How Money Works: Private Equity & Venture Capital

went bankrupt. It went busted, and folks want to blame private equity for that because it was tied to an acquisition by a company Golden Gate Capital, just to be very specific. They're out of San Francisco area and they acquired the company around twenty fourteen for two point one billion dollars, and folks want to say, well, that's because of equity. The fault that they went bust is because

of private equity. And as a result of that, folks lost their jobs and vendors have lost their contracts, and nobody has place to go to get affordable seafood or accessible seafood around the country. Blah blah blah. A lot of my so called liberal friends have come out, you know, railing against private equity in this example, and my response to that is they're right in this one example. They're

absolutely right. Private equity did not do a good job here, and I'm explaining what private equity is in this episode, So don't worry about it all unpack you know, the what the heck, the what the what on private equity we talk about these terms. No one ever explains it to you and explain that. I'm explaining a little bit about venture capital in other ways to access capital anyway, and the good and the bad, whether it's good and bad. So stay tuned. But in this particular example, it's a

bad example. And there there are a lot of being said about Red Lobster doing this campaign that allows you to buy a lot of food for a little bit of money, and its success drove the company out of business. Though that's not true. There was I think about ten

million dollars worth of losses tied to that. They call that a loss leader in business, where you do something it may cost you two dollars, you sell it for a dollar seventy five or dollars fifty because you're trying to entice people to come and do business with you. That's not enough to cause the company to go under. It's a contributing factor. The real thing that caused them

to go under was a structure of this deal. And this gets into the discussion about private equity, which I'm gonna get to, but this trending topic on Red Lobster is, yes, private equity is a bad job in my view. Yes, they were short term oily in it. They were I think self centered. I'm not going to say selfish, but

self centered. They structured this deal with it with an emphasis around financing structure, almost alone, or at least primarily, and they so handcuffed the operators of the Red Lobster chain that it was hard to maneuver. So one of the big things they did was a sell lease back. They bought the company and used proceeds from selling the real estate underneath Red Lobster stores. And by the way, there's nothing wrong with this. You know, McDonald's is in

the real estate business. You know, I'm in the real estate business. Real estate is the biggest business in the world.

Let's not complain about that. But this is a restaurant company that should have been had prioritized, you know, the people, the food, the jobs, the you know, efficient operations, sustainability, and in this particular case, they wanted the money off the table right away, in my opinion, so they got They did a deal which they did a sell lease back where they sold the real estate underneath Red Lobster to another company. I won't get into that who in

kno what, it's less important. And when they did that, they also it's been said that the real estate was so and leased back at non you know, economical terms. That's probably right. They leased it back above market, so if market is a dollar, they leased it back at a dollar twenty five or dollars fifty from the company they sold the real estate too, so they got some capital right up front. And it wasn't Red Lobster got

the capital. The private equity firm got the capital. So if you're doing a deal and you want your money right up front from the deal, you don't believe in the deal. You know, you're not really banking on the long term prospects of their success. You're trying to get in and you're trying to get out. And so that's in my opinion, what happened here that the productuity firm

got in. They got their money out through a couple structural situations, but the biggest one was to sell lease back, and I think that was a downfall because that then meant that Red Lobster had no flexibility on lease payments. If you own the property, you can negotiating with yourself primarily, but you know, chunk of cash went to paying lease payments. In fact, I just read that the location in Manhattan.

A lot of these locations have been closed. The location in Manhattan is actually struggling because now the landlord there wants to triple the rent of that particular location. I'm not sure if the landlord is the same company that owned all the real estate or if it's different, but they want to triple the rent. But if you own that real estate, no one can triple your rent unless you massachist and wants to triple your own rent. There

are other missteps the company. There was another company involved in this that it bought a share into Red Lobster, this Asian seafood company with a lot of scale and a good repute, well good reputation, actually a sketchy reputation, but at least they knew seafood, and that was supposed to have operational efficiency, and you know that didn't work. For a lot of reasons. That didn't work, So there's a lot of contributing factors. Interest rates went up, so

