Wealth Systems: Direct Investing, Part I
We have been busy since Wealth Systems launched in November 2023.
So far we’ve published 56 pieces, roughly 8 each month, exploring wealth from all angles.
What is wealth?
What’s the difference between being rich vs wealthy?
What systems can you build to create wealth?
To that last point, we explored wealth engines of many different types including passive income via dividends, options and direct lending. While we don’t want to spread ourselves thin in life, dissipating our results with our attention… we must also recognize that multi-engine aircraft fly further and operate safely due to redundancies.
This is why you must have multiple wealth engines in your life. To carry you and your family further with the comfort of assets and cash flow.
Let’s add a fourth engine now.
Direct Investing
Direct Investing can be called simply investing, the outlaying of value in the expectation of return of greater value.
Most investing is not done directly today however, with capital instead being pooled and injected into companies via vehicles of different size and structure:
Hedge fund
Mutual fund
Private equity fund
Exchange traded fund
Special purpose acquisition company
You lose so much control when you become a LP or otherwise invest through one of these vehicles. You gain “access” to the lawyers, CPAs, quants, PMs and whatnot at these funds when you become a part of their ecosystem.. but the funds first obligation is to the fund — not you.
Your liability isn’t the only thing Limited by the L in LP.
Going direct means shaking the hand of the Founder and/or leadership team. It means you get to meet the other investors (again directly, not at some luncheon the fund offers once a year).
You gain a great deal being able to directly engage with these teams.
Becoming an Angel Investor doesn’t require any accreditation but you will pay in losses — start small and never invest what you can’t afford to write-off (that’s fancy for lose.. but we’ll get to that in Parts III and V).
If losses are guaranteed why do people do it?
Experiencing (even witnessing) a 50x return — turning a $200k initial outlay into a $10M liquidity event — generates a great deal of excitement and willingness to take risk.
Even a “measly” 10-bagger on $25K is a $250K return.
This is going to be 5-part series. As usual I’m going to start by explaining the big topics, establishing vocabulary and getting us oriented on the map. Then we’ll dive deeper into key topics (deal flow, diligence, dealmaking, post-investment, etc..) toward the end of the series.
P.s. this engine is special in that is catalyzes so many of the others → you may end up direct lending to one of these companies instead (or in addition), you may sell a service or a digital product to these companies, etc…
Let’s begin.