Is Angel Investing Worth It For Passive Investors? with Jeff Barnes

We always focus on the education first because whether it's real estate, whether it's private equity, whether it's angel investing, if you don't know what you're getting into, then you're going in, as we call it, in the friends, family and fools round, you're going in as a fool.

Welcome to Truly Passive Income. I'm Neal Henderson.

And I'm Clint Harris.

Our guest today is Jeff Barnes. Jeff is a former US Navy nuclear power plant operator on a submarine.

He's a Navy diver, risk management director, technology enthusiast, business growth expert, advisor, and management consultant.

Jeff sits on the boards of startup companies, runs a venture fund, supports nonprofits, supporting military vets, and spends most of his time helping CEOs and founders of growing companies automate, systematize and scale to eight and nine figure valuations. Jeff Barnes, welcome to Truly Passive Income.

Thanks so much for having me here, guys. I really appreciate it.

Well, first question I have to ask you, of course, is how long did you spend underwater?

The longest stint that I did without coming up and seeing the sunshine was 45 days.

All right, so attack boat?

Yep, we were a fast tack submarine. USS Jefferson City was a Los Angeles class nuclear fast attack submarine.

Yeah.

In a previous life, Jeff, I was a signature away from joining the submarine corps, which would have been a very different life, especially for a 6 foot 4 skinny guy like me.

So, yeah, you know, we had really tall guys on there and learned how to duck pretty well. I'm pretty sure their VA disability is pretty high, but that's okay. You know, they learned how to duck.

Lots of traumatic brain injury.

Yeah, yeah. A few dents in the skull, but nothing a little bit of ibuprofen can't fix.

And you were a Navy diver as well?

I was, yep. My original ambition was to be a Navy seal. And due to an injury I sustained in high school, I couldn't pass the physical test.

But eventually it got a chance to go be a diver because you need safety swimmers and security swimmers on the submarine. And so I got a chance to do that. And yeah, that was hardest and most enjoyable five weeks of my life was going through that school.

Jeff, there's looks to me I'm looking at everything you've accomplished in your bio. It's pretty impressive.

And in terms of the system of organization and discipline and systems that a lot of times you're putting in place for businesses, do you think that's something that you've always had or do you think the military instilled that in you and that something that you kind of have taken forward with you and applied to a lot of other areas of your life. Or is that one of the reasons you excelled so well in the military is because you already had that, like is it a nature versus nurture situation?

What do you think about that?

Yeah, I love that question. So I can't say that I was very organized before joining the military. I don't know if my brain was organized, but I know what I was good at.

Science and I was good at math. Right, which you don't have a lot of. You know, things you can judge how good you are in at things when you're that young.

But I worked on my dad, my grandpa fixed cars all the time. I worked in an auto shop for a long time, so I knew how to fix things.

And what I did know is that in order to have something done to completion and fixed properly at the very end, there's a certain step and procedure you need to go through.

Right.

And so you learn that the military, however, refined that dramatically. I actually wrote a book about how we systemize, structure and optimize systems using that military mindset.

And what I found was that if you wanted something done and in the military, especially on a submarine, especially when you're on mission, especially when you're know there's lives at stake, you don't have time to dilly dally and try and figure stuff out and hope that you know what you're doing. Like no, it needs to get done. And remember, we're like 18 to 24 year old, wet behind the ears, never went to college, most of us kind of kids really.

And somehow these people need to run a multi billion dollar piece of equipment without dying. So how do you do that?

Well, you have to have really rigid training first and foremost, but then you have to be able to follow those systems and those structures and those procedures. And if they don't work well, everybody's at risk.

Right.

And so we didn't like that.

So what I got really good at was making sure that things got done right the first time quickly and efficiently without wasting a whole lot of time and energy and resources. And this might go back to some of the incentives I got early on, which is if you guys get all the work done, you get to go home, right?

And man, that will motivate anybody who's in the military faster than anything I could possibly match.

Money's not going to motivate them that much because we always find a way to spend it anyway, you know, but you know, in time off there's no such thing.

Right.

They're not going to give you just days off. Yeah. Don't worry about coming in today because you're always on call. But if you can leave early, man, that was a really good incentive.

So I got really good at doing that. And then I became the quality assurance inspector and a quality assurance assistant quality insurance officer on our boat.

And I was responsible for QA and making sure a lot of things were done properly. I could tell you guys a really funny story that might relate to why I think the way I do. If we have time for that.

Yeah, go for it, please.

So one of the things that every boat, every ship in the military navy, and, you know, every piece of equipment undergoes is routine maintenance. And after a certain period of time, you need to do a complete overall and update on all of these things.

But part of what they did was they actually had to fix and regrind and resurface the escape hatches. And the way the escape hatches work is you have one on top and you have one on bottom. This part's open up to the ocean.

This part down here is open up to the crew. And inside the middle is what we call the escape trunk. That's in the event that people need to get off the boat.