the debt costs of debt became more expensive. The private equity firm, I think, tried to get the returns upfront. That didn't work here. The cell lease back deal, which works sometimes, did not work here at all, and did settled the company with a lot of debt that they couldn't pay back. And they tried to make a dollar at fifteen cents and it didn't work. And if your outflowakses your inflow, then your overhead is your downfall. So I can go into much more detail, but I think

you get it that. Yes, the critics here are correct that the strategies of improving operations improving efficiency as a result of its pride equity firm getting involved with a company did not work here. In fact, I think the productually firm took money off the table, off the front end, and that hurt the company. It was a short term gain versus a long term plan, which created long term pain for the company. And a good company I think a decent company went bust and a lot of jobs

got lost and all that kind of stuff. So there was an increase in rate costs, industries, labor costs, challenges, operations, all that's true, promotions that didn't pay off. But the primary thing was this very very uh, the financial engineering was wrong. Right, So sometimes things work, sometimes these don't don't don't This one didn't work in my opinion, and private equity should feel not good about this. And in old society, I don't know an explanation, apology, reinvestment. You know,

somebody needs to reboot this brand. I think it's got it's got a place in the marketplace. But this this didn't work. Okay, Now stay tuned because I'm going to actually unpack what all this stuff actually means and why

or whether it's good or bad. Stay tuned. Hey, Hey, this is John O'Brien and this is Money and Wealth on the Black Effect Network podcast network and iHeartRadio, and I am about to unpack something that people walk around thinking they're dumb or stupid or they're a shamed because they hear all these phrase phrases and terms and no one has explained it to them. There's no Financial Literacy by the way, go get my best selling book, Financial Literacy for All is number one still on Amazon and

several categories. It came out number one nonfiction on both Publishers Weekly and USA Today National Bestseller List, number twelve overall on the USA Today list of all books, and it's still on the Amazon list. And I get constant feedback on it, and I want feedback from you after you buy it and read it. Everybody should have this

on their kitchen table once a week. As you open it up, dogeared with notes and highlights and comments, as you and your family unpack and repack money with yourselves in mind, as you begin to build your own generational wealth and the business plan for your life and your family. So we are unpacking these terms that get thrown about that no one's explains to you. And one of them I'm going to unpack today, big one private equity and as a subset of that, yes, a subset venture capital.

And is it good or bad? Let's get into this. So. Private equity is a form of investment that involves capital not listed on a public exchange. It consists of funds and investors that directly invest in private companies or engage in buyouts of public companies, resulting in the delisting of public equity, which means in English, the company that was public then went private. It was public. You hear about

companies going in public. Some companies find it valuable to go from public to private, and that's done with private equity. And I'm gonna give you a shocker in a second about private equity. Here's a breakdown of key elements of how it works. Fund structure. Private equity firms raise funds from institutional investors most I'm going to get into this in a minute, because there's a butt and an and in high net worth individuals. These funds are then used

to invest in various companies. A PE private equity fund typically has a limited lifespan around ten years. There are some private equity firms that go on forever. But this you know, some terms have a miss sort of a mission statement investment strategy. Buyouts are one example. I got into a bad example of a private equity deal in my opinion, which was the acquisition of Red Lobster. I don't think they did a good job or it was

that beneficial to society. So, you know, buyouts are a primary example where PE firms buy a controlling interest in a company. The goal is to improve the company's performance and then to sell it at a profit. There's nothing wrong with that. If you're on a gas station, you know ultimately you want to sell it for what a profit, There's nothing wrong with that. You own a piece of real estate, you want a home, you want to sell it for a profit. You're not buying it to sell

it at a loss. You want some stock, you want to sell it for a profit. There's nothing wrong with that on balance. Okay, so stayed with me. A venture capital? Did I just say venture capital? Yes? Venture capital is a subset hello of private equity investors in a startup in early stage. Companies with high growth potential also often tap venture capitalists. So venture capital typically involves lower, smaller amounts of money targeted toward a company in an early

stage to help them get moving. But that is still private equity. Growth capital investing in a more mature company that needs funding to expand or restructure operations, internew markets, or finance significent acquisitions. I'm going to come back to this very important. There's a black example of this. A

