TGCI 227: Ex Google & FB on a mission to streamline commercial real estate finance

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Episode 227: Ex Google & FB on a mission to streamline commercial real estate finance

Copy of EP #18 - 2 Guests

Summary

In this episode, Pancham interviews Tim Milazzo, co-founder and CEO of StackSource. He identified the market opportunity for a tech-enabled commercial real estate financing platform.

Before StackSource, Tim worked for tech giants Facebook and Google to help expand online advertising.

He comes from a family with a history in real estate. Listen and let’s know more about Tim on our podcast!

PanchamHeadshotTGCI
Pancham Gupta
Screen Shot 2023-03-29 at 2.06.05 PM
Tim Milazzo

Tune in to this show and enjoy!

227

Timestamped Shownotes:

  • 0:35 – Pancham introduces Tim Milazzo to the show
  • 2:08 – How he started in StackSource, and his journey before this
  • 5:35 – What StackSource is all about
  • 10:46 – Tim’s hard decision to leave the tech giants he worked with
  • 14:20 – Competitors of StackSource in tech-enabled real estate
  • 20:44 – Debt funds are taking more market share than banks now
  • 24:16 – Pricing for StackSource services
  • 30:50 – First time Tim invested outside of Wall Street
  • 31:55 – Fears he had to overcome in his first deal
  • 34:32 – His advice for people starting their investing journey
  • 35:59 – How can you connect with Tim

3 Key Points:

  1. The market has shifted, capital is getting more expensive, and the interest rate has been rising for the last year.
  2. Lenders are getting more cautious when they want less exposure to certain asset types.
  3. Debt funds, defined as private lending vehicles, take more market share than banks nowadays.

Get in Touch:

Read Full Transcript

(intro)

Welcome to The Gold Collar Investor Podcast, with your host Pancham Gupta. This podcast is dedicated to helping the high-paid professionals to break out of the Wall Street investments and create multiple income streams. Here’s your host Pancham Gupta.

Dave Zook

Hey, this is Dave Zook. I listen to Pancham at The Gold Collar Investor Podcast. And so should you.

Pancham Gupta

Welcome to The Gold Collar Investor Podcast. This is your host Pancham. I really appreciate you for tuning in today. My guest is Tim Milazzo. He is the Co-founder & CEO of StackSource. He identified the market opportunity for a tech-enabled commercial real estate financing platform, recruited an experienced team of technologists and real estate finance professionals, and built the company. Prior to StackSource, Tim worked for tech giants Facebook and Google where he helped expand online advertising. He comes from a family with a history in real estate.

(interview)

Pancham Gupta

Hey, Tim. Welcome to the show.

Tim Milazzo

Pancham, thanks for having me.

Pancham Gupta

Well, it’s so good to be connected with you. We were chatting just briefly before the show that you just moved from New York area to Florida. I just moved here too. I moved a year after you. We just found out that we are not that far from each other. So, it’s great to be connected and recording this with you here today.

Tim Milazzo

We almost could have recorded in person. I should have gotten on that ahead of time.

Pancham Gupta

Yeah, so, before we get started, are you ready to fire up my listeners breakout of Wall Street investments?

Tim Milazzo

I’m ready. Let’s get after it.

Pancham Gupta

Let’s do this. I see that you’re wearing this sweatshirt or a jacket of StackSource. Tell us about your story. Tell us about your background, how you got to where you are today. I know a lot of listeners would love your background. You’re from a tech background, so it’d be great if you can give that detail.

Tim Milazzo

All right. Well, I’m the founder of StackSource. But I never thought I would be in this position to start a real estate finance company. So, how I got there — I had a family member in commercial real estate in New York City. And so, I grew up in New Jersey. When I got to college and was studying finance, I actually had internships in the commercial real estate industry and in financial services. I always was looking at tech. I loved tech. I loved what was going on with the internet and software and mobile devices. I was in college when the first Android phones were coming out. And so, I got a job offer out of school to work for Google in sales operations for their advertising technology department. I was all over it. I loved working in tech. I loved how smart my co-workers were and solving internet scale problems. It was super interesting. I held a couple of roles at Google over a few years.

