Mindy: Welcome to the BiggerPockets Money podcast where we interview Mr. Wonderful, Kevin O’Leary, and we talk about whatever he wants.
Guest: What I’m really shaking the stick at and shaking the bushes if you want to call it that and shouting out is, if you’ve got a small business, get your ERC money now. Get it now before they end that program. It’s it’s your money. It’s cash. There’s no cost to it other than the the hassle and the time. But boy, I can’t find a better source of financing for my companies.
Mindy: Hello, hello, hello. My name is Mindy Jensen and with me as always is my also wonderful co-host, Scott Trench.
Scott: With me as always is Mrs. Amazing, Mrs. Fantastic, Mrs. Wonderful, Mindy Jensen.
Mindy: Oh, thanks Scott. Scott and I are here to make financial independence less scary, less just for somebody else. To introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting.
Scott: That’s right. Whether you want to retire early and travel the world, go on to make big-time investments in assets like real estate, start your own business, or invest in private businesses like those seen on Shark Tank, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams.
Mindy: Scott, today we have Mr. Wonderful and this is such a fun episode. We kind of go in several different directions and I’m so excited to talk to him today. I’m so excited to bring this episode to our listeners.
Scott: Yeah, it it’s a wonderful episode and we are very, very lucky and fortunate to be able to learn from Kevin and his incredible money story, learn from how he’s designing his portfolio today, and um, I think there’s a lot of really good nuggets there. This is a a brilliant businessman and it’s a privilege to learn from him. Mindy, I have a quick question before we get going here. What, um, if you were invited on Shark Tank, because of course Kevin O’Leary, Mr. Wonderful our guest today, is one of the sharks on Shark Tank. Um, how would you or what business would you present for investment?
Mindy: Oh. You know, Scott, I’m not sure. I would have to think about that. Do you have a business you would pitch?
Scott: I think I would, uh, I have this idea for a community of real estate investors that would help, um, it would have got educational content like podcasts and a YouTube and books, um, it would have tools like calculators and property management software and deal finding solutions and all those different kinds of things, would have a marketplace of investor-friendly real estate agents and lenders. Um, I would probably bring an idea of that sort to the to the show and and pitch it. I’d be sure to really know all of my numbers and be able to kind of pitch the the overall value proposition in in uh 90 seconds or less though.
Mindy: That is very interesting. I like that idea, Scott. I hope that someday I can find something just like that. Smart aleck.
Mindy: All right. We have a new segment here on the BiggerPockets Money podcast called the Money Moment, where we share a hack, a tip, or a trick to help you on your financial journey. Today’s money moment is, do you love eating out but you find that it’s killing your cash flow? Use apps, that for low-cost eating. This includes Groupon, Big Dish, and Hooked. And don’t underestimate the value of happy hour. If you have a money tip or trick for us, you can email it to moneymoment@biggerpockets.com. Before we bring in Kevin, let’s take a quick break.
Mindy: And we’re back. Kevin, I think you deserve more than one adjective. So, Mr. Amazing, Mr. Fantastic, Mr. Wonderful, Kevin O’Leary, welcome to the BiggerPockets Money podcast. I am so excited to talk to you today.
Guest: Thank you so much and listen, sucking up really helps, so I just love that. That’s wonderful.
Mindy: I’ve watched your show. I am very excited about that.
Guest: It’s great.
Scott: Well, we we’d love to learn about your money story, Kevin. How did you get started on your journey to becoming the business magnate that you are today?
