Growth in Recession & the Essential Economy by Princip.al and Alpha

Hosted by Sam Desimpel, Princip.al, with Steve Brotman and Brian Smiga, Alpha Venture Partners

Brian Smiga: Thank you all for joining. I’m Brian Smiga, the co-founding partner of Alpha Venture Partners here with my partner Steve Brotman and Sam Desimpel of Princip.al. Sam’s going to be your host. I’m just giving instructions. I’ve known Sam for three years when I met him in Montreal, at, of all places, the Club B. We got to know each other over the intervening time. And last spring we were fortunate that Sam, along with Robert Barge, invested in Alpha and became a limited partner. And so we’ve become closer friends since then. And we talk about investments and private investing frequently. Today is about how do you invest in private tech during a recession and where do we go from here? And we’re producing a series of events like this especially on growth sectors.

Brian Smiga: I’ve known Steve Brotman, my partner,  since 1998 when I captained the second of his investments, to a profitable exit. We three are going to have a good time today sharing our ideas with you. Thank you so much.

Sam Desimpel: Lovely. Thank you. Good stuff. Brian and Steve, I was actually looking forward to normally having seen you in a couple of weeks when I would make my annual trip to New York, but I’m afraid that’s not going to happen. However, here in Belgium we’re starting to get slightly out of lockdown. It’s starting to relax and I have to say it’s very strange for us to be ahead of the United States for just for this once.

Brian Smiga: I think two weeks ahead.

Sam Desimpel: Okay. Steve, first to get more of a perspective, I hope lock down has been good for you. A lot of people have started developing strange hobbies and all that. I’ve started writing haikus myself. Have you been up to anything original learning any new skills?

Steve Brotman: Actually, it’s really funny. Whenever I’m faced up with the kind of crisis in my life and everyone’s living this crisis in different ways. I think on a personal note you just begin to realize how important your family is. We’ve been hosting online a couple of times every week on a regular basis with both sides of my family. And it just occurred to me, “Why don’t we do this every week?” Even without this crisis. With cousins and aunts and uncles and grandparents, and just on a personal note, that’s been impactful on me and my family. I know that sounds like a horrible thing to say that something good has come of this, but I think all of us have spent some time thinking about that. And in some ways we’re kind of blessed in figuring out what’s most important.

Sam Desimpel: So I guess you both have time to think and reflect on things, and given that you are well experienced, I think you’ve lived through how many crises  now?

Steve Brotman: I’m not ancient. As a venture capitalist, I’ve come through the 2000-01 crisis and the 2007-08. And I know some folks that have more experience than even that. But since then, the venture industry’s grown tremendously since then, I feel like I’ve seen 98% of that growth.  I’ve been doing a lot of thinking about what to do now, how we have performed and how we think about things.

Sam Desimpel: So what would be your favorite crisis?

Steve Brotman: So far this has been my favorite crisis. I know that sounds horrible. But I think at least as a tech investor I’ve been spending a lot of time  looking at the public markets. Because as a growth investor, you look to that as a signal, and it seems to be that people have more… the Swiss bank is buying shares in Apple. 20-30 years ago, tech was only 1% of GDP and 1% of the stock market. And for someone to think that instead of Euro bonds or treasuries or gold, even, maybe they should buy some shares of Apple is pretty radical. And it’s something that I’ve lived almost my whole life saying wnyI was investing in tech’s growth.  When you and I were talking about Alpha, and what’s going to happen in the next recession, you had the bravery to say, “You know what, I kind of agree.” 

Sam Desimpel: If I may, you’re saying it’s funny that the Swiss bank is investing in Apple, but somebody told me that you’ve started a short fund.

Steve Brotman: Ha, ha,  that says a lot. I would say that’s mostly in my personal account. I’ve invited a couple of friends to join. And it’s been interesting. In March, I put 5% of my wealth into sort of a short trading situation that is up substantially in March, about 150%. It’s down about 17% this month. So, I’m still up 140%, but I’m just blown away by the breadth of this… Driven often by tech, healthcare and durable consumer goods that are 50% of the S and P. And I shorted the market, mostly because I wanted to hedge the 75% of my wealth that was illiquid.