You know, it pressurizes, fills up with water, pressurizes. And then you can open up the hatch and escape without, you know, bursting eardrums and blowing along and things like that.

Well, whenever they grind that down, you have to test that. Well, the only way you test something that's open to the ocean is to go really, really, really deep and make sure it doesn't leak.

Right.

And so what they did is they took me and they put me in that trunk in that little compartment in the middle, and they said, okay, you're in there. You're on headphones, just like I have today. You're communicating with us, and we're just gonna go down deeper 100ft at a time. 100ft. 100ft. 100ft.

And your job is to look around that seal and make sure it doesn't leak right. So I had to put my hands and my faith in the people that fixed this thing.

And I was the one that had to write the procedure to say how we're going to test it.

And so at the end of the day, it was up to me to make sure the guys did the work the right way and that I wrote the package the right way so that I didn't die if it went south. I was the only one at risk. We didn't do anything on the bottom one, so we would have been fine down there.

So that's another reason why maybe that mindset comes into following systems, following procedures, doing things the right way, because, man, it can save your life and in business at least, can save a lot of money and time.

Well, that what you just described there is what we used to call self critiquing, a self critiquing job, because if you did it wrong, you're going to know right away. But I love that.

Yep.

One of the things that I can always count on military people to do and to be good at is checklists. Tactics, techniques and procedures. We used to call them ttps. I don't know if the Navy called them the same thing.

But like you, a, you work off of a checklist, especially if something is mission critical, safety issue, life saving issue. You know, you have a checklist. And there's a great book on this called the Checklist Manifesto.

Clint has in the medical field probably experienced this even if he didn't know it, because a lot of health care, a lot of surgeries took that book and turned it into a way to prevent surgical mistakes and infections and things like that. And it did a huge job of it. I know the answer is yes, but how have you taken that mindset and brought it into the business world?

Yeah, it's been a long, hard struggle, I'll tell you that much.

Because my first job out of the Navy was I was a boiler inspector, of all things, when I worked for an insurance company that I eventually graduated all the way to the top and having my own division. But when I first got out of the military, I remember how everything was structured, systemized, optimized as much as I possibly could.

There was a checklist for the checklist.

Right.

And when I got out there and I started going and doing these inspections, I was appalled, absolutely appalled at how poorly most businesses were run. And I couldn't understand this. I mean, I'm watching people that are working on equipment that is, you know, deadly.

Right.

And we worked in oil and gas industry, pulp and paper plants, and people probably never heard of a black liquor recovery boiler and things like that.

But these are the types of things that can explode and cause not just damage to the person right there, but can take out entire towns and cities because of how much pressure and how big they are and things like that, ammonia plants and gas plants and things like that.

And you get there and you think that these places are going to be run in such a way that you can wipe your finger across the surface and everything's going to be clean. And the truth, it can be further from the truth, right?

You show up and you see these companies that are running by the skin of their teeth, and they're doing it just to save costs and cut corners, and they don't want to hire the people that are actually qualified to do the job. And so I learned really, really early that most businesses are not run with that military mindset, with that discipline, with that system mentality.

And in fact, a lot of the time they're just relying on somebody to kind of figure it out without any procedure. That scared me.

Right.

The reason I kind of went up in the ranks so quickly, my company, was I had that mentality and I was a squeaky wheel. I was also a nuke submariner. So I was kind of obstinate, I guess you could say stubborn, pigheaded, whatever you want to call me.

And I wasn't willing to just take no for an answer. I was not okay with things being run the way they were.

And so I kept pushing and kept pushing and eventually we got to a point where, okay, we're going to take a team, we're going to start building things the right way and finding the right technology to do the job better and structure these things a little bit better, systemize things a little bit easier, optimize whatever we're doing already. And one example of that is we took an ERP system, which Enterprise Resource Planning system. It was a PeopleSoft program now owned by Oracle.

And it's an off the box enterprise level solution. Then you have to customize all of it. And so you can customize it. But no one really did that for our company.

They tried, but the people that did it were the IT folks, not the boots on the ground in the field kind of people. At that point, I was in charge of about 25 people.

And I went in there being a techie guy, and I kind of fixed things and went and built up macros and kind of adjusted some of the parameters and got in a lot of trouble for doing that, of course, until they saw that we created a 30% efficiency gain by doing that. And that became the standard for the entire company. And in a $35 million per year division, that adds up to a lot of savings.

Right?

So it Was one of those things that I just had to keep banging my head against the wall, seeing how wrong people were doing it, and then trying to figure out, okay, what's the result we really want and how do we fix the process to get that faster?

That's kind of actually the opposite answer I thought you were going to give there, because one of the questions I had is I was looking at your former military career, looking at what you're doing now, and I can't wait to dive into that and what you're offering to businesses and helping them scale and the unbelievable value that you're bringing. I can see so much overlap between what you were doing then, what you're doing now.