Guest: You know, I talked to a lot of entrepreneurs about um, that that seminal moment, that unique moment that sort of pushes them down that path to entrepreneurship because if you think about life, uh two-thirds of the population doesn’t pursue this. It’s about a third, and it’s not an easy life, but there’s always some moment. And for me it was very, very distinct. I was my first job. I was working at an ice cream parlor. I just got the job. It was after hours of high school and I only took it because the girl I was really interested in was working in the shoe store across the mall. She could see the ice cream store and I figured when I finished scooping, my job was I was hired as a scooper. And um, you know, and then when we’re done, we could, you know, hang out together. So it was a big plan I had on my first day working. The store is owned by a woman, a great entrepreneur, obviously. and she said to me after we’d finished the day because, you know, when you scoop ice cream, people always ask for a taster, which you use a little wooden spoon and you take a little bit of the chocolate or whatever it is, and they taste it, but they take their gum out first and throw it on the floor. I know this because I was a scooper. And so, at the end of the day, she said to me, you know, you got to get you got to get on your knees and scrape all the gum off the Mexican tile before tomorrow morning. And I said, you know, I looked across the hall and there was that girl looking at me waiting for me to finish, and I thought this is really bad for my brand if she sees me on my knees scraping the floor. So I said to her, no, I can’t do that. You hired me as a scooper, not a scraper. And she said, no, I hired you as an employee. I own the store, you do what I say. And I said, well, no can do. You know, scoopers have pride, we don’t scrape. And she said, you’re fired. Now, I didn’t even know what that meant. Um, but I figured it out pretty quickly and I was very humiliated, and it was at that moment where I realized there’s two people in the world. one, the person that owns the store, and the other, that scrapes the shit off the floor, and you kind of have to decide which one you are. And it doesn’t mean scraping the floor is a bad thing, it just means you have to know you’ll be happy doing that. And I wasn’t. Um, I never worked for anybody again in my life. I’m very fortunate to have met her years later with a camera crew. I went back to try and find her, but the store and the mall had been torn down. Um, I owe her my entire life. I mean, without her, I don’t know where I’d be. But she was the one that humiliated me into saying I’ll never work for someone again. And that is the most important moment in my life, just in terms of how it all ended up.
Mindy: You never worked for anybody else. What was your next job?
Guest: I worked summertime, you know, between semesters, but I never had a full-time job again. I worked as a brand manager for Miss Meow pet food by Nabisco brands where I learned about making pet food for cash, but that was for 90 days. I had to do something. But I just didn’t want to work for anybody anymore. So as soon as I graduated out of college, I started a production company because I wanted to be a photographer and my dad said you’re not good enough to make a living doing that. And and I always felt he was wrong, but I listened to him and I also wanted to be a rock star because I also played a lot of guitar and played at bands, he said you’ll starve to death. And he said, you really should go back to business school and figure out, you know, what you’re going to do. And while I was at school, um, I I basically shot a documentary about the process of earning an MBA, a two-year program. And that that film actually went on to become one of the major sales drivers for that school and they they gave me extraordinary marks when I graduated for it because no one had ever done that before. And right after that, I started production company. I started making films for the NHL, the Saturday intermissions, the Saturday afternoon games, and we used to run around the original six, Detroit, New York, you know, Boston, shooting these things during the week. And I sold that company called Special Event Television for the my first deal ever and started the learning company, and that second company we sold for 4.2 billion. So life has a journey. It’s a serendipitous path. You don’t know what’s going to happen. You got to pursue your passions. But to this day, I still edit. Now it’s obviously digitally, Premier Pro. Every weekend to keep my edit chops up. I join my social media team and I cut something. Just to keep my chops because editing and storytelling are now part of the digital economy and you got to know what you’re doing. So it’s come full circle for me. I cut at 4 in the morning on a Saturday. It’s a creative process and I and I and I write my own music and I record it so we don’t have to pay royalties on it. You know I hate royalties unless I’m getting them. And so that way, um, it’s it’s been an interesting ride.
Scott: Kevin, I want to ask you about um, your spending habits in particular, when you were starting the production company or when you was times were leading up to that. Were you very frugal or would you have classified yourself as very frugal in those days?
Guest: No, I wasn’t. I learned the hard way. You know, it’s a really interesting, uh, lesson about spending because I I now work with very many wealthy families and even they outspend themselves. The only way to test yourself on this is to look at your spending habits over a three-month period, 90 days. You can’t tell it in a week, you can’t tell it in a month because generally that spans some time to a holiday or something or a change of season, whatever it is, you got to take everything you spend money on. I’m talking about every dime including a cup of coffee, and put it down, just write it down on the sheet on the right. You don’t need fancy spreadsheets here. You just have to add it all up. Then, every source of income you have after tax, every dime you make, side hustles too, everything. And I swear to you, 90% of the time, you’ll be outspending yourself, regardless of how much money you make, and it’ll end up on credit card debt at 21 to 23% interest. That’s how people get in trouble. They just can’t keep within their means, even when they’re really wealthy. I mean, the more you have, the more you spend. and I keep telling people, test, test your actual assumptions. and most of the time, the majority of the time, you’re outspending yourself. That’s how some some how so many people get in trouble. I do not let that happen. I curb my enthusiasm. If I want another watch, I have to work harder.
