It Can't Fail
The phrase that should make you walk away from any deal.
"When someone tells you an investment 'can't fail', that’s a sales line, not reality."
Meet Dan. He sold his company at the end of 2021 for millions and did what most people do when the money comes: he started looking to other rich people for investment ideas, and eventually wrote a check into a private deal he was told couldn't fail.
After we sold the company, I went looking for what other rich people do with their money.
I come from a low-income family. First generation college student. I had no idea how the wealthy actually lived, so I tried to learn by imitation. I joined groups where the average net worth was ten times mine, and once you're in those rooms, investment opportunities are everywhere. In one of these groups I met an entrepreneur building a new kind of restaurant company. Impressive guy. Big names around him, including a former CEO of a national chain on his board, plus he said he had "institutional investors," which I didn't understand, but it sounded impressive. He got me all jazzed up. Then he said the words I'll never forget: this thing can't fail.
Worst case, I get my money back, I told myself. Best case, this becomes the next billion-dollar company and I go from rich to super rich.
With the deal a sure thing in my mind, my due diligence was no more than a few casual questions. No digging into the financials, no crawling through balance sheets. I was running on gut feeling and a good salesman. I even ran the investment by my financial advisors, and they said don't do it. But they hadn't met the entrepreneur. They didn't get it, or so I thought.
I wrote the check for $250,000. My first big investment. I was on top of the world. A big-time investor, like the other rich people I was surrounding myself with.
Another thing I never stopped to think about was how much $250,000 actually was. As a percentage of my net worth, the investment was small, and that framing, along with being told it couldn't fail, made the whole thing seem like a no-brainer. In hindsight, even when you're worth a lot, $250,000 is still a lot of money. The percentage math clouded my judgment.
Here's what I understand now: I was only looking at the upside, and believing the entrepreneur when he told me there was no downside. But your money is never really safe in a private deal. Within a year, the company I invested in was bankrupt and the $250,000 was gone. Not a single dollar returned.
The embarrassment burned deep, and I'm glad it did, because the lesson stuck. If anyone ever tells me an investment can't fail, I already know how that one ends.
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