Private Equity Investing
If you seek long-term wealth, Pre-IPO private equity has the potential to get you there! Don "Donald" Wilson of FranCap Corporation reveals his strategies for finding and investing in private companies.
Source: Don "Donald" Wilson, Chairman, FRANCAP Corp
January 21, 2008
What are your investment goals? As opposed to braving the emotions of “The Market”, have you considered private equity?
The strategies for successfully finding and investing in private companies isn’t simple by any standards. One sure standard to consider in the process however would be:“Go with a winner!” And that simple philosophy has followed me since my having graduated from Miami Beach Senior High School in 1953 when I first entered the securities field…and it still holds true today.
Back then, in the 50’s, during my days of “security sales 101”, I was assigned to the sales of “insured” mutual funds. They were called “Contractual Plans”: decreasing term insurance policies that were tied to a contracted-for fixed face value mutual fund purchase (i.e.: A $12,000 Face Value, $100 monthly 10 year pay plan) . They were popular because of the ever increasing value of the fund that dollar-cost-averaging brought (such that figured into the buyer’s monthly premium/investment payment) and guaranteed full face value death benefits along the way.
Today, long since the demise of Contractual Plans, thousands upon thousands of investment vehicles are available to investors. To suggest that one’s investment strategies have become more complex over the years would be a gross understatement, so…let’s stick to defining one’s investment goals instead.
I define my personal investment goals as retirement-oriented, and I keep my selections simple. I do this by organizing all investment vehicles into one of two categories: public or private, i.e.: market-oriented or non market-oriented. Indeed, one thing I learned after I secured my license to sell securities when I was very young was that The Market was as fickle as my then-young girl friends….ruled by emotion to say the very least. And today, because The Market has proven to be no different than it was in the past, my investment strategies of choice are private equity: non market-oriented, emotionless investing if you will.
I do this by researching private companies with a track record of high performance. Successful private companies with proven career management. Companies with proof of market acceptability, international market potential, high profit margins with room for growth. Companies that hold patents, trademarks, copyrights, exclusive distributorships, trade secrets, private formulas, or other characteristics that give them more than a competitive edge…companies that have no comparable competition. Companies preparing for an IPO, merger or acquisition. Private companies I can buy into at pennies on the dollar… and sell at achievement of exit strategy!
This past December 18th, Eleanor Laise and Ianthe Jeanne Dugan co-authored an article that appeared in The Wall Street Journal entitled “The Private-Money World Opens Up… Small Investors Now Have More Ways to Win Like Bigwigs.” The article fell under the category of “Alternative Investing” and addressed the fact that:
“Small investors are getting new ways to invest like Wall Street bigwigs. For a long time, the average investor has been shut out of one of the hottest sectors around: private money. This category, which covers everything from hedge funds to private-equity pools, usually takes a minimum investment of hundreds of thousands of dollars or more—beyond the reach of most individuals.”
The authors, while still mostly addressing market-oriented investment vehicles, were about to change direction. Watch where they took us next!
“Now a host of new products are giving small investors a way into the club. The appeal of private-money investments is simple: They tend to zig when the broad stock market zags, reducing a portfolio's overall risk and potentially boosting returns. The amount of money pouring into these investments is staggering. Hedge funds and private-equity firms now collectively control more than $2 trillion world-wide.”
To further emphasize the import of what I refer to as non-emotional investment considerations, Rebecca Buckman wrote an article in The Wall Street Journal also on December 18th of 2006, “Where the Smart Money Is: What Venture Capitalists Are Buying These Days.” And I quote… “Wondering what the next hot investment opportunity will be? It may help to look at how and where venture-capital firms are spending their money right now.
“Top venture firms are pouring money into consumer-focused Internet companies, hoping to cash in on the frenzy over Web services like sharing photos and videos online and chatting with friends. Sequoia, for instance, has a significant stake in the video-sharing site YouTube Inc., a company Google Inc. announced in October it would buy for $1.65 billion. That blockbuster deal could bring Sequoia a profit of around $500 million.
“Accel Partners of Palo Alto, Calif., had a big win in April when software company Red Hat Inc. agreed to buy open-source outfit JBoss Inc. for $350 million, plus an additional $70 million subject to certain conditions. Accel had invested $3.5 million in JBoss in 2003 and owned just under a 10% stake. ‘The firm made about six times its money on the deal,’ Accel Managing Partner Jim Breyer says. Accel also scored with the late September initial public offering of Riverbed Technology Inc., a network-infrastructure company whose shares soared 57% on their first day of trading.
“Other firms are going for companies with a very specific focus. John Doerr says his firm is looking at Internet companies that are aimed at a particular market or demographic. ‘The Web is still in its early adolescence and has plenty of room to expand,’ Mr. Doerr says.”