I was going to ask you about the point when you made the jump from military into what you're doing now. And in my head, I was like, oh, man, this is the perfect guy for this job.

I'm sure some headhunter came and tracked you down and was like, you know what? I want fighter pilots and I want nuclear sub operators. Because I know these guys are cool under pressure. I know they can get things done.

They can make quick decisions. I'm sure somebody just came and scooped you up and put you right into that position and put you in a position to succeed.

And it sounds like it was the opposite. You kind of fought your way.

You use the mentality to identify obstacles, and you brought people along kicking and screaming, and, you know, the cream rises to the top in a situation like that. So that's kind of the opposite of what I thought you were going to say there.

I appreciate that, actually, because I ended up working in a company where our division was 75% former military.

Right.

So even still, I had to push for that. A lot of that is human mentality and psychology. Right. People do not want to change.

So somebody that's been there for 20 years and things have been working okay, like, why would they change? Like, no, it's working fine. And they forget that the world is changing around them. They have to adapt to that and push for that new norm.

But the other issue is that I really do appreciate you bringing that point up. Most people who've never been in the military have absolutely no clue what people in the military have gone through.

I don't even have a clue what a lot of people have gone through in the military. I have an idea, but I'm not clued into all the training they've gotten and things like that.

And so it's really hard for somebody who's never experienced that to Then hire somebody. At that time. I was 24 years old when I came into this company, and then I left the company when I was in my mid-30s.

But for them to then just trust that somebody else is going to be able to come in and take over that, that's something. Now probably be different if I was a full bird colonel or an admiral or something like that.

And I came in, they're like, okay, we're automatically going to give this person that trust because they spent 30 years doing it. I'd only spent about six years doing that. So I had to earn my way in and prove myself all over again, which is totally fine. I was okay with that.

It took a little bit longer than I wanted it to, but know it was the mentality that I had to deal with.

So talk to us, give us the high level overview of your journey from exiting the military and getting into corporate America and to where you are now.

Yeah, so the reason I took the job that I did, when I got out, I was planning on taking like three months off. I'd saved up my money.

I just gotten off of a deployment, you know, moved in with my girlfriend at the time in San Jose, California, had a great apartment, living the life, hanging out by a pool. And two weeks later I was completely bored out of my mind. So I ended up getting a job within two weeks of getting out of the military.

The reason I took the job I did is because, you know, work from home, I got to use my experience, my skill sets and all that. But I get bored. I get really, really bored very quickly.

In fact, I was probably putting in about 10 to 15 hours a week for the first three months, but I was getting paid for 40 hours. And my boss comes, she goes, I just don't think you're cut out for this job. I don't think you're taking it seriously. So what do you mean?

She goes, well, you're not studying very much, you're not doing this, you're not doing that. You know, I was like, okay, but you told me all I have to do is pass the test and I can't do anything else until I pass the test.

So let's do the test. And we can only do the test once a quarter.

So I passed the test first time out, and I think I kind of quieted a little bit of the noise at that point because I was able to do what I need to do to get my commissions. Well, I did that for a little while and again, I got bored. So I was like, okay, what's the next thing.

I got really lucky, and I got a supervisory role. I qualified for it.

I was the youngest supervisor in the company at the time, Pushed my way up through there, and eventually, again, that squeaky wheel, I got my own division. I was in charge of technology.

And so what I ended up having to do there was, again, knowing what the goal was of our company, which was not necessarily to make more money. We were doing $55 billion a year, the grand scheme of things, and our little company was doing a $1.1 billion a year.

So they weren't looking for me to go in there and try and find a way for us to make more money. They were looking for us to stay relevant. They were looking for us to provide more value to our clients and so on.

And so I ended up having to find problems inside of our ecosystem and problems that our clients had and solve them and solve them with an innovative mindset.

And so they started asking me to go and travel and meet all these different entrepreneurs and technology companies and go to CES and things like that, work with different incubators and innovation hubs. And because I was that driven person, I understood the business. I got my MBA at that point, and I was really excited about technology.

I kind of fit that little mold for them, and it got me into that world of startup investing. I lived in the Bay Area for a while, so I was kind of already surrounded by it, but I never really dive deep into it.

So I ended up learning as much as I possibly could.

And because I was driving, you know, 20, 30,000 miles a year, and then eventually I was on a plane 60 to 80,000 miles a year, I had a lot of time to study and learn. So, you know, audiobooks and reading were my universities, like University on Wheels and University in the Air.

So I was learning everything I could, and that just kept pushing me further and further and further.

Right.

Knowing what other people could do and could achieve. And I started learning about technology. And then I would start bringing these companies with these crazy ideas to our business.

And we were one of the very first companies that was called a strategic corporate venture arm, which meant we were looking for instead of us, you know, big companies are great at operating, just like the Navy. Great at operating.

Right?

Absolutely terrible at innovation.

