Transcription
So there are two things you learn at Goldman that get you really far ahead in life. Number one is learning all the different kinds of ways that you can actually make money through different kinds of financial transactions. So things like IPOs and M&A and private equity, and learning what those things are, and then how to get involved in businesses doing those things.
But number two is actually the thing that I think makes working at a place like Goldman really worth it. And that's that you learn how the world actually works behind the scenes. AKA, how do billion-dollar deals actually get done? Like, when you think about a $50 billion merger, who's actually the one making that decision or being the power player in that? And then when it comes to the negotiations, are they super thoughtful and rational, or does it look more like the boardroom of *Succession*?
I'm the youngest boy. And what's cool about working at a place like Goldman is that at just 20-something years old, like I was 20 when I first started working at Goldman, you get to be in the room where it happens. And so for me, having grown up with an immigrant single mom and literally zero connections to Wall Street growing up, it is super important to me to democratize access to these learnings because I really feel like they set me up for success in the rest of my career.
So let's get started. So we're going to learn finance through the lens of an investment banker. And so the first natural question you might have for me is, what the hell does an investment banker even do? And my answer to you is, other than really liking business cards, they advise companies on financial transactions. Basically, when you run a business, there are all these different kinds of things you can do in an attempt to make more money. So you can raise more money through things like equity and debt, or you could go out and buy another company or sell your company in order to make more money in some way. And investment bankers are basically the specialists or the consultants who know how to do this, theoretically at least, the best.
And so the first thing we're going to learn today is all the different kinds of financial transactions and when you'd want to do each one. And so I'm going to start with terms like IPO and equity, and then we're going to talk about the other ways to raise capital before eventually talking about the big birthing in this industry, which is private equity.
And so the first concept to talk about is, what even is an IPO? Now, an IPO stands for initial public offering. But basically, what that mumbo jumbo means is that it's when a company decides to publicly list its stock or its shares in the company on a public market where people like you and me can start to buy, sell, and trade those shares.
And the reason why you hear about these big massive IPOs from Facebook or Uber or Spotify or Coinbase is for two main reasons. And that's number one, when a company goes public, it can actually use that as an opportunity to raise even more money. Because when the company offers shares to the market, and we decide, "Hey, I, I would love to own a share of Facebook," we exchange money to the company for that share. And that company can actually take on that cash. And that's separate from the second main reason a lot of companies will go public, which is to provide liquidity to all of its earlier shareholders. So its investors or any of the team or the employees that's worked really hard on, let's say, this startup and actually wants to sell some portion of their ownership in this company that they've worked really hard on.
And so the term that we're actually dancing around in this concept of an IPO is this term called equity. And equity just stands for your ownership in a particular company or an asset. And this is where you'll hear about the legendary stories where Facebook's early investors invested $500,000 in Facebook and then generated a billion dollars in return. And that's because they owned shares or equity in this company. Basically, think of it like someone on *Shark Tank* offering you $10 million for 10% of your company. They're going to give you some cash to infuse into your business today and in return own 10% equity in your business.
But let's say you think you have a really good idea on your hands and you don't want to give up a piece of your pie to someone else. Well, equity is only one form of capital you can raise for your company. The other main way to raise money for your business is through debt. And there are really interesting pros and cons and trade-offs between raising debt for your business versus raising equity. Whereas in raising equity from an investor and selling a portion of your company to someone else, with raising debt, you actually keep your entire ownership, but with a cost. Basically, all debt comes with some sort of coupon or some sort of interest rate. Where if you wanted to raise a million dollars from someone, they could either buy a portion of your business for that million dollars and you get the million dollars, or you could, let's say, go to a bank and raise a million-dollar loan. But that requires you to pay 8% of that million dollars every single year.
Now, of course, that's dependent on if things are going well. Because if you think about the risk-reward profile here, if you had owned 10% of Facebook, you would have made billions of dollars as the equity owner. Whereas if that investor had just given that company a loan or debt, they would have been capped at just that 8% return. And so if you have to think about why would an investor choose to do that instead of having this massive upside? And basically, one of the main reasons why debt and equity are different is how safe you are in a downside scenario. Where if a company goes bankrupt, the debt holders have higher seniority to the equity holders and are more likely to recover all of the money that they loan to that company.
