy and US businesses, the top 500 and S&P 500 index, but every now and again, I might do something in the stock market, but that comes again after cash flow.
Same thing with what you're talking about with early stage, mid stage, closer to exit or some sort of liquidity event type of investing, I mean, I like that. You and I just did a Series E investment together with a handful of people in my network and that's cool. And that company is going really well, I'm excited about it, but I don't do those investments based on principle that could be earning other cash. I want to get the cash flow first. So, all of these tech, SAS, early stage, mid stage, late stage, startup companies, like all of these is not coming from money that I could be earning cash flow on where I need to cover my expenses. It's coming from the cash flow into those investments.
And I think that's so important for people to understand, if an investment doesn't go well and I do an early stage investment, it doesn't go well, I put it in a smaller amount, I generally am like you, where I go smaller early stage, a little more mid stage, a little more late stage, but let's say, it doesn't work out. Well, I didn't lose the money as principal because it was already in a cash-flowing asset, I only lost that amount for maybe that month's distribution to me. So, that's not as big of a loss as if I had just invested in something, it went bad and now, I don't have the principal that I could draw interest on, or earn my lifestyle expenses on. I think that’s really important for people to understand.
Dinesh Gauba: Yeah, I see it as a pot so you’re just constantly just taking out of the pot it’s going to get emptied. So, if you have streams that are coming in and you're taking some stuff out of the pot and putting it somewhere, even if you lose, the pot’s being refilled and that's always the key, is make sure the pot is being refilled. And yeah, sure, you might sometimes find opportunities where you want to deploy funds and you take out of this pot and you don't know until later whether it's going to be a good decision or a bad one, but in the meantime, as long as your pot is being refilled with something, whether ideally, it's passive income, but either way, if it's active or passive income, because even active income, I see a lot of times people, they just take it and put it all back in their business.
And I've had this conversation with so many entrepreneurs, I'm like, so what happens if your business goes to zero tomorrow? Pretty much, everything you've worked for is gone because you've got all your eggs in that basket. And I get it that that's all you know how to do, but at the end of the day, you have to be able to take some percentage of out of that active income and be putting it in this pot so that you're building this pot from both active and passive and you're diversifying your active income because that way, you're not completely dependent on your business or your job which is what ultimately gives you the freedom, is to be able to make this pot as big as possible, as fast as possible. And that's always my goal, is how can I compound this pot as fast as possible and in a relatively safe manner.
I know I'm going to make some bets and as the pot grows, I'm also able to make more risky bets on certain things that I call them asymmetric risk versus return. If you make a bet and it wins, it can be a huge gain, whereas if it loses, it doesn't change your life because you've got this pot that's being refilled. And so, the more you can do that, the more you grow, the potential of you getting outsized returns over time.
Justin Donald: Yeah, and let's take that one step further because I love asymmetric risk reward. And let's say, this is something that you and I do, where you take an investment and so, the risk could be it goes to zero if you're in a stock, but what happens if you invest in a way that you're mitigating that risk, it's an asset that can't go to zero. So, now, your downside is maybe only a 15% loss, but your upside is pretty massive. Well, now you're creating an even greater asymmetric risk reward which is cool.
And then, if you pile on four or five or six investments, just like that, you only need one to hit, all the others could fail and it's also still mitigating risk on the downside as well. So, you're mitigating risk with the variety of options and with the exponential return that only one has to produce, but you're also using money that you don't need somewhere else, it's just cash flow. So, it's not going to affect your life if it doesn't work. And so, all these strategies, I think are so, so important. And you mentioned this, it's like, most business owners have all their money, all their profit right back on their business, but we know that less than 10% of businesses survive, I think it's 4% of businesses survive. So, the odds are really good if you're a business owner, it's going to fail at some point in time. A lot of people unfortunately…
Dinesh Gauba: Or your revenue is going to take a hit.
Justin Donald: Yes, exactly. So, maybe it still survives, but it impacts your life tremendously, your lifestyle. So, yeah, putting your profit into something else is diversify, I think it’s a great, great move.
Dinesh Gauba: Right. And even in the stock market, there’s lots of different ways to invest in the market. I mean, there are some strategies that are very, I would say, relatively safe way to generate consistent income, with a very high probability of success. Like, I create certain options where the probability of success is 80% or 90% in some of those trades and it's great, it's like literally tapping into a money pot, if you know how to do it. Whenever I need some money, I get an extra expense, I literally go make a trade that has 80% or 90% chance of ending in the game and most of the time, it works out that way. Obviously, I might lose 20% of the time, but that's okay because 80% of the time, it's a winning trade.