Scott: Awesome. And so how did you finance that first production company? Was that something you started at you you just kind of hustled in yourself while at school, or how did how did that get going?
Guest: I begged my mother for $10,000 and swore to her that if she lent it to me, I’d give her equity in all my projects and I’d pay her money back. You said, I just want you to pay it back. Had she taken equity in the learning company, oh my goodness. I said to her, Mom, why didn’t you take the equity? She said, I don’t need it. I just want it back the money I lent you, and you paid me back with interest, thank you. I mean, she was very pragmatic, but she she was really, she was the one that taught me everything about finance. She was very disciplined about spending, very disciplined on what she bought, how she lived her life. She was sort of the breadwinner for the entire family. And really all the lessons I’ve learned about portfolio management, she wasn’t a stock picker or or you know, uh a portfolio manager or a fiduciary, but she did better than most of the ones I know because she just believed in diversification. She had a portfolio. Listen to this story. It’s just crazy. When when when she died, when she passed away, um, I was the older brother and the the lawyers called me down to the office and said, look, your mother has a will and because you’re the older brother and we’re the fiduciary, we’re going to read you this will and it’s for you to distribute. And I said, well, I I know we’re middle-class family. I’m not expecting much here. He said, no, no, you’ve got to come down here. So what my mother had done from her late 20s is kept a secret account, even though she was married twice. She kept the secret from both of her husbands. She could do this back in the late 50s. And she had put it into a portfolio of telco bonds, 50% back then they were using 7% because she reason that nobody would ever turn off their phone. They turn their heat off first because they love to talk so much. and a whole portfolio of S&P 500 companies that paid dividends. and she had that portfolio for 50 years. and she only lived off the interest and the dividends. the amount of capital appreciation during that period, left her a very, very, very, very wealthy woman. And I was just stunned. I called my brother up and said, you’re not going to believe this. I mean, just, and I looked at her portfolio, no no sector, you know, there’s 11 sectors in the S&P back then they’re only 10, she only had 20% max in any sector like energy, and no more than 5% in anyone’s stock. I mean, that’s genius. That way you never get blown up, and she only spent what she was earning. She put both my brother and I through college, she bought me my first car, she paid for everything for me until the last day of college, and then she cut me off. and then I begged her for that $10,000 after that, but that was the last she ever gave me. She didn’t need to give me anymore. The lesson she gave me was more important. and I distributed that capital around the family that she left. I mean, my goodness, what a lesson.
Scott: Yeah, that’s fantastic. Long-term investing, great portfolio, was just missing one piece in the, uh, learning company, I think to to put it into the the one billion dollar mark, right?
Guest: Well, listen, listen, you know, everybody has their big one and I’ve had lots of failures since then and lots of successes, but nothing like the learning company. I mean, that was the one that set me free and I always say that, you know, that’s the motto we have on Shark Tank. One idea can set you free forever. That’s all you need. You need a good idea and you need to stick to it. That’s the whole idea, and then it sets you free. I mean, entrepreneurship is not about the pursuit of greed, it’s not about money, it’s about the pursuit of freedom. That’s why the passion is there and we the team that the learning company started with just nine people, and we woke up one day after that sale and whoa. I mean, we’re rich. What do we do? And we all went right back to work. I work harder today than ever and I like what I do. And I pursue many things, but it’s the things I want to do. I have the freedom to do that. Nobody, I don’t have to take a phone call if I don’t want to. I go wherever I would like, but I enjoy what I do and and that freedom is something I deserve because I earned it.
Mindy: Kevin, you see a ton of entrepreneurs on Shark Tank. What do you think makes a good investment and an investor worth investing in?