And so if you're the business owner thinking about how to raise money for your business while also optimizing your economic outcome, you can think about debt as a vehicle to raise money if you feel super confident that you can make that interest payment every single month or every single year so that you don't default on your loans and lose your business. But if you're running a really high-risk tech startup, for example, that doesn't even make cash yet, then equity might be a much better option.
And so what we would do at Goldman is we would help companies like Apple and Tesla raise hundreds of millions, if not billions of dollars, on the debt and equity side. But this was only half of our job. And that's because we also advise companies on something called M&A. And this term just stands for mergers and acquisitions. And it's where you hear about these legendary deals in the news where Microsoft buys Activision Blizzard or LinkedIn for billions of dollars, or Disney buys Pixar and 21st Century Fox. And these are the kinds of deals that we helped advise on.
And there's a ton of interesting strategy we can think about if we put on the lens of our CEO hat here. And it can actually be as simple as your company just wanting more market share. Where when you think about the $80 billion ExxonMobil merger back in the day, or the $100 billion acquisition of SAB Miller by Anheuser-Busch, these are massive oil and gas or consumer beverage companies that are realizing, "Hey, my next step for growth is actually to consolidate the market and grow through acquisition." Because at that size of company, that often comes with a second reason why you might want to acquire or merge with a competitor is through the lens of something called cost synergies. Where if Exxon and Mobil were to merge together, you could eliminate a ton of the redundancies in their costs and with increased scale, actually deliver a better profit margin.
And that is a super different strategy than one of the deals I actually got to work on way back in the day, which is when Amazon bought Whole Foods. Which at the time was a paradigm-shifting M&A deal. Where it was really one of the first times a massive online player in the cloud moved into the real physical, physical world. Where if you think about Whole Foods' network of physical locations across the United States, and then you think about Amazon's logistics network and how it fulfills and ships across the world, Whole Foods' physical locations were just a natural next step or continuation of Amazon's goal of becoming as convenient as possible for every consumer.
Now, we've alluded to a ton of different reasons why you might go out and acquire another company out there. And I, I'll list a bunch of these reasons here. But one of my favorite acquisitions that actually hits a ton of these different reasons is actually Facebook's acquisition of Instagram back in the day. Where at the time, everyone was critiquing and making fun of Mark Zuckerberg for paying a billion-dollar price for this tiny little consumer app with just 13 employees. But think about all of the levers that he hit. Number one, he took out a huge competitive threat from his market and subsumed it. And then used that competitive threat to maintain his business's relevancy. Where he recognized that, "Hey, Facebook is going the way of Boomers, but Instagram is starting to capture the millennial and then over time, the Gen Z market." But beyond that, he also thought about these synergies of distribution. Where he used Facebook's captive network and pushed even more of them onto Instagram. And then vice versa, in a way that grew both portfolios. And then lastly, combined the sheer scale of both of these networks into creating the largest ad network or ad machine of all time. Where basically, there is no company out there that doesn't think about spending at least some money on Facebook or Instagram ads.
But here's the thing, though. I've actually only talked about one of the two kinds of buyers of companies out there so far. I've only talked about strategic acquirers of businesses, so other corporations or other companies. But I haven't talked about the big bertha within this industry, which is actually private equity investors or financial sponsors.
And so you've probably heard of this term, private equity investors or firms out there, and funds out there called Blackstone or Apollo or Carlyle. But what are these big nebulous investing firms actually do? Private equity is just this fancy term to describe when someone invests in a company or buys an asset out there that isn't publicly traded on the stock market. So that can mean anything from a venture capital investor investing in an early-stage startup that hasn't gone public yet, all the way to buying your local mom-and-pop restaurant because it's not publicly traded. But the biggest private equity firms play at a much larger scale and then often do a deal called an LBO. Where a leveraged buyout is when you buy a company with debt or money that isn't yours. And that's going to sound kind of absurd first. But I want you to think about it actually through the lens of taking on a mortgage to buy a house yourself.