What I believe to be one of today’s exceptional private-equity investment opportunities is represented by Cartel Funding’s “Netword” technology. Cartel is a true Private Equity Venture Capital Fund, organized to acquire stock in qualified private companies preparing for IPO, merger or acquisition. The Fund, open to accredited small investors with minimums of $30,000, does not acquire stock in unproven start-ups, but rather hedges its positions by providing investors more than a single Pre-IPO potential in their investment portfolio. Netword, a former public company (on the Pink Sheets) that went private in January 2003, is the Fund’s current flagship. Netword is an Internet search optimization tool that resolves half-page websites of its advertisers—within selected zip-codes, statewide, regionally, or nationally—alongside the search results from every major search platform. More specifically, Netword is the company that holds the patent rights to what is known as “natural language navigation” on the browser, i.e. that which allows for “Netword” advertising on the Internet.
To further emphasize today’s gravitation toward private equity, Bambi Francisco from MarketWatch wrote an Internet article on March 9th entitled “On the Road to Being a Target: How The Landscape Has Changed.” She wrote: “At the Montgomery & Co. investment banking conference here this week the obvious sentiment was life is good: money is flowing, bankers are courting, private company CEOs are presenting to an audience wearing rose-colored glasses.
“These are the same conditions that were prevalent during the good old days of the mid to late 90s, when a whole boatload of private companies teed up and eventually tapped the public markets.
“But times are very different. A lingering memory of the painful and wrenching downturn six years ago is forcing even the most hopeful to adhere to some financial discipline. The IPO market isn't as attractive as it once was, mainly because of the strict and costly rules around corporate governance. Public companies are scrutinized and executives are eviscerated with regularity. Don't let that seemingly negative comment fool you, though.
“Bob Grady [of Carlyle Ventures Partners], Tim Draper of Draper Fisher Jurvetson, Bob Davis of Highland Capital Partners and Jerry Murdock of Insight Venture Partners were on a panel of high-profile venture capitalists offering their views on the private capital outlook for this year.
“Undoubtedly, it was a panel full of optimists. Capital tension in the U.S. markets or not, there is always the exit-strategy option of going public on an international exchange as well as the opportunity to exit through an acquisition.
“Big companies are willing and eager to make purchases these days, as they buy research and development rather than spend for it in-house. Big companies have reduced their R&D budgets to a few percentage points of their revenue, according to Draper.
“IAC's (IACI) Jason Rapp, senior vice president of mergers and acquisitions, was roaming around looking for deals. Rapp was the person who led the recent purchase of local review site InsiderPages by CitySearch, a unit of IAC. InsiderPages was reportedly sold for some $13 million, though Rapp wouldn't confirm that.
“Seven-year-old Quigo is growing sales by 100% annually and is expected to be profitable this year. It's wooing and winning a lot of publisher clients to its advertising platform, which could be a scare to even Google (GOOG) the largest ad agency on the Web. It's unclear whether Quigo can get big enough for an IPO, but its CEO Mike Yavonditte is inclined to believe this company will survive long enough to achieve that exit.
“Fandango was another online ticketing company that presented at the conference. What is interesting about this company is that its ability to sell tickets to movies can be—down the road—a forecasting for studios to predict whether a new movie release will be popular or not.”
A final note: While there is no such thing as a sure winner, what we all seek is a fair shake for our buck, and a company we can bet on whose management team can make it all happen. I still believe in going with winners, and in long-term strategies that lead to the attainment of a person’s ultimate retirement goals. If you seek wealth as an investor, private companies with proven track records can get you there. If you believe in the same things, seek the same goals… call me. I’ll be glad to get you into the club!
About Don "Donald" Wilson: a former professional entertainer of eighteen years, Mr. Wilson is an acknowledged business, marketing and franchise authority. He has been a hands-on, shirt-sleeve consultant within the securities, real estate, insurance, franchise and sales fields since 1964. Mr. Wilson currently serves as founder and CEO of Business Development & Management Corporation, ("BD&M") a Holding Company; Cartel Funding, LLC, an equity and acquisitions venture capital fund, and; FranCap Corporation, a franchise development and capitalization company. Prior to BD&M, CARTEL and FRANCAP, Mr. Wilson founded National Fran-Mark Corporation, the nation's first organization to specialize in the full range of franchise servicing. His client list has included All American Burger, Baja Fresh Mexican Grill, Century 21 Real Estate, Doctor Pet Centers, Famous Amos Chocolate Chip Cookies, Forty Carrots, National Yellow Pages Services Association, One Stop Copy Shops, Pedigree Pet Centers, Playboy Clubs Of America, Rand McNally, Sun Computers, and many others. Don Wilson can be reached, toll free, at 877.77VENTURE (877.778.3688).