Guest: So you need an alchemy of of things to come together to be successful. If you think about venture investing since the 1950s, when they started recording this in the Boston asset Massachusetts area around MIT, about eight out of ten deals fail within three years and two make 1,000 times on the money. So it’s 80% failure rate. And the reason that happens is a wide range, but it’s never changed in terms of the percentage. So when you make a bet, you’re going to be wrong eight out of 10 times. And so the whole idea is trying to mitigate that risk and figuring out a few basic elements. Number one, can this entrepreneur pivot? because whatever assumptions they’re making, particularly in NAAS and startups, they’re wrong. Something’s going to come from market or from the lack of execution skills or just a black swan event, whatever it is. But can they pivot? That’s number one. Number two, is the market they’re in disruptible? So if you tell me I’m going to enter the, you know, uh, peanut butter market, which has been around for 100 years and basically nobody gets new share in that because the shelves are owned by retailers or by giant consumer goods companies, that’s not exciting for me. That’s why I don’t do hot sauce deals. I mean, as far as I’m concerned, who cares if the world has another hot sauce? It just doesn’t matter. and so that’s not a good place to go. And and lastly, um, this is something that I’ve learned is kind of a crazy statement but so true. Are they lucky? Is this a lucky entrepreneur? You know, someone once asked Napoleon, what kind of generals do you want? And he said, I want lucky generals. And so, I’m looking for lucky entrepreneurs and they have a certain aura about them. I can’t explain it, but I’ve been doing this for so long, I’m a pretty good judge of that, and if you get all of that right, you got a winner. You just don’t know when or how. and so you need diversification. You know, you got to do at least 10 deals to get two right.
Mindy: That’s really interesting. I like that that uh, you said that you look for a company that or you look for somebody who can pivot. I’ve seen your show and I’ve seen people who are so rigid and you guys ask questions, they’ll be like, well, no, it’s like this. then you know, that that’s super interesting that you said that. And like Warren Buffett says he looks for companies with big moats. He’s got, you know, he invests in these companies that aren’t going to be disruptible for a very long time. That’s I think that’s very important too. And you know, Deadpool 2 had that girl whose superpower was lucky.
Guest: That’s it. It’s sort of, um, you know, another attribute and I’ve got all this data for 15 years is that 90% of my returns have come from companies run by women. and so, in in NAS and startups, it turns out mitigation of risk really matters. You know, return of capital is more important than return on capital and women are very good at mitigating risk. The old added, you want something done, give it to a busy mother. Well, that’s certainly proven out in my portfolio. So, the big heads have always been run by women. So I’m a little biased. I I back a lot of women entrepreneurs because I’ve had great outcomes. And I always say this, I look, I’m not I don’t want to start gender warfare, but I’d give money to a goat if I could get a return. But it’s it’s sort of, you know, after after a long period of seeing these outcomes, it makes a lot of sense to back women entrepreneurs. I don’t think we do enough of that. But the outcomes are there. The data is there.
Scott: So Kevin, one-third of the people on BiggerPockets and listening to this this podcast are accredited investors and are financially capable of making investments similar to the ones that you and other sharks make on Shark Tank. one part of it is analyzing the deals, but another part, I think, for a lot of these newly minted accredited investors, newly minted millionaires, is finding these kind of private investment opportunities. How would someone who’s not a shark on Shark Tank even begin getting access to get pitched investment opportunities or to go find them?
Guest: You know, the white culminators, the, um, all all of the NAAS and startup forums online are good places to go. Um, the other area that’s really exploded lately and I’ve become not only a paid spokesperson, but a shareholder in Start Engine, I mean, it’s the largest equity crowdfunding platform in America where there’s a quarter of a million investors, and you don’t have to put up a fortune, you know, you can be average investors for about $250. But if you go there, you’ll see hundreds of companies that are startups that that are basically, you know, selling their equity in an equity crowdfunding format, and I always tell people, don’t buy one, buy a portfolio of 10 because you don’t know what’s going to happen, what’s going to work. But the Jobs Act allowed for this format of democratizing venture investing. It used to be the perve of the venture capital firms and now they have this incredible competition because equity crowdfunding lets customers become shareholders. So there’s lots of ways to invest, but I I can’t stress enough about the portfolio approach. I mean, it’s really, really important not to just bet the farm on one deal. I certainly don’t, but you’ve got to have at least seven, minimum, and then just maintain that portfolio, and you’ll find over time, you’ll get liquidity, you’ll have some winners, you’ll have some losers. You just don’t know when that’s going to happen. But the portfolio approach works. And every time, you know, I I say this on Shark Tank, I always say, well, those four deals, those are the great ones out of the 10 or 11 I’m doing or whatever it is I’m doing, it’s never that way. It’s never ever ever that way. It’s always the one that I thought was just a joke that ends up selling for $100 million five years later. So it’s it’s just you don’t know. That’s the whole point.