So, it's just about finding things that are within your comfort zone. And expanding your comfort zone over time by learning about different opportunities and different business models, and that's one thing I love about you, is that you think like me in terms of finding out-of-the-box stuff. And one of the reasons that we've been able to find and put together some of these deals is again, it's the power of collaboration. Also, like, coming in as a group and investing as a group has a lot of power to it because then you're able to negotiate sometimes better terms or certain perks in the deals as a group that you wouldn't be able to get as a small investor or sometimes, you get access to deals that you wouldn't even be able to because of the minimums.
I've had so many times where I wanted to be in a deal, but the only way I could do it is if I brought some other of my friends or family and came in as a group, where we can now get in that deal because the minimums were too high. And that's really what the high net worth and the institutional investors do is they have the power of that collective capital. That's why the best deals are always reserved for them. And there's a huge disadvantage for the small guy is how do you get access to those deals. And, yeah, there's things opening up now and you're seeing more Reg A+ deals that allow non-accredited investors to invest in private companies, and that's all great and it's going in the right direction, but at the end of the day, still, the best deals are still usually reserved for the larger investors.
So, having a powerful group that can go in together in that network that you talked about, which is why we've been able to do a lot of deals successfully, is really powerful and also knowing who you're investing with. A lot of times, I'll invest in companies, where I follow successful people, I'll see, is this founder had success before? Or who are the other investors investing in this? And why? And talk to them and see what's their rationale behind it. And most of the time, I learned something from that and they probably have a lot more experience than I do. And I love it whenever I can get a chance to invest alongside institutional investors because the level of due diligence that they do is way beyond anything that I could do.
So, it's always good to write off other people's knowledge and build on it. So, if I can get in a deal where they've already done a lot of that due diligence and there's big money coming in, it gives me a little more confidence. Of course, there's no guarantees that the deal is going to work out or that they're right, but the chances are more in your favor. So, basically, anytime I can push the odds in my favor, like if I can do a trade with 80% probability versus 40% probability, then I'll do that trade a lot more often.
So, the same thing goes for investing in companies is, if I can find that combination of other investor’s team or a product market fit and kind of find something that has a much higher probability of success, 8 out of 10 that failed, but it's in the 2 out of 10 category, that's when you know you're on the right track. And of course, you're never going to have it hit every time, but you just want the odds in your favor. So, over time, you’re going to be ahead.
Justin Donald: Totally. Yeah, and let's take it even one step further. Some of the things that you and I like to invest in are deals where we have specific knowledge. So, because we know we can help the company, as investors, it actually de-risks the deal. If we know they're going to listen to us and that we're going to have influence more than just our money talking, but they'll actually listen to our ideas, our expertise, our advisory, then that really protects our investment. And I think that that's huge, we've done that on a lot of deals, but you bring up a good point early on, the power of a network.
And I want to say this on two different levels. Number one, it's important to have a network that has deal flow, be part of groups that have deals, that have action, that has tons of opportunities. That's so important. That's why I love my Mastermind and my private coaching practice, my lion clients, my lion’s network, as I call them, and I have an investor's club. And all this is so great because it does what you say, it allows us to get preferred terms. We get better terms and what a retail customer is going to get, and I think that that's huge.
And the more people you have that are interested in investing, the higher quality investors, the more prominent of a name, maybe that the group that you have, kind of the cachet that maybe that brand has, the better deals you get, really the lower minimums you can get. You get reduced fees, there’s all kinds of perks. And we've experienced, you and I, firsthand on many, many deals.
Dinesh Gauba: There’s deals that we wouldn't have gotten into if it wasn’t for that combination of stuff. So, I think, yeah, that's really always good to keep building on that. And it's something that I spend time constantly building on. And my lens is always looking for opportunities. So, it's like, I find opportunity in the craziest places, right? I'll go to a class.
Justin Donald: You do. I can vouch for that. You do.
Dinesh Gauba: I went to a class a few years ago and it was an expensive class.It was a business buying course and it was like, 10 or 15 grand to attend this thing for three days and I didn't go with a specific intention, like, Okay, I'm going to start doing this full time or whatever, but I went to expand my mind and my network. And I literally met one guy there and we did two deals together last year, from someone else in my network. And I got my first dividend check out of that yesterday. And it basically covered the cost of my class, and one check, so far. So, hopefully, there'll be more over time, but that's the kind of exciting stuff that comes out of it sometimes, when you can figure out how to connect the dots. And that's something for me, I'm always looking in any deal or any investment or any company I'm invested in, is how can I connect the dots? How can I add value to them? Or who can I connect them to? Or how can I create a win-win scenario, where we can make the pie bigger and everybody wins?