Where generally, most people don't buy a house outright with pure cash. Instead, they put, let's say, 20% down, their down payment of the house's full price. Where if you have a house that's worth, let's say, $120k, and you put $20k down, well, often times take on a mortgage where the bank will actually lend you or finance you $100k of the rest of that $120k purchase price. Where our job as homeowners is to pay down the interest on that mortgage loan. But let's say instead of deciding to live in that home yourself, you decided to find a tenant to rent that home to. Where every year, you charge that tenant $10,000 to live in your home. And that just so happens to be the same as your $10k mortgage payment. And so over the years, as your tenant lives in that place, they're actually paying down your mortgage for you. And so let's say five years later, you actually decide, "I'm going to go out and sell this house." And you sell it for $120k. But you only put down $20,000 of your own money, and you made 6X that amount. And that's not even considering if the market itself went up. Where if you were to even try to find a house worth $120k nowadays, because my generation, God forbid, we cannot afford houses, you'd have to go back to, let's say, the 1990s. But since that time, housing prices have skyrocketed. And so if you bought a home for just, let's say, $20k of your own cash, and then paid down the rest of your mortgage through cash flows from the tenant or the business in this case, you own 100% of that house and all of the market upside that's grown the asset value of your house itself.
And so a good private equity investor will think about how the world is never as picturesque as this example that I gave you. Because if you think about this house example and trying to attract the best tenant, well, let's say in your diligence of buying the house, you didn't do a great inspection. And so you didn't realize that you're going to have to spend another $50k on replacing the drywall. And then maybe in order to differentiate your house in this crowded neighborhood, you realize, "Oh, I need to invest in this house and put a pool in." Because then you're more likely to attract families that have more consistent cash flows and income. And so in order to make a really strong financial return, private equity investors will use this concept of leverage or debt in order to make more money out of a smaller amount of money. But of course, this comes with risk. Where in the same way that if you default on your mortgage payments, the bank will come foreclose on your house, if the private equity investor reads the market wrong or levers a company with too much debt, the company will end up going bankrupt. Like a Toys R Us or a J. Crew, which are bankruptcy deals that I actually had to work on back in the day and were really not fun.
And so private equity investors are in the game of buying something for as low of a price as possible, and then putting as little of their money down as possible, and on the back end, selling that asset for as high of a price as possible, all without defaulting on your loans.
But here's the thing. How do you know what price that that private equity investor should pay for that house? In the same vein of how do you and I know whether a stock price is over or undervalued? And that is a key skill that you learn in investment banking, which is how do you analyze a company financially and determine its worth? And I want you to stick with me here because we're going to get a little numbers-heavy and bring out the keyboards in Excel. But I promise you, if you learn these things, you will learn how to fundamentally understand how to build your business correctly from a first principles perspective. Like learning financial modeling. And the way that I'm going to teach you is just going to help you think like a mastermind in business.
And so I figured the most fun way for us to learn how to value a company and build a financial model is to actually come up with our own imaginary startup. And then I'll walk you through how an investor would analyze your company. Let's say we wanted to start a coffee company where you developed a new strain of the coffee plant that has all the benefits but none of the tradeoffs. Like you're not crashing, you're not getting addicted, you're not getting anxious. And so you go out this pack year and just start selling a ton of this coffee.
Where if you think about any business, there's really just two things that matter. Number one is your revenue. And then number two is just your cost. Because a business seeks to have a higher revenue than a cost line in order to generate profit. And so let's say in your first year, you actually made $200,000 selling this coffee. But I want you to think about your business with more rigor than that. Basically, if we were to break down this revenue line here of $200,000, what actually is that made up of? Well, in this case, it's made of selling coffee. Where let's say you price your coffee here for $10 a cup because it's that incredible. Well, if you break down your revenue line of $200,000, that implies that you sold 20,000 coffees. And this is important because it allows you to think about the subcomponents of your business that actually drive it forward. Because now you see that if you want to keep growing in future years, well, what are the two levers you can pull in order to make more money? One is obviously to sell more coffees. Let's say we go from 20,000 coffees to 40,000. But the other thing we could also technically do is we could technically raise our price of coffee from $10 to $15 a cup. Which in today's economy, I wouldn't be surprised by, but would likely lead to some people being upset at us. Either way, though, as we think about future years of growing our business, we understand the two things that we need to do in order to drive more revenue for this business.
