EXPONENTIAL TECH INVESTOR. Training Video 3

Transcription

1 EXPONENTIAL TECH INVESTOR Training Video 3

2 Amber Lee Mason Jeff Brown Hi. I m here with former aerospace engineer, tech insider, and angel investor extraordinaire, Jeff Brown. In our last segment, we talked about a new way to invest, by allocating a part of your portfolio to a basket of high-quality, early-stage IPO companies. And now I wanna cover two things: first, the commonalities or fingerprints the successful IPOs have, and second, I wanna talk about the new government law and the opportunity it s creating in the IPO market right now. So, Jeff, tell me: what s the secret to making money in these businesses? I have a bit of an investment framework that I apply when I m analyzing companies. And so I have three indicators: one is an enabler indicator. And the enabler basically is whether or not the company is actually using this leading-edge technology, this exponential technology, in their product or service. The second one is what I call momentum. So it specifically refers to the industry that they re delivering this product or service to; is that industry growing? Is it doubling? Is it growing exponentially? And the third is the disruptor. The disruptor is: is the company disrupting an existing industry or a legacy industry? Or is it disrupting old industries in a way that s actually creating a completely new industry? So what s an example of a business that ticked all three boxes and turned out to be an extraordinary investment? So let s go back to your great example with Cisco. So if you think back to the mid- 90s, Cisco was using leading-edge semiconductor technology as it was applying that technology towards internet routers and switches. It was operating in an industry that was doubling and growing at an exponential pace, specifically that being the industry of the internet. And as the world was building on its internet backbone. And the disruption was it was disrupting older industries, simple industries; for example, telephones. You know, what we call the POTS: the plain old telephone service. Or mail. You know, being able to send information and documents over the internet in a matter of seconds was disrupting a wide variety of old industries. And so those three things together made Cisco an incredibly attractive investment at the time. 2

3 Yeah. I think we said that if you d put $1,000 into that, it would ve turned into $1.2 million over time. Precisely. So are there a lot of businesses right now that possess those three characteristics? So, Amber, yes, there are actually a large number of companies that I m extremely excited about. Now, that said, I feel you have to be even more selective though. Just a company having an exciting technology isn t enough. You still have to look at the fundamental business, the industry it s playing in, the industry or companies that it s disrupting, and of course it s long-term growth potential. Now, I apply my framework to both private and public company analysis. But in particular, on the private side, when I m looking for companies that have the potential to go public within the next 12 to 24 months, there are other metrics that I look at very closely. For example, I look at the funding rounds: how much they raised, when they raised it. What was the last time they raised funding? Are they gonna raise additional funding? How much? Who are the investors? That might be individual investors. It could be late-stage investors. They could be mutual funds. They could be institutional funds. All of those things give you keys about whether or not these companies have the potential to actually have an IPO in the near future. And at this stage, I have a list of about 21 companies that I m extremely excited about. Those companies have made it through all of my filters, and I think they have a very high likelihood of going public in the next 12 or 24 months. Now this is the list that you sent me a couple weeks ago from Japan and I was so excited to get it. Now, I understand that you believe that several of these companies could go public in the next 12 to 24 months. And it all has to do with a new government law. Can you explain a little bit about that? This is probably something no one has ever heard of. I kind of inferred that the IPO process is quite different than it was back in the internet bubble in the late 90s or early 2000s. Something fundamentally changed in There was an act that was passed through congress that was called the JOBS Act. But buried within this act is an interesting clause that basically says: companies can file to go public privately or confidentially. And what used to happen in the late 90s is that when companies were kind of thinking about going public, they might file their prospectus nine months, 12 months, sometimes even a couple years in advance. It 3

4 was a way to kind of get a jump start on the whole process. But at that time, investors and the banking community actually had very early signs of a company s interest in going public. Now, in the JOBS Act, because companies can file confidentially, nobody knows that they have this intention to do so. The gauge, the limit for being able to file confidentially is some nomenclature called an emerging company. You re considered to be an emerging company if you have less than $1 billion in revenue in your last 12 months. So the point is that the vast majority of these exciting technology companies don t have a billion dollars in revenue. So almost all of them choose to file confidentially. And this is why I have to put so much work in on the front end. I have to be analyzing these companies for months and sometimes years because I have to know that they re a company of interest before they actually have the initial public offering. So you ve given yourself a jumpstart on these businesses. You ll know well in advance whether it s an IPO that you re interested in, while other researchers are gonna have 21 days to scramble and get that done. Now, you ve recently recommended an IPO that you had done research ahead of time on, and it actually went up, what, 150% in 30 days? It was really exciting. So what was it that you did that gave you an edge for that IPO and for the upcoming IPOs? I have found that you really have to put a lot of the hard work in on the front end. And what I mean by that is that the research and work that I do may not be relevant to this current month, but I know it s going to be valuable in the months or years to follow. And so I spend a lot of time reading scientific journals. I look at the interesting papers that are published. You know, I m reading these research papers on a daily basis. I really track and follow hundreds of private companies. And the reason the private companies are so important now is, again, because so much of the exciting things that re happening in technology right now are coming from the venture-backed community. And you have to know what these smaller companies are doing. They give you a view into the future of products and services. And so just because they re not publicly traded or I might not be able to recommend them today doesn t mean I m not following them. And I ve found tremendous value in spending a lot of time understanding what these private companies have been doing. Of course, I spent 25 years as a corporate executive. So I have a worldwide network of friends and colleagues and contacts that I keep in touch with. That s also very useful in the process. And another thing 4

5 that I ve found very useful is that I do a lot of private investing. So, as an angel investor, I invest in small, private companies, oftentimes in their angel round or seed round or Series A rounds. And I get a lot of satisfaction and enjoyment working with and speaking with a lot of these executives that re working with leading-edge technology. It provides a lot of insight not only in terms of analysis of these private companies, but also as I compare or relate them to what interesting publicly traded companies are doing. So your status as sort of an insider in that world, as an angel investor yourself, has given you some insight into something you re calling the dark pipeline. Can you tell us a little bit about that? So the dark pipeline is interesting terminology. It sounds mysterious, but back to the 2012 JOBS Act and this ability for what s called these emerging companies to be able to confidentially file their intent to go public that s precisely what the dark pipeline is. So there are hundreds of companies out there that have confidentially filed and indicated to the Securities Exchange Commission that they intend to go public, but nobody knows that these filings have taken place. That s this dark pipeline or this backlog of exciting companies that are going to start going public, that in fact have already started to go public this year. It s also why I think the next 12 to 24 months are going to be one of the most exciting periods for technology investors that we ve ever seen. And specifically, Jeff, you believe that a lot of these businesses that you put in your Venture Elite list are in the dark pipeline right now and are likely to go public in the next 12 to 24 months. I think the window is absolutely in the next 24 months. These are my absolute favorite companies right now. But I think it s important to mention: every month that passes, I m looking at additional private companies that I think have the potential to make it onto my Venture Elite list. And so, it s a living document. I expect it will grow over time, and I expect that new companies, as they mature as private companies, will enter onto that list, as some of the ones that are there already will of course have fantastic IPOs. On that note, we ll close out this current segment. In our next segment, we ll go over some of the main areas Jeff believes are primed for major disruption, potential investment areas where you have the best chance to double your money over the next year, and where you have a shot at as much as 1000% gains over the next five years. 5

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