Then I followed a couple of colleagues, that had been brought in through a startup acquisition, to another startup. They had been acquired into our space. I was interested. I’m like, hey, why would you leave a company like Google? Look at the kitchens, the work, the pay. Why are you leaving? Startup culture was the answer. I wanted to experience, like, why would you do that? And so, I followed a couple of those co-workers to a startup. That startup was then bought by Facebook a year after I started. And so, I was back at a big tech company — similar culture, really cool internet scale problems. But the startup bug started biting harder for me. I had this thought. Well, could I build a company? Could I build a startup? That came about the same time I had other friends that were moving away from advertising technology into fintech and fintech strategies. What is the future of financial services? Finance was this thing that became an annoying back of my mind.

At that moment, I reconnected with some old friends that were in real estate. We went to a real estate tech meetup together. My eyes were opened to what is the intersection of all three of these things — real estate tech, fintech, starting my own business. I saw this opportunity. Commercial real estate financing is really hard. It’s not like residential where you can download a Rocket Mortgage app. You click a few buttons, including your credit score and connecting your bank account via Plaid, and you’re getting an instant quote. Why, if it’s being bought by a real estate investor, is it all of a sudden opaque? There’s no transparency. There’s no efficiency. What are my commercial mortgage options? Why aren’t they online? That was the question that drove me into the industry, to dig around, start asking questions, start informational interviews, and led me down this path that ultimately resulted in building StackSource.

Pancham Gupta

Wow. That’s awesome, man. So, you’re trying to solve this commercial real estate problem. I know there were so many little steps here in the middle that you took, that eventually led you to StackSource. In a nutshell, StackSource is basically helping the end user to get commercial financing. So, are you the broker in the middle, which is fintech-focused and connecting the end user to many different lending sources? Is that true?

Tim Milazzo

Yes, we would use the term capital advisor, only for the reason of broker has taken on this negative connotation due to the lack of efficiency and transparency. And because those two aspects in particular are in our scopes to try to solve, we brand as capital advisors. But you’re exactly right. As far as our industry position, we’re not the end lender. We’re not deciding what your terms are. What we are is a view into what are my different options in the market to get a property financed, a commercial property, a multifamily property as an investment. What are my options? What lenders are in the market for this? How do I easily get multiple quotes to compare from multiple sources?

Pancham Gupta

Got it. So, I’m going to ask a couple of questions, and then I’m going to go back to your story. Who’s the retail end user for you? Is it a person who owns five, six single-family homes who wants to get an eighth one or a ninth one? Or is it more like $100 million multifamily building or a commercial retail office space? Or is it a strip mall, like all of the above? What’s the end target user that you cater to?

Tim Milazzo

In the beginning, the first transactions that we were able to attract to this fairly new approach, and really a marketplace where there has to be capital providers on one side, and there’s borrowers on the other, the first transactions — some listeners may guess this. They were small transactions that to traditional broker was not helping. Because if a traditional broker has to manually go through all these steps of getting loan options for someone, they want to focus their time on larger clients. And so, there was this underserved small commercial mortgage space, where it was more than residential. It’s not a single-family rental. But it’s less in value than some large commercial properties. So, there’s this underserved segment, underbelly of the market. Call it zero. It’s not really zero. But the 0 to 3 million or the 0 to $5 million commercial mortgage base, those were the only transactions we did for the first couple of years of operations. They’re not being helped by traditional brokers. We can make it more transparent, more efficient. We can help them.

As it has evolved, we still do a lot of that small balanced business. The smallest transaction we did in 2022 was 165k for a tertiary market, retail asset that is worth like half a million dollars. The largest transaction though, on the flip side, is we’ve grown — as we’ve gained a reputation, as it has become better, as the user experience has gotten better, our data has gotten better, and our capital provider network has strengthened. The largest transaction we did last year was the $141 million for a major real estate developer — to take a vacant hotel from 1908 in downtown St. Louis, and redevelop it into multifamily and a new hotel that will be a gem of downtown St. Louis. So, it’s broadened out quite a bit.

We are now finally getting our fair opportunity in the middle market. It took a few years of trust building, network building, marketplace development. Because we couldn’t jump into the big stuff right away. But we proudly serve both small and large real estate investors. The only thing we wouldn’t touch is the single-family rental scenario. It’s got to be at least five units. Otherwise, we’re in residential mortgage brokerage territory, which is not something that we address.