Justin Donald: Yeah, for sure. And it's interesting, there's so many directions, we can go. I wish we actually had more time, we're probably going to have to do another podcast at some point in time because we didn't even talk about tax planning and tax strategy. You and I, we do a lot of that together. So, we'll have to save that for another time, but you mentioned something earlier that I want to bring up that's really important, you have a very consistent pattern and habit of interviewing investors in deals to know long term how they feel about maybe a general partner or an organization, whatever it looks like, I think that's great. You mentioned that, I just want to bring attention to it, because it's part of my practice, as well, that you really need to know what other people who have been working with a company and their investment dollars had been committed for a series of years.
Dinesh Gauba: Yep, exactly. And that’s something that I see very few people do.
Justin Donald: I think that you'll learn a lot.
Dinesh Gauba: And it’s right there. I apply that principle in general to business and whenever I can learn from other people's experiences or get inputs from people that have already been in it or involved in it or know those people, because at the end of the day, what is business, it's literally a bunch of people doing stuff together, creating stuff and creating commerce, or solving a problem. So, the more you can learn about the people you're involved with, it's always been helpful. And of course, you never get it right 100% of time, but we've been in stuff where we thought we knew the people. And then, it's not always the case, but at the end of the day, again, it's always about giving yourself that edge and improving the odds of success. The more you do stuff like that, the more you're putting the odds in your favor. And over time, I think it works out better for you.
Justin Donald: And piggybacking on other people's success, too. We touched on this briefly, but I just want to make a point that, like, for me, I'm not an expert in, let's call it tech startup or SAS, like I've got enough knowledge to be dangerous, I have some investments that have done really well, but I also recognize that's not my specialty. So, I'm going to lean on people, like Naval Ravikant. He's brilliant. He has one of the best track records in angel investing, owns AngelList, and I think that's a great platform to be able to do some investments on. And so, like, that makes it easier for me to invest in, to say, hey, instead of investing in companies here and there, why don't I invest in all the companies that Naval invest in? Or why don't I invest in his personal rolling fund, Ravikant Capital because his eyes are on it, this is his baby, he's got more cash of his own in this than anything else. That, to me, is another way to kind of hack how to invest for success.
And you can do that in any category, you can do that in real estate. We didn't even get into the specifics of things that we negotiate on, like a debt deal or having short, the goal, obviously, is trying to get our money back in a year, maybe two years, but in a year's time is really the goal, how fast can you get that money out because the sooner you get it back, the less risk it has. Once you get it back, no risk, but a lot of the time, you can have equity upside.
Dinesh Gauba: Exactly. Actually, in the more recent years I’ve been definitely leveraging the power of funds and syndicate deals because, again, it's that network effect. You can do those deals on your own and you can do that number of deals on your own. So, if I can invest in a fund, where I know that the operators are good and they know what they're doing, then I'm never going to have that level of domain knowledge and I'm not going to dedicate the amount of time that they do, but anytime you can align yourself with people that have that knowledge and that expertise that you don't, I think you can magnify your results and you can accelerate your results, just by being in certain structures like that.
And I know, people say mixed things about funds, but to be honest, there's not too many ways you can diversify on your own the way that a fund might do it. And finding good funds, where you know that there's domain knowledge or they do something specific that they're very good at, that's when you have an edge.
Justin Donald: And a good track record, yeah.
Dinesh Gauba: Even investing in a fund, like, you know they have an edge because that’s what they live and breathe. So, for me, I don't need to live and breathe real estate because I have people that live and breathe that. So, I can invest in them and that allows me to get more leverage on my time and on diversifying the type of deals I'm in, because I don't want to be 100% in real estate. Great that there's people like that, that's all they want to do, but for me, I’d rather have 10 other people like that working on my behalf in their specific industries. For me, it's just a way of de-risking for me, where if one of those things goes down, great, I'm not going to lose sleep over it.