But here's the thing. Revenue isn't the only thing in a business, right? You also have your costs. And those costs are genuinely related to the drivers of your revenue. So for example, in this case, your cup of coffee has a cost of goods sold associated with it. Where yes, you're selling your cup of coffee for $10, but to grow those coffee beans and the cup itself and all the materials you might package with that coffee cup might actually cost you $5. And so in reality, you might be selling your coffee cup for $10, but you're really only making $5 net on the back end. And this $5 number here is what we call gross profit. Where you've actually got other expenses to your business as well, if you think about it, right? Maybe you ran a couple advertisements in your local newspaper, maybe you ran Facebook ads to say, "Hey, come buy my coffee." Or maybe in order to even develop this strain and continue developing it and making it taste better over time, you've got to buy all the scientific vials and whatever you do to create cool coffee plants. And then lastly, you can't do this even alone entirely for free. You've got to pay yourself a living to actually be able to do this thing. And so this is where you'll hear this term called operating expenses, which generally bucket down into three main categories, specifically sales and marketing, research and development, and then general and administrative.
And so basically, once you take your gross profit, or the money you have in the door after just fulfilling your sales in general, and then subtract all the other expenses in your business that requires to just run your business, you're left with the resulting cash flow or profit of your business. And the goal of the business is to make a profit and maximize that profit. Because that's how an investor is going to evaluate your business. They're going to ask the question, "How much profit is this business going to derive me in the future?"
And so now that we've laid out the financials of our coffee business so far, we can start to think about, hey, how can I grow this over time? And we can do that because we've laid out the core drivers to our business, which in this case is actually pretty simple. It's just the number of coffees we're selling. And so in order to build a financial model of the future years to come, we want to think about how can we increase the number of coffees we sell. And there's all these different ideas we could do. For example, let's say that all 20,000 of the coffees I sold this year were just me working alone at a coffee stand. Well, I could go hire a bunch of other people to open up stands elsewhere in my city to sell more coffees. Or I could run ads to generate more demand and more hype for my coffee. Or I could dream even bigger and actually think about new channels I can add to actually grow my coffee sales. Where people could buy my coffee online, direct to consumer, I could ship it to them, on top of maybe even adding distribution partnerships where I convince Starbucks to start carrying my line of coffee.
And so as we think about our revenue growing over time, you'll start to see how this number of coffee sold variable, that is the underpinning of your business, start to break down into these subcategories of first principles drivers that you can think about as levers of how to actually push your business forward. And the benefit of thinking in this first principles or a deductive way is that it can also give you a sense of your costs that are associated with growing your business in that way. Where remember before I mentioned maybe we can run ads to generate more hype and then therefore more demand? Well, taking out ad space costs you money. And so let's say next year I decide one of the ways that I'm going to increase my coffee sales is by running this big creative ad campaign that I have. Well, the corollary with me increasing my sales is that also my sales and marketing expense might go up from $15,000 here to, let's say, $75,000 because I spent an extra $60,000 on this ad campaign. And so ideally, what you see is that in your additional investments in your business, whether that's increasing your sales and marketing spend or researching and developing a better strain of coffee that tastes even better, that increases your potential total customer base, all of those investments should ideally trickle up into how much revenue you're making.
And so once you start listing out your assumptions around how your revenue is going to grow over time and how your costs associated with that revenue will also grow over time, you start to be able to approximate how much cash or profit you're going to generate over the years to come. And so we now have this model of the world. Where whether or not our model is actually right or not is a different question. But that model gives us a guess of how much future profits this company might earn us. Which we said earlier is the most important metric for evaluating the value of a business. Where let's say for our company, this first year when we were running, we ran it at break-even because we were still investing in the business. But over time, we actually think we can start to generate really meaningful profit for ourselves.
And so now we can put our hats on as investors and start to figure out, what is the value of this company? And the first way to think about this is through the lens of an analysis called a discounted cash flow analysis. Which is basically just the concept that the price today of an asset is the sum of all of its future cash flows discounted back to the day. Where in theory, our coffee company could survive into perpetuity and generate the owner of this business profits for years to come. And so the price you pay today should theoretically be a sum of all those cash flows that are to come that we projected out. But with the caveat that the $400,000 we're projecting in 2029 is worth much less to us today than it would be in the present moment in 2029. AKA, that $400,000 in 2029 might be worth the same to me as, let's say, $300,000 today because I could just go out and invest that $300,000 today and potentially make an even greater return than $400,000 five years from now.
