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When buying a deal, every day that goes by, the potential for tunnel vision grows.
Obsessing over executing detailed Due Diligence early and efficiently is paramount to limiting this.
Obsessing over executing detailed Due Diligence early and efficiently is paramount to limiting this.
On one hand, you have an acquisition fee at closing + all the upside you predict getting from operating the deal post-close.
On the other hand, you have pursuit costs building up and potential non-refundable earnest money.
On the other hand, you have pursuit costs building up and potential non-refundable earnest money.
The "spread" widens each day.
I.e. A $10M acquisition with a 2% acquisition fee - $200,000. You're hard $100k in earnest and have $50-100k in pursuit costs (legal, inspections, finance, title, etc.).
GP is now staring at losing $400k if the deal falls apart.
I.e. A $10M acquisition with a 2% acquisition fee - $200,000. You're hard $100k in earnest and have $50-100k in pursuit costs (legal, inspections, finance, title, etc.).
GP is now staring at losing $400k if the deal falls apart.
($200k opportunity cost of acq fee + earnest funds + pursuit costs).
That creates tunnel vision.
That is why we obsess over doing as much DD as possible before dollars & FOMO start getting real.
That creates tunnel vision.
That is why we obsess over doing as much DD as possible before dollars & FOMO start getting real.
It's our fiduciary as GP's to make the least biased decision possible on behalf of the LP's who are trusting us with their hard-earned dollars.
A great hedge against all of this is being hyper-focused on an asset class so that land mines become obvious, early.
The end.
A great hedge against all of this is being hyper-focused on an asset class so that land mines become obvious, early.
The end.