Steve Brotman: Some people are saying that this could be worse than the great depression, so to not risk 5% of my net worth to hedging that exposure, especially when 75% is illiquid, seems kind of foolish. And so I took a portion of my personal assets and did that. I also learned a great deal. I been doing a lot of reading, a lot of absorbing. So I wanted to invest that time in some deep learning, and this was one way that I did it. I’m no hedge fund manager, that’s for sure.

Sam Desimpel: Maybe if I may return to the beginning… you started off actually as an early stage VC.

Steve Brotman: Correct.

Sam Desimpel: And what I was wondering, is what actually happens to early stage companies in crisis? Since you’ve lived through a couple?

Steve Brotman: You’re right, on the early stage side, you and I have talked about this. And part of the reason I started Alpha in 2013 with Brian was because I felt that I went through two recessions, and seen early stage companies perish, that are perfectly good, just because of financial risk, and I just didn’t want to go through another recession with other people’s money and my own money. I started Alpha because this is what I wanted to do with my own resources.

Sam Desimpel: Sure.

Steve Brotman: As you and I talked about, I said, “Listen, I don’t want to do that again. I don’t want to see 80, 90% of my portfolio wipe out.” And have to tell investors, by the way, “It’s going to be another five or 10 years before this early stage company becomes big.”

Sam Desimpel: If, for example, people ask,”Hey, we would like to invest in early stage tech right now.”

Steve Brotman: What would I say?

Sam Desimpel: What would you say?

Steve Brotman: So, first of all, it’s all about what your other opportunities are. If you said, “Hey tech is where I really would like to be,” then what part of the piano do you want to play? Well, what happens during a recession for early stage companies is even if they’re perfectly good companies in the long term is they face financial risks, that their customers face so much distress that they fail. I’ll give you two examples. I had two companies that were very successful: Metadata and Live Person that powered through the recession in pharmaceutical software and  in essential enterprise tech.

Steve Brotman: So these two returned three times my fund. We had six other companies with North of 50 million in revenue. And one of them was a company called Datasynapse and it made computers faster- the ability to do high compute tasks easier, like portfolio analysis. And they had eight of the top 10 financial institutions Goldman Sachs, JP Morgan, Freddie and Fannie, Wells Fargo, Deutsche bank as customers paying them millions of dollars a year. And in ’08 the Fed and the EU authorities told all those banks, “You can no longer buy software.”

Steve Brotman: The revenue fell from 100 million down to 10 or 15 million, and we had to sell it in a fire sale. And you can say, “Well that was like a one-off thing.” But the more recessions you go through as an early stage company, the more risks you have. The other company was a company called PartSearch that enabled big box retailers to sell consumer parts. You can’t carry 10,000 parts in a hobby shop or a store. So having an eCommerce partner that had all that integrated, all those different supply channels of the million parts, like that cord from your old camcorder or anything else. And as they went through the recession, it’s a great business, right? Because people need parts for their old stuff, recession-resistant.

Steve Brotman: And basically all the retailers, because they were getting crushed, their biggest customer was a Radio Shack, that went into bankruptcy and then Best Buy. Best Buy was under huge pressure. And what they did, they were half of their revenues. What they did was they slow paid them and forced Part Search into bankruptcy and then they basically bought them out just before bankruptcy for pennies on the dollar. So weird stuff happens in recessions to early companies that don’t have a very strong balance sheet. So I took those lessons that I learned in 2000 and 2008 and I said, “We’re going to do growth companies north of 20 million, typically over 100 million, growing at a 50-100% CAGR with heavy balance sheets and that are in recession-resistant sectors.” So far we’re doing okay.

Steve Brotman: 75% of our companies have 18 months of cash. 75% are in COVID resistant companies and even counter-cyclical, for example in eCommerce and telemedicine.

Sam Desimpel: If I may piggyback on your historical experience. One thing that’s not reallycovered so far has been jobs, jobs in retail, jobs in hospitality, but also jobs in the tech space. I’ve heard that most companies are shedding, even the ones that do well actually I think 25% of their workforce just to trim the fat, as they say. So you’ve probably seen this before. What’s your opinion? Will jobs come back?

Steve Brotman: There’s such a divergence of when you literally have 60, 70, 80% of the S & P not reporting. If you think Apple doesn’t know what they’re going to do this quarter and doesn’t want to give guidance for the rest of the year, what do you think smaller companies are thinking? I think they are going to come back, so long as they survive, so long as they have the financial footprint, the balance sheet and the backers, and that means us as well. Alpha is 40% deployed in fund two and we have 60% of capital.  I think valuations are going to moderate, and the companies that are resilient are going to show pretty dynamic growth.

