My Venture Portfolio Update

It’s been a few months since I started my Venture fund. I wanted to take the time to provide a brief update on some happenings within the fund.

I decided to start my own mini Venture Portfolio as one of the smaller satellites around the core of my dividend portfolio. The purpose of the Venture Fund is to provide a little extra alpha for the core portfolio, which is substantially comprised of larger cap dividend growth stocks. My aim with the venture fund is to focus on early stage companies that are <$250M market capitalization that have the potential to significantly disrupt the markets or industries that they are concentrated on.

This freedom and flexibility to have some assets that are significantly higher risk yet have the promise for higher rates of total return is highly attractive to me. It’s all only made possible by having a bedrock of very different dividend players from the stable, classic dividend payers to some dividend sloths at the core of the portfolio, which provide dividend dependability with minimal volatility.

Learnings from Initial Investments

So what have I learnt in the 4 or so months that I have had the venture portfolio in action?

Avoid Investments with binary outcomes

I want to avoid making investments in companies whose success is dependent on a binary “yes” “no” outcome. It’s for this reason I typically avoid biotechnology companies who may be onto something promising, but it’s either hit or miss. My investment in Austin Energy was one of those that fell into this camp. While I think that the shale oil boom that Austin is a part of will be hugely transformative for  US Oil self sufficiency, Austin’s ability to strike it big in this area is going to be hugely dependent on what it has beneath it’s own tenements.

It could be sitting on huge oil reserves that could gush to the surface, or it could be sitting on , well, just dirt!. The point is this is a completely binary outcome well beyond Austin’s control. I’ve backed this company because the chairman of the company has an exceptional track record taking these very early stage speculative companies and transforming them into multi billion dollar businesses.

However at the end of the day, the chairman has very little control on what is underneath the ground in this instance. In Australia, there’s a saying that only the folks who sold picks and shovels ever made any money in the mining booms. I hope that doesn’t come back to bit me with Austin Energy.

The only certainty in the short run is extreme volatility

I’ll get to how each of the individual investments are tracking as far as stock price is concerned, but it’s no surprise that the gyrations that we are seeing in the markets generally, and small cap volatility specifically, are more than mirrored in how my venture investments have been moving.  It’s a hair raising ride. It’s only reinforced for me how one should never have the bulk of their wealth tied up in these types of assets.

Internet businesses offer significant promise

The operational updates from some of the internet businesses that I own as part of the venture fund have encouraged me. It’s really first mover wins the game here. With very little effort though, these businesses can be quickly scaled, with incremental users very quickly turing these businesses profitable. Unlike with energy explorers, there’s room in these markets for multiple players to exist.

A solid number 2 or 3 can have a very comfortable existence in growth markets. More than likely, they’ll be acquired and rolled up as the Number 1 steam rolls ahead and buys additional users, removes incremental infrastructure spend and moves on to even greater profitability.

I really want more of these types of businesses, identified early stage, to form the basis for venture fund activity.

With the said, here’s how the portfolio has been tracking:

BitCoin

Up $1,000

Wow, what a rollercoaster ride it’s been for BitCoin since I invested $2.7k in the $400 range. I’ve seen the price of my BitCoin’s soar in value to over $6k at their peak, and they are currently back to around $700/coin, or a little over $4k.

Fluctuations in price have come about from denial of service attacks on exchanges, to China withdrawing support for BitCoin, and all manner of interesting things in between. This is still the first innings being played out here, so not too much more to say just yet.

I’ve increasingly come to think of my investments in BitCoin as a hedge for my significant investments in Visa and Mastercard, which will really bear the brunt of it if BitCoin can establish itself as a low cost transaction processing technology. If it moves beyond beyond a store of value and a gold replacement, I view my BitCoin purchase as good insurance.

IProperty Group

Up $4,500

IProperty has had a very strong run in the last few months. It has clearly established Number 1 positions as the property portal of choice in Malyasia, Singapore and Indonesia. Hong Kong is also making significant progress. More significantly, IProperty Group is now cash flow positive. This could be the beginning for the company in showing strong free cashflow growth moving forward.

ICar Asia

Up $600

I’m most excited by the promise of ICar Asia. The company has leadership positions as the vehicle portal of choice in Thailand, Malaysia and Indonesia . ICar stills has a market cap of <$100M. It has an addressable market in the regions in excess of $1B. While the company still has a long way to go, it’s started to take steps to monetize it’s dealer network and portal visits to each of the sites keeps showing steady increases each month.

FreeLancer.com & IBuy

Flat

I took the recent opportunity to take a small amount of Freelancer.com off the table and invest that into a company called IBuy, listed on the ASX again. The company specializes in what are known as “flash sales”, something like a Groupon but for merchandise and also in Asian markets where there are no concepts of discount warehouses. I’m encouraged to see how both Freelancer.com and IBuy do overtime.

