00:07:45 – Investing Outside of Business Assets

00:08:50 – Lance’s Structured Approach to Building Wealth

00:11:23 – Investing in the post-COVID World

00:14:33 – Being Opportunistic with Investments in the post-COVID World

00:17:51 – Evolving from Industry Leaders to Mentors

00:20:54 – Going from Consultant Architect Type role into Verivest

00:26:57 – Lance’s Market Predictions for the Future

00:31:08 – Future Goals

Q: Were you always good with money? Or did that come later?

• I wasn’t always good with money. I felt like I was always pointing from behind in that regard.
• Unfortunately, my parent’s story didn’t have a happy ending. They were very successful for a while, but then it imploded. So, I didn’t accrue any of those benefits and didn’t have much help.
• When I started the business, it was always just about ploughing everything back into the business – which it needs because we had to self-finance it.
• Then I sold the company and made a little bit of money. But I learnt that I didn’t like the multiples that these service businesses traded at – it’s hard to drive enterprise value.
• I definitely fell into the entrepreneurial trap of “it’s just all about investing in the business.”
• My wife and I had five children, two of them with cystic fibrosis and one with severe IBD – so it’s expensive too.
• So, for us, that became our priority over everything else.

Q: What made you go from an “I’m going to invest in my business because that’s the highest ROI to “Let me start looking at other assets outside the business?

• I think that for a while, I thought I was pretty passionate about IT services, and I spent seven years of my life hanging out with guys who were passionate about it.
• But then you also realise that certain things just have higher multiples and generate more enterprise value more quickly.
• And that’s when I started to realise that I’m more intellectual and look at things a certain way, so I needed to align myself with something like that, and that’s the kind of business I should be in.
• That was the pivot that was made at that point.
• I realised that if I could grasp these abstract concepts and these financial principles, then I should invest my energy there.

Q: How have you gone from entrepreneurial into this sphere of being a very professional investor and taking a very structured approach to how you methodically build your wealth?

• I think where it starts is that notion of being a value investor and investing in the fundamentals.
• I learnt, especially for us being the architects of these investment funds where business sort of meets securities laws, you must evaluate the downside to understand the risk.
• How do you protect the downside through the right structuring?
• That’s the beauty of the alternative space – you get to be part of the negotiation to help get you what you want.
• Entrepreneurs are always focused on the upside. So, when I’m consulting with my clients, I tell them not to be afraid of the risk but rather to establish how they can mitigate the risk.
• If you think about how Warren Buffet does it – he puts himself in a position to have exposure to opportunity. When Burlington Northern or Wells Fargo needs a bailout, that’s when he picks up the phone and cuts a deal.
• For Matt and I, that’s kind of how we looked at it in the middle market real estate space. We realised that there’s no big fish in this pond, and it’s just a bunch of little fish, and the big guys can’t access it.
• So, if we can be the most professional investors in the space, we’re going to be able to cut the best deals we can by bringing more than just money.

Q: How has the post-COVID world affected the way you think about investing?

• One of the reasons why we ended up getting into equity investing, to begin with, was that Matt is a really good underwriter of debt, and he wasn’t willing to take the risk.
• We realised that we need to stop just making loans because no one will take our money. After all, we see the risk, and someone else is willing to offer a lower rate.
• But as equity investors, it makes more sense – because the risk versus reward changes, meaning there’s no limit to the upside like there would be on an interest rate on a loan.
• Of course, there were a few mistakes and things we would have done differently, but we’ve always looked at the guys who have an interesting take but haven’t been discovered yet.
• We’ve been more willing to take chances on people like that. Whereas everyone else is chasing those guys with 30-year track records.
• The problem with those guys is they reach a point where they want more fees.
• Now, in this post-COVID world, a great example would be retail because obviously, retail has been crushed for the most part.
• But the guys we’ve bet on – they’re working harder than they did before, and they’re enjoying it. They’re chasing after people; they’re restructuring – they’re doing whatever they can do to hustle to get these assets to perform.
• So, we don’t end up feeling as much of the hit.
• Whereas, if the operators weren’t as savvy and as skilled, they’d be overwhelmed by this, and they’d be going backwards.
• If you’re looking at how the portfolio is performing – it’s not great, but it’s not terrible. I mean, we wish we’d be doing better, but given the circumstances, people are doing far worse.
• We are constantly protecting our downside, and that’s how you end up weathering these storms.

Q: Up until COVID, you had a conservative game plan in terms of the sorts of investments you went into. And now, because of the instability in the market, are you able to be more opportunistic? Is that kind of the play that’s happening in the fund?

• Yeah, I think so.
• Matt and I have this very specific thing. One of our whole things was that we didn’t want to be in a position where we ended up being stuck because a downturn hit, and all the equity got wiped out.
• We want to have a broad enough investment mandate that allows us to be as flexible as the market cycle.
• One of the things we’ve been doing a lot of is these redevelopments. One example is where we’re converting big-box retail into self-storage.
• Even before the pandemic hit, we saw that retail was so struggling. We went out and found guys who could execute that particular strategy, and we put a fund around that strategy.
• Now we have a guy who has bought these hotels, and they’re not doing well. So we’re going out and converting them to work for us.
• That’s how we’ve always looked at it and said, “if we always have our eyes open for what’s going to happen next, then we’re already in a position to take advantage of it when the time comes,” because we have a broad enough mandate where we can do that.
• Back in 2012 and 2013, people thought we were absolutely crazy – it’s just not what people were doing.
• Now, there is a willingness to bring us on and allow us to come alongside them because we don’t just bring in money – we bring things they can’t bring, like investor reporting.

