Minimum Viable Deck

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Minimum Viable Deck

Welcome back! 👋

At this point I’ve reviewed hundreds of investment decks for LPs. Making a great investment deck is hard and time consuming, but it saves a great deal of time for both the LP and GP.

What I would like to do today is explain the 10 components that must be in a deck in order for an LP to consider investing in a deal. There are many “nice to haves,” but that’s not the topic here - hence the Minimum Viable Deck title.

**Why should you care to read this as an LP? **Because if any of these 10 are missing and you invest, you’re likely missing something material (so at least ask about it!)

Why should you care to read this as a GP? Because you’re likely wasting your time responding to the same requests or not presenting your deal in the best way you can (in my humble opinion).

Let’s dive in:

So, what makes a Minimum Viable Deck?

I wrote this as if I am writing a letter to the GP, and hope you (mostly LPs on the list) will enjoy the conversation! 😊

Here’s what I think, applied to a multifamily property (you can extend to others fairly easily):

• Basics

• Address - please don’t make this hard to find :)

• Square footage

• Vintage (how old is the property, has there been updates, etc)

• Price, price psf, price per unit

• Occupancy trends

• Existing rent roll summary and unit mix

• Investment thesis (what do you plan to do in simple English)

• Any other relevant basic statistics

• Who’s involved in the deal **- **this is so basic, but it’s not always clear and many GPs hide Co-GPs; in some cases decks even hide the fact that a given GP is not the main GP on the deal (despite knowing up front that this will be the case, thereby misleading the LP)

• **Track record - **what have you done in the investment universe to date, how things have gone thus far (both on existing investments and exited), and why the experience translates to the subject investment strategy

• Side point: I’ve seen some GPs evade this (either directly or indirectly) and candidly I don’t understand it at all

• There’s nothing wrong about being in your first year of dealmaking or experiencing some hiccups along the way, just be up front (people like to invest with honest people) and make sure you’re compensating the LP for the additional risk they’re taking on

• **Hold period and cash flow expectations **- it should be clear how long you plan to hold the asset (translation for LP: how long your capital will stay illiquid) and whether/when cash flows should be expected (don’t sign up for a development deal expecting cash flow day 1 - I’ve seen it and it’s terrible for both parties)

• **Market - **good market slides are hard to come by; if you can craft a narrative around what’s happening in the market today, what you’re expecting in the future (e.g. supply), and how all of that ties in your assumptions it can be extremely beneficial…

• Please don’t just paste a bunch of meaningless graphs (temping, I know) without your thoughts on the data

• Also, while we’re here, please don’t post about a market 200 miles away that happens to be big and growing… not as relevant as it pertains to the subject property, unless you explain why it should be relevant

• **Exit strategy - **when are you planning to sell and what assumptions are you using to get to the exit valuation

• Same would apply to refinances - more here

• Exit cap rate vs entry cap deserve some attention - please don’t evade the conversation by hiding the numbers, simply explain your thesis

• Sensitivity tables** **- pick two of the most important variables that will have the biggest impact on IRR and create a datatable that shows the impact of moving them on LP IRR (notice I said LP, not deal level - can be a big difference and you should be clear which one you’re showing)

• I put that in this section since 90% of the time IRR is the most sensitive to exit valuation

• **Sources and Uses - **detailed sources (where the money is coming from - usually debt and equity sources) and uses (where it’s going, including all fees, reserves, and closing costs)

• PS please don’t hide stuff in closing costs

• **Capital Stack - **what’s in the capital stack other than equity (e.g. a loan) and what are the terms of that arrangement

• Alignment of interests

• **Fees - **a list of all fees that would impact the LPs; example of impact here

• **Coinvest - **how much are you contributing to the transaction; more on why this is critical here

• **Waterfall - **a clear outline on how capital is distributed on both cash flows and capital events (refinance & sale) - pay special attention to the return of capital clause and clarify if you’re using it up front

• Rent & Sale Comps - if the deck says something along the lines of “we’re getting a deal with below market rents” or “priced x% below comps” please include your support

• If comps are materially different than the subject property (e.g. newer property, better location) preempt the question and explain to the LP why you think it’ still a fair comp

• Financials - cash flow projections by year with clear assumptions; please make sure the existing P&L (Trailing 12 months - T12 - for example) is there for you to understand the projected line items relative to reality today

• Top Risks & Mitigants for brownie points (hence #11 😊): what are the risks and how are you thinking about mitigating them?

• Not the fluff in the PPM about another COVID happening or the macroeconomy burning up in flames, but rather a few concrete risks that you, as GP, are actually concerned about as far as this investment goes

In summary, if you don’t give these 10 items to the LP, you haven’t given them enough information to make a decision on an investment…and will inevitably get a bunch of questions. So why not just answer them up front?

As always, would love your feedback. What would you add?

Thank you!

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