Right?

Because you might have very, very innovative people in there, but how did those innovative ideas get to the people who are the decision makers and that we were trying to solve that problem, too?

And I found those innovative people, and I would bring them up to a team and we test out the ideas, whether it was an engineering side or a software side or it side or whatever. Eventually, if we liked it, we take it up to the C Suite.

If the C suite liked it, we'd bring in our corporate venture arm, we'd all kind of work together and we'd either invest in, partner with or acquire companies. And so that was my start into that world of angel investing and doing more of this. I was trying to do real estate investing at the time.

So I stuck with a corporate career until I found something that I could actually do on my own and make money with.

So how did you end up as the manager of the Angels and Heroes Growth Fund?

I actually started that one. My friend and partner, Jeffrey Hazlett of C Suite Network, he was the former CMO of Kodak, long, long time ago. He runs C Suite Network.

And because I had taken over Angel Investors Network, I acquired it from my partner, he's still my partner, Greg Ryder. And we were going and doing these events and so it was the same kind of idea, right?

I was working with all these entrepreneurs and technology companies and going to incubators and innovation hubs while I was in corporate. I said, let's take the same model, but instead of making things only available to corporations, let's make it available to angel investors.

High net worth individuals, people that never see this, because that's one of the things that throughout my career I've been really, really fortunate. I have been in well over a thousand different industries and seen different types of businesses and how they operate.

Everything from a rendering plant, which if people don't know what that is, maybe don't look, go look it up. But that was my first day on the job as a boiler inspector.

So rendering plants to controlled atmosphere facilities to the company that makes all the wings for Boeing airplanes and the hockey sticks for the NHL. You know, I've seen a million different things, it feels like. And so that gave me this idea like, hey, no one else gets to see that.

So let's bring these cool, innovative technology companies to the masses. Let's sort of democratize angel investing. And so we started doing that and traveling around and going and doing these events.

We partnered with C Suite Network because they had a big network of individuals that were in the C suite. Professionals that had money but not a lot of time, but they Wanted to be in a great network of other really successful people.

And we started doing that together, and we said, hey, let's go raise money for this, and let's do it. So instead of people having to do due diligence on their own and invest directly on their own, let's put this thing together as a fund.

We brought a whole bunch of investors and people up to the room after we'd been there for a few days, and we'd done our dog and pony show, our show and tell with all the companies. I think we had 25 companies there that time. There's over 2,500 people in the room. And then we were bringing people up to a dinner.

So we went to the Paris Las Vegas and the Eiffel Tower restaurant and rented out a private space, gave a pitch. So Jeff Hazlett and I did this pitch. We brought in $1.2 million in about 90 minutes. So that was kind of how that kicked it off.

We raised the money, and we went through this whole process to invest in companies.

That's amazing.

I want to ask you about the event that you're doing now that you were telling us a little bit about building wealth with businesses, and what's the overlap there?

How does that work from what you were doing then to what you're doing now with the Angel Investors Network and some of the value that you're providing people in terms of helping them create value or look for an exit strategy within their own business, and then some of the opportunity that opens up for you and your network?

Yeah, absolutely. So an entrepreneur's journey is never a straight line.

Right.

Like, if somebody knows they want to be a doctor, they have a pretty straight path to being a doctor. They want to be a pilot. It's a pretty straight path.

When you're an entrepreneur, you're like, sometimes I got to be opportunistic and do whatever I can. Right. So I started learning about marketing because back in, oh, six, I wanted to invest in real estate. I go to this conference.

I learned from this guy's, you know, Donnelly's house.

Until now, I've been die hard marketing guy. So everything I've done has always been with a little bit of that marketing aspect into it.

And of course human psychology plays into that and all that. Well, then we're doing investments and we're looking at deals and we're helping these companies scale.

And like I said earlier, most companies are run terribly. They don't have systems, processes, procedures.

And so what ended up happening was as we bring these companies into Angel Investors Network and we start consulting with them on how to raise capital, we'd start looking deeper into their companies like, yeah, but no one's going to invest in you. You don't have any system, you don't have anything structured properly, your corporation set up incorrectly.

Altogether your due diligence is going to fall flat on its face. You know, you need help with that. And then of course we help out with that, a little bit of that and then say, okay, well now we got some money in.

You know, if they did everything right, they bring a little bit of money and they're like, now we're going to go spend all of our money on just hiring a whole bunch of people like, well, timeout. Who are you going to hire? What roles are they going to do?

And they would come back to us like, hey, so that money didn't go as far as we wanted it to and we're kind of stuck again. But we know we have product market fake and you help us with like getting more sales.

And they kept coming back to us because they'd see what we would do at these events and they'd see our emails and they'd see the webinars.

And so they, we built up this rapport with a group of people over time and I got to a point where everybody around me was like, hey, Jeff, you need to come consult with these guys. I need to help you. They want help growing their company. They need help with systems, processes and procedures and all of that.