And I've been through situations in my life, where I was out, like, knocked out, by an accident, where I literally couldn't work, couldn't move for four months. And thank God for having learned some of this stuff and implemented it earlier on because I didn't have to stay up at night worrying about how I am going to pay my bills. And that's the worst thing, that's the last thing you want when you're trying to recover from some other crisis or health or whatever it may be, the last thing you want is that pressure of not being able to pay your bills, which sadly is the case for a large majority of the population is they wouldn't make it through that phase because they're never prepared enough.
Justin Donald: I think it's incredible, yeah. It's incredible that you have been able to experience that, like, you worked hard to become an investor to have cash flow, so that if anything ever happened, you didn't have to work. I mean, what a great scenario for you, it's the best case of a worst case. No one wants to have a life-threatening injury. You almost died, that no one wants to have that, but you had the best scenario for someone that goes through it because you have a lot of investments. And you don't have to work. You work because you like to, you work because of the thrill of the game, just like I do, it's a blast. Money and investing becomes a game at a certain point. Once you get out of survival mode, it becomes fun.
And you're talking about investing in funds and syndications, I love both of those as well. In fact, I've mentioned both of them in detail in my book and on the fun side, which is just a collection of a bunch of different investments. So, it pools the risk, makes it less risky, and on a syndication, that's just raising money with a bunch of investors and you've got an experienced professional operator and team managing the project. So, that's all it is. It could be a single project, it could be multiple projects, but that's basically what a fund and what a syndication are, and I think they're great.
And when you do invest in those, you got to be careful because some of those are done on like a capital call structure, meaning you don't put the full investment in right now. So, you might commit a certain amount of money and they take 20% of it right out of the gates and then maybe it's 20% the following quarter or maybe it's a year later or maybe it's six months later, and you need to understand that structure, but I also think it's really important to have a plan. A lot of people, they get into these capital calls, but they overcommit. So, then when a call comes and they don't have the funds, you could really get in trouble there because they could buy you out at a lesser value. That's what a lot of these groups are notorious for doing.
So, I think it's important when you have a capital call structure that you're allocating, however much it is and you're putting it into another account. So, I've got accounts, investments, let's call them, I mean, they are investments, they're column accounts, but they're really investments where I get cash flow on that money, but I let that money sit in there, generating cash. So, it's not just in a bank. So, I'm getting something on my money and I actually get a decent amount, most of these are anywhere from 8% to 12% interest that I earn.
And so, then when the capital call comes and they say, Oh, we need X by the end of the month, it's easy to draw that money out of that investment, but I didn't have to set it aside where I wasn't earning any interest on it. So, I think that's another good strategy if you're going to invest in anything, like funds that have a capital structure or other syndications that do it that way.
Dinesh Gauba: That’s a great point. And to add to that, a lot of times opportunities may come up where you need to deploy capital. So, one thing that I always do is, I'm constantly looking for ways to improve my liquidity and set up whether it's access to different lines of credit or I'm finding where I can always do that, so that I hopefully don't end up in that situation where I literally don't have the money. And I mean, yeah, there's times when you reach that point when you've just deployed too fast or you've had too many opportunities come up. So, it's a good problem to have, but I'm always looking at ways and it's surprising to me how many people I know that make a lot of money, make really good income and yet, they're always cash poor. And I'm like, how are you managing your cash flow?
And so, that's something that I mentor people on is how to always have access to different pools of capital that you can pull from and money being as cheap as it is, if you plan it in advance, you can set up multiple ways to access some of the capital that's probably sitting there as locked, whether it's in your home, it’s equity line, or it's in your brokerage account that you can borrow margin against, which a lot of people don't realize they can do. One tip on that is you can actually negotiate the margin, and that’s another thing.
Justin Donald: Really cheap money, really cheap interest.
Dinesh Gauba: If you call your broker, most of the time, the off-the-shelf rate is, like, significantly higher. I've been able to negotiate stuff down from like, 8% to like, 3% in my margin account and it's only because I’ve had those conversations and I pushed them to do it. Otherwise, I'd be paying 8%. And so, a lot of times people get deterred by just seeing that, what's on the surface, sometimes I've been able to negotiate with credit cards to get my interest rate lowered and if I need to borrow cash for short term, I'll just borrow it from the credit card and minimize my interest rate and pay it off, like in a month or two, if I know I'm going to have the cash then.
So, it's just about setting yourself up so you always have options for liquidity. So, you're never in a situation, whether it's for an expense or it's for a capital call, like you mentioned, or for another opportunity that comes up, where you just don't have the money and you miss out on that or you don't have a way to deal with that situation well.