Pancham Gupta

Got it. Just for the listeners and for clarification. If someone has 10 single family rentals and they’re Fannie and Freddie out, they can’t really get any conventional mortgage, would you help them if they want to buy the home?

Tim Milazzo

Yeah. Well, if we’re doing a refinance of the 10-asset portfolio, then yes. If they’re getting their 11th, well, they may now need to get a commercial mortgage because you have a residential limit of 10 residential consumer mortgages. It would have to be done as a portfolio if we were going to do it. So, there may be like a local intermediary that’s licensed as a residential mortgage broker in their state that they might want to talk to, to get their 11th, if they’re only trying to finance one door. If it’s five or more in any combination — a duplex and a triplex — if there’s five, we can start to help.

Pancham Gupta

Got it. Let’s go back to your story. You were in Google for many years. You got venture startup that got sold to Facebook. Then you were in Facebook, thinking what can you do as a startup. How hard was it for you to make that decision and leave that amazing food, all the cleaning, and all those perks that you get with these tech companies? They spoil you — spoil you bad in terms of getting all of your day-to-day taken care of for you so that you can spend most of the time at doing what they want you to do. How hard was that step for you?

Tim Milazzo

Well, it was a major decision. It was a major decision for me and for my co-founder. I have a co-founder who’s a software engineer. I was in business and operational and sales roles for both Google and Facebook. Certainly, very tech-enabled businesses with digital ad tech. Then I was in programmatic ads for online publishers. But I have a software engineering co-founder, and he was at Google at the time when I was at Facebook. We were talking about this market opportunity. We knew each other from outside of work in New Jersey.

It was a major decision for both of us. We both had wives. I had one small child at home. He had two small children at home. And so, it’s certainly not a decision to take lightly. What really pulled us in was, after talking to 50, 100 different industry professionals — real estate investors, lenders, brokers — and trying to understand this problem, we set a bar. If we get this many potential users that say, yeah, if it existed in this way and if we did describe what we thought about building in a way that people would say, “Yeah, that is a need I have. That’s something that I would do.” Not as far as like a signed LOI or a contract. But we wanted to pre-sell this idea of, should this thing exist? Is this vision something that’s just in our head, or is this a real industry need?

When we got to that bar — we set a bar — these many users say, “Yes, that should exist. I’d be an interested early user.” That was the decision for us. This vision was something that I couldn’t get off and I knew. Having a conversation with my wife, even though we had a young child at home, we came to this realization that I would regret not doing it. There were risks associated, but we were going to regret not doing it. And so, we’re trying to minimize our regrets. That’s what pulled us in.

Pancham Gupta

Got it. I like that. You always talk about on your final days that they’ve done this study in the book. It’s funny that you mentioned this. Because they asked these people like, what are the things that you would have done differently. They said, it’s always what they could have done. Having regrets rather than — you can always go back. You could always have made the decision to go back to Facebook, or Google, or any similar company. So, that’s great. Your co-founder, is he still in New Jersey? So, you’re a virtual company, fully?

Tim Milazzo

We are. We met in opposite directions. We were both in New Jersey at that time. We were around New York City. He moved into the city, and I moved out to Florida. So, we moved in opposite directions. But we had worked together for a few years now, and we know the way each other work. We had a level of trust. Certainly, in early days, working together, figuring out the business plan. It’s like, hey, you’re talking a lot every single day. Being in the same location is really creative for that. Once you have a business model running, and you understand what the growth levers are, we moved away. We’re virtual, and we have more of a team nationwide at this point.

Pancham Gupta

Got it. So, let’s talk about this idea. I know there are a bunch of other — do you have any competitors in this space that you would say that are your direct competitors? I know there are a lot of brokers out there. But from a technology point of view — I forget the name of the company. But is it loan Source, or Loan Depot, or some other? Do you have any competitors who are tech focused and doing what you’re doing?