And so I know that's a long answer, but to get to the point of now we do these events where we have building wealth with business and it's a five day event. And that sounds crazy long for anybody who's actually a professional. There's no way I'm going to go to a five day event.

So what we did is we broke it up and we said we need to have overlap. Because at the end of the day, what I'm focused on is helping business owners achieve freedom and autonomy in their lives.

And of course financial freedom is a big part of that, right? It's not all of it, but it's a really, really big part.

And so since I work with a lot of business owners, the very first way that we help them achieve that freedom and autonomy is uncoupling them from the business, Right? Because if you can't do that, you can never scale your business to any achievable distance, right?

So we uncouple them, we show them how to implement those systems. We do a lot of marketing systems and automation. We show them how they can do that.

And then if they want to, they can hire our agency to help implement all that. That's the first two days. The third day is our traditional Angel Investors network, Sharks and Angels Live, which is like Shark Tank.

So if anybody's ever watched Shark Tank or Dragons Den or West Texas Investors Club or anything like that, that's what it is.

These companies come, we've coached them along the way on how to pitch, how to present, how to show up all of the things that they need to be successful. And then they get about 20 minutes on stage. The audience is there taking notes, learning about the stuff. That's the cool aspect, right?

Like we have companies that know how to use celestial bodies to do geolocation when there's no power. You know, things like that.

We have companies that have done innovative back surgery ideas so you don't have to cut somebody open from the back or the front anymore. You can do a little incision. It's things like that that people get to see. They're like, oh, man, I didn't even know this existed. So that's day three.

Day four is all about investing in acquiring and exiting businesses. So it's much more on the due diligence. It's much more on the do you find a great deal?

You know, this is really for the people that don't have a lot of time but have more money, right? And they want to get into this world.

And we always focus on the education first because whether it's real estate, whether it's private equity, whether it's angel investing, if you don't know what you're getting into, then you're going in, as we call it, in the friends, family and fools round, you're going in as a fool, right? You're the person just willing to invest the money because you believe the story.

And.

And I've been that guy and I've lost my butt doing that, unfortunately. So we focus on the education first. And then that's day four. And then the fifth day is our members only where we actually do deals together.

We'll syndicate a deal. We like a deal. Somebody can come in and talk about, hey, I've got this deal. Does anybody else want to get into it? Or I'm looking at this deal.

Can you guys help me out with this? Or I've got this business.

One of my favorite stories, a guy that was doing a business, had a business doing like, you know, five, six million dollars a year. And everybody would think, okay, you know, you're doing pretty well.

He has the nice house, has the car, has the, has the wife and kids and all that sort of stuff. And he hates his life.

Right.

And he was just trying to figure out how to grow his business. Well, at the end of about a 60 minute session, he decided it was time to sell his business.

He sold it for over $10 million and walked away and was really happy about that because now he doesn't have the stress of running a business anymore.

Right.

And so it's things like that that we do on the fifth day with our members.

So, Jeff, how does this look from our audience is primarily made up of passive investors, obviously. So how does this look from a passive investor side?

Clint and I both come from syndication world, where private placement memorandum, you've got an offer memorandum, you've got operating agreement and then you have projected returns, things like that. Obviously.

I imagine it's somewhat similar, but with obviously, you know, before we started this off, you talked about the whole angel investing world is kind of like you either get a return or you watch your money go bye bye. So how does it work from a passive investor standpoint? And what kinds of due diligence can they do in order to sort of reduce their risk?

Yeah, great question. That's why we start with the education, right? We want people to go in with eyes wide open. We want them to know there are risks.

Right.

Angel investing is one of the highest risk possible.

$125 million raised and they're out of business within 12 months. Another great example, Thrasio, for those of you guys haven't heard, this was a model that we actually still do.

But Thrasio Took it to the next level. They're acquiring Amazon businesses. They raised $3 billion with a B, and within a couple years they're filing bankruptcy.

Right.

Like, you look at that, you're like, how in the world do you have $3 billion in capital raised? And now you file bankruptcies? Like, that's pretty impressive, right? So even at the highest levels, people can make mistakes.

Right?

So that's the first thing we need to let everybody know, like, there's always going to be a risk no matter what. So I'm not a financial advisor and of course everybody has to talk to their advisor and make their own decisions.

But we recommend people just look at a very, very small percentage of their portfolio, go into angel investing and only go into, like Warren Buffett says, the things you know, like and understand.

Right.

If you try and invest in something you don't understand, then you are the fool.

Right.

You're hoping that the person who is pitching you is honest and trustworthy and they know what they're doing. If you don't know anything about the business, you're not going to know if they're telling you the truth or not.

You're not going to know if their projections are, you know, just pie in the sky dreams or anything. And then we talk about investing in the jockey and the horse, right?

Right.

In this case, the horse is the idea, the product, the service, the technology, whatever that might be. But the jockey is the team we always look at. If you do not have a strong team, not just a strong person.

