Five Secrets of Private Company Investing Thursday, November 12 th 10 am PST / 1 pm EST Lessons from Under Armour Presented by: Jay Turo CEO Growthink
Overview Webinar Protocol Current Market Conditions Why Invest in Private Companies? 5 Best Practices Lessons from Under Armour s Rise to Success Who Is Private Company Investing For? The Growthink Investment Vehicle
Conference Call Protocol 1. 30 Minute Conference Call 2. Questions/comments as we go: Type in utilizing GoToWebinar toolbar 3. After Call: Survey feedback Within 2 hours after the call, you will receive, via email, copies of the reviewed slides and a recording of the presentation
Current Conditions November 2009 1. STRONG public market performance DJIA: Reaches 52-Week High as materials, financial and industrial stock rise. 2. Overall economic conditions improving US GDP up 3.5% in 3 rd Quarter Due to higher consumer spending Improvements in home-building Slowdown in the reduction of inventories And most importantly, federal government stimulus
Why Invest in Private Companies? 1. Had offered best long-term returns of any investment class by far Last 10 years: 30%+ annually 2. Driven and dependent on outliers: 93% of all early-stage private company investments have a negative or break-even return Various Asset Class 10 & 20 Year Performance Index (%) Fund Type 10 Yr. 20 Yr. Early-Stage Priv. Cos. 32.9 21.4 Venture Capital 16.6 16.9 NASDAQ 1.9 9.2 S & P 1.2 8.0 Real Estate 2.6 3.6 Inflation 2.4 3.1 Sources: The Wiltbank Angel Report, Scott Shane, Fools Gold: The Truth Behind Angel Investing in America, The Economist, US Census, SBA, Bureau of Labor Statistics, Kauffman Index of Entrepreneurial Activity 7% of investments have returns greater than 10x
Five Best Practices 1. Internet Deal - Sourcing 2. Data-Driven Risk Analysis 3. Exploit the Pricing Inefficiency Gap 4. Have a Technology Bias 5. Black Swan, or Randomness Modeling
#1: Find Deals via the Internet One of the many wonders of the Internet age is deal access LinkedIn: 160,000 Companies+ Facebook: 25,000 Companies+ BizBuySell: 47,000 Companies+ RaiseCapital.com: 4,500 Companies seeking capital The Funded.com Estimate: Over 1,000,000 U.S. private companies available to/actively seeking outside investors
#2: Data-Driven Risk Analysis Deal outcomes databases have made QUANTUM leaps forward: Capital IQ, Venture Source, and BizComps Perform regression analysis by: SIC code Business stage Amount of Investment Time to exit Financials: Projected vs. Actuals Fast Follower Data Management Team
#3: Exploit The Pricing Inefficiency Gap Pricing efficiency is the insurmountable obstacle to alpha public market returns NOONE consistently beats the public markets Those that claim that they do are simply data-mining Early-stage private company investing still provides significant opportunity to advantageously price deals Far, far more sellers (companies seeking capital) than buyers (investors seeking companies) HUGE information gaps between market participants
#4: Have a Technology Bias Only 1/3 of early-stage equity investment goes into technology businesses* Clean Tech, Healthcare, Computer Hardware and Software Likelihood of high technology companies having successful exits for their investors is more than 20x greater than nontechnology companies* ONLY invest in technology businesses *Source: Scott Shane, Fools Gold: The Truth Behind Angel Investing in America
#5: Black Swan Modeling Early-stage private company investing is driven and dependent on outliers: 93% of all angel investments have a negative or break-even return 7% of investments have returns greater than 10x If you are not prepared to invest directly into a LOT of private companies, don t do it alone *Sources: The PricewaterhouseCoopers/National Venture Capital Association MoneyTree Report, Thomson Reuters, The Wiltbank Angel Report
Recap: Five Best Practices 1. Internet Deal - Sourcing 2. Data-Driven Risk Analysis 3. Exploit the Pricing Inefficiency Gap 4. Have a Technology Bias 5. Black Swan, or Randomness Modeling
In 1996, Kevin Plank Founds Under Armour It was the early '90s. Cottons still dominated the apparel market. Playing football at University of Maryland, Plank grew tired of the buckets of sweat that accumulated in the cottons he wore to practice and on the field. Plank begin testing fabrics at a local tailor shop in Beltsville, MD. Maxing out his credit cards, Plank ran through seven prototypes with his teammates at Maryland. "My first goal was getting athletes to believe in the fact that they needed an alternative to a basic cotton T-shirt.
Under Armour Breaks Through To infiltrate locker rooms on the college level, Plank had to adopt a different business approach. To be successful, he would have to corner entire teams. His first major sale came when an equipment manager from Georgia Tech acquainted with the T-shirts contacted Plank for their first big order The deal with Georgia Tech opened the door to a contract with N.C. State
Under Armour Breaks Through Then Plank recalls "I'm sitting in grandma's basement in Georgetown, and the phone rings, The guy says, 'I'm the head equipment manager for the Atlanta Falcons and we want to buy your shirts. Then the Falcons played the Giants. There, the equipment guy for the Falcons was a mentor to the equipment guy at the Giants and he liked our stuff.
Under Armour s Rocketship Success The rest is history 2008 Revenues: $725 million Current market cap (11/12/2009): $1.36 Billion Kevin Plank s Stock Position in Under Armour: 12.5 million shares at $27.16 share = approx. $339 million
5 Key Lessons 1. Think long-term. 2. Value of getting in early. 3. Invest in people. 4. Take a shot. 5. Get lucky.
Who Is Private Company Investing For? 1. Long term investment horizon 5 years+ 2. Need a Business Mindset and looking to invest thoughtfully : Entrepreneurs & Executives Professionals (Doctors, Lawyers, Accountants, etc.) Engineers, Scientists & Technologists
The Growthink Investment Vehicle 1. Managed access to a portfolio of early-stage, technology-biased private companies Cleantech, Healthcare, Software 2. Less concerned about investment amount than working with the RIGHT investors Long-term, fundamental investors Business mindset Looking to invest thoughtfully IRA and Trust Options Available
To Learn More Please return our survey Contact: Ms. Melissa Welch: 310-846-5015 Email: melissa.welch@growthink.com