Steve Brotman: I think on the jobs front. I think people are gonna get smarter. They’re going to upgrade their teams, they’re going to take an opportunity to add on engineering staff that they couldn’t afford or couldn’t get before. If you look out five or 10 years, are people going to buy more Apple computer products? Are people going to buy more Teslas five years from now? So I think with all these tech companies, if they have solved a real need in the market, the key determining factor is how much balance sheet do they have, and how fortified are their investors?

Steve Brotman: I think there’s a role for early stage at this juncture, because it’s deep tech. But you have to think about it as if the people around the table are the only funders of that business. So if a bunch of angels get together and put a million or two million into a business, the idea was, in a year or two, they’re going to get venture backers. There’s not that guarantee right now. We had one company in the ’01-02 recession, they grew to a million in revenue and 80-100 million,in valuation. It was in the advertising networking space, and it was growing rapidly.

Steve Brotman: And then post recession, the last round was three million on a three million pre- with a five X liquidation preference and the company was doing 20 million a year in revenue and close to profitability. So the problem is for early stage companies that if the later stage companies are going for three million, what’s the valuation of an early stage company? That’s the issue that early stage companies are going to face if they don’t catch fire right away. The compression of later stage valuations is going to come down to the point where it’s so harsh that it doesn’t make sense for an investor to invest in an early stage company when you can get a much more mature company for the same price.

Sam Desimpel: You’ll be in a quite comfortable position in the coming years, I would think? Brian, would you give me an overview of the portfolio. By the way, so I started writing haikus. Steve opened up short funds. What’s your new hobby during confinement?

Brian Smiga: I’ve doubled down in gardening, paddling my ocean kayak and spending time with my 14 year old who is turning out to be quite the engineer. So we’re building all kinds of gear and writing all kinds of software at home. 

Sam Desimpel: That’s great. So that aside, I think one of the purpose of this call is to see how Alpha portfolio is holding up. I think you have a couple of companies that were in a problematic spot like Lime and Getaround that were in transport. The other ones were more in healthcare, the ones that eCommerce are doing fine. Is that a correct simplification?

Brian Smiga: Yeah, it is, we feel very lucky, right? Because first of all, we don’t have a lot of early stage babies to try to problem solve for. Alpha’s built to invest in companies that are growing at a 50% CAGR over multiple years. That’s all we invest in. These companies can attract strong capital syndicates. And as Steve pointed out, we have the seven C’s criteria: one of which is countercyclical. So while looking for recession resistant companies, it was impossible to predict COVID. So we have a few transportation companies that are hard hit like Lime and Getaround. But at the same time, when you look at the capital deployed by Alpha into our portfolio of 14 active companies, 75% is in companies that are growing on plan in 2020 and/or are getting a slight tailwind from the COVIT crisis.

Brian Smiga: And this may interest the audience. What sectors are these in? They’re in telemedicine and health service delivery companies like DoctorOnDemand and Ro Health. They’re in what we’d call “essential e-commerce” companies like Coupang, which is the Amazon of South Korea, and Wish and GoPuff. And they’re in essential enterprise services that business can’t do without, that reduce costs, deliver ROIs, companies like Gecko and Socure.  We’re really lucky that our thesis has worked out. And we know there is damage to companies like Lime and Getaround that we’re still evaluating, but they’re in the minority. At the same time, we also invested in companies that have strong capital syndicates and were able to raise sufficient capital pre COVID. And so 75% of the companies we’re invested in have an 18 month runway, which is pretty much what companies need today if they’re not profitable, it’s a terrible time to be raising money. So 75% of our companies meet that test.

Sam Desimpel: Okay. Which one is actually performing best now of all the companies? I would put my money on….

Brian Smiga: It’s Coupang and DoctorOnDemand. 

Sam Desimpel: Can you explain to people what DoctorOnDemand does?