Right.

But a strong team around you, it's not a great investment.

Right.

Because if somebody can't lead a team, they're not going to be able to scale a business, plain and simple. So we help them with a lot of that. But then where our company comes in is we have 108 point due diligence checklist. Happy to give that to you guys.

You guys can share it with your listeners if you want to. And it's all the different things that you have to look at if you're going to do due diligence. And that's a lot of time and energy.

And we're not talking about just angel investing.

Right.

We're talking about if you want to acquire a business as well. If you want to invest in a fund, then you have to, you know, do some due diligence on that too, and make sure that this is all legit.

And there's different places you look to make sure things are legitimate.

Right.

And I've been swindled before.

I've actually gone and we've seen businesses and offices that are so supposedly up and running and we've raised a few million dollars for companies and they vanish overnight. You're like, how does that even happen?

Right.

So everybody can get swindled, even after you looked into it, if luckily those people were also being chased by the FBI for doing a whole bunch of fraudulent things. So I didn't feel too terribly bad that we got swim because a whole bunch of other people were in that one too.

But yeah, they look at a lot of different aspects.

And so what we do to try and make it easier for our members is when a company comes to us and they want to raise capital, if we think that they have a snowball's chance in hell of succeeding, then we'll take a look at them and then they will hire us to do the due diligence and we will go through this process on our end and then we will take that company to our members. So it helps to de risk a little bit of that.

And as a result, hopefully, you know, I can't guarantee anything, but hopefully they will have a much better chance of success. And that's again with the angel investing round. If we're just acquiring businesses, we only acquire businesses that are profitable.

Right.

And we will syndicate deals like that. Same thing with real estate. We're not going to go do a deal with a real estate fund or a person who's never done real estate before.

Right.

They have to have a portfolio. They have to have a way to kind of hedge the bet for our.

Members on the businesses or acquisitions that you do take on. Obviously they have to be profitable. Are you looking for a value add or are you more interested in things that are stabilized?

Good team, you know, the operating operator, the deal is only as good as the person operating it. And you don't need that value add as long as you can buy it.

It goes into the portfolio, you don't have to spend too much time and you move on to the next thing. Or are you looking for value add in a way to recoup capital?

We are looking for value add always. But we are looking for ways to be able to pay distributions at least quarterly to our investors that come in right from day one.

And the reason that's important is because angel investing, you're looking at 3, 5, 10 year window to get a return if you're lucky.

Right.

When you're investing in real estate, there might be income that's coming every single month depending on what type of property you buy. But if you're buying something where it's a fix and flip, you have to wait until that's all done.

Right.

So what we try to do with these businesses is find a way to get into them where we can still reinvest some of the profits to help the company grow.

We can also pay our investors distribution every quarter, and they're happy with that because they get to see that, and then they can participate on the upside. And our goal, our thesis is we hold three to five years, and we have to be able to double the business within three to five years.

If we do not feel we can do that, we will not do it.

Right.

And so we have what we call the DVRs ACE model. So D is deal flow. You got to have good deal flow. If you don't have good deal flow, any deal looks good to you.

Right?

So we don't want that. We need a lot of opportunity. V, you need to be able to vet it. The due diligence we were just talking about are is the Rolodex.

And the Rolodex is really important because Jeff is good at certain businesses. Jeff is good at certain aspects of businesses. Jeff is not good at all aspects of all businesses.

Right.

And so if I don't think that there's somebody in my Rolodex that can help out.

Right.

Like, I've partnered with folks, like I said, the C suite network side of things. I partnered with media companies. I have partners who have been partners with Tommy Hilfiger and Damon John and these other people.

So we have access to a lot of people. And if we think that there's somebody in our network that can help out, then we'll look further into the deal. Then they're structuring the deal.

Right.

Not all deals are the same, and you have to know how to structure them the right way. And then the A side is acquire, scale and exit.

Right.

We want to be able to acquire it, we want to scale it up, we want to be able to exit it for that multiple.

Jeff, are you familiar with a man by the name of Nicholas Nassim Taleb?

The name sounds very familiar.

He wrote antifragile.

Yes.

Black Swan, that guy. So one of his investing philosophies is that he calls it the barbell approach to investing.

And he says, you know, you should be allocating the majority of your assets 85 to 90%. Now, this is for somebody who's extremely high net worth to safe havens such as treasury bills, bonds, things like that.

Like the really, really super safe, reliable.

But then he allocates that 15 to 10% to essentially angel investing, you know, where he makes a lot of really small bets on companies that have very high risk but also very, very high reward. How do you see the average investor who's doing angel investing allocating those funds as compared to their overall investing strategy?

Yeah, it's a great question.

And I would say that the vast majority of people that what we would call active angel investors, like professional angels, they're trying to do one to three, upwards of maybe 10 deals a year, right? Those are the professionals. And it's still only going to be roughly 10% of their portfolio.