Q: In terms of your journey with Matt, in terms of where you are at as industry leaders, one of the things that have clearly evolved is that you have really become mentors within the realm of private funds, maybe even beyond – and I’d like to understand how that happens? How did it come about? How is it that people started to become drawn to you and say, ‘Guys can you help us get set up?’. You mentor people, you help with funded administration – how did that evolve?

• After the global financial crisis, there was clearly lots of opportunity in the market.
• Matt was running funds since 2001, and I got deep into funds and figured things out pretty quickly. So what ended up happening was that people started approaching us wanting a fund but not knowing anything about it.
• And so, we realised that we were playing the role of a translator and consultant. After spending a lot of time with our securities attorney learning all the ins and outs of security laws, we realised that we were just uniquely qualified, having been fund managers ourselves and having played all the roles.
• And at that point, we recognised that we could go out there and help people start funds and be paid to conduct due diligence.
• And that’s kind of how it got started.

Q: This is a concept that clearly you’ve been working on for a while; it’s really starting to get attention from a lot of people right now. Can you talk a little bit about how you went from this consultant architect type role into Verivest and why that came up, and how you see that as being an integral part of the fund world moving forward?

• When we pivoted the business in 2021, part of our big, hairy audacious goal was to help the industry move forward in getting better at structuring funds and facilitating a flood of capital into the market.
• We knew that the industry could produce what the people wanted – they just didn’t know they needed it.
• And with the passage of the Jobs Act in the US in 2013, which removed the prohibition from advertising and soliciting these private placements, we knew that that would be a sea change.
• When we decided that we were going to do this, we decided we would help the good guys – the guys worth the capital to get access to more capital.
• So when you fast forward, we’ve taken everything we’ve learnt from watching the friction that exists in the industry. And we’ve just and realised a lot of it is education and that we need to train and teach all kinds of investors about how to conduct appropriate levels of diligence.
• So for us, we ended up in an accidental business, providing fund administration for other people. We did it for our own benefit because we needed the books to be done better.
• We then realised that, well, when we’re doing that, we actually have all this oversight role that we play.
• We’re monitoring and making sure that everything is going where it should. And we have kind of a higher responsibility than just doing the books.
• So, when you play it all forward, we saw the friction that exists in a highly fragmented industry.
• On the one side, you have lots of sponsors with lots of opportunities, and on the other side, there’s a bunch of random high net-worth investors. Its fragmentation on both sides.
• So, the friction that exists is this notion of one side having what the other side wants and vice versa – the investor has the capital, which’s what the other guy needs. And the investor wants the return.
• But the issue is that the investor doesn’t know whether they should trust that guy or not. And so, what’s getting in the way of trust being consummated?
• And that’s kind of what led us to the various concepts. So saying it’s all about removing friction. We just need to remove all this friction in the process. And so for us, it was background checks and verifying and validating the track record of the sponsor.
• It’s tough for every single investor to go through that much work. It’s not worth the effort if you’re investing even $500,000.
• So, we realised we could shortcut that time to trust the investors because now they don’t have to worry about all that stuff – they can just focus on whether or not they believe in your thesis.

Q: “From your viewpoint – advice for investors in the next five years – what do you see as being some of the opportunities and some of the challenges? If you put your investor hat on now, what do you see in the market? You get to work with so many amazing investors day to day; what is your finger on the pulse of what’s happening in the world right now?”

• This is the exciting part. Now that we’re solving for access, investors can start getting comfortable with the opportunities.
• When you look at the US, it’s becoming a nation of renters. Ownership of anything just seems to be going away. People want to be mobile – they want to be able to do what they want to do.
• So, build to rent, for example, is going to continue to become a bigger and bigger deal.
• I also think self-storage will continue to be a popular asset type for all the same reasons. People want to come and go, but I don’t see Americans foregoing their need to hoard.
• I think those are going to be the big trends.
• But more than anything, ownership isn’t as closely held anymore. If you’re in the US, every building you drive by is going to be fractional ownership through a syndication or a fund. I just think that that’s where everyone’s going to be.
• These access doors are open –  the ability to get in and own a piece of a bunch of multifamily buildings or self-storage facilities – that’s what’s happening.
• And then I think you can change sort of depending on your risk tolerance.  For example, you’ve got private lending now.
• So your ability to even get in on some fixed-income equivalent through a debt instrument or an equity investment –  it’s really exciting!
• So, you can participate at different levels to get whatever you need to solve the problem in your own portfolio.

Q: What is your next horizon? What are you striving for in your world, life and business in the next 5-10 years?

• I think it’s much the same. This is my passion. 
• I want to see it get to the point where investors can build their portfolio to have access to everything we just talked about and to be able to rebalance it accordingly. 
• I’m not sure if it’s going to be here in five years, but a lot of the things I’m talking about is sort of to pave the way for what would be an even more robust, like a secondary market – whether that’s in; blockchain, who knows?
• I don’t care about the tech that underpins it, but it’s just the notion of we open the doors and allow people to get in so that they have the exposure. 
• And then allow them to have better visibility into shaping that portfolio.
• It’s all about having multiple streams of income and more of that freedom. 
• I love to solve really, really hard problems. And it’s what it’s what brings me purpose and meaning. And so I’m not even sure once I have a chance to jump off this train if I even ever will; it kind of scares me to even think about it. 
• But that’s what I’m going to be working on.