Brian Smiga: DoctorOnDemand is the leading video telemedicine company that only hires its own doctors who only deliver care through the smartphone, through the iPad, through the computer, Telemedicine. And they have as customers, United health, which is the largest insurer in the United States, or on the corporate side, Walmart, which has 1.5 million time-constrained workers. So they are thriving, but I think it speaks to a larger trend, which is there are a number of technology sectors where growth is accelerated and companies are seeing in a couple of months the growth they were formerly seeing in a year, and Telemedicine is exactly that kind of category.

Sam Desimpel: Brian, you would imagine that a company like DoctorOnDemands does hit a ceiling at a certain moment because it doesn’t matter. For Netflix if 1000 people watch a movie or a million or 10 million, they’re all watching the same movie. However, if you, if a Doctor On Demand needs to triple, they also need triple the amount of doctors, right?

Brian Smiga: Yeah. But let’s look at what’s happening for doctors outside of the emergency rooms and the respiratory doctors that are needed in critical care. All other doctors who are in shelter right now. There’s no better thing to do than to see patients through telemedicine. So that’s an on ramp, right? To acquire doctors who are never going to go back, many of them to their former brick and mortar practice or are going to continue as an adjunct on telemedicine. And the same thing’s true with consumer behavior. We’ve got single digits of telemedicine adoption pre-COVID now growing to double digits. And once consumers, payers, doctors all experience the increased value of telemedicine over having to go visit a doctor for 40% of all doctor visits, since it’s superior, they’re not going to go back.

Brian Smiga: This is the kind of COVID-induced behavior change and acceleration of a technology trend, which we’re now looking for in a bunch of areas. And I encourage the audience to look for these accelerations, and we think telemedicine is one of them.

Sam Desimpel: Okay. There was a second company you wanted to mention.

Brian Smiga: Coupang is the Amazon of South Korea and it had worked really, really hard on same-day delivery of consumer staples, goods that you couldn’t live without – diapers, food, et cetera. And they had perfected delivery far better than any competitor, better than Amazon, and therefore are growing with the best consumer economics in a country where the entire country is about as dense as Brussels or New York in terms of urban density. They’re growing tremendously this year. It’ll probably be a 75% plus  growth year,  and are putting together all the attributes they were seeking over the last five years to be ready for an IPO.

Brian Smiga:

And so that’s the kind of “essential e-commerce” we’re looking for. We think there’s a number of categories in what we call the “essential economy” that represent great opportunities in the coming year.

Sam Desimpel: And that brings us to your dry powder, right?

Brian Smiga: Yeah.

Sam Desimpel: You’ve got about 70% of dry powder.

Brian Smiga: Yeah. It’s another place where we’re lucky we didn’t want to deploy too quickly until we finished raising fund two, which we concluded in May, thanks to you and Robert Barge and others. And so now we’ve got 70% of our capital available to put into these themes. And so coming back to we only invest in companies growing at a 50% CAGR, we think companies that grow at a 50% growth rate this year at scale are the best of the best. I think others would recognize that while we’re on lockdown, companies that can grow at these kinds of rates this year are attractive opportunities.

Brian Smiga: We also think that prices are going to normalize. They were getting higher and higher, just like equities were overpriced in the public markets. So too they were overpriced in the private, and now we’re going to see price normalization. So we’ll be able to invest in select sectors and companies that are growing in 2020-2021, despite this entrenched recession, we’re going to invest at attractive prices.

Sam Desimpel: But Brian, what tells you that you will get companies that are growing at 50% CAGR at more normal prices? Because if we live in a world with GDP contraction people are going to die to get their hands on growth companies company that are actually thriving.

Brian Smiga: Yeah, we agree. You know what? We have an expression internally. “Growth is the new gold.”So we even look at what’s happened in the public market and the NASDAQ and the largest companies in the S & P and the NASDAQ have come back strongest because they represent annual growth in this environment. So you’re right, there’s going to be a premium paid for companies that are growing this year at these kinds of rates. But we think as prices overall come down, we’re not going to be overpaying. And we also believe that if you’re trying to get a return in the 2020-21 timeframe for a harvest period at ’23, ’24 as we are, we’re going to be able to invest in companies that continue at a 50% growth rate and they’re going to expand enterprise value at that pace. So I don’t think it’s going to be cheap, but I don’t think we’re going to see the 20 X SaaS companies we saw six months ago either.

Sam Desimpel: Okay, so which would be your favorite sector to double down on or?