However, when you get to somebody that is in that, you know, sent a millionaire range and beyond and the family office size, they always have a safe haven, right? And some of these will be in, like, private placement life insurance policies. A lot of them will be in real estate.

A lot of them will have their own existing businesses that they own the majority share. That's just a cash cow for them.

And so they will still take a small percentage, but that small percentage is in the tens, if not hundreds of millions for a lot of these companies. And as a result, they're able to then go ahead and put that into angel investing. High risk, high return, types of opportunities.

Like you were saying, the average person who's done angel investing will do three deals in their entire lifetime. And that's a challenge, right?

Because the statistics have shown that if you don't do 10 deals, your likelihood of succeeding in any one of them is almost nothing, right?

And so to put your money into just three deals and hope that those are going to work out for you, you're not really diversifying yourself, you're kind of dabbling, right? Because you haven't gotten sophisticated enough. Like, I've seen thousands of deals over the last 10 years this career, right?

And as a result, I know what I'm looking for.

And sometimes it's hard to put your finger on the pulse of what that thing is that they're missing or that makes you feel uneasy about, like it's a gut feeling sometimes. And then you realize that gut feeling is a result of having seen something in the past that reminds you of the same situation, right?

So what we generally let people know is that, you know, if you're going to do angel investing, first off, you have to be willing to risk out everything you put into angel investing, plain and simple, okay? And if you don't, and you go in with the expectation that this is going to be the money that's going to fund my retirement.

You're doing it for the wrong reasons.

Right.

Angel investing is all about being able to invest in something that could be really, you know, lucrative. Yes. But more importantly, something that you think is going to make a difference in the world, something that you think is solving a real problem.

Right.

And if you do believe in that, then you're much more willing to show up to the advisor call, show up to the shareholder calls. Listen to CEO. You got to get in with a CEO who's willing to do, or a founder who's willing to do regular updates with you.

Right.

Because if you don't know what's happening in that company and you're just sitting there waiting, three years goes by, you're like, oh, I forgot about that 50k. What did I do with that? What's going on with that? And you find out they went out of business 12 months ago.

Well, that's not really the deal you want to be in.

Right.

So what we really look for is those people who have the money, I wouldn't say the money to lose, but if they lost it, it's not going to hurt them financially or hurt their lifestyle.

But you are right, most of these people do not just leave their money in IRAs, 401ks in the mutual fund, in the market and just leave it up to chance.

Right.

They have much more stable, much more control over those things and also cash flow opportunities. And then they'll put about 10% into something like angel investing.

Speaking of people that are making decisions for themselves on investing, you literally wrote a book on self directed investing.

And we just talked about, you know, the average consumer that might do up to three deals in their lifetime versus the large scale angel investors that are investing potentially millions, if not tens or hundreds of millions of dollars. Like in terms of the book that you wrote, I'm sure there's a lot of continuity and a lot of the same underwriting and the same due diligence.

But who did you write that book for and what are some of the overlying principles that you think are really important for people to understand? And when you talk about self directing, I'm assuming that means self directed IRAs or just means doing it on yourself.

Talk to us a little bit about who you wrote that book for and what you think some of the core lessons that people need to walk away with that from are.

Yeah, absolutely. So answer that by giving a couple facts and things that we learned over years of doing this investing business.

I, I was A financial planner for a little stint, hated every second of it because I was just a glorified salesperson and I realized I was selling mutual funds. And then the financial crisis happens, right? The Great Recession and we watched trillions of dollars evaporate overnight.

Right.

I can't remember the exact number. I should probably go back and you know, relook. It was something like $113 trillion in wealth that was in different retirement plans around the world.

Right?

And huge percentages like trillions and trillions of dollars were that were lost.

Right.

I think there's something. I may be getting the numbers off here, but around 13 trillion, $14 trillion in assets that are in mutual funds. That's a lot of money, right?

And then you look at the fact that 96% of actively managed mutual funds fail to beat the market, right? That's kind of scary. That's where ETFs have come in and people have kind of reallocated.

But that means only 4% of these people that are selling you a mutual fund that talk about how their mutual funds better than ever, are going to win.

Right.

Otherwise the s and P500 is still a better bet for a lot of people. Well, then we're having this issue of we have this financial crisis. Real estate properties have gone down.

People are losing their houses, they're losing everything. People are, you know, getting kicked out of their jobs and their careers.

And so they have a few hundred thousand dollars, maybe a couple million bucks sitting in a 401k that is still losing money.

Right?

Because this was a long tail process. Like I think a lot of people have really short memories, like a goldfish memory.

Right?

Then it started coming back up. Yes, things did start coming back up, but most of those people missed out on that because they were afraid to put their money back in.

So now they just have money that's not even keeping up with inflation, losing purchasing power. And we had an opportunity to do real estate at that point. I was getting my mba.

