Living The Red Life - How to Invest as an Entrepreneur

Starting point is 00:00:00 I like most of my deals to cash flow, i.e. every single month or every single quarter I am getting money out. Now there's some investment opportunities on the stock market with billion dollar brands where they pay quarterly dividends. There's a lot of private investments, there's real estate investments where they pay quarterly. So you can find a lot of deals out there where they pay on a monthly, quarterly or yearly basis. My name's Rudy Moore, host of Living the Red Life podcast, and I'm here to change the way you see your life in your earpiece every single week. If you're ready to start living the red life, ditch the blue pill, take the red pill, join me in Wonderland and change your life.

Starting point is 00:00:38 Hey guys, what's up? Welcome. Today we are going to talk about investments, okay? And a big part of being an entrepreneur and being successful is making money. And then the other big part that most people aren't great at, and I am still working at, is keeping and investing that money to make even more money. So in this episode of Living the Red Life, I'm excited to dive in and talk what makes a great investment, how I invest my money, where to put your money. And obviously, most of my episodes are about the first part, making money.

Starting point is 00:01:08 But I think it's so important to do the second half and understand that second half of how to keep your money and then actually make your money work for you and make your money grow, right? And there's a lot of famous, very successful billionaires and entrepreneurs that say, hey, actually, the hardest part of entrepreneurship isn't the making the money part. It's the keeping and utilizing that money and having a good investment strategy so that money keeps building for you and builds wealth. And I've definitely learned that over time, especially if you're a marketer or you're a salesperson

Starting point is 00:01:40 and you're great at making money, sometimes it actually is harder to understand how to balance cash flow, how to use that money, the right investments. I've done a lot of investments. I probably did my first investment about 12 years ago, bought real estate out of multiple places in the UK. And what was interesting is some of them were great deals, some of them weren't great deals, right? And then since then, I've taken investments in many companies. Some companies I've invested in, I've lost 200K or one recently was about 500K. But then I've also invested in things that have made millions of dollars because of that decision and that investment, right? So it's really important to understand the balance between making money, investing money.

Starting point is 00:02:25 Obviously, some of you listening on in this may be phased just yet. But even if you're not, I really think you should like pay attention because very quickly you can get into that making money phase, right? You know, some years you might be doing 50k, 100k, paying your bills, staying alive. And then a year after you're now doing a million a year and you've got 300k cash and you don't know what to do with it. And then you spend it badly or invest it badly and boom, it's all gone again, right? So pay attention to this no matter what phase you're in. I think you'll find it valuable. Some of what I'm going to teach you today is stuff I've learned

Starting point is 00:02:59 from billionaires, right? And from consultants. I often speak about how I've spent around a million dollars in consulting, masterminds myself, and a lot of my connections and friends and people that help me are from those masterminds. So if you're not in masterminds in the right circles, that is probably the first investment you should make or one of. I'm not going to go down that rabbit hole today. I actually have another podcast episode on how, you know, why you should get mentors, why you should join masterminds. And I talk all about it and my takeaways. But for today, I'm going to talk about how billionaires and how really smart financial investors, probably way smarter than me, look at investments and the stuff I've learned along the way from them and myself and other entrepreneurs, right? And the three core pillars that most, and you know, just so you know that, you know,

Starting point is 00:03:51 I'm not certified or qualified. So this isn't a financial investment advice. I'm not saying you should invest in any one thing. And you should obviously speak to your attorneys and accountants and financial advisors. I'm not a financial advisor. So this is more conceptual ideas and my conceptual understanding of how I look at investments and what I've learned. But when I speak to really smart financial investors, really smart, you know, people that have sold $200 million companies, invested money for 30 years, I see a common trend. And that's what I want to build today's podcast around is this investment trend. And there tends to be three big pillars, okay, three big things that you're