Scott: On on flipping flipping the the script to the entrepreneur side of things, what should an entrepreneur be doing to make themselves attractive to potential investors like yourself? What advice would you give them to to show off, to make that investment more promising?
Guest: There’s three attributes you have to have, and if you don’t have them, you will fail for sure. And these are found in every successful Shark Tank pitch. It doesn’t determine the outcome of the company, but it determines where they get a check. Number one, you have to be able to articulate the opportunity in 90 seconds or less, because if you don’t know where you’re going, no one’s going to follow you, and if you can’t articulate it in 90 seconds, that’s way too much time. You should do it in 30. Number two, what is it about you or your team that can execute on this great idea? Because great ideas are a dime a dozen. Execution skills are really hard to find. So you have to prove to the investment community that you have execution skills or a history of executing or enough knowledge, you know, have you worked on this sector? Is it in the family business? Have you failed three times? You know what you did wrong. I have no problem investing in entrepreneurs that have failed before because they’ve learned from that. And so my attitude is those two are very important. If you get those right, you can start to see the path of letter less resistance to success, great idea, great execution skills. but the last one and this is the killer, you got to know your numbers. how big is the market? How fast is it growing? What are the break-even analysis? You know, what’s the gross margin at each volume cycle? how many competitors are there? If you don’t know that, you know, frankly, you get the first two right, you don’t know your numbers, you deserve to burden in perpetuity, and I make sure on the context of Shark take that I put you there right away. I mean, you have to know your numbers. You get those three right, you have a high probability of getting funded.
Mindy: Kevin, is there anything that you would never invest in?
Guest: I used to say there were categories, but I I invested a few years ago in Cat DNA testing kits. I mean, I thought it was a joke. The the test is 29 bucks. You can buy a new cat for five. And so, but I didn’t realize how how there’s 110 million cats in America and people really love their cats and these these tests can extend their lives by 20% by telling you what to feed them based on their DNA. and so that was a wildly successful company. And you know, for me, that’s not second guessing the market, just Anna, the name of that entrepreneur, was another woman. She had a great track record of of great execution skills, so I invested in her and that thing ended up being a monster hit for me.
Mindy: You’ve said I invested in her several times. Do you invest in the person as much as the idea and the company, or do you invest more in the idea and the company?
Guest: I have to love the idea, I have to love the product, I have to love the sector because very often, eight out of 10 times, it doesn’t work out for that person that was running it and I have to make changes in management. but of course, I look at the entrepreneur. I want someone who I think has great execution skills that can pivot. I mean that’s probably 50% of the battle. Half is the product in the sector, half is the entrepreneur. If you don’t like the entrepreneur, um, and I’ve you know, I’ve seen plenty of great products run by really bad entrepreneurs that I would not invest in. because I can just go find someone else that’s doing the same thing that’s a much better entrepreneur and have a much higher probability of success. That’s the way I look at it.
Scott: Love it. When if you are in, you know, a a kitten, a cat DNA company, would that preclude you or would you want to stay away from other companies in that sector? Or do you prefer to concentrate? How do you think about diversification in the context of this type of investing?
Guest: Generally speaking, if I have a horse in a race, a particular race, uh, I stick with that horse. So I don’t put two horses against each other. There are a few occasions where maybe that’s different, you know, biotech, for example, different molecules I invest in. But you know, if I’ve got someone in food services making cupcakes, which I did with Wicked Good Cupcakes, everybody called me about their cupcake company after that company because it was so successful on Shark Tank. But I’d already gone through that experience with them. We sold to Acry farms. I know too much about the cupcake business, so it’s sort of I’m going to take a breather from that sector right now because I know how hard it is to establish share in that. But I’m pretty diverse. I look at a lot of ideas and it’s about time and energy and money and where does it fit in the portfolio and does does my team want to work with them? I mean, I get shown so much stuff, so many deals, I just it’s it’s a waterfall of opportunities and um, you know, we we have to we have to pick our fights and and we’ve got 50 plus portfolio companies right now. 50. That’s a lot of companies.