But you'll note here that if I just change a couple of the assumptions in this financial model or this forecast, the discounted cash flow value of this company can change dramatically. So for example, I increase our growth rate by, let's say, 20% here, I significantly change the outcome of this business or the value of this business that I should theoretically pay. And so this here is why most investors and investment bankers will think of a discounted cash flow analysis as kind of just an academic exercise. That's one input amongst many other inputs that will get you to the value of a business.
And specifically, there are two other methods that bankers and investors will use to evaluate a company's fair price. And that's through a term that they call comps, or comparable companies. Because fortunately, we're not just building this coffee company in isolation. In fact, there are many really large and really established companies that also do very similar things that are also publicly traded on the stock market. So for example, here I've pulled in a bunch of really famous names: so Starbucks, Keurig, Dr. Pepper, Monster (which is a big beverage company), Celsius (which is on a tear), and then PepsiCo, which is a really large and established beverage company.
And what we can do is we can plot their financial metrics. So for example, how much profit they're making. And then compare that to the share price or the market cap or the value of these businesses that the stock market has determined. And understand how they're trading on a multiples basis. Basically, if we took the market cap or the stock market value of a company like Starbucks and then divided it by the profit it made in that year, we'd get some price-to-earnings multiple. Which in this case for Starbucks is a 20x price-to-earnings multiple. And you'll see that every single one of these companies has an established price-to-earnings multiple or an enterprise value to sales or revenue multiple here. Where we can basically create this spectrum of price-to-earnings multiples that our company might sit in. And what you'll notice here, if we plot all these different companies, you'll notice that a company like Starbucks or Pepsi or Keurig Dr. Pepper, which are much larger, more established, and lower growth companies, are kind of anchoring the bottom end of the spectrum around 20x. Whereas the younger companies who are growing more quickly or are more favored by the stock market actually have a higher price-to-earnings multiple. AKA, the stock market is actually giving them a premium for being a higher growth company.
And so if we want to determine the value of our coffee company, we need to figure out what our multiple is in this spectrum here. But before we do that, there's actually one other way to validate our thinking in our data, which is to use the last main valuation method here, which is a precedent transactions analysis. Which is just a fancy way to say, what are other companies in my space and how much have they been bought for? Where if you look here, I've laid out some of the largest coffee, beverage, and food acquisitions over the last few years. Where Keurig bought La Colombe, General Mills bought Annie's Foods (shout out to Annie's Foods, I love the mac and cheese), and Keurig Green Mountain actually, back in the day, bought Dr Pepper Snapple.
And so you'll note here on the right side that I actually listed out the multiples by which these companies were purchased at. AKA, whatever the purchase price was that the acquirer paid for for the target, divided by the target's actual metrics. And so you'll see here, in the same way that we have our multiples or metrics laid out for our publicly traded comparable companies, we also have the same thing laid out for our precedent transactions that we can then see what the average and median purchase multiples were for those companies.
And so an investor can come in and say, "Well, the average high-flying coffee company has sold for about four times its revenue or its sales." And so if I think that our coffee company in a couple years will generate $20 million in revenue, well then on average, it should be worth about $80 million. But businesses here aren't about averages. And this is the fun, or the art meets science, of how to figure out the valuation of a company. Where if we plot that spectrum again of all the potential multiples that this company could have, well, you have to start layering in the qualitative aspects of this business. Where in this case, our special exclusive coffee bean that's better than anything else on the market is meaningful differentiation in a way that should improve our multiple. On top of maybe the fact we have a world-class management team or founding team that's building this company, which would move our valuation multiple up and up. But maybe there are some other macro factors that might actually decrease our valuation multiple. Maybe, let's say, there's a macro trend that people are actually consuming less coffee in general, which would affect our sales growth no matter what we did.
And so what you'll see here in deciding a multiple to value our business on, it's basically this pendulum. Where you take first the quantitative forecast for your business, okay, how fast is it growing and how profitable is it? And then you layer on the qualitative factors about your business, whether it's the strategic advantages it has, the differentiations it has, and then any sort of risk or weaknesses your business has. All to get a multiple, which you can then apply to your metrics to get a valuation for your business.