Starting point is 00:04:31 always looking at when you're trying to invest, right. So you're trying to look at these three things. And if you take anything away from today, it's this framework that you can use when you're looking at investment strategies, right, or investment opportunities. And it's a really great rule to so you don't make a stupid decision. So the three things are, what is my risk? Okay, always looking first at the risk. Next is what is my cash flow, right? So if I invest in this, am I getting cash flow on a regular basis? What's the chance of that? What's the return? Okay, so for example, if I invest 100k, am I getting 10% return, 5% return, 20% return, whatever that might be, or 0% return with some investments, right? And that's at least the final one, which is the exitable, right? The exitable incentive, or when it exits, or when the investment ends,

Starting point is 00:05:22 what is my takeaway, right? So sometimes you might go into an investment where you get zero money out, but in five years, they think that it's going to go up 10 or 20 times in value, right? So that would be way better than just getting 10% a year, right? So you got to understand all those three pillars. So it's my risk, it's my cash flow, and then it's what can happen on what's my upside when it all exits or the investment finishes and everything goes right. And if you look at these three things and you find great investments with very low risk, with high cash flow and high exit opportunity, that in my eyes, again, I'm not a financial advisor, this is not financial advice, but in my eyes, that is

Starting point is 00:06:03 something I look for and I'm attracted to, right? It's got low risk, it cash flows, so I'm getting payments out and there's a good chance or a decent chance or at least a half decent chance that it might double, triple, 4x, 5x, 10x in value, right? So let me use basic math. If I put in 100k, I want to look at, is there a chance this could all blow up and be worth nothing? Well, often in investments, unless there's a guarantee, which there really is, there's 100% a good chance that it could be worth nothing, right? Especially in private, smaller companies. Obviously, as you see these days, especially COVID and such, billion dollar companies can go

Starting point is 00:06:42 bankrupt too, right? So there's always a risk, even if you're trading on the stock market. If you're doing private investments, there's obviously a higher risk with smaller companies potentially, right? So I'm looking at what is my risk? Is there a chance I would lose it all? How likely is that? What would affect those risk factors, right? So if the whole deal, the whole thing, the whole investment, whether it's a real estate deal or whatever, is based on this one transaction. And if they don't have that transaction, then the business goes bankrupt. That's high risk, right?

Starting point is 00:07:11 If the business has been around five years, has no debt, has very low overheads, has diversity of revenue and all the things that make a business safe and sensible, and the entrepreneur running it is really smart and has a great track record and has all these things in place to protect downside and risk, then I might look at that and go, well, that's a safer investment. And of course, again, you never know. So I'm looking at the business model. And the one, the biggest thing that I'm looking at that most people look at is the entrepreneur. If you watch Shark Tank, this is a great example. You'll actually hear them say many times, I don't like the business, but I like you, right? So they're looking also at the entrepreneur and many times, if it's a business idea that's great, but the entrepreneur sucks, they're not going good, even if the business idea isn't so great, they might move forward, right? They might move forward and still invest because they want to guide the entrepreneur. So we're always looking at the entrepreneur, the executive team,

Starting point is 00:08:17 the way the business is being run, if it's a business, right? If it's a real estate deal, we're maybe looking at the building, we're looking at the area, we're looking at comps and different buildings in that area, we're looking at the management team, we're looking at the track record of the main real estate person pulling investor pulling it all together, right? So that's your risk, you're looking at your risk, you're looking at worst case scenario. And one thing that, you know, a couple of people have told me over the years, which I think is good mindset stuff to have, is when you're doing these like what they generally call higher risk stuff, lower risk stuff is like putting your money in a bank or something, right? Higher risk stuff is any type of shares or private investment in companies, that sort of thing. It's not, you know, it's classified more higher risk.

Starting point is 00:09:01 Whenever you're doing that, you've generally got to invest money that if you lost it all, you wouldn't be on the street, right? That's the general rule of firm is, hey, this is money that I am risking. It's hopefully strategic risk and hopefully it doesn't flop, but you don't want to invest money where if it does flop, you're now screwed, right? So that's the risk element. The next element is cash flow. Generally, I like, not all of my deals, but I like most of my deals to cash flow, i.e. every single month or every single quarter, I am getting money out. Now, there's some investment opportunities on the stock market with billion dollar brands where they pay quarterly dividends. There's a lot of

