In my opinion, this section really separated the successful investors from the not so successful investors. The book defines valuation as “what you are willing to exchange for something else that you want.” The author provides several methods to evaluation and each method has its own subset of methods. Being completely candid I felt like some of the methods were hard for me to visualize due to the large amounts of capital that was suggested, such as the 5 million limit method or the Berkus Method. I felt more comfortable with the virtual CEO method or the Start-up Advisor method. These methods seem almost too good to be true with an offering of minimal risk and an exchange of time and knowledge for a fee and/or equity in the company. I can be very indecisive sometimes, and I tend to be drawn to products or services that allow me time to take a closer look before fully committing. For example, the gym I belong to allowed me to visit the gym for 30 days and enjoy all the privileges of a member of the gym without signing a contract or paying a membership fee. By the end of the trial, I had a better idea if the equipment would fit my needs and if the class availability would fit my schedule. The same can be said of the start-up adviser method. As a start up investor I can add some value in the initial stages in exchange for “minimal equity.”
This section also clued me in that maybe I have been thinking about investing on a very basic level along with many investors. I assumed that a good investing technique was to read the financials or pro forma and adjust with my own idea of the numbers to see if a profit could be made. The author instead encourages a “discount or kill” method. Instead of trying to force a profit quickly eliminate what simply will not work or what leads to little profit. Another misconception I had was thinking you have to focus on the plan or market instead of the better method of looking for low capital large market opportunities. I currently work in the commercial insurance business. One of my largest clients are venture capitalist that buy and sell residential apartments. I noticed that in the past couple years it seems that their interest has changed. They are no longer purchasing apartment complexes in bustling cities or college towns. My clients are now purchasing smaller complexes in smaller towns outside of major cities with opportunities to build and expand. I am sure they are spending way less capital but as cities start to overcrowd and people run to the suburbs, I am confident this will be a profitable investment.
4 Replies to “Valuing”
Your reflection on the chapter was extremely well done! I too had a hard time with the level of money they were throwing around, simply because I do not have the level of perspective. They were so candid with it all, but their methods were interesting. Just as you said, this chapter really shook my perspective as well. I liked the last things you said about your clients and where they are purchasing. That makes a lot of sense to buy outside the city for future investment. Great job!
I also like the methods where the investor can get the inside scoop on the company and have the ability to contribute without actually investing their money, yet.
In terms of the apartment complexes, I have purchased a building where I will be renting out two apartments (one on each floor), and it is in a city area (not a big city by any means, less than 20,000 people), but I do know that the trend for millennials is renting rather than buying, and in suburban areas, there is probably more family housing, and less apartments to rent, which makes sense that these venture capitalists would be doing that, which you probably already know! Cool observations, thank you!
Great job putting this information into perspective. I have to agree with your assumption that investing in apartment communities will probably turn out to be a good investment. That exact scenario is happening on a consistent basis. Suburbia is alive and well.
Your post this week was well written and I thought your point on how this area of making a deal really separates the investors that find success and the ones that are left with significant regret and loss to be insightful and forbearing. I also agreed with your idea that apartment investing was a good solid investment most of the time and how this can help move a deal to success with valuing appropriately.