Tim Milazzo

Sure. Well, you call that loan brokers. Certainly, traditional loan brokers are still holding the majority of market share. Traditional real estate services firms, sometimes they’re the finance guy in the investment sales brokerage that you’re talking to about buying the property. Sometimes they’re independent commercial mortgage brokers. They still have most of the market share. It’s been an upswing and a fast growth for us over the last three years. But we’re still a relatively small player in the market. Our market share last year was 0.1%. We did one out of every $1,000 of commercial mortgages. It was arranged by StackSource last year. Then we doubled our market share last year. But we’re still a small player. It’s still the loan brokers.

There have been a few other tech-enabled competitors. There are several strategies that have been tried in this space. One of them is a marketplace where there’s lenders, but a borrower can go. It’s like a free for all to list your borrowing need. Not really any vetting, not really any service. That model has not been very successful. We have had competitors open it up and be fully transparent. We applaud transparency and efficiency. They are attacking those things, too. But if you don’t do it with vetting the deals and having a service layer, those ones typically devolve into private lender marketplaces, banks and life insurance companies and major — the best sources of capital with the lowest rates, they don’t stick around to marketplaces where there’s not vetting of deals that get to them. So, there’s that.

There have been brokerages that have seen what’s on the horizon with efficiency, and I’ve seen startups entering the space. They’ve tested the waters on, well, what do we think we could get more efficient at? But it’s still a back-office solution for their brokers. There’s not really a front-end user interface, and they’re not enabling transparency. So, it’s not as crowded a field in exactly what we’re doing. There’s service. There’s transparency, and there’s efficiency.

We’ve been one of the fastest growing in the industry over the last three years counting all brokerages and all platforms. But there certainly have been a few approaches. It’s an interesting problem. It’s a big market. It hasn’t been the easiest. Okay. Set up a marketplace and go. But that’s actually part of our model. It’s like we have a human capital advisor that is a main point of contact on every single deal. We vet every single deal. The majority of them do not get sent to the lenders that they match to on the marketplace, unless we have the right information and it’s vetted.

Pancham Gupta

Got it. So, at this point, what’s your target going forward? You’re just making more lender connections. How are you reaching your end users? Is it through word of mouth? Is it through marketing? I know we’re recording this, getting the word out. But what’s your move focused, is it the end user, or more lenders, or both?

Tim Milazzo

Yeah, it’s actually no longer a business goal to onboard more lenders. We’ve gotten to a point of critical mass on the capital side of our marketplace, where some lenders leave because they’re not winning any deals. It’s gotten competitive for the lenders in a way that they can be a very reliable lender, and they’re quoting deals. We’re enabling competition between multiple financing quotes. That means that only one capital provider wins on any given deal. We actually shed lenders that are either not competitive, or not reliable enough, or not responsive enough. And so, it’s really more engagement and fostering engagement with our capital providers, then adding more of them.

What we are expanding into and what we’ve expanded into over the course of 2022 — as we speak now, it’s 2023 — especially here as the market has shifted, capital is getting more expensive. Interest rates have been rising for the last year. The economy is sending out some red flag type signals. We have expanded beyond just, hey, these are some lenders that will give you loan quotes. Our new version of our interface actually shows you alternative capital providers that will play up and down the capital stack.

Now, this idea of a capital stack has been in our name since day one. StackSource means sourcing the capital stack. But we were only doing one part of it. Here are commercial mortgage quotes. When there can be other sources of capital on top of a commercial mortgage — mezzanine debt, preferred equity, see PACE, which is financing for energy efficiency upgrades, ground leases. There are these other sources of capital to layer in beyond just, “Here’s my commercial mortgage, and here’s my equity.” And so, we’ve expanded our platform to match to multiple sources of capital up and down that stack. That’s become something that’s a key differentiator for us, as the market and money gets more expensive.

Pancham Gupta

Got it. I want to ask a question that you’ve briefly mentioned, which is some lenders are not lending. Given the recent last six, eight months of shift in the interest rate environment and all that, what are you seeing on your platform? Are you seeing a drastic decrease in the activity on both sides, or is one side more prominent than the other? What’s your take?

