Strategic Choke Points, Deal Flow and Deal Structure
Strategic Choke Points: Billionaire Deal Flow & Capital Raising | Richard C. Wilson
Founders, fund managers and investors who want a clearer niche, better first look at deals and more flexible deal structures.
5 key takeaways
- Distribution protects a good position. Richard says a strong niche without distribution can invite many others into the same sandbox. Richard asks who gets rich when you get rich, and who you could partner with to change everything.
- Find the friction point and own it. Look at what slows you and your competitors down, such as deal flow, research or energy. Then consider acquiring a business, building a tool or taking a name that puts you in the position of the TSA who also owns the airport gift shop.
- Run a niche deal flow process. Pick a narrow niche, build a list of 100 leads with outsourced help, and send each CEO a sentence and a half email. Richard says the principal should handle the replies personally. In one round, 370 targets led to 70 calls and eight investable valuations.
- Keep the position firm and the structure flexible. Richard talks about ideas such as offering direct investments or co-investment alongside a fund. He also discusses rewarding the biggest investors or someone taking a whole deal. Many sponsors talk to a securities attorney about how to structure these.
- Structure can rescue a deal. Richard describes creative ideas such as revenue based payments and equity upside at exit. He also describes an anchor investor who goes first, which can help other investors move faster. Many sponsors talk to a securities attorney before using any of these.
Summary
A strategic choke point is an asset that, once acquired, makes it hard for anyone else to get the same position. Richard C. Wilson took the idea from Mastering the Rockefeller Habits. He says Family Office Club built its own through the familyoffices.com domain, a book deal, and a LinkedIn group that reached about a million members. He suggests finding the friction point in your industry and owning it, often with two to four partners.
The talk also covers a deal flow process that costs about $7,000 a year. It uses a niche database of 100 leads, a short email to each CEO, and personal follow-up calls. Richard then turns to deal structure. He covers ideas such as different investor tiers, co-investment, revenue based payments and anchor investors, which many sponsors review with a securities attorney. He says a creative structure can sometimes save a deal that first looks too expensive, and that structure can matter as much as the stated return.
Facts from this talk
- Richard's team targeted 370 acquisition targets, spoke with 70 of them, and found eight with investable valuations.
- The deal flow process described costs about $7,000 a year, with outsourced help hired at about $62 an hour.
- One investor took six years to get to know before closing a first deal, then closed 19 deals with Richard's team.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: Strategic Choke Points: Billionaire Deal Flow & Capital Raising | Richard C. Wilson. Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around deal structure options, investor tier terms and offering documents. Do not use AI to write your own legal agreements.
In their words
"The most valuable ideas are the ones none of you are doing. No one wants to change their brand name. No one wants to do this process."
"Acquire a small business, start a business or develop a tool that would flip that on its head, and now you are the TSA and you also own the gift shop at the airport."
"So if you're rigid, you might never get the rocket off the ground. But if you can do a creative deal structure, you could."
- 1Pick one narrow niche
- 2Build a list of 100 leads
- 3Outsource the database and spot check
- 4Email each CEO a short note
- 5Take the replies and calls yourself
Related questions
- What is a most favored nation clause for investors?A most favored nation clause, or MFN, says that if the sponsor gives another investor better terms, you can ask for those terms too.
- How does a distribution waterfall work?A distribution waterfall is the order in which a deal pays out cash.
- How do I structure an earnout in an acquisition?Tie part of the purchase price to how the business performs after closing.
Questions about this video
What is a strategic choke point?
It is an asset that, once you acquire it, often makes it hard for anyone else to get the same position. Richard says some cost nothing, such as being first, a name, a domain or a book.
How much does the private equity style deal flow process cost?
Richard says it costs about $7,000 a year plus some of your time. It relies on outsourced help to build a database of target companies in one niche.
How did Richard end up owning billionaires.com?
He followed up with the owners every 3 months for 12 years. They finally agreed after he proposed a different structure, and the deal closed in 5 weeks.
Put this into practice with the data room checklist. See all deal structuring resources.
