adults — is driving a new kind of demand. And not just multifamily; I still like a number of sectors. Decades of data tell us that investing over the cycle in virtually any sound real asset strategy works better than other alternatives, as long as the asset is prudently levered.
A CASE STUDY OF A 10X RETURN ON 1 SINGLE INVESTMENT
As you know, over the past two years, we’ve been using our skills to raise capital to co-invest alongside the same families that have invested with us.
What is the reason for this long-term outperformance?
As long as you follow the rules, understand the process, and use negotiation skills, venture is a tremendous wealth creator — if you can structure the risk away from you, that is. Here’s what I mean.
The reason for this lives in the fact that real assets are expensive to replace, and that cost just keeps compounding faster than core inflation. Construction costs are rising 2–3x the rate of CPI. Remember that when we look at how diverse institutional portfolios are constructed, most have a massive bet against inflation due to their exposure to equities and fixed rate debt. I think of this as investors selling inflation short. This isn’t a problem until it is recognized as such. We’ve become conditioned to a cost environment that isn’t sustainable long term. The reality is we have two competing forces: inflation and deflation. These average out to a small positive number for headline inflation. We have inflation in things we need: food, medicine, skilled labor, education, and construction materials. Then we have deflation in stuff we want: phones, TVs, cars, and anything that involves technology. And it is widely recognized that due to all the various hedonic adjustments that the government makes to the CPI, the deflationary forces are overstated and the inflationary ones are understated. I don’t know anyone who has looked at the cost pressures that college endowments and pension plans face and believes they experience anything close to 2% inflation, which is where the CPI is today. Every property type should be viewed in the context of replacement cost inflation in order to understand a key driver of long-term return. The conversation is over! Stay tuned for our August edition — I have a few more insights to share with you!
Wealthy family offices allocate about 10–15% of their wealth to venture capital and private equity, with the balance in cash and commercial real estate.
If you recall, this was an SPV that we did with several investors prior to the launch of Dandrew Partners Encore Ventures.
When we made our investment, Immunicom, headed by Amir Jafri, was worth $5.5 million.
Love it. Because mice go where elephants can’t. Here’s why:
Today, it’s valued at $37 million, as evidenced by subsequent rounds by more sophisticated institutional investors invested in — at a very justifiably higher price.
This is the result of real, tangible value being added by David Schlotterbeck, former vice-chairman of Cardinal Health, who also invested in the company and joined the board of directors as chairman of the board. He has been chairman and CEO of numerous Fortune 50 publicly traded health care technology companies. Over the last 10 years of his career, David has generated over $11 billion in shareholder returns.
Real PeopleWith Serially Successful Exits. No “Shark Tank” B.S.
Amir is gearing up for a sale or an IPO in 2020 , and it’s not inconceivable to have an exit of $500 million or more — from just one of the revenue lines from licensing.
At this point, a lot of the risk has been taken out. And risk is one of the several drivers of how a higher valuation works.
So, with less risk comes less reward for those who invest in the subsequent rounds.
I firmly believe that this is going to be a good, clean exit. The management team is best in class, and the FDA is cooperating nicely.
Right now, we’re trying to get in at the same terms before this current Immunicom round closes.
I’m pretty sure that, the way it looks now, Amir may let me come in with terms similar, but perhaps not equal, to the Series Awe did.
Value has been created, and having an institution follow alongside is going to make things look that much more appealing (credible) to the investment banks to underwrite it and sell it to sticky investors such as mutual funds.
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