couple actually mentioned value creation. PE firms. Private equity firms PE stands for private equity aim to create value by improving a company's performance, often through operational improvements, strategic redirection, cost reductions in the sometimes that means layoffs and leveraging synergies. They may also change management teams and drive efficiency. Okay, Now, before I get further into this, you're saying, okay, John, help me out, man, I don't have all day. Is

it good or is it bad? Okay? On balance? Waiting for it? Ready? Ready? Is it good or is it bad? Are private equity firms good or bad? They are good? On balance they are good. And so now there's uproar John, What do you mean? You just said that this red lobster deal was a trategedy, a travesty. You agreed with the the pundits and the critics of this who you know don't like capitalism, free enterprise. Yeah, I do agree. It was a bad example. Let me tell you about

a couple of good examples. In fact, I'll give you several good examples, but I'm going to get personal first. Reginald Lewis, who is the Martin of the King Junior Wall Street. He's the first black Man to do a billion dollar deal. Reginald Lewis bought a company called Beatrice International, which was in thirty countries. He was a lawyer and investment banker who wanted to do a big deal. He couldn't access bank capital and traditional forms of capital were

not available to him. This is a deal that was a billion dollars in the eighties. It would be twenty thirty billion dollars a day, just an incredible amount of money. This guy had utzma coming out of his ears. Who do you think you are? Somebody would say, and people did say, who do you think you are? He thought he could buy this company. He thought that it was undervalue, that the parent company did not appreciate the values underneath it.

He thought he could maximize its value. And so he went about the business of trying to acquire this company. And when he couldn't find traditional forms of capital, he went to a guy named Mike Milkin, who's a friend

of mine, who back then was at Lehman Brothers. I believe it was and and a sort of a first cousin to private equity is junk bonds and private equity or literally equity money from rich people institutions, so it's capital, but job bonds are a form of capital, but it's it's a long term debt instrument, and it's a high yielding which means it's expensive. So the deal really has to make sense, which meant that reginal Lewis really was

quite brilliant what he did. So Michael Milkin sort of went around all of Wall Street who said no to Reginald Lewis, and he did this deal anyway. He backed them with a billion dollars worth of worth of junk bonds or not a billion oxworth, but a lot of his being or deal was high junk bonds, and it worked out. Reginald Lewis bought Beatrice International, and he went in and he did some negotiate, some great negotiations and had a great strategy after his acquisition of streamlining operations

that might have met laying off people, closing offices. He improved profitability. He implemented cost cutting measures, sold off non core assets of the company mean things are not critical to the company's success, leveraged strong brand recognition for Beatrice products, and then drove growth and he exited that company. Beatrice exited with incredible profits. Were all involved in nineteen ninety six when it was sold and everybody won, including his family.

And there's a foundation in place. There's a museum in Baltimore that is I think self funding. There's the family has a family office. I'll get in what a family office is in another podcast episode. You all need to know what a family office is, and you need to

get one when you build enough wealth. But he created generational wealth and he hooked up a lot of people you need to translate hooked up, by the way, who are better off because Reginald Lewis was there and because this deal worked, and he could not arguably have gotten it done without at that time, I'm Michael Milkin. I believe my friend Henry Kravitz also helped a KKR, but it was primarily Michael Milkin who got this done when everybody said no to Reginald Lewis, so he had to

go to alternative financing structures. And he was brilliant enough to make it work and to put the company and its long term prospects first. He didn't take the money off the table right away. He did the deal. He waited several years before he started seeing benefits. That's the way this stuff should work when the priorities are straight. And another example of a deal that worked then involves an African American in private equity is a guy you might know named John Hope Bryant. Yes, I did a

private equity deal. I did a private equity deal with the Promise Homes Company, and it was an in case two individuals who are wealthy, Michael Arraghetty and Tony Resler, who are principles of a company called Area's Management that is about one hundred and fifty billion dollars of money under Assets Center Management, and individually they invested in a business idea I had along with myself contributing my involvement in equity and all that kind of stuff, and we

grew that company from zero to one hundred and well, I had one hundred and sixty million dollars a book value, but I sold it into a joint venture for one hundred and twenty one million dollars Christmas Eve twenty twenty one, and I went through Taco Bell when the deal was closing, as I told Charlemagne, and I did an interview with him. You should go watch back and watch that interview. By the way, got a lot of attention and we cover a lot of ground in an hour and five minutes.