I partnered up with another real estate developer from our program and we had these opportunities in front of us and we're like, hey, you know, why don't you take your money out of your 401k and put it in some place? Well, we can't do that, so yeah, you can.

And I just happened to know because I was learning this and so I said, all right, let's write a book about this.

Let's become the foremost authority and expert on self directed IRAs and 401ks because you can still self direct the 401k if they get the right parameters. And for self employed people, it's a much better vehicle for tax havens than IRAs. Right.

And so we wrote the book on that and the whole goal was, our goal at the time was teach you how to invest your money yourself, teach you how to take control of those assets that are losing you purchasing power right now.

Keep it in that same tax structure so you don't have to worry about paying up penalties or fees or taxes like that, and then invest in something you know, like and understand.

Right.

So real estate was a big one for us, private equity as well back then and some angel investing back then as well.

But the idea was a lot of these retirees, people, they left their money, whether it was a 403B, a 401K or an IRA and they had forgotten all about it because they'd set it up on autopilot to just send them a check every month and hopefully they're kind of keeping track of it. Most of them weren't. And when they did, they look at it and go, oh my gosh, I'm losing so much money, I'm not going to be able to stay retired.

Right.

And so we wanted to show them there were other ways than just leaving your money in a mutual fund and hoping for the best. I don't like the park and pray method.

Right.

We're all about like, get educated, find out what works for you and then go and learn as much as you can about that space and then find great people to surround yourself with so you can succeed in that area.

Well, Jeff, we could go on for probably another two hours. I mean, we only just barely touched the surface of this, but I really enjoyed our conversation.

I'm not regretting at all, but I want to leave people with maybe some actionable information that they can take away. Is, is this the kind of thing, the angel investor network that I as an accredited investor can just go do have some money.

I wanted to invest in a startup. Am I able to do that? And what's the process for doing that?

Yeah, absolutely. So we have found that the best way, we're working on some platform things right now to make it even easier.

Our goal is to democratize angel investing so that people can do it all over the place and you can go and invest in a crowdfunding campaign. Anybody can do that. Now I find that most crowdfunding is really hit or miss if anybody's done the due diligence properly and it's going to succeed.

Because know to succeed in crowdfunding you have to be great at marketing. You have to have a whole bunch of money to pump into it.

And then on top of that, we don't even know if they're actually solving the problem because they're still so early on. So for us, what we do is we focus on bringing people to an event. That's generally step one for a lot of folks, right?

We don't actually ask people to join our membership or subscribe to anything until they've come to our event.

Because if you haven't come to an event and actually seen some of these companies and seen the deals and see what we do, you don't even know if it's for you, right? And so if you just start getting a newsletter every month, it's like, oh, that's kind of cool. But now what do I do?

Right?

So we bring people to the event. That's kind of why we do these events.

And our goal is then, hey, if you want to join and you want us to help you with the due diligence and coaching, consult with you and bring you to more of these members only things and you can absolutely do that. When it comes to the deals every single person can invest in, every single credit investor can invest in a deal that we bring in.

Some of the deals we bring in are also allowing no non accredited investors, right? If they're on a reg A plus or reg cf.

But at least then you'll have a little bit more knowledge and information and you can do a direct investment into a company, which a lot of people do. And that's why the companies come and pitch on our stages.

They're looking for those individual investors or we syndicate it, or sometimes it'll be a funds of funds or we might have fund managers that come in and they want to take the whole round.

Right?

It's very seldom that happens, but it does happen. So the answer to your question is yes. Very easy to get involved.

We actually have a couple of quizzes on our site that say, okay, are you ready to be an angel investor? And it gives people a really good sense for is this for me or is it not? Same thing for entrepreneurs. Am I ready to go raise capital, yes or no?

And then from there it's like, hey now let's get you to one of our events and show you what we're doing. We do webinars to make it a little bit easier for those people who are really busy.

So we do webinars every week when we call it the Sharks and Angels Live as well. And it's a chance for companies to just come and pitch for free and then investors to kind of dip their toe in the water.

Well, Jeff Barnes, thank you so much for sharing with our audience today. I've thoroughly enjoyed this conversation. I appreciate you sharing all your knowledge with us.

If any of our listeners want to reach out to you and find out more about what you're about, what would be the best way for them to do that?

Yeah, best place to go is angel investors network.com and I'm most active on LinkedIn. You can find me on the other platforms as well, but generally just go to angelinvestorsnetwork.com that's where you can see all the stuff that we do.

All right, thanks, man. Thanks again.

Thank you, guys.

Thanks, Jeff. Appreciate it.

I really appreciate it. And great.

Well, thank you, sir. That was genuinely. This is sort of unique.

You know, we talk to syndicators, real estate syndicators all the time, and you're the first, probably the most unique syndicator we've talked to thus far, and I really enjoyed that. Thank you so much for listening and watching the Truly Passive Income podcast.

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