Scott: Well, one last question I’d like to ask is about kind of how you think about the the holistic portfolio overall. You know, for example, when I have excess cash, I put it into an index fund or whatever. I’m wondering what what does Kevin O’Leary do with with excess cash? Do you do you set it aside for these types of investments? Do you stick it into bonds or or index funds? What what are your thoughts on investing for your personal portfolio?
Guest: It’s a great question because because the Fed has been raising rates faster than they ever have since the 1960s, the cost of capital for investors and for small businesses has soared so dramatically because people say, oh, I can get 4.2% you know, in money market account now and that’s good, but inflation is still north of six. But that’s not the truth about access to capital for small investors or small businesses. Their costs are as high as 30% now. and I want to make a point to people that are listening that I have just learned of a few weeks ago and we’ve now done this for all of our companies, our entire portfolio. I was made one of the mandates that O’Leary Ventures runs is a portfolio uh venture portfolio for the legislature of North Dakota. It’s one of our deals, our most successful shark take companies is a company called PureX Performance that I became knowledgeable of the merits of North Dakota and investing there and the stable tax policy and inexpensive energy and a lot of different things that make that a really good investable state. But in dealing with Treasury who funded that mandate, uh I learned something that I didn’t know about, and I think everybody listening should listen to this. There was a program instituted at the same time in 2020 that PPP was brought into the market. And everybody remembers PPP. We applied for it successfully for many of our companies through the Bank of America, and all the banks administered PPP, and you know, it was either a loan or a grant or whatever combination thereof for you. But at the same time, there was a program launched called the employment retention credit. And basically what it said was at that time, and this is why it’s so important to understand this now. If you took PPP, you couldn’t apply for the employment retention credit. and that program was 170 pages. So virtually nobody tried to apply for it. It was too complicated. but then in the beginning of 2021, and this is where the story meanders and gets really interesting and what a wake up call for me this is. They changed the law. The pandemic was so bad they said, okay, we don’t care if you took PPP, you can still apply for the employment retention credit. And so, but nobody knew that. And recently, and this is the money’s already been spent, over $250 billion dollars been through the budget is gone. it went through Treasury to the IRS. It’s sitting at the IRS and if you had a small business with W2s in 2020 or 2021, that’s your money. You just have to go get it. And first of all, I didn’t believe it because I’d never heard of it and frankly, if there was a program like that with the amount of companies I have, I would have heard about it, but I didn’t. So the first thing I did is called up all of my senators and governors I work with and work for. They’d never heard of it either. Nobody’s heard of this. This program is like a ghost. And it’s real. It’s real. So the first thing I did is called up all of my CEOs that said everybody let’s go get these credits because the cost of capital for us right now is 17, 18, 19, 20, 21% credit card debt or even higher for short-term payroll loans up to 30%. This is money that’s not a loan, it’s cash that we can put right on our balance sheet. That’s when I learned how hard it is to get it. I mean, you can’t, you need an expert. So what I did is I formed, um, what’s called the Wonder Trust. I’m you know, I’m shouting it out right now. I’ve got a whole team of experts that can book an appointment with you and tell you in a few minutes if you can apply or not. And then if you can, we’ll do the entire application for you and track it through the IRS. We have enough infrastructure now. We’ve had since I started talking about this two weeks ago, we’ve had thousands of requests. And I’ve become a paid spokesperson for the program and I’m going to be for the next 25 months because it’s only around for 25 months. I’m shouting out to America, go get your your EPC. your employer so your ERC, your employment retention credit. You have to get this. either you try and fill it out yourself or go to Wonder Trust, but if you don’t get this money, it’s yours. It’s yours. It’s already been spent. It’s already in the deficit, already gone. and so for me, this thing, the CRC thing is like I’m on a mission here. I am just every one of my companies is applied. Generally speaking, if you have 50 employees, employees, you’ll make about 450,000 cash. It’ll take you four months. But some of our companies have over 100, and they’re getting $1.1 million cash. So this is our number one mandate in cash management now. Number one. only for 25 months. So shout out to your, tell everybody you know, go get this money, including you guys. If you had employees back in 2020, 2021, this is the most incredible opportunity I’ve ever seen. If you apply today, you’ll get your check in about four and a half months. it takes a long time. It’s complicated. You must have your W2 records, but we’ve done it hundreds of times now. We we’ve got this thing nailed down. I’ve built a whole infrastructure for it. And so it’s it’s a really, I mean, nobody even believes it. I didn’t believe it. I didn’t believe it. This this is it’s non-delutive. You don’t you don’t give up equity, it’s not a loan. It’s your money that the government gave you to stay in business in 2020 and 2021. You forgot to go pick it up. It’s like you parked your car in a parking lot and you forgot about it. That’s the way to look at it. And so we’re scrambling. We’re just scrambling because while we’re raising money, you know, giving up equity or borrowing at usurious rates or using credit card to fund our companies, this is the best source of capital there is. And most of my companies have more than five employees. You need five to 500. that’s what you have to have. And then the rules are set on how you get it, but basically you get $26,000 per employee. That’s fantastic. tip. So the CRC and what’s the name of the the um company that you’re working with that will help you apply?
