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:
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 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.
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
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 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!
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.