Brian Smiga: We don’t know yet, but I can tell you where the suspected gold mines are. Telemedicine and health service delivery is clearly one of them. And we put all these sectors under what we call the “essential economy”. So what can consumers and businesses not live without? Second would be education and the re-skilling of workers. Because there’s going to be a tremendous sea-change in employment and the skills needed for the next gen of employment. There’s going to be a tremendous change in the way education is delivered all the way from K through 12, but most particularly for adults. There’s going to be an appetite for adults to re-skill and to learn. So Ed tech suddenly becomes a hot sector. Essential enterprise would include everything from security to cloud services that dramatically enable remote and distributed work and distributed services without having to go into the office,  and the need to protect and secure that work.

Brian Smiga: Other things like cybersecurity, robotic inspection, automation, are being able to do the same work with fewer workers. All of these themes I think are going to play in the essential enterprise. And again health. And essential e-commerce. Companies that are delivering consumer staples in a superior way, at superior price point, these are four sectors we’re looking at.

Sam Desimpel: But so for example, would you qualify Wish as a company that delivers essentials to people?

Brian Smiga: I think Wish is in a good position to steer using its analytics, its low cost manufacturing base. It’s making its products towards things that consumers must have. So they’re increasing their mix towards apparel. So if you’ve got an outfit your kids at the lowest possible prices with underwear and socks and fun things to wear I think Wish’s a great service. If you need to outfit your home office because you need to buy office and electronic  gear, Wish is a great source. So I think people are going to be very price sensitive, and Wish, because it completely cuts out the middleman. What it is, is 100,000, mostly Asian manufacturers linked to a hundred million cost-conscious mobile consumers and the largest mobile shopping store in the world, and Wish has more apps downloaded that Amazon, that’s what Wish is and I think as it steers its product mix and uses analytics to tell the manufacturers what products, at what price, and in what colors and what quantities to make. It has a bright future.

Sam Desimpel: Okay. We actually have a question already from the attendees which this is quite relevant. It would ask you to expand a little bit more on the digital theme in health care. Is it driven by the individuals or by the system?

Brian Smiga: Well, it’s a great question. I always get to come back to the customer, right? And I think what we saw with DoctorOnDemand when it was in small adoption was that when it got into the workforces of companies like Comcast, which is at-home internet services broadcast cable company, or Walmart, which has 1.5 million time constrained workers, it took off. And the customer ratings were super, super high. So I like to start with a customer. You picture the Walmart worker who’s raising their kids, working two jobs. The amount of time they can save getting their kids seen by the doctor using DoctorOnDemand, I think is a big part of the equation. Then we go to Walmart itself.

Brian Smiga: So not only is the Walmart customer happier, but absenteeism goes way down, reliability of shift goes down, employee attitude goes way up. So there’s benefits for Walmart, and then it looks at its healthcare bill, right? And United Health – as the main provider of insurance for Walmart. And now they see that there’s a cost reduction because they’ve eliminated ER visits and critical care visits dramatically through telemedicine. And so now everybody’s winning. The Walmart employee, Walmart the corporation, and even United healthcare, all are becoming more profitable because it’s squeezing costs and inefficiency out of the equation.

Sam Desimpel: Okay. Now before we go on to your future prospects of Alpha probably will next be in the market to raise more money. I guess some of the existing investors are probably quite anxious to get your opinion on exits. I suppose everything is frozen right now? You see the IPO market recovering one of these days. Because I remember, and I’m also not as ancient, Steve, all due respect. But I do remember in 2008-2009 companies like Open Table coming to the markets.

Steve Brotman: Yeah. So actually Metadata was one of our older portfolio companies that was founded in ’01. It was in the pharmaceutical software space and to our chagrin, it went public in… sorry it went public in ’09 and at eight times cash flow. That was when the market had already cratered 50% or more. But it was growing at a 100% a year plus. So one of our other companies is a company, as Brian mentioned, called Coupang and in South Korea,  they were planning on an IPO later this year, early next. Revenues are growing pretty sharply with e-commerce there as you can imagine. I think they are going to take the window to go public. The bigger question is, is for these companies to go public they might want to do that, but when we distribute stock, is that the right time for our LPs to sell? That’s a deeper question and I think great companies, the exits are… right now we don’t want to be selling companies in a storm.