Justin Donald: Yeah, those are great points. And yes, it is so good that everyone knows that everything is negotiable. All right, any financial, anything, as well as just about every area of life is negotiable. That's so important.
Dinesh Gauba: My motto is you don’t get what you want in life, you get what you negotiate.
Justin Donald: That's true. That's a very good point. And you made another good point about how so many people, I know a lot of people that they're so focused on building their net worth that their cash is poor. So, they might have this big sounding net worth, but they have an expensive lifestyle, it's hard for them to keep up with it. If something happens with their job or their business closes, they're crushed by the cost of their lifestyle because they barely are cash flowing into it. And I think that you want to be really careful there.
It's probably better to create a lifestyle that has the cash flow to support whatever you want. And that might just be, starting today, whatever that looks like for you in getting cash flow going, but to me, cash flow is way more important than net worth. And a lot of net worth is paper money, it's not real money, it doesn't even exist until there's a liquidity event. And so, you sell your business, for example, like your business might be worth $10 million, but you don't get anything from that until you sell it, if you can even sell it. And if you do sell it, they may say, we need you to run it for four years.
So, there's a lot of things to look at there. And when I look at overall health, financial health, you look at a business, it's so funny because a lot of people in business, they look at a profit and loss statement and they think that's the most important thing, but to me, cash flow, the cash flow statement is the most important thing. So, it's also comical and obviously, you want to have your balance sheet as well, I mean, those are your three most important statements, but if you look at your personal life, it's the same, like personal life net worth, that's like balance sheet, that's like P&L stuff, but cash flow, your cash flow statement of your personal life might be the most important component to your quality of life, buying your time back to allowing you to live the life that want to live.
Dinesh Gauba: You mentioned that, that’s surprising to me how few people actually know their numbers, whether it's their personal cash flow or their business cash flow because I think we're wired to just see what comes in. And you're like, Oh, this is great, this is growing. And I know companies that have literally gone bust because they didn't manage their cash flow. And some of the companies that were around for decades and didn't get hit during crunch time, couldn't manage their cash flow, couldn't pay certain bills, and they lost everything because they were just too tight on the cash flow side of things.
And one element of cash flow that a lot of businesses or individuals miss is tax planning. It’s like how much money is just stuck there, whether you overpaid your taxes or if you underestimated and then you suddenly get hit with it, it's the proactive tax planning and knowing how to optimize that cash flow. That's something I put a high priority on and it's something I coach and consult other folks on is, how to do that and how to not give away too much money ahead of time and how to obviously implement strategies to minimize how much you're going to give, and then how to use that to balance and manage and optimize your cash flow because if I can make a certain investment that's tax friendly and I know it's going to reduce my taxes, well, yeah, I put my cash in there now, but then, I don't have to make these payments that I would have had to make for the taxes.
So, I can optimize my cash flow in many different ways when you consider, like, even the tax impact of everything that you do. So, I'm always looking for that, that's always kind of one of the top things that I look for, even some very unique ways that you can do that with certain funds and investment vehicles that is just not common knowledge, where they tax optimized or that they are looking at it from that angle, which then translates back to you.
Justin Donald: That's right. Yeah, there's no doubt, I mean, there's so many things. I mean, Dinesh, we could get into so many more topics. Quite frankly, I think this is already officially the longest podcast that I've had which is fun and cool and unique. I mean, we could keep talking for another hour. I can't, but I mean, we really could and we probably should in the future, but I just wanted to thank you for joining. This has been awesome, enlightening, fun. I just love having conversations and I would have anyway, where other people get to listen in and really get a chance to hear what it is that we're talking about. I've had a lot of people express the value that they get from this.
Dinesh Gauba: Yeah, I'm not a big social media person.
Justin Donald: So, thanks for sharing your time. Where can our listeners find you?
Dinesh Gauba: Most of the stuff I do is quite private, but definitely, you can reach out to me on LinkedIn. I'm on LinkedIn, I'm on Facebook, Dinesh Gauba, and I think those are probably the easiest ways and of course, they know you. So, if they ever want to reach me, they can reach out to you. And I'll be happy to connect with anybody that you want me to connect to.
Justin Donald: That's awesome. Well, thanks for your time again, Dinesh. And to all of our listeners. my goal, my mission, my encouragement to you is to take some action today. Take one step in the direction of the life that you want to live and intentionally move towards financial freedom. Thanks for your time and we'll talk to you again next week.
Dinesh Gauba: That was a lot of fun.
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