So thank you Charlemagne for doing that. I heeart and this deal. When the deal closed, I got the wire transfer went through. I was getting the number one with a hard shale Taco Supreme at Taco Bell. But this is an example of private equity. And I had to pay these guys back their money plus or return and I'm thankful for that. And that was and there was banks involved had to pay them back plus their interest. And then that's it's cool. That works. Everybody worked out.

We created economic opportunity, a new business model. In fact, if you look this upsorder on the Dictionary of the Web, if you ask artificial intelligence to give you a conclusion of how I did that deal, it says that John Hoaps Brien's Promise Homes company exemplifies a successful venture that

combines social impact with sound business practices. The company's growth and success are attributed to strategic financing, private equity, effective partnerships, and a clear mission to address the affordable housing crisis well empowering communities. And I would also add to that make sure I was driving returns. And it says here as I went about this, that I secured initial capital to fund its acquisition, my acquisition strategy I'm talking about

myself and reading about it. This funding came from a mix of private equity, impact investors, and strategic partnerships. The initial capital enabled the company to make large scale purchases of single family homes across various markets, completely correct. And then I added financial literacy, financial cost coaching, make sure that are the vendors plumbers, heating, electrical lighting, roofing, all these vendors who are significantly people of color and women

who are left out of the economic strategy. That's not leaving out mainstream vendors. We still do business with them too, but to make sure there was a prioritization of access to people who don't normally get contracts and opportunities. And every year we've done about three to four million dollars of contracting last time I check with minority vendors. That's significant. I mean, we got to point where almost fifty five percent of our examples were minority in women, and I

think to this day it's still about half. So that's a good thing though. So those are two examples of venture capital, and I'm going to give you some more examples of good examples of venture capital. But now let me go back to explaining venture capital itself. So those are two examples of growth capital within venture capital investment strategy. So I talked about buyouts venture capital, which is a subset of private equity. I talked about growth capital. I

just gave you two examples that are African American. Then there's value creation pe firms private equity aim to create value by improving a company's performance, often through operational improvements. There you go strategic redirection. Okay, so I'm just covering this again. So you see this ties into what Reggie Lewis did, ties into what I what I did in that firm. I've got many other ventures, but I gave you that one example, and I'm still a lot to

talk about it. God blessed Reginald Lewis. He passed. He died of a brain aneurism, so he can't explain this to you, but luckily I can. I met his daughter, Christine. She's fantastic, so watch out for her. Christein Lewis. Okay, number four exit strategies. The ultimate goal is to is to sell the investment at a profit. There's nothing wrong with a profit, all right. It's good capitalism and bad capitalism.

Good capitalism is where I benefit, you benefit more. Bad capitalism is where I benefit and you pay a price for it right at scale. So what we want is good capitalism and good capitalists. So even if you wanted to money like a socialist, you've got to first collect it like a capitalist. Hello. So you need to make a profit. You need to be able to do well and do good at the same time. That's what this

podcast series is going to do. Over time. I want you to give this entire series to someone you love. People starting a family, people going to college, people going one of the second lease on life, people trying to figure out how to make them nine to five payoff in a five to nine A side hustle. How do you build wealth? You make money during the day, it's called making a living. You build wealth in your sleep.