Guest: Just go to wundertrust.com. That’s all you have to do.
Scott: Well, since since you you mentioned a really important point here, which is that the cost of capital has gone up dramatically because of rising interest rates. So how how do you think investors should think about that in the context of their their overall portfolios? With this. Are you is there an allocation away from these startups and and uh venture back venture capital type investments towards debt, for example, or what what are you seeing or thinking about?
Guest: Well, that would make intuitive sense. You think it’s much harder to start a business than it is, but the truth is if you go back in history, the most incredible outcomes have been companies that were started in times of supreme economic stress. you know, the financial meltdown, you you should always have between five and 10% of your portfolio in venture. you know, but not more, five to 10 is enough because that’s where your most extraordinary returns are going to come from. But with with rates at 4.2% on cash cash right now, I’m I’m now 30% in in just fixed income products with a duration less than five years, but I’m still 70% equities because I’ve still finding that, you know, my my thinking is we’re probably 80% through the Fed hikes and that we’re probably going to end up in a soft landing scenario. Nobody would have thought that was possible, but it’s very likely because how can we possibly have full employment? unemployment under 4%, there’s never been a recession with unemployment under 4%. So I don’t think we’re in a recession. We’re in some kind of funky chicken, you know, different zone because we put $4 trillion of free cash in the market over the last 36 months. And so that money hasn’t gone through it yet, and that’s why we’re in this holding pattern while the Fed decides where they’re going to go. Inflation is still a serious problem, core inflation, energy and food is still a problem. But I’m always optimistic for America and equity and companies that do great jobs solving problems. So I tend to be a little more biased for towards equity. But my equity portfolio is very large cap dividend paying stocks. I I take my risk obviously on on venture and startups. I have many of them, but I also love dividends and that’s how I kind of pay the rent if you so to speaking that way.
Scott: Is that 30% allocation to debt a recent change in the last year or two, or was that always the case in and it’s or have you rebalanced as a result of the rising rates?
Guest: Oh, no, I rebalanced seven years ago. I used to be 50-50. I’m so glad I did. I’m down I I reduced my exposure to bonds. Bonds had a great run. I mean, they had a 20-year run, but they’re I don’t think they’re that attractive right now. Even 10-year bond doesn’t even beat inflation. That’s not a good outcome for you. It’s a safe place to preserve capital while you’re looking for a home for it, but it’s not a great return under any scenario. So you have to decide how much liquidity you want, and I agree you should have some liquidity. But, you know, there’s other eclectic alternative assets I buy watches. That’s beat the S&P by 11% over the last four years. Uh my watch collection is is a great alternative asset. Some people buy modern art, I like watches. I own some Bitcoin. Um that’s actually been one of my better performers this year. Everybody knows the funk that cryptocurrencies are in, but the granddaddy of assets bitcoin, so I have some of that. I have some gold, 5% waiting in gold. But my my portfolio is pretty conservative, but the number one issue and it’s what my mother taught me when I watched she did was diversification, never more than 20% in any one sector, never more than 5% in any one stock ever. And that’s how you protect yourself in good and bad times.
Scott: Kevin, this has been a fascinating discussion. We really appreciate your time and uh your insight here today. Um thank you so much and is there where where can people find out more about you? Where should they follow you on those social media channels?