Austin Energy

Down $2k

Austin has been copping a virtual beating on the back of the volatility in the markets, combined with limited news from the company. I’m down close to 50% on this one. However, Austin just recently announced a significant gas find that they will be monetizing in 2014/2015. Some further exploration results in key wells later this year. I haven’t given up hope on this one just yet!

Concluding Thoughts

Overall, I’m encouraged by the operating (and share price) performance of the Venture Portfolio so far. Of course, these are still early days and the real outcome for how successful these investments have been probably won’t really be clear for another 5 years or so.

Comments

  1. I’m envious of your venture portfolio and think its a great idea to help balance things out against your large cap holdings. I saw that you were holding off on contributing more to your venture fund this year to prioritize other items but if you had an extra $10k to put into your venture portfolio today what would you buy? What is at the top of your list?

    • Integrator says:

      Zach, I’d almost certainly spread it amongst some additional BitCoin and iCar Asia. BitCoin has its skeptics, but the promise of the technology is such that I’d probably put another $3k in there. Even if the thing completely fizzles out, on a risk adjusted basis it would be worth it. iCar Asia is one that’s right in my sweet spot. Scalable business model, strong market positions, very small capitalization. Another 5 years and I’d expect the position to increase somewhere between 5-10x.

  2. Thanks for the update on the VC portfolio. Looks like iProperty is going to be a great long-term play now that they are cash-flow positive. Certainly stabilizes them as the grow and improve their revenue generation.

    • Integrator says:

      I’m cautiously optimistic on iProperty. The operating performance of the business is proving itself out as I’d hoped. I think the real question for me is how long this continues to remain an independent business, or whether it will be acquired by a larger player in due course.

  3. I like your premise Integrator. I hadn’t thought of doing something like this myself, but I just might going forward. I know that a cloudy venture fund, high fees and all too, aren’t right for me. I love researching small stocks however. Thank you for the idea. Have a great night
    -Bryan

    • Integrator says:

      Bryan,

      I think if you can find the right candidates of interest, can allocate a small chunk of change to seeing these companies grow and are prepared to ride out the volatility, these companies can add some meaningful capital growth to your portfolio. In my case, I think the companies I stumbled across from my VC fund (certainly IProperty, ICar and IBuy) are all genuine “Series B” candidates. It’s just that the owners have chosen public markets, rather than VC’s to raise funds (no doubt motivated by strong markets and higher valuations)

  4. Pete says:

    FI,

    Thanks for blogging. Your site is a great resource. Our investing styles are very similar. Dividends are the core, but my ‘alternative’ portfolio is spinoffs. I started doing this in mid 2013. KRFT, CST, ZTS, FTD and WWAV. WWAV sort of took off while the rest are treading water….

    • Integrator says:

      Pete,

      Thanks for stopping by. Spin offs as a basis of investment could actually be a pathway to pretty solid returns. I know the guys who got a piece of Chipotle when it was spun out by MCD are sitting very happy. Also Mead Johnson, which was spun out from Bristol Myers is one that I also own which I think is poised for solid growth. In my view, the key is to pick the spin offs that are higher growth and more capital intensive which are being spun out by the parent because they just can’t free up all required capital to invest in the business rather than ones that may be a bit lower growth and more mature (you could argue Kraft, Abbivie were in that boat).

      Best of luck with the strategy!

  5. It’s always good to have small companies to balance out a dividend portfolio, all you need is one hit to pay for all the losses. I’m going the opposite this year seeking out dividends to balance my growth portfolio

    • Integrator says:

      I think a mix of both is good. You can’t discount the stability and cashflow that solid dividend payers can provide. They help pay the bills in between some outsized returns that the small caps can give you.

  6. Thanks for the update on the VC fund. I think it’s a great complement to a core DG portfolio plus a good DG portfolio should be as exciting as watching paint dry. The VC fund gets you more involved and keeps your interests and gives you a shot at that home run investment.

    • Integrator says:

      I’d even love some multiple base hits with the small caps that could give me 2-3x. The home run would be great, but I want to be realistic also that a solid 2x,3x return over 5 years would make this a pretty worthwhile activity also.

  7. Have you tried to pull money out of a bitcoin exchange? I keep reading about horror stories online but have not done anything with Bitcoins myself.
    It might not be a bad idea to sell a bitcoin or two and pull the money out to test, then if successful go back in with that money plus your extra money.

    • Integrator says:

      I haven’t tried to take anything out at this point, though I know the exchange that I use is still actively processing withdrawals. MtGox is the one that has a suspension on withdrawals, though they also expect to commence processing withdrawals again soon.
      I don’t intend to put anymore into BitCoin. I asked my wife what the maximum amount is that she’d be prepared to completely lose if we had to put something into BitCoin (because there remains a very high possibility that this could be the outcome). I think she told me $5k, but we stuck with just under $3k as the amount we’d like to sink into this, and I’m prepared to wear this as a loss if we get to that position.

Trackbacks

  1. […] Having a venture portfolio has always been a dream of mine. I like hearing about the progress that Financially Integrated has made. I think his response to my comment about what he would invest in next was pretty interesting. […]

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