This podcast is going to help you do both with dignity and so look at it as a well and educational platform that also happens to be a little entertaining and hopefully pretty cool. So Exit Strategy making a profit by selling this thing initial public offerings, taking the company public and selling shares on the stock exchange. So now you have private equity. Now, let me give you another example for those who are still cynics who are saying, ah, John,

you know you're just dealing with rich people. And Reginald Lewis was rich and he was dealing with rich people. Let me give you a real practical like HOMEBOYE Shopping Network example of private equity. Let me hold on, I'm getting too excited. IPOs Initial public offerings going public trade sales selling a company to another company in the same industry. Secondary sales selling the investment to another private equity firm or financial investor. Risk and rewards. PE investments can be

highly lucrative, but also come with significant risks. They typically require a longer investment horizon, and can be liquid means you can't access your cash compared to public market investments. Going public are dealing with a public entity. I can buy and sell a share of Coca Cola or whatever tomorrow, but you can't just buy and sell a share a private equity interest. Now, what's the Homeboy Shopping Network version

a private equity? Ballplayers, professional athletes, entertainers who take private equity their own money from this contract at the NBA. I go back and listen to my podcast I did just recently on professional players going bust at scale. Few of them succeeding, but most of them going bust. Seventy percent of professional athletes on average go bankrupt or have financial significant financial travails five years after retirement because they

confused making money with building wealth. They think that making money, like my dad thought, was actually that cash flow is profit. It's not. And they thought that money would last forever. It won't. And they were not financially literate, and that ultimately financial literacy is a civil rights issue of this generation, which is why you've got to buy and read my

book Financial Literacy for All, my sixth book. Arguably I'm being told these days by those who've read it in Bassiat, Andrew Young, Bishop, TD Jakes, Dugcant, Millan, the A. Walmart who did the four and others, that it's really critical

for today's society. So ball players are private equity. They're taking this contract one hundred millions, twenty million, fifty million dollars contract right, and they're taking some of that money and giving it to Pooky them a boo boo jojo I'm making I'm joking, but you know, we all have a jojo in our family, and they're letting get letting them funder to start a restaurant or open a club. I was about to say something else. You could probably imagine what I'm about to say, or to start a

barbershop or whatever. Write some air idea they had. And if and if your cousin and your friend comes to you and you say, and they want thirty thousand dollars of your money, they're asking you for private equity. Private equity. Private is yours equity, your money to start a business. And if you say, where's a business plan and they say, what's that? Run run for the heels, like that's that thing is not going to work out well most time, you know, nine times out of ten it's going to

be a And then they're gonna blame you. They're gonna blame you for asking for your money back. Yes, you know we hang around nine broke be the tenth. But I just I wanted to connect those dots for you that the money that professional athletes and entertainers use to fund neighborhood projects, community projects for that are for profit, but people they love, whether it's ten thousand and thirty thousand,

three hundred thousand and three million, or forty million. All these examples I put in my last podcast on why athletes go broke? Those are examples of private equity at the community level. So we need to get private equity from the streets to the suites. We need to make sure we're bank qualified. I did a piece with my brother Ti this on his podcast series I think called Expeditiously. You should go check it out, and it's got a lot of views online where I discussed non recourse and

recourse debt. Recourse debt, this this is different now debt. By the way, debt and equity are both forms of capital. I'm trying to cover a lot of ground here. Please excuse me. Debt and equity so alone and money you own are both versions of capital. Private equity, whether it's in the streets or the suites, are still both versions

of private equity. It's private equity. It's money that I have, or money that an institution, a pension fund or whatever might have, or money that a high networth individual a billionaire might have. Do they want to put to work at higher than average returns. There's nothing wrong with that. As long as you do it where you're doing well and doing good at the same time, you're gonna have winners and losers. Here's some examples, some good examples of

private equity. I really need some feedback on this segment because I'm covering a lot of ground and a deep topic and a short period of times. I need to know from you whether this worked and whether the light

is going on with you right. But so, if you can be a private equity investor, you can have a private equity firm, somebody watching this or listening to this with you know, making thousand dollars investments, making a five hundred dollars investment, making a fifty thousand dollars one hundred

thousand dollars investment private equity. So somebody gets a bank loan that's debt, and then they come to you because they don't have the equity, and then they might get by the way, crowdfunding is another form of securing maybe private equity. So I just want to get your mind open. That is not just these quote rich people doing private equity. Ball players do private equity. Professional athletes, somebody from your neighborhood can do. You can do private equity. I've done

