Once you have a private investor in your sights, there’s no sense in letting them out, right? If you’ve already taken the time to qualify the investor, present the basics of your opportunity and deem them a good fit (it’s important that the investor is a good fit for you), it might be time to push some higher value chips into the pot. I’ve found it particularly useful to show my private investors one of Einstein’s favorite things – and this really drives a strong point home while loosening up their checkbook.

What am I talking about? What was Einstein’s favorite thing?

Compound interest.

Einstein was quoted as “compound interest is the greatest invention in human history.”

Not sure what I mean?

Think about it this way: a investment of funds into your business is an asset allocation decision for most of your private investors. They do have choices with their money. In each private investors’ mind, they are comparing and contrasting what you’re saying to what they know about other available options for their money – mutual funds, CD’s, annuity. The investor will be reconciling what you’re telling them with what they’ve heard or read from other sources. Since this is the case, it only makes sense to give them a piece of information that will help them make a better decision for the long term investment of their funds (no, you’re not playing financial planner, just giving them an example).

Here is what you can show a private investor:

This table shows the value of $100,000 invested at 10% compounded (the alleged long term gain of the stock market purported by the financial services industry) and $100,000 invested at 12% compounded (a common private money return paid). As you can see, the difference in investment value after 5 years invested is small, $15,000 (but nothing to sneeze at). But, after 10 years invested, the difference grows to be over $50,000!.

Your private investors can make tens of thousands more dollars invested with you over a period of 5 or 10 years, just from a few extra points per year. The power of compounding is what makes that small difference in rate or return so important. That’s why Einstein was so enthralled with the concept.

“But what if my private investor doesn’t want to invest for even 5 years?”

If this is the case, showing the power of compounding is still very useful, because you give the investor another way to evaluate the investment with you – another way to show (visually and with numbers) how your opportunity is different from any other.

When you use the power of compounding to help make your private money case, you are also turning a trick that financial advisors like to use and using it against them. One of the first things financial advisors do when a new client walks in the door is to show them the long term upward trajectory of the stock market and how compound gains (e.g. continually reinvesting in mutual funds with them) works. You can simply take this, tweak it a bit and trump your money competition.