Guest: Well, if if they have deals and we can invest in, if they have ideas in North Dakota, go to wonderfund.com or go to Oventure.com, upload your deck. I’ve got a whole team of analysts looking at it. We are open for business. Uh we’re announcing two new fundings uh next week. So we are doing deals like crazy in North Dakota right now. Uh you can certainly go to wundertrust.com if you think you can apply for an ERC loan. Um that’s something worth doing. If you have a small business, if you haven’t got your ERC loan, don’t wait. I mean it’s it’s do not wait. It’s a remarkable opportunity. and that’s at uh, you know, wundertrust.com.
Scott: Awesome. So biggerpockets will follow up and look into that um for our business. Uh just quick question on your fund. Are they open to both um investors who wish to participate as investors, are they 506C and to businesses that are looking to invest, or is it are you just looking for businesses?
Guest: Well, we’re doing both. We have a lot of money to put to work. So we’re trying to find companies we can invest in. But we also have in this next deal we’re going to announce, we brought in a co-investor um that approached us and we’re being approached by a lot of uh co-investors saying, what’s up in North Dakota? We are hearing a lot of good things about it. What’s up in Montana? What’s up in Florida? What’s up in Tennessee and Texas? So we form these uh groups. I mean, every everything’s at just go to venture.com, you’ll find you’ll see everything there. But what I’m really shaking the stick at and shaking the bushes if you want to call it that and shouting out is, if you’ve got a small business, get your ERC money now. Get it now before they end that program. It’s it’s your money. It’s cash. There’s no cost to it other than the hassle in the time. But boy, I can’t find a better source of financing for my companies. Wonderful. We appreciate that and uh we we I will definitely check that out personally and encourage other folks with businesses to to look into it as well. Thank you so much, Kevin. We really appreciate it.
Guest: Take care. All right, thanks. Bye-bye.
Mindy: Thank you, Kevin. All right, Scott, that was Mr. Fantabulous, Mr. Wonderful, Mr. Amazing. I could go on forever. Kevin Lery. That was kind of a quick masterclass in investing and just being awesome.
Scott: Yeah, I learned a lot from him. I think that uh I I I love it was I love how he said the term when he invests in a deal like those seen on Shark Tank. He’s looking for an alchemy um that involves multiple ingredients including entrepreneur, a little bit of luck, um uh knowing their numbers, having be able to being able to describe what they’re doing in 90 seconds or less. But also, um you know, he he he’s open to a number of different ideas and knows that the $100 million dollar return can come from your cat DNA company. Um we love our cat and I suppose that after this show, I’m going to tell Virginia about that the the uh the uh company and you know, if if little Freddy can get a couple more years of life, that’s that we’re going to be be taking into consideration figuring out what kind of food or whatever. I I had no idea that was a thing.
Mindy: No, that’s the thing. It’s not a financial decision. It’s an emotional decision. That’s something that should have popped up with in this conversation. When you can make a product or invest in a company that is pulling on the heart strings of people. People are making people are buying this product or service based on emotion instead of rationality. People don’t make rational decisions, they make emotional decisions. A rational decision does not buy a $30 cat DNA test so that you can then buy more expensive food for your cat. A rational decision,
Scott: Yeah. So Fred Fred ate something he wasn’t supposed to a couple months back and we spent three days in the kitty ER for $3,000. So this is not a investment decision. This is a part of our family that we were mortally, you know, we we we have completely avoided any type of purchase for food or plants or anything of that sort that could possibly be like that. So 100% agree.
Mindy: Yeah. It’s an absolutely emotional decision and that’s you know what? Kevin, if you’re listening, that’s what makes a good investment when people buy based on emotions. All right, Scott, should we get out of here?
Scott: Let’s do it.
Mindy: Okay, that wraps up this wonderful episode of the BiggerPockets Money podcast. Huge thanks to our producer, Kaylen Bennett for connecting with Kevin and his team to make this episode happen. Rounding out this epic episode of the Bigger Pockets Money podcast. He is Scott Trench and I am Mindy Jensen saying, stay wonderful.
Scott: If you enjoyed today’s episode, please give us a five star review on Spotify or Apple. And if you’re looking for even more money content, feel free to visit our YouTube channel at youtube.com/biggerpocketsmoney.
Mindy: Bigger Pockets Money was created by Mindy Jensen and Scott Trench. Produced by Kaylen Bennett. Editing by Exodus media, copywriting by Nate Wineb. Lastly, a big thank you to the Bigger Pockets team for making this show possible.