private equity. They just gave you an example, just one example. Okay, here's some good examples of the corporate level of private equity. You always hear about the bad ones, and these created jobs, just to be clear, the stained jobs and create jobs for the cynate who say, yeah, John, but Ban Capital and Dunkin Brands. In two thousand and six, Band Capital, along with Carlisle Group and Thomas h. Lee Partners, acquired Dunkin Brands, which includes Dunkin Donuts and Basket Robins, so

two point four billion dollars. The private equity firms implemented various operational improvements and expanded the brand globally. In two thousand and one, Dunkin Brands went public. In twenty twelve, the firm had sold most of their shares, realizing significant returns for their investment. And the companies today are prospering and have jobs and all that kind of stuff. Blackstone in Hilton Worldwide. Blackstone is you know a firm that you may not have heard of, but you've heard of Hilton.

In two thousand and seven, Blackstone acquired Hilton Worldwide for twenty six billion. Despite the economic downturn in the midst when they did this deal, because you know, the economic crisis happened two thousand and eight two thousand and nine at Blackstone improved Hilton's operations and expanded its hotel portfolio. Hilton went public in twenty thirteen. By twenty eighteen, blacks On the exit the investment, realizing a profit of fourteen billion dollars.

Lots of money, yes, lots of risk. They could have lost it all and they could have lost twenty six billion. They made fourteen billion. Kudos to them, and Hilton is thriving today. JPG Capital and J Crew. In nineteen ninety seven, JPG Capital acquired an eighty eight percent stake in J Crew for five hundred million dollars. The PE firm revamped the company's image and product line, leading to a significant turnaround. J Crew went public in two thousand and six, and then,

of course, the Pe firm exited the investment. Bosh Alms that was acquired by Warburg Pinkas for four point five billion in two thousand and seven and by twenty thirteen was sold to Valiant Pharmaceuticals now Bosh Health for eight point seven billion dollars. So you sing the bumps right. In these examples, they also created what jobs, so it wasn't just the rich people who did well. Bank Capital and Dunkin Brands job creation, job sustainability, and in job creation.

Bank Capital's investment in Dunkin Brands helped expand the company significantly, both domestically and internationally. This expansion led to the creation of numerous jobs and Dunkin Donuts and Basket and robbing stores, as well as their corporate offices. The company's growth under private equity ownership resulted it increased employment opportunities across this franchise network Hilton Hotels. I shouldn't have to say much about this. You see it for yourself. But they're hiring,

they're expanding, the growing, So there you go. There Jay Crew. The investment period saw j Crew expand its product lines and store locations, contributing their job creation in retail and corporate positions. Now you can't guarantee it's going to last forever, but that was This is a result of these particular deals, and the companies are out of it. They let you know, these companies are on their own Washton law where they're

all with new owners. This also is example where growth facilitated job pretension and creation and manufacturing research and development and sales positions. The expansion and operational improvements under the PE firm help maintain and grow the workforce. And now are there bad examples of private equity firms buying somebody and just you have disaster? App Absolutely and it's not just Red Lobster Toys r Us. It breaks my hearts.

I love Toys r Us. We all have a Toys r Us story growing up if you're from my generation. In two thousand and five, consortium of PE firms including Well Hello Bang Capital, they had a good one and here's a bad one. The company struggled with a heavy debt load from the buyout. Despite efforts to turn the company around, Toys Rs file bankruptcy in twenty seventeen, so twelve years later and liquidated US operations in twenty eight

Team this makes me sad. The resort of the enclosure of hundreds of stores and the loss of thousands of jobs not good. I think that was a Toys Rus was a decent, if not a really good company. Serious holdings. We all know sears my god. Let mean, who has a serious layaway story right Seriars might have gone out of business anyway. It was just not well run and did not have a good business plan. But Sears was the Amazon of that time. It was a Walmart of

that time. It was you know, they should have you know, how do you destroy this great brand? The fact they did online before they were online, they had a Sears catalog and they had mail order. You'd think that they'd be the first to market for online. But they just didn't pay attention. Just like today, you want to be Netflix, you don't want to be Blockbuster. Blockbuster was a company not subject to PA. This wasn't private equity failure. This