Steve Brotman: I mean with NASDAQ, 6% below the high, which is just surprising right now I think there are going to be companies that come to market and within our portfolio Coupang was one of them. Wish was planning on an IPO in next year, that’ll depend on what happens this year. Are they COVID procyclical? If they’re COVID procyclical and we just saw another company called Masterclass that we’re looking at potentially investing in. That’s sort of a Netflix for education but using like celebrity artists and sports people and the like, which is very cool. Could that go public in this type of environment? And I think that’s feasible.

Steve Brotman: And it’s frustrating to me as someone who’s been watching these cycles for a long time, to see companies sort of fumble the ball not going public in 2018 not going public in 2019 because they think they’re better days ahead. 

Sam Desimpel: For example, you see a Coupang maybe or Wish exiting, but most of the exits in the tech space are still being bought by companies. How do you see that going? Apple’s still sitting on piles of cash. Google is still generating cash.

Steve Brotman: Yeah. I think the incumbents are going to do more and more… I’ll give you an example. So Getaround in our portfolio and one of the clear exit partners would have been Hertz and Avis. So if the incumbents are going belly up or let’s say you’re in the travel sector, it’s very hard, but in the essential tech world, like what Brian was talking about earlier, when they’re truly essential let’s take telemedicine. There was a telemedicine company, Ableto, that was just acquired for 500 million by United healthcare recently in the Ed. So if the incumbents and if the trade sale partners in that sector are healthy then we’re going to continue to see exits I think. We’ve been tracking stuff in the insurance sector and the FinTech world and companies like Chime that are new banks, if you will, that continue to grow and create market share is now a good time for JP Morgan maybe not to acquire Chime for $20 billion, but rather to acquire their number two player like Dave.com.

Steve Brotman: I think you’re going to see incumbents saying, “If this is as deep of recession as we’re going to get anytime soon in tech, maybe now’s the time to buy.” So if the company is growing quickly, and I think this time might actually be a little different for companies that have proven their capability. And incumbents are healthy and security or cloud computing for instance, we’re looking at a cloud computing company right now that leverages GPUs. GPUs are a hundred times faster than CPUs and it’s an OS for that system. Is that something that’s interesting to an Amazon or Microsoft or Google to pickup  at even a high premium? I’d say so.

Steve Brotman:

So if it’s in the essential tech, the bigger question is, is now the right time to sell? And I think that’s going to be the bigger question. Not so much the, if we’re investing in healthy companies, you want to kind of sell, you want to… Frankly what I want to communicate is I’ve made almost all my money as an investor during recessions. Almost all of it was made during recessions and of course like we invested in Careem and we had a quick run there and CTP and a couple other companies, and we’re going to have a big win with Coupang and I think Wish, we would have made more money had those companies gone public and prior to this crisis, I think they’re going to do just, but I’ve never, and this is just from personal experience, I’ve never invested during a recession and is now the right time in the recession?

Steve Brotman: That’s one of the things that we’re asking ourselves is seven weeks, is eight weeks after a crisis the right time to be in legging, in big? And if you look at ’01, if you look at ’08 the answer was kind of, “Check your ego at the door and think about it really hard.” And because basically what happened in ’01, and ’08 is the deals got better. So as investors we want to be greedy, but there’s no gun to our head race. The odds are, who knows what’s going to happen with second waves of COVID. And while we’re kind of celebrating right now, I’m not sure we’re 100% out of that. And that’s why we’re focused on later stage growth, essential tech being modest.

Steve Brotman: And I think it’s really important. I think if anything it’s about being humble in this environment. And no one knows the answers. I wish we did. I wish our companies did. But I think we were talking about some principles and sorry if I’m going on a longer here than you want, but I feel like in this recession that tech could very well be the new gold and that would mean that incumbent players are going to continue to grow and power through this. And I think we’ll buy up lesser players and I think there’s always going to be a market now. If it’s a question of timing, would I want to be a seller in this environment? I’m definitely a big buyer and as time passes an even bigger buyer. But I think if we can get a price as a seller as we could have gotten because the company has continued to grow, that was kind of our thesis is that even if markets fall 30%, if your company’s growing at a 100% you should end up doing better in these environments.

Sam Desimpel: So, but still you are thinking about buying this. I’ve heard a rumor you’re going to raise more funds before the end of 2020? Maybe Brian, you want to comment on that?