And so to wrap up this dense section about how you should think about evaluating the value of a business, I want you to keep in mind that the theoretical value of something is the value of all of its future discounted cash flows, or just how much profit is this asset or this entity going to create for you in the future? And so that's why you'll actually see these big tech companies that actually aren't generating too much of a profit still have stock prices that grow like crazy. Because investors are rationalizing that even though this company today isn't generating a ton of profit, it's growing in a way with ideally a strategy that's super differentiated or defensible, like, let's say, Facebook's network effects, that it will generate a ton of profit in the future. And so the best businesses are growing like a ripper and then also incredibly efficient at generating a profit per dollar of revenue that they make. So all these qualitative factors that you'll hear people talk about, whether it's, you know, competitive advantage and strategy and product differentiation and financials and quality of the management team, are all just factors that trickle down into the two line items that matter the most, which is how fast you're growing and how profitable can you be.
But you would be silly to think that this is all you need to buy and sell companies. Oh, and so we are now in the fun part of the video, AKA the tea of things, which is how do these billion-dollar deals actually get done? The numbers and everything we just did are cool and all, but I actually want you to think about what are the underlying principles of finance. What I mean by that is all of these numbers you'll see in the spreadsheet, what do those trickle down to? And it's just a bunch of humans making decisions in aggregate. Like when you see Starbucks generate a hundred billion of revenue, that's just the fact that Starbucks has figured out how to get billions of humans to go up to a Starbucks and go buy their stuff. And the reality is, deals are no different. It's just a single human, let's say a founder, an entrepreneur, a CEO, or a couple of humans in a boardroom making a billion-dollar decision. And what do we know about us as human beings? We are not rational. We have emotions and insecurities and power dynamics and just a bunch of random stuff that can easily make a deal either succeed or completely blow up.
But before we dive into the emotional rationalities that might affect a deal, I want to first walk you through one of the key learnings you get to have at Goldman, which is observing how the most senior execs think about the macro-level rationale for pursuing a deal before maybe they get emotional later. And so I mentioned before, you're only going to rationally pursue a deal when you see some sort of opportunity in the market. But in order to make that decision, you ideally need to have a really clear picture of what's going on around you in the macro market. AKA, a really senior exec or a tenured CEO at a large successful company is thinking about their strategy within the broader context of what's going on in the world around them. So how's the broader economy doing? Like, what's the Fed doing with interest rates? How does the market feel about my company in general right now? Like, would they even support me actually going out and acquiring another company or raising more debt? And then when it comes to this specific opportunity, let's say I want to go out and buy a company, how well is the broader industry that this company plays in doing? Is it a dying market or is it a super trendy hot market like AI? And then within that, are there any geopolitical risks? Like, is there a regulatory risk that I actually might get shut down by the government if I try to make this move? Or is this just going to be the acquisition of my dreams?
And so this macro framing, as well as in the strategic rationale and framing that we talked about earlier in this video, is the rational context in which someone pursues or has an impetus to pursue a deal. And so let's put ourselves in the shoes of an entrepreneur who's looking to exit their business, either by selling it to an acquirer or maybe even taking it public. And so our impetus for the deal might just be that we've slaved away and worked tirelessly for the last decade on this company, and we're just ready to go chill on a beach somewhere and enjoy our life. And so if you pull in an investment banker like Goldman to run your process, they'll pitch you on the rolodex of investors or potential buyers that they could pitch your business to. And the sales process is kind of like this roadshow where you're trying to convince and attract as many potential buyers of your business as possible. Where the banker you work with is going to help you present your company in the most flattering way possible. They'll run all the financial models we did before to give us a sense of valuation. They'll help you create a narrative and a story around the future growth of your company, as well as diving into your financial metrics of your business and understanding which metrics you should show early on to get interest before opening your entire kimono later.
