Private Market Investing Like a Pro | Erik Averill, Brandon Averill | AWM Insights #10
Episode Notes
Much of the initial emotion toward fluctuating markets has softened and our clients have begun asking great questions like "Should I invest in oil? Or real estate?" which we have been addressing the past few weeks in our Insights podcasts. This week, we wanted to focus our attention on some of the ways we do like to think about taking concentrated risks - specifically in the private markets.
We've continually said that we believe in the public markets. However, for some of our clients who have solved for safety through a diverse investment in the public market, we begin recommending looking into private markets, which often may provide over sized returns, but carry much more risk. In this episode, Brandon and Erik dive into this idea and cover topics like:
Are there ways to take advantage of the fluctuating markets we've seen in recent months?
When would be a good time to start a conversation with my financial professional about investing in the private markets?
Why do some get over sized returns in private markets?
How important is it to invest with someone who has had experience in these up and down markets?
What resources are there where I can learn more on venture capital investing?
+ Read the Transcript
Erik Averill (00:00):
Hey everyone. Welcome back to the 10th edition of the AWM insights podcast. I'm your host, Erik Averill. Brandon, welcome to the 10th episode of the podcast.
Brandon Averill:
Thanks Erik. Excited to be here.
Erik Averill:
Man, you just, you are so fired up. I love the energy that you bring to this conversation. So without further ado, let's jump into what we want to talk about today, which is where can you actually take advantage of the opportunities that this event has created? We know that you get the opportunity to make outsized returns when there is uncertainty. That is, that's the reward for taking the risk. And it's been an encouraging conversation with a lot of our clients and just investors in general that are starting to come out of, I would say a little bit of the, you know, the panic and asking, Hey, if I've got some dry powder on the sidelines, where can you take advantage of the situation? We've been outspoken on this podcast and just in general that where we absolutely don't think a wise place to try to do that is picking individual equities. So the question for you, Brandon, is, is when we're talking to our clients about where to look for opportunity and to make concentrated investments, where are we pointing our clients and where should people be looking?
Brandon Averill (01:15):
Yeah, Erik, I think it's a fantastic point. We've hammered home the, you know, our concept, our belief on the public markets, and I think to sum it up, you know where the opportunity lies is, is the public markets information's efficient. It's easy for everybody to get on the same page. It's a huge market with a lot of consensus. On the flip side, the private markets information advantages is the key thing, and so that's really where we point our clients that, Hey, if you want to find an outperformance, if you're in a position, you've consulted with your private wealth advisor, your certified financial planner, you've solved for that safety through the public markets and have the wealth to be able to enter into the private markets. This is the place, quite frankly, where if done right, you have the opportunity for some outsized performance. And I emphasize right because it also carries an immense amount of risk. On this side of the table and I'm sure we'll dive into that, but I would say the private markets is where you're going to find the outsize returns during this period.
Erik Averill (02:18):
That's helpful. One of the things that I want to dive into is maybe if you could break down why, like why do you get outsized returns in the, in the private markets? You know, it's one of those things that when investors look at the public markets, it can actually feel very scary and volatile because you can, you can see the liquidity of your money going up and down and that's actually a good thing. Can you explain why the private markets actually just even produce outsized returns?
Brandon Averill (02:48):
Yeah, I think it goes back to that information advantage and the higher likelihood that your investment could go to zero. So I think, you know, in the public markets, it's certainly why you shouldn't pick individual equities. You do expose yourself there to, to your investment, potentially go into zero. Although at a much less likelihood in the private markets. I mean, you're taking very concentrated bets. And so, you know, you're saying, Hey, I'm willing to risk my dollars here. The fact that it could go to zero because I think there's going to be this outsize return. I think when you talk to venture investors, the biggest thing you start to realize is they think differently about investing. They think in odds probabilities rather than, than you know, the public markets where you're just looking at diversification, you're looking for a smoother rate of return over time.
Brandon Averill (03:38):
So it's just a different way of thinking. And I think the other part is the venture capital community, the private investment markets. It's just a much smaller market. It's a smaller pond that you're playing in. And so it's pretty clear those that have had a lot of success and continued to have success who those folks are. And it's a self perpetuating situation. If you think about it, by my name an entrepreneur, I'm launching a business. I want an investor backing me. I want venture capital that has, has an investor that's been through this before, has had success before, that not only is gain, give me their capital, their financial capital, but they're going to give me their knowledge as well and help me through difficult periods such as we're going through it right now.