Starting point is 00:09:41 private investments. There's real estate investments where they pay quarterly. So you can find a lot of deals out there where they pay on a monthly, quarterly, or yearly basis. One of my investment portfolios that I have as part of my brand where people can invest with me, we pay on a quarterly basis and a yearly basis dependent on cash flow, EBITDA, and profits. So not only when, you know, someone invests with me into one of my entities, and we don't let investors and people invest in many of our projects, but on this one, for example, they get the opportunity where if there's profit in the business at the end of the quarter or year, depending on the terms, we will distribute, right, based on the amount they invested so that's

Starting point is 00:10:25 an attractive deal because you might get 5 10 20 percent and obviously every deal is different you need to read the terms you need to read if it's a guaranteed percent if it's a distribution based on cash flow prorated to how much shares or equity you own or if it's a fixed amount every deal is going to be different right whoa whoa whoa wait a. Before we go into the rest of this episode, I'm going to interrupt abruptly and just ask you one big favor. I hope you're getting a ton of value, a ton of knowledge. I hope you're getting some breakthroughs from myself and the guests. And I want one thing in return. What I would love is for you to subscribe and leave a review. The reviews and the subscription grows the podcast.

Starting point is 00:11:05 It allows me to bring you even better guests. It allows me to invest even more time and money into this podcast to bring you the latest and greatest, the best entrepreneurs from around the world that are crushing life, crushing their business and giving you all the tools, the mindset hacks, the knowledge and the environment you need to be successful.

Starting point is 00:11:24 So do me a favor if you've got any amount of value from today's episode so far, or any previous episode, or any of the content I've done, it would mean the world to me if you hit a five-star review, give us your feedback on the show, the episodes, and subscribe and download. Plus, if you do that and send me a screenshot on Instagram, at RudyMoreLife, I will send you a bunch of my free training, marketing courses, sales courses worth $499. Yes, $500 worth of courses for a simple 30-second review. It would mean the world to me. Send me that screenshot. I would love for you to leave that review and I would appreciate it very, very much so we can keep growing this show and make it awesome. So let's get back into the episode.

Starting point is 00:12:10 I appreciate you guys. And let's dive back in. A lot of deals give no cash flow, right? A lot of deals give zero and you're investing in stock and just based on point three, which I'm going to get to in a minute, which is there'll be a high exit one day. So I like cash flow. Most of us entrepreneurs like cash flow. I always remember my goal, which I got to about two, three years ago. So I was like late 20s. My goal was to cash flow 10 to 20 grand a month without working, right? So between my real estate and my other investments, if I had zero business, and I just lived at home with my dogs on the water, right? And I didn't leave the house, I did no consulting. I had no, you know, no agencies, no passive businesses, just purely investments. I wanted to cash flow 10 to 20 grand a month, which is, you know, a decent living, right? And I got to that.

Starting point is 00:12:57 I took all the, you know, my monies out of my businesses over 10 years, and I kept investing it into cash flowing entities that hopefully also went up in value. And don't get me wrong, I made some, you know, bad decisions, I guess, along the way where some of them blew up and I lost some money. But I also got some, you know, some of my real estate and other businesses doubled in value over a few years or five, 10 years. So I made some good money there. So I always like cashflow. I want to live off that cashflow. A grand cardone always talks about this. He like buys all this cool, fun, stupid, you know, some might say stupid stuff off cashflow. He's a big believer that you shouldn't

Starting point is 00:13:34 spend your money you're earning on a Rolex. What you should do is invest all that money. And then as you build a big enough portfolio, the dividends from those investments, you can then spend however you want. I like that idea because the money you've earned and worked hard for is getting invested into hopefully a growing asset. And then the profits from those growing assets or the dividends, you can then spend however you want. It's a great philosophy. So cash flow is important. Some of the time, not all the time. Obviously, there's a bit of a yin and a yang, you have to understand. So if you're going into a business deal that gives a lot more cash flow, it may not exit as well, or it may not give you as big as an exit, or you may not get

Starting point is 00:14:17 anything more on the exit, you might get cash flow, and then you get your money back on the exit, but you don't get you know, if it triples in size, you might not get that triple, right? So a bit of a yin and a yang. The investment that we have, we try and build based on these three pillars. So I try and lower, you know, minimize the risk, obviously always a risk. I try and cashflow to my investors.