Brian Smiga: Yeah, sure. And then we have a few audience questions we haven’t gotten to. So coming back to what we’re evaluating today and how we evaluate it. I don’t know if the audience has this picture in their heads. Alpha acts as growth opportunity fund for about 500 early stage funds. And that’s how we get into deals that only are growing at 50% per year. And we’ll continue to do so even in this year because these early stage funds are all specialists, black belts in different areas. And they have one or two companies had a 20 or 30 that meet this criteria, but they can’t write the bigger checks. And so we write the checks with them as a true partner and share the economics. So what this lets us do, is really look at what are the opportunities emerging from this 500 VC set?

Brian Smiga: And we see two things that make us interested that we’re going to explore in the coming months. The first is to continue to hone in on the essential economy sectors that we mentioned. And if you think about this yourselves, I think it’s very important to think about behavior change and how consumers and enterprise are permanently changing behavior to adopt certain technologies like telemedicine or remote testing or remote learning. So the other thing we see emerging from this class and investors is secondary opportunities. And so these VCs are going to not only have the scarce growth companies that need growth capital, but they’re also going to have some pretty great companies in which they need liquidity management needs liquidity, investors need liquidity and we have private access to these secondaries.

Brian Smiga: They’re not on the market otherwise and we have asymmetric information about them. So we’re going to look for some secondary opportunities as well. I don’t know if we’ll raise a fund dedicated to either the essential enterprise. I think we will or to secondaries. I have a hunch we will, but we’re in the research mode.

Sam Desimpel: So the short of it is somewhere in the summer you should be back on the market?

Brian Smiga: We’ll see, and we’d love to have this conversation with all of you again at the end of the summer and hopefully we’ll be in healthier shape. While we answer a couple of these audience questions, Sam, Dan has this poll so we have some questions for the audience. Do you mind if I take one of them it’s in the Q and. A?

Sam Desimpel: You go for it.

Brian Smiga: Someone asked, should we be looking at early stage companies that might gain market share against incumbents in spaces like Airbnb and Getaround? I can’t advise you there, but I would look to how do we think this upheaval is going to affect staying in strangers homes or renting strangers cars and we think the outlook is not good. So we don’t expect startups are going to disrupt Airbnb or Getaround. We think the whole category has gone to prove that it’s coming back and I’m not smart enough, we’re not smart enough to know when it’s coming back. We’re just, I think smart enough to have a radar that can see what it’s coming back. So that’s how we would approach that

Sam Desimpel:

If I may add to that Airbnb and it’s like all have gotten capital injections now by Silver Lake who’s the buyout fund also specialized in buy and build. Brian, what you’re saying is entirely correct. Airbnb is probably going to consolidate the whole sector. [inaudible 00:48:34] bar test.

Brian Smiga:

Likewise. And we think Getaround sort of our investments is likely to get acquired for its IP by either Uber or one of the automobile OEMs and a fire sale if you will salvage even though that company had really great prospects before all this happened. Someone asked about precision agriculture and the food supply chain. And this is an area, this meets the test of a central economy healthier food products, healthier ways of producing the food, healthier ways of meeting demand and distributing the food I think are all attractive themes.

Brian Smiga: We’re getting to know some really interesting food supply chain VCs in the United States like Mandatory. And we’ll be looking at this space as well. Someone asked about how much will telemedicine be driven by the consumer behavior change and new therapeutics and sensors and self diagnostics. And we think it’s, it’s, it’s going to be driven by both sides. But we do think the consumer and enterprise adoption, the more predictable one that we’re seeing right now, but we think there’s going to be breakthroughs around capturing vitals and self-diagnosis. Clearly, in fact, we held a seminar last night with about 70 people attending on this very subject with SOSV ventures and three of their companies. And we’ll share a recording of today’s seminar as well as the seminar we did last night on the essential health sector with all of you if you’d like. Sam, do you mind if we do the poll now-

Sam Desimpel: No.

Brian Smiga:… and then you can close out the meeting? Alright. So, Dan, are you ready to… So audience questions still welcome. If we miss one, we’ll answer it in an email. And we’re going to ask you guys a couple of questions now. So Dan’s going to put up a poll on your screen and I’ll read it out. So the S and P 500 this year, this month is about 2,500 and has been for over a month. So where do you think it will be in May 2021. Let’s take the temperature of the folks on the phone. All you have to do is click one of these radio buttons on where you think the S and P 500 will be in exactly a year from today and hit submit. And then I think Dan set this up so we can see the answers in real time. I’m not seeing them, Dan, maybe you can put them later.