Tim Milazzo

It’s interesting for us because our average deal size is going up. I mentioned we still do a lot of small deals and an increasing amount of larger deals. Our average deal size doubled last year. It’s continuing to go up this year as larger real estate players who can usually just tap a couple of direct capital sources on the shoulder, “Hey, these three to five banks are always going to give me what I need. I will talk and get a couple of quick quotes. But I have enough direct relationships, that this major gray day industrial portfolio, I don’t need to seek help in finding financing.” Those types of real estate investors are now looking for help in finding financing because they may have these direct bank relationships. The interest rates are going up. The leverage points are going down. Lenders are getting more cautious, and they want to have less exposure to certain asset types, not have all exposure to one area or to one borrower. Banks and credit unions in particular are getting cautious. So, what does that do?

Short-term and long-term interest rates have gone up. Debt funds are taking more market share than banks now. When I say debt funds, these are private lending vehicles that have captive capital in a fund. They make commercial mortgage loans. They’re more flexible than banks. They’re higher rates as well. They’re typically floating rate. Or if it’s fixed, you buy a rate cap to fix that rate. The rate cap prices have gone up. But many investors are looking for higher leverage, if they’re bank that usually gives them 75% leverage is now only quoting 65%. We’re finding these requests coming to us. Is there a bank that will give me 70? Is there a debt fund that will give me 75?

Sometimes even with a higher interest rate for a debt fund, getting to 75% leverage makes their deal work in a way that 65% leverage doesn’t. Or getting that bank that offers 70% leverage versus 65 is really accretive to your cost of capital. It’s an interesting market. Interest rates are going up, turning over every stone, so to speak. To find the right financing source is something that’s become of interest to many more real estate investors today.

Pancham Gupta

Got it. So, the volume, overall, I understand the amount per deal is going up. But the volume has gone down, the number of requests.

Tim Milazzo

The number of requests is going up.

Pancham Gupta

Okay.

Tim Milazzo

Yeah, we did $100 million of closed loans in 2020. We did 380,000,000 in 2021. We did three quarters of a billion or so in 2022. Now we have a couple billion dollars of loan requests and financing requests, broadly speaking. That includes some of these preferred equity deals and others in our marketplace. Now, the capital sources on average are getting either more conservative, or less responsive. That’s market wide. Therefore, if you expect they’re going to be less responsive, or they’re going to offer you lesser, and what they’re going to offer you is going to be more structured or higher rate, reaching more lenders becomes more key.

The commercial mortgage market overall is expected to be down this year, as money gets more expensive as there’s less transactions. For us, we’re actually seeing more requests volume. That doesn’t necessarily mean that the same closing rate will apply. Right now, it’s a situation where many investors are seeking. They’re looking at financing quotes. They may get back a financing quote, and we may provide them with multiple quotes. They’re simply shelving their deal. Hey, this deal that made sense for me at a 3.5% interest rate when my money is 7%, I don’t want to transact this deal. And so, that’s actually happening in increasing magnitude as well.

Our job is to show what can the market support from a financing standpoint. If we can give a positive experience saying, listen, the very best the market can do here is 70%. It’s 7% interest. Sometimes it’s like a good no for the real estate investor. Well, that means my deal is not moving forward, because I can’t support that 7% in my financial model. But hey, that was a great experience. I got two quotes back that I wouldn’t have gotten otherwise. And so, for StackSource, we’re more active than we’ve ever been. It’s just an interesting time in the market where there’s a lot happening in the market. It’s shifting quickly. The answer is going to be different every two weeks, if you were to ask me that same question.

Pancham Gupta

Right. Yeah, it makes a lot of sense. My one question which is very operation for you guys, for anyone listening and they want to try — I know you said it’s very transparent, your fee structure. What’s the fee layout for you guys?

Tim Milazzo

Typically, we’re charging 1% on debt placement, and then 2% or 3% for these alternative sources of capital that stack on top of debt. So, if we’re bringing a preferred equity investor that brings in strokes one check to give $10 million of preferred equity, and then there’s a $30 or $40 million of senior debt commercial mortgage lender, it would be 1% on the debt portion and 2% on the preferred equity portion. We’ve charged the success fee on closing. Nothing up front. There’s no credit card entered. This is like an item on the closing statement because we brought capital to the table successfully. So, that’s our model. It’s a success fee. There’s nothing paid if we’re not succeeding and getting financing on the deal. So, it’s very similar to a traditional broker model.