Starting point is 00:14:38 And then finally, which I'll lead into now, is the exitable strategy. Exitable strategy is the most important to me because that's where the big money is earned, okay? You're not gonna get rich from 5%, 10%, 20% cashflow. And in terms of the amount, just before I move on to that next one, generally, I'm always looking for 10% to 20%.

Starting point is 00:14:59 5% is okay, 10% is good, 20% is awesome. And the really important thing to generally understand is once you go over 10%, 15, 20, 25, you're getting into higher and higher risk just generally. So, you know, most safe investments, you might get 5% or safer, nothing super safe. And then as you go to the 10, it's like in the middle and then you go over that 15, 20, especially if it's guaranteed, it's becoming higher and higher risk. So this is like gambling, right? It's your risk tolerance. Some people want 20 30% returns, there's way higher risk. And I hear some friends and people where they lost all their money, because they were promised 30% 40 50% returns.

Starting point is 00:15:41 It's one of those sayings, if it's too good to be true, it probably is. And not always there are some great investments, but you have to do due diligence. If it sounds too good to be true, or it sounds like you're guaranteed 30% returns and a 10X exit in three years, and there's no risk, you probably want to go, is this too good to be true? And bring in an expert to audit the investment for you. There's people you can pay a few thousand dollars and they will audit it for you. They'll look at the contracts and they have been doing investments for years. Their firms audit them.

Starting point is 00:16:12 So that's always a great option too. I have advisors that do that for me and that helps me understand like impartially the pros and the cons. So going into the last one, okay, which is the exitable part. Like I said, it's the part where you're going to make all your money, probably, or most of your money. If you invest 100 grand and it gives you 10% a year, well, you're going to get what? Year one,

Starting point is 00:16:33 10 more grand. Year two, 10 more grand. Year three, 10 more grand, right? So over three years, you might make 130K. Yeah, it's okay, right? You made $30,000 over three years for doing nothing. For some people, that's great. Not bad, right? But if over three years, the company sells for four times the valuation, and you're getting paid out based on that, which you normally are, not always, again, check the terms, you would have got what? $400,000. So instead of the 30k that was cash flow, you got 300,000 more plus your 100k back. So you see how there's way more higher potential, right? In the exitable part, that's the part that most investors are really looking at. They're looking at, hey, can I put in 100k and get out a million? Can I put in a million and get out 10 million, right? And obviously growing by 10x is a lot. Sometimes

Starting point is 00:17:25 the company might grow by 5x, 10x, 20x. And obviously, if you go early in Facebook, Google, these companies, they can grow 400x and, you know, or 1000, right? So it depends. When you're looking at exitable value, you need to be looking at firstly, their plan, the risk side, what is their plan to grow? Are they full of crap? Are the multiples and the projections and how much they can exit for like up in the sky, airy fairy, stupid stuff. A lot of the time it is a lot of the time, these entrepreneurs, they're kind of these like, have these unicorn ideas, most unicorn ideas fail, you only hear about the one in 10,000 that works. So a lot of them, if they kind of got this crazy, oh, we're going to in two years exit for 50X

Starting point is 00:18:12 and we're going to revolutionize this industry, that's the highest risk. But it's also where you might get a 50X. OK, but most of the time it's going to fail and it's going to go bankrupt and you'll lose all your money. I generally like stuff a little more general business based where they're slowly growing. They know how much revenue they're going to make, how much EBITDA, i.e. profit. They roughly know the way, they know the multiple of the industry. You can pull up different companies similar and check what they've exited for. It makes sense. It's not too aggressive. It's a clear business model that I understand or conceptually understand. It's a good solid business plan that makes sense. So that's what I generally

Starting point is 00:18:57 like. And again, I might do one super high risk because I love the entrepreneur. I think the idea is genius. And I might throw in less money. I might just do 50, 100k in that versus half a million in something that's more, maybe more safe, right? Or more something that's a little more slow and steady. I put a lot in real estate, real estate, you know, it's generally not going to grow like crazy, like a business, a business versus real estate might grow quicker. A business can easily go from a 5 million to a 50 million valuation if it was ran well over a few years. Real estate would be hard to do that unless it's this crazy deal and they're restructuring it all

