Street Speculator

Most of our discussion is about equity market investing. Investing in these markets is valuable and often very lucrative for many. There are however many squeamish and fickle minded individuals who would not put a dime of their money into speculative investment unless they can see INSTANT DOLLAR SIGNS $$.

To those of you with this mentality, the SPECULATORS offer an alternate investment vehicle for you today. Become a Limited Partner (LP) in some start-up or existing business venture.

A Limited Partner (LP) is an investor in a business venture (Usually in a Limited Partnership, but not always) who has no voice in the management of the company and having limited personal liability for the organizations debts while sharing in the profits.

Limited Partners are very popular in today’s business environment. Participating as a Limited Partner is another way to generate a monthly revenue source for the investor.

Where do you begin?

First, you do need cash up front (Small investors sources: 401K, savings, home equity, etc….). Find some business which you are familiar with including the particular business environment it is included in. We are not talking about searching for THE NEXT BIG THING. It can be something simple, for starters, such as a local franchise, a child-care operation, entertainment venture, professional services company, etc… We suggest you look at an operation where you have an existing relationship with the current owner and/or investors.

Next, with the help of a lawyer and an accountant, research the financials of the company (Last 4-5 years of tax returns, salaries of present management, liabilities, expenses, future marketing plans). This is where a company’s net worth is determined.

If you are certain of this company as an investment, make a proposal to the owner(s). Your interest (as a Limited Partner) is determined by the dollar amount invested against the value of the company.

Ex. Company A is worth $100,000. Limited Partner A invests a total of $20,000. This makes Limited Partner A’s interest in Company A at 20%. The Limited Partner would be entitled to 20% of the profits and 20% of any liabilities. If the monthly profit (money left after expenses are paid) is $15,000, the Limited Partner would receive $3,000.

Start small initially. My first LP investment was in a siblings child care business. I invested $5,000 and received a monthly payments of $200.

A Limited Partner (LP) investment is more stable than in an erratic stock market. Consider becoming a Limited Partner as an alternative investment, but continue trading in stocks as well. Below are some examples of Limited Partners who profited well off of their investments.

BET (Black Entertainment Television): Owned and founded by Bob Johnson.  John Malone (former Chairman of TCI Cable) also had a percentage ownership as one of BET’s initial investors. BET was sold to Viacom for $3billion, John Malone’s take was estimated to be around $650 million.

Facebook: Owned by Mark Zuckerberg. Company received a $240 million dollar investment from Microsoft, giving Microsoft a 1.6% stake in Facebook and valuing Facebook at $15 billion. Therefore, if/when Facebook is sold for any amount over $15 billion, Microsoft receives 1.6% of the sales price.

Before investing as a Limited Partner do your homework. We cannot stress this more. Make sure everyone understands that 2+2=4 and that the owners are not taking extraordinary salaries while leaving little for company growth and future investments.