Erik Averill (04:23):
One thing you hit on that that I think is super important for our audience just to listen to as you, you kind of pass over, you said, Hey, if this has already been part of your, your investment plan, your wealth building plan with your certified private wealth advisors, because this should not be something that's a knee jerk reaction given the level of risk that we're talking about. I love a comment that I heard Mark Suster who's the managing partner of upfront ventures on our, on our other podcast Athlete CEO, we'll get to hear from one of his partners, Kobie Fuller on a future episode. But Mark makes this comment that I think just distills down the type of risk that you're taking in this world is he said that when I come to an investor, I should make you slightly uncomfortable asking you to write a check because I'm trying to predict five to seven years in the future.
Erik Averill (05:13):
And what we're looking for is actually conviction over consensus. So there are going to be very few people that actually agree that this is a good investment. And so it's this interesting thing that is investors, we want the upside, right? But we also want the comfort in the consensus of like, is this going to be a sure thing? And so when you're allocating to the private markets, I think one thing you started to talk about Brandon, was the experience, the expertise. We hit it hard here at AWM of whether it's working with our founders or our professional athlete clients is we're not guessing on you, right? Like a lot of us are founders or former professional athletes and we always tell our clients have specialized expertise. Don't let somebody learn on you. Where want to ask you about that Brandon is, is like given what's going on in the current environment, how important is it to invest with somebody who's had experience throughout, you know, these, these up and down markets? Because we're seeing a lot of our clients being approached with new deals, right? Everybody is trying to take advantage of this. Everybody knows somebody starting a healthcare business, right? Or a technology business. The next zoom, you know, where should investors look to place their money?
Brandon Averill (06:27):
Yeah, Erik, I think it's a great, a great point. I think the analogy is a lot of our athletes will relate to this, right? Like there's the major leagues and then there's high school, there's a high school, all American, the guy, you know, Johnny, Johnny jock, right? That thinks he's great and was of course recruited, but the coach didn't like him. And, and we all know that story. I think it's the same thing with investing. I mean, you know, I'll tell you one thing, go listen. I encourage our audience to go listen to or read content put out by a lot of the guys and gals that have been just absolutely successful in this field. I mean Brad Feld at the Foundry group comes to mind, ma, Mark Andreessen and you'll quickly start to see the difference, the difference in what the way they think, the way they go about things.
Brandon Averill (07:10):
And you know, these are, these are folks that have happened to you know, have a lot of success. I mean they recognizing years ago this little company that is renting out rooms in your house, like how nobody believed, Oh, strangers are going to come stay in your house and they're going to rent a room from you. That's absolutely insane. And then it goes on to be Airbnb and then you have times like this, Airbnb is laying off 25% of their staff. I can guarantee that the founders are leaning on the expertise of their investment group just to help them through this period. I mean, going back to Brad Feld, I mean, he has been talking about how he's absolutely exhausted right now because he's spending 40 hours a week on a, on zoom calls with founders and he's helping them get through these periods. I think, you know, when you start to look at what makes a difference here, you start to see these elements come through and these deals, quite frankly, that happened to get down to non-professional investors. They've been passed over by all the pros. So do you want to play at the Allstar elite level or do you want to, you know, kinda just have that vanity fair of saying, Hey, I'm in this private deal, et cetera. I think I'll put my odds with the pros. That's, that's at least what we advise our clients.
Erik Averill (08:29):
Brandon, I think that's a great place to, to kind of end is the emphasis on amateur versus pro, right? It's something that our audience knows a lot about and that is, is not trying to be arrogant, right? I think all of us listening from this audience, you know, the hard work, the determination, the sacrifice that it takes to put yourself at an elite level. And it, and it's kind of comical anytime somebody says, Hey, yeah, I was going to get drafted, but you know, I decided not to. As we all, we all know that to be the best at what you do is a very difficult thing to achieve. And that's really where we encourage you is make sure that when you're allocating any type of money or an investment is you're surrounding yourself with elite experts. Because one of the things you've heard us say before and we'll tell you again, is this is actually a privilege of the wealth that you as an audience is created, is you've put yourself in this unique opportunity that you don't have to guess.
Erik Averill (09:30):
You don't have to take unnecessary risk of, of investing with amateurs because of what you've done in the boardroom, on the field, in your company you get to have access to, to the best in the world. And so, thank you guys again for your attention. We're excited and future podcasts. I, you know, today we stayed pretty high level, but the private markets is actually where we spend the majority of our time believing that we can add outsize returns for our investors. So in future podcasts, we're going to be breaking down the way in which we look at the private markets. And so with that said, we appreciate your guys's attention and Oz always stay humble, stay hungry, and always be a pro.
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