was just bad management. They could have bought Netflix for a fraction of what it's worth, like like pennies on the dollar. Netflix came to them to be so they said, now I'm not interested and we're Blockbuster. Arrogance Ambassador Andrew Young says that men and women failed for three reasons arrogance, pride, and greed. And this is an example of arrogance and pride. I don't know well art at least arrogance, and because they should have sold. They should have bought Netflix and

then converted their business plan. But they didn't, and Blockbuster went out of business without pees help. Private equities help just because of bad decision making. Okay, so sears Hedge fund manager Edward Lambert Els Investments acquired Seis and merged it with k martin another brand that was iconic that went poof in two thousand and five. The outcome the strategy focused heavily on cost cutting and real estate sales. Hello, here we go again, rather than investing in store upgrades.

Are adapting to the changing retail environment? What did I just say? Series file bankruptcy in twenty eighteen, leading massive store closures and significant Hello job losses. Payless Shoes twenty twelve, here's golding Get Capital again acquired Payless Shoes with a friend of mine, got Ristis sol Blum Capital did this deal also as part of a larger deal involving collective brands. Payless file for bankruptcy in twenty seventeen and again in

twenty nineteen. The company closed thousands of stores, resulting in significant job losses. The heavy debt load from the buyout was cited as a major factor in the company's financial troubles. Once again a short term mindset in my opinion, and not focusing on but focusing too much on the financing structure and not on operational excellence and how do I create a great brand, the great company and get my

money down the road when it's successful. Shopco is another example where they struggled under the weight of debt in operational issues. The company file for bankruptcy in twenty nineteen and liquidated stores job losses. There's a bunch of examples deb shops. But there's you know, there's when you look at this on balance, you know, do you want different forms of capital that you can pull from or do you just want to say, you know, no, I'm good,

we want private equity to go away. Genie have to say, okay, well, if private equity wasn't around, then what you know, where would you get where would business people get get their money? Uh? Venture capital, which I told you is a former private equity. That's one example. Angel Investors, which is an individual version version of a venture capital firm, which is hello, private equity bank loans. Okay, this is not private equity. These

are fdi C insured banks. But this is debt. Now you got to make monthly payments and you better make sure you know what you're doing because you want you want to have years to fail. You'll have months to fail, and banks will win. They will get their money back, they'll own everything. So you don't have to worry about blaming a private firm that you can't find. You can blame a bank you can find, but they're going to but it don't matter who you blame, either you pay

them or they going to own the asset. So bank loans are another example. But you got to qualify for a bank loan, right and if you're small enough, you can maybe get an SBA. We partner with the SBA operation hope get a small business and a lot of big companies, by the way, came through this Small Business Administration, so this is a good thing. So this is an

option small companies becoming big companies through the SBA. So get a guarantee maybe from the bank through the SBA, which allows you to have more flexible qualification criteria and accessing a bank. Crowdfunding Okay, this is again private equity, but it's suitable for startups and small businesses. Capital raises from a large number of individuals, typically through online platforms. Any of this stuff, you guys want me to go

deeper in. Please put comments where you see this podcast or video post it and I will I read them. My team reads them. Black Effect teams need read them, and we do respond. Government grants and subsidies often aims at specific sectors like technology, healthcare, or grain energy. The great structure is non repayable funds provided by government agencies. It helps foster innovation and support strategic industries. Research grants from the National Institute of Health as an example of

a government grant. But it's you know, not everybody can get these grants, right. You can't just you can't be uncredible. You have to be incredible, actually have to have credibility in order to get this kind of money. Corporate venture capital This is large companies that invest in startups relevant to their industry. But you've got to do a lot of research and know the corporation and be able to access their venture capital division within that company and know

the criteria. And you need relationship capital. You can't just be hanging around, like I said, hang around nine bro people, you would be the tenth talking down capitalism. If you want to know capitalists, you've got to get to know not just poor people in your family but rich people that are should be part of your extended family because most of life is relationship capital or do something on