The difference will be, we never hide or bury fees that are not shown. Some traditional loan brokers, they’ll get paid on both the borrower and lender side, obscuring how much they’re actually making. And so, for us, we never tuck in an extra fee on the lender side that might be seen as a higher rate. We’re just transparent. Here’s how much StackSource is making. You’ll see it on the closing statement. You’ll see it in our interface as we provide these loan quotes.

Pancham Gupta

Got it. You mentioned that some of the traditional brokers are getting on both sides, and it’s not transparent. Out of curiosity, they don’t even come on the closing statement. They get as a kickback, is that what you’re saying?

Tim Milazzo

Yeah, this is one of the big things in addition to seeing the opportunity for efficiency. When I say transparency, part of that is process. Part of it is just what we’re talking about now. It’s the driven transparency. Getting a kickback from a lender that does not appear on the closing statement would be illegal in residential mortgage lending.

Pancham Gupta

Correct.

Tim Milazzo

As soon as you get to five plus doors, and you’re in commercial mortgage for a non-consumer product, as soon as you get past four doors, all of a sudden, you’re not covered by the Consumer Protection Act under the SEC. This is business lending according to the government. It is legal for a broker to say take a kickback, not even show you a lender that quoted a lower rate. That’s legal. It’s pretty sketchy. And we don’t like that about the industry. We don’t want that to be the way it is. And so, we are committed to a transparency of fees, in addition to transparency of process and match lenders.

Pancham Gupta

That’s crazy, right? To anyone listening, it’s like you want someone who you can trust really to help you with your loans. Thank you for sharing that. My last question for you, before we move on to the second part of the show, Tim, is, did you raise any capital in the beginning? Or did you fund it all yourself, you and your partner?

Tim Milazzo

I put in some of my own money right away to kick start and to hire our first software engineer and get building. But I pretty quickly had angel investors follow on. First, that were former co-workers from Google and Facebook, that we’re not commercial real estate finance experts, but new division that we were working on and believed in us. We also had some angel investors that were from the real estate finance industry. So, we ended up raising about 900,000 in a pre-seed round, get the product built, get our website built and the initial team. We then a couple of years later actually, just a couple years ago in 2021, we raised a little bit larger round that we could consider the seed round at $2.6 million. That’s it. $3.5 million.

You asked me about competitors earlier. We’ve had a couple of competitors raised north of $10 million. We had one that raised north of $100 million. They’ve burned a lot of cash without making massive VC progress. We’re actually very grateful, I’ll say, to be in a position where yes, we’ve raised some capital that has helped us to make some moves. But we’re also founder controlled. As the market is turning pretty sour for commercial real estate finance, there’s no VC looking over our shoulder saying, “How are you going to get to a billion dollars of revenue next year?” We have a range of outcomes and control and can drive what we think are the right decisions for this business. So, we’ve built tech. We’ve built a team. We’re growing and one of the fastest growing. Thankfully, we’re not in a negative, upside-down valuation type of position.

Pancham Gupta

That’s awesome, man. Good for you guys. Well, thank you, Tim, for sharing that. We’ll be back after this short break.

(break)

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(interview)

Pancham Gupta

So, let’s move to second part of the show, Tim. This is what I call Taking the Leap Round. I ask these four questions to every guest on my show. My first question for you is, when was the first time you invested outside of Wall Street?

Tim Milazzo

While I was working at Facebook and I was interested in real estate tech, I started investing online using real estate crowdfunding platforms. Because I thought it was interesting and online, and I could deposit some money right in. I was a small investor at the time. I was saving up money to start my own company. But I started investing as an LP in real estate deals through these crowdfunding portals at that time.

Pancham Gupta

Can I ask you which portal was your first investment? Through which portal?

Tim Milazzo

Yeah, $1,000 into Fundrise was my first time investing into deals. They had a UI for looking at the properties they were financing. They did a lot of things. Speaking of preferred equity, they would do equity and preferred equity mostly into core plus and development deals that they knew well. The Fundrise from the real estate industry in Washington, DC, they’re still one of the largest real estate crowdfunding portals to my knowledge today. So, I still remember $1,000 into Fundrise was the first.

Pancham Gupta

Got it. Did you have any fears that you had to overcome when you first invested in that?