Starting point is 00:19:36 and rebuilding it all and blah, blah, blah. It might double or triple in value, but it'd be hard to 10x in a few years, right? Over 10, 20 years, because, you know, it's the value of land and everything's going to grow, then it can increase, but it's going to take longer than a business. But it's safer, right? Real estate holds a certain value, especially in smarter areas, where it's much harder to lose on. A business can be worth 20 million one day and bankrupt the next. There's billion dollar brands that are valued at a billion and then a year later they're bankrupt and they're worth nothing. So you've got to weigh up all these parts.

Starting point is 00:20:13 Look at what you can exit for. Look if it's sensible. That's where you're going to make most of your money. Look at the timeline to get there, the plan to get there. Any entrepreneur, especially if you're investing privately in small companies, like with me when I'm speaking to my potential investors, I'm showing them a clear, exitable plan. I'm showing them clear multiples we can get, how we want to grow it, how we want to get revenue and EBITDA each year, how we'd get the valuation there, how we can mitigate risk,

Starting point is 00:20:40 how we can exit off some of the sub-com sub companies, not the whole one. So we're going through this entire plan, right? We're looking at all these different options versus just being like, oh yeah, this is going to be the next unicorn. It's going to 50X, it's going to change the world. It's going to be the new Facebook, right? You want that strategic plan. And of course you buy into vision, right? So obviously, every entrepreneur and person that you're probably investing with is a visionary, they're going to paint that beautiful vision, but make sure there's something to back it up. So there we go. I know that was a lot. But they're the three pillars that make up great investments. They're how you analyze an investment.

Starting point is 00:21:19 Again, this is not financial advice. I'm not qualified, a financial advisor or accountant or anything like that. And you should seek expert advice from individuals such as that, plus your attorneys and everyone before you make a financial decision. And all these, you know, stats, figures, numbers and examples were purely example purposes, illustrative purposes only to hopefully educate you a little today from a big picture perspective. And to understand

Starting point is 00:21:45 hopefully also that making money is great, but have a solid plan and some solid advisors around you and people around you that you can lean on when you want to invest your money. Part of being in our community, our mastermind, especially our inner circle and legacy, is I open up my books on how to invest, what projects I'm investing in. I've already bought two investment opportunities with me this year to our legacy and inner circle members. And also probably even more importantly than that, I give them access to my attorneys, to my financial advisors, to people that can audit these deals. So again, you know, that Rolodex I built over 10 years, spending a

Starting point is 00:22:25 million dollars to grow this Rolodex, those people get access to. So make sure you find, get yourself in rooms and find someone like me that can give you access to those great investments, but also the great people that can audit them and support you on making the right decisions. Obviously, if you're in my program and you're interested in investing in a deal, I know a lot of deals. I get a lot of deals passed through me, people, friends or people that want me to invest or want my community. Obviously, I have a couple of options that's more friends and family based. I don't advertise it that you can ask me about if you're a member. And if you're interested in joining our community, just hit us up on Instagram, I happily point you in the right direction or to any of those experts. And yeah, focus on making a lot of money, then investing a lot of money. So you have that passive continuous cash flow. So you

Starting point is 00:23:16 can live an amazing life and you can have that security and you can do whatever you want with that money, you can live more freely, maybe a little more extravagantly and not feel bad about buying a Rolex, right? That's why I like that cash flow and it's nice security. And that is what the red life's all about, right? It's about creating that so you're not on that hamster wheel for 40 years just to pay your bills, okay? The red life's about creating freedom. And as I always teach, finances and money are a big part of that. And hopefully I'm helping support you in the educational side behind getting there. So until next time, keep living the red life, guys. Hope that was a great episode and I'll see you very soon. Remember, invest wisely, protect your cash so your cash keeps earning for you. See you guys soon.

Living The Red Life - How to Invest as an Entrepreneur

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