The “How much are you putting in” Test

Whenever I’m out raising capital for an opportunity, I get asked the following question: How much of your own money are you putting in?

I understand why people ask. They are trying to determine how much conviction I have in the opportunity. The more I put in, the more conviction I have that this is a good deal.

In other words, they want to make sure I’m happy to eat my own cooking. But, what I’m cooking isn’t really for people like me, because I’m not liquid enough (yet).

What Adaptive is cooking is pretty simple: We offer a service allowing people with excess cash to earn high risk-adjusted returns by investing that cash in fairly conservative, very-well-executed Los Angeles multifamily deals.

However, because we never sell renovated deals, and therefore never realize our promoted interests (except in the form of quarterly distributions, after our investors have received back their capital plus a pre-defined return), I personally never have a ton of cash on-hand, relative to my net worth. In other words, I am not one of the people to whom the service is targeted!

Fortunately, we have done so well by our investors for so long that they have learned to focus on the quality of the deals we present them, not my personal investment in them. The trick is finding new investors willing to focus on that track record and give up on using my personal investment level as the key heuristic.