Tim Milazzo

When it’s $2,000 and you’re making a decent salary at a tech company, not too much, Pancham. If I had gone straight into being a GP and taking down something that was my full net worth and taking on a bunch of debt, I would have been terrified. But investing in small ways as an LP was a great way to start to get to know. Okay. I’m going to read the reports they send to me on these things. I’m going to get to know the type of reporting. It was a great way in to start as an LP, picking for me a reputable platform. And of course, if you’re investing a little bit larger than $1,000. If you’re a little bit larger of an LP, investing as an LP in a trusted GP that has a good track record, you understand the way they think. You understand their strategy. Investing in as an LP is like a great way to start.

Pancham Gupta

Got it. My third question for you is, can you share with us one investment that did not go as expected?

Tim Milazzo

Okay. So, I mentioned this $900,000 angel investment round. All of my former co-workers were amazing. I’ve been through ups and downs and made mistakes. I survived them and fixed things about the business along the way. Taking money from angel investors for a tech startup when you don’t quite have everything figured out yet, if they’re angel investors you don’t know, things can happen that you don’t quite expect. Because neither of you know each other, and you don’t have that trust built up over a period of time.

I think this is actually more acute for tech startups and for starting something like that, versus I’m investing in this property that has predictable cash flows. It was interesting seeing the ups and downs and different expectations with some angel investors that actually invested in me, but we didn’t know each other very well yet. That’s something that was a big growing opportunity for me, I’ll say.

Pancham Gupta

Got it. Okay. All right. So, is that investor still in?

Tim Milazzo

We still have some. Yeah, all of our angel investors have still been on the cap table. It’s a job of upping my own communications, upping how much you communicate and the frequency and setting expectations really well. That’s been something I’ve grown in tremendously as a first-time founder. Being at a tech company as an employee versus being a founder and setting the strategy and hiring the team, it’s a different level of responsibility and for me a different level of growth.

Pancham Gupta

Yeah, absolutely. All right. My last question for you, Tim, here is, what is one piece of advice would you give to people who are thinking of investing in Main Street that is outside of Wall Street?

Tim Milazzo

It is about people and not deals if you’re investing outside of Wall Street. If you’re talking about a public company, you can review so much information. You can review products. You can review their balance sheet and their income. You can listen to earnings reports. You can just look at it as an item. When you’re investing outside of Main Street and when you’re talking about going in on a local business, or a property, or a startup, it’s about the people. It’s not about the numbers on a page. It’s about, is this person thinking in the right way? Is this person trustworthy? What is their track record?

Track record is this word that I’ve come to appreciate more and more and more. Track record is something that you risk. Track record is something that identifies opportunities. And so, whether it’s a real estate investment, look for somebody with that track record. If they know what they’re doing, the deal can be solved. Now, for sure, look at the deal. Look at the deck. Look at the numbers. But realize that those things are secondary. The primary is, who are you investing in, rather than what are you investing in? So, if you’re going Main Street, realize it as a who rather than a what.

Pancham Gupta

Awesome. Well, that’s a great advice, Tim. Thank you for sharing all your time and knowledge here on the podcast. How can people connect with you if they want to reach out, find out more on what you’re up to?

Tim Milazzo

I’m super active on LinkedIn. So, if you search Tim Milazzo, my LinkedIn may be the first Google result or now AI-powered Bing results — which I’m so shocked that I’m coming back to being, after all these years based on the ChatGPT integration. It’s so cool. But I’m usually going to be the first Tim Milazzo you find. But if you want to email directly, tim@stacksource.com will get right to me.

Pancham Gupta

All right. Great. Well, thank you, Tim, for your time here today.

Tim Milazzo

Excellent. Pancham, thank you so much for the opportunity.

Pancham Gupta

Thanks for tuning in today. If you have questions, email them to me at p@thegoldcollarinvestor.com. That’s p@thegoldcollarinvestor.com. This is Pancham signing off. Until next time, take care.

(outro)

Thank you for listening to The Gold Collar Investor Podcast. If you love what you’ve heard and you want more of Pancham Gupta, visit us at www.thegoldcollarinvestor.com and follow us on Facebook @thegoldcollarinvestor. The information on this podcast are opinions. As always, please consult your own financial team before investing.

Copy of EP #18 - 2 Guests

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