that relationship capital. Later retained earnings that doesn't relate relate to most people, but that is basically a company and reinvesting in itself. Initial public offerings. We talked about that going public. So there's options to private equity, and if you don't like private equity, go do those things. Private equity should do more. By the way, they should be investing in back in the community. They should have a philanthropic focus in my opinion, they should have a social

impact investment focus. They should have a fund or some

mechanism for small businesses to access. This is something else I'm gonna I'm doing some more thinking on, but I think private equity firms should do more given how they are benefiting from the legal structure and in sitting in the wealthiest country in the world, the biggest economy in the world, and accessing in many cases courss of funds like pension funds and and other sources of funds that derive their money from everyday people, and so that money

should recycle in my opinion, once they've made their return, they if they're doing well, they should also try to do good. Okay. So I've talked about a little bit about junk bonds, how Regin Lewis got his deal done. I've talked a little bit about private equity, how I got a deal done. I've talked about several bad examples of private equity and a company that I think is the post child right now for not doing it right. And I won't repeat their name again. I'm not beating

up on them, but just it's obvious, okay. And I've talked about good examples and bad examples and job creation, and I think that you should educate yourself on how this system works and how you can be a part of it and not just criticize it. Because this is the world. We live in, a free enterprise democracy, and I want you to be a player in free enterprise. That's why I'm doing this series to help you come up from nothing. That's my last book before this one,

Up from nothing. Okay. So we just unpacked private equity and a little bit of venture capital and a little bit of some other stuff and and uh, yeah, you're smarter, and now you can go do some deals. Even if the Homeboys shopping network, version of venture of a venture capital or crowdfunding or private equity, which is our money

in our pockets. We can all make a profit. Can You can invest in your local gas station, or buy a local buy two or three local barbershops or whatever with private equity, your money, a few other friends money in a limited liability corporation partnership. I talked about that in one of my other earlier podcasts. And if you're putting in a dollar, you want to make sure again risk reward. If you're putting in a dollar, I think

you should want to have two dollars in return. You know you're putting in a dollar in three to five years later, you want to make sure you're making two dollars in that one dollar. And the company that you're investing is should be making five dollars right Otherwise why are they doing it right? You're not just doing it due by somebody's hair or sell products. You're doing it to make a profit. I'm gonna I'm gonna cover think businesses in our neighborhood too, like weave stories and hair

weave stories and barbershops. I'm gonna unpack all that so you understand how people are making money, some doing it honorably, some doing it not so honorably, and you make your own decision about how you want to play and how you want to do your life. Fan question from CJ, who I know and respect Meyer new father by the way, but he has a either really smart guy and he asks a really smart question. What Nas and jay Z you're doing? He says, that's venture capital. It's been reported

as venture capital. How's that different from Is that different from private equity? The answer is, drum roll please, Let's see if you get it after you've after you've actually listened and learned from this podcast, drum roll please. It is the same as private equity. It is a subset

of private equity. Venture capital is a venture capital is short term early in seating small ventures or ventures with smaller amounts of money to get them up into growth and into a larger capital stack so they can ultimately, you know, go public or attract traditional private equity. Private equity tends to take a share in the whole business or own the whole business, whereas the venture capitalist is a participant in the business. They're a shareholder in the business.

They're not running the business. A venture capitalist is not trying to run the business, even though they have a team helping the nurse of that business along. Typically so jay Z and nas as reported of what they're doing during venture capital is private equities, private equity, their private equity, or them and their partners invested in somebody else's venture early on, early stage. They are a participant a shareholder

in that, but they don't control it. Whereas private equity traditional private equity, it's more a latter stage and typically control the venture as they're trying to give it legs, so to speak, to reimagine the whole business. So it's more of a mature business. Private equity and venture capital is more of a startup business. Okay, hopefully this was helpful. Good question. CJ. Love and light John O'Brien and get the book Financial Literacy for All, take your friends and follow.

The podcast Money and Wealth with John O'Brien is a production of the Black Effect Podcast Network. For more podcasts from the Black Effect Podcast Network, visit the iHeartRadio app, Apple Podcasts, or wherever you listen to your favorite shows.