Dan: Yeah, I’ll put them up later about our, right now we have greater than 3000 in lead, 5 votes.

Brian Smiga: Next question and then we’ll do one poll question.

Sam Desimpel: [crosstalk 00:51:53] do you see any ways that you can go to see if you would consider investing in hardware companies?

Brian Smiga: Well, we’re in one hybrid hardware company and to a degree Lyme and Getaround were hardware companies and we like companies that make money digitally and have no hard assets. So we have an 80/20 preference for non hardware companies that are dealing just with atoms. Gecko Robotics is not just a robotics platform, but it is also a whole platform of operators, data techniques. And so it’s a turnkey solution to expect industrial gear and utilities, chemical, paper plants, oil and gas. So hardware plays a small role. We look for margins, right? So it has about a 50% gross margin. So there you see the results of where folks feel the market will be a year from now. It’s pretty evenly distributed. Dan, do you want me to go to the next question?

Brian Smiga:

And while you do that someone asked about how do we see the new normal and we’ll cover that quickly. I mostly do that while the question’s going up, but let’s do the question first show. We can multitask here. So how likely would you recommend a webinar like this if we built the webinar on the essential enterprise health, e-commerce, FinTech sectors bring in some experts and companies?

Sam Desimpel: You mean more specific than this?

Brian Smiga: Yeah, more specific. We did one like this last night on health startups confronting COVID with real in market testing and antibiotic therapies and we had about 80 people there. So we’ll be doing more of that. And if you’re interested please check likely and you’ll encourage us to do them or whatever. I don’t want to hear your response, but anyway let us know if you’d like to see those. The new normal. Maybe we should go around the table. I’ll be really brief. I think the new normal really comes, it’s down to really low looking at fact-based behavior change. I look to e-commerce, which is at about 12% in the United States where we invented it and we have the biggest brand in the world, Amazon thriving, doing it across every sector. But in China and in the emerging world sometimes, it is twice that or more than twice in South Korea and China and Southeast Asia.

Brian Smiga: And so I think there’s head room for eCommerce to double in size. Whether you’re going to see an Amazon or are going to have in private eCommerce companies that do a central enterprise, which we think is a better investment coming in to a company that’s growing privately. We look at telemedicine the same way. Behavior change I think indicates a threefold increase in telemedicine visits and a relaxation of regulations that’s going to create a tail wind for telemedicine. So that’s pretty positive that people either would like to come or maybe come to sector specific webinars like this. You won’t just hear me, Sam and Steve talking. We’ll just be moderating and we’ll bring other experts and companies when we do these. So I hope you’ll join. Sam I turn it over to you.

Sam Desimpel: Yeah, like we used to do with our offline meetings when we were still organizing these, I think it’s a courtesy to stop in time because despite us living more relaxed lives now, I think we’re all still quite busy. So that’d be up for me to thank everybody who’s taken out the time to listen to us and also to thank you for your very interesting questions. For more sites, well this is one of the first webinars that we have organized. We’re happy to see that you seem likely to recommend think of these two, to your peers and to your colleagues. So yes, I’m quite pleased about this event. Thank you to Alpha for making this happen. And Brian, maybe do you want to say famous last words for this one?

Brian Smiga: I’ll just say as a follow up, we’ll follow up tomorrow and let you know about the recording of this and how you might follow up with us and answer questions that you have. We are dedicated to answering your questions. And Sam will follow up likewise next week. And I want to thank everybody. I want to thank Sam and Robert Barge for helping put this together. Thanks everyone for coming and for your participation.

Sam Desimpel: And just one last thing, a household thing. We sent out a survey recently and we’ve gathered about 50 answers so far from family offices. We’ll send it around again later on. It would be great if you could get to 100 to give them meaningful insight in our family lives as opposition themselves at this crisis. So thanks for that. And I’d say [inaudible 00:57:26] for the people in Europe. Good day of work for the people in the States. Many thanks and talk later.

Brian Smiga: Be well.

Dan: Thanks Sam.

Steve Brotman: Great work.

Sam Desimpel: Bye.

 

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