And then from there, the banker ideally has a ton of connections to all of the best potential buyers or investors in your business, who they'll then start to tactically connect you to. And your job as the founder, entrepreneur, or seller of this business is to present this company in the best light possible. And so the stronger your company is, the stronger the metrics are, the more defensible the business, the higher the theoretical price that you can command. And basically, as you meet with these different investors or buyers of your business, they'll have different questions about the business as they want to dig in further if they're interested. And this is the period that people call diligence. Where as these buyers analyze your company, they'll ask you for more metrics or more information or more qualitative data to inform their picture of the world of what they think your company can do within their context. And then they'll also go off and do their own research. Maybe they'll call up all of your competitors or your customers. And then work with consultants to study and size the market, all in an effort to create their own informed opinion of how much they think your company is worth.
And so out will pop some sort of number from their model. But what we learned earlier is that you can just plug your numbers into a model and make it say anything. The reality of whether or not you get a deal done is about your conviction and then ability to negotiate. So in general, when you come in as the buyer or the investor, you kind of have your gut sense of a range that you think is an acceptable price for this business, which is informed by that analysis you did. But then you have to observe and then analyze the situation or the context. What I mean by that is that there are all these sorts of circumstances that a company or an asset could be going under that affects how much competitive tension you have in a process. So for example, on the one end, this company could be in an absolute fire sale where a government is actually forcing some company to divest some of its assets. Or on the other hand, you're one of two really big players in the market, and you know that your biggest competitor is also really, really interested in this target. AKA, there's a lot at stake for you if you lose out on this acquisition.
And so I want you to think about all the different factors that would affect the competitive tension of your process. Number one, how tight and competitive of a process are you actually running? AKA, what is the number of interested parties that are bidding on your asset? And then number two, what is the quality of the asset you're selling itself? Because the more profitable and the more faster growing and then the more strategic your asset is, the more tension and desire your buying parties have around getting their hands on this asset. And then from there, assess the market conditions. Because you might have the best company in the world, it might be the market leader in the space, but if the markets are down right now, then no one's going to be able to pay up for your asset. And then lastly, think about the urgency you can actually introduce into your process. Where think about how much it could play to your advantage if you can get one of your interested buyers or investors to put down a term sheet that says, "We will pay you this big price, but you need to decide by this time." And create the sense of time urgency that ideally bids everyone up.
And so you realize that these are the variables that the most senior of decision-makers are thinking about when thinking about doing deals and moving billions of dollars of capital. Like this is the game that they're playing. Because one of the things you learn at Goldman of how the world really works is that there's only a handful of people who make decisions that affect the rest of us millions. And at that senior of a level, the decisions they make are all about trust and relationships. If you want to get stuff done at the billion-dollar level, that comes down to not just the strength of your individual value proposition, but also who you know, how large your network is, and how much trust you have. AKA, your network is your net worth. Where when it comes to the people who can really broker any deal behind the scenes, it is all about their relationships and who they know. Because if you think about it, if you know everyone out there, then you can get your foot in the door anywhere and make any deal happen. Like, let's say you want to get into a company and sell them something. Well, if you know the CEO of that company, then you're kind of set. And in the same way, let's say you have a problem with the government. Well, you could actually just call the government. Like, we always seem to think of the government as this monolith. But if you think about it, what is the government but just a bunch of people in an organization? And there are certain people in that organization of the government who are responsible for making the decisions of what we care about or what we let slide. And so there's a reason why three of the most recent Secretaries of Treasury are all Goldman alums, like Steve Mnuchin, Hank Paulson, and Robert Rubin, amongst a host of other Goldman alums who run so many of the world's most important financial institutions. Because this is what goes down behind the scenes. This is how you make deals and broker power. It's all about relationships and who you know.
And so you can hear this reality and say, "Oh, that's so not fair," and also, "Capitalism." Or you can recognize that we were born into this system, whether we like it or not. Unfortunately, we have the ability to change that system. Where there has never been a better time in human history to be able to break out and build your very own thing. Like for me, the reason why I was able to even break into a place like Goldman is because the internet allows you to connect with anyone else in the world with just the click of a button. And so I was able to cold call my way into a place that I had absolutely no business being in. And now, because of social media, you can build a brand, an audience, a business, a network, all for yourself, without the sign-off of any gatekeeper or institution. And so yes, my key learning from Goldman that the strength of your network and your relationships still applies. But having left and found success for myself, I know that with hard work, you can build this for yourself. And so whether you're trying to go build your own business or you're pursuing a career in finance, I hope that this video helped you, and I cannot wait to hear about how you crushed it.