Investment Opportunities in the Companies of Tomorrow

Drew: Thank you very much.

Toby: Drew is an individual that I was also referred to, actually, from another client. It was probably two people removed or one person removed from Drew since he’s the principal of the organization. I was looking to invest in SpaceX. I love that space, I love what they’re doing, I love the satellites, I love the SpaceX when you watch them on TV and everything else. I just think that’s a really cool space, so sometimes I invest in a few things. That was one of the things that I wanted to invest in because I personally think it’s really, really cool.

But getting to be able to is very difficult. That’s where I met Drew and it turns out—and I’ll let you get into the whole deal and explain it—that for a particular type of credit investor, you’re able to work with groups like Drew’s to actually get access to investments before they go public or they may never go public. This is private investment. That’s what he does day in and day out. Drew, I’ll just let you explain where you are and what you do so I don’t butcher.

Drew: No worries. I appreciate it and thank you for the opportunity for introducing me to all your clients and your network. What I do is I run a venture capital firm. We focus on this niche that has exported really over the last few years. That niche is actually getting access to these late-stage private companies that everybody wants a piece of. But the issue, the main pain point has always been once the primary investor comes in, what about the other retail investors out there? They are private companies. You have to be accredited, but how do you really get access to these types of companies?

What’s developed over the last few years is actually a secondary market within the private industry. What I do—I have all the firms that I work with as well—we actually approach typically either early investors in companies like SpaceX or the actual insiders, we actually purchase stock from them, we put it within our fund like we did with you, and then we find investors like yourself to invest in our fund. You typically own interest within our fund, but once there’s a liquidity event—because like you said, Toby, it might not be for a while before it goes public; they might not even go public, it might get acquired—your interest in the fund is converted into the underlying shares. That’s pretty much how it works.

Mind you, SpaceX hasn’t been the only company I’ve dealt with. We’ve been a part of Spotify, Uber, Lyft, most recently Talented Technologies, Beyond Me, Draft Games. We have access now to Virgin and Hyperloop, SoFi, Impossible Foods. The list goes on. Every company is unique. It’s really on a company basis.

That’s really pretty much in a nutshell of how the industry works. Like I said, it’s starting to get more traction, starting to get more popular. There are still a lot of things that need to be ironed out. It’s not really as seamless as everybody would like. Even firms that I work with that have been doing it since 2012–2013. I’d been doing it since around 2015 and launched my firm about a year-and-a-half ago.

There are still things to iron out, but what I decided to was really isolate myself from everybody else two ways. That’s really offering attractor fees so my clients make more money. In addition to that, really focusing on the relationship and allowing client’s access to any company that I can get them. Even besides this so-called Pre-IPO market, other types of alternative investments. That’s where we’re at and that’s pretty much everything in a nutshell.

Toby: You mentioned a lot there. We can unpack a little bit of it. First off, it seemed that you’re targeting a particular type of company, a name that you probably heard of. Some of those names I haven’t actually heard of. How do you pick which company you’re actually going to invest in and make available? Basically, it sounds like you’re just taking an amount, putting them in a private placement, and folks that you have a relationship with, accredited investors can actually invest in the private placements.

Drew: There are a few things. Number one, there has to be availability. There has to be selling shareholders. That’s another thing, too, because to the layman, they might come around and say, if the company is so good or if it’s so potentially a good investment, why would any shareholder want to sell?

The bottom line is, you have early investors who like VC funds that might invest from the ground-up. Now they’ve already made several 100% or 1000% or whatever it is, they’re looking to cash out, and move into the next risky investment. Or you have insiders that started with the company 10 years ago and have a significant part of their net worth in shares within that company. Then they say, I want to sell 20%–30% of my holdings. Free it up because I have a baby on the way, I want to buy a house, I want to get a nice boat. There’s a myriad of reasons.

Typically, number one, we have to make sure that there’s availability for secondary shares. Number two, we also want to make sure that we’re getting a good deal. There are some companies out there that just—based off demand—go crazy in the private market and when I speak with a few analysts, they say, for example, the valuation of a company is $5 billion, but because of demand, now it’s trading in the private market and these sellers want $9–$10 billion. I might not want to get involved with that because that kind of hurts the client.

However, there are some times where I do have clients that say, I don’t care what the valuation is. I just want a piece of this company. Can you see if you could find it? Typically, if that’s the case, I will go out there and make a few phone calls, see if I could get access to stock. If I can, I’ll put them into it. If I can’t, I’ll say I can’t do it. Other than that, I typically do my best to isolate myself to three, maybe four top positions and just focus on those companies.

Toby: Is it companies that people have heard of before or is it sometimes you’re looking for the outlier? How do you choose which company you actually want to invest in?

Drew: There’s a few core criteria. Typically, I want a company that has at least some multi-billion-dollar valuation because there’s a nice risk and reward to that. It’s not as risky as a startup that just launched a year or two ago, but there’s still reward there because you’re getting involved before all the public investors get involved.

Typically, I look for companies with multi-billion-dollar valuations, significant revenue growth. Typically, they don’t have to be profitable. Sometimes, not being profitable scares some clients, which is fine, then that’s not for you. But we are in a different time, unfortunately, and not being profitable is indicative of whether they perform or not. They have to have that multi-billion-dollar valuation. They have to have significant revenue growth. They also have to have large name brand recognition.

Mind you, I know I rattled off a few names that you’re not familiar with, but the way I look at it is most investors have heard of it, or are familiar with the name, or based on just regular market sentiment, if it’s a popular name then I feel comfortable going into it. As I tell everybody, once a company does go public, the public markets are a lot more radical than private. You have to make sure that there is shareholder awareness. You have to make sure that there will be demand.

At the end of the day, I want to make a return for the clients. The last thing I want is for our private company to go public after you’ve been holding it for a year, maybe two years, and it doesn’t really perform the way we want. I don’t want my phone blowing up with disgruntled clients, so to speak. We do our best to really isolate those investments that we think are going to pan out very well.

Toby: The one that comes to mind is the WeWork debacle and stuff like that. How do you avoid those types of deals? Is that just looking at the balance sheet going, there’s no way? Because there were a lot of people looking at that going, what the heck are they doing?

Drew: Yeah. It’s a common issue. We use data. We have different data sources that we do a ton of research. Obviously, we use industry insiders in our contacts to really find out. WeWork is a company—thank God—I never got involved in; I wasn’t really a fan of it. I also didn’t understand the model because it was really complex. It was simple, but it was actually really complex. If I can’t understand something, I’m not afraid to admit it and think I’m an idiot. If I don’t understand it, I’m not going to get into it. You can’t know everything.

We do our best to avoid situations like that. But then, we have situations where it doesn’t perform as we want. I got it in Lyft, my clients made about 50% off for that. They were holding for a little over a year. You might look at it as 50% is a nice return, but we weren’t really getting into it for 50%. That had a situation in itself.

We have companies like Beyond Meat where we got in at $15 and within two months it’s trading at $250. That’s another thing, too. Also, anybody watching this has to understand the nuances of the industry. When you make an investment in the private market, unless the company has a direct listing—there’s only been four so far—typically as soon as it IPOs—if it does have IPO, if it’s not acquired or anything like that—you’re locked in for six months.

Toby: You can’t sell it. You’re restricted.

Drew: You can’t sell it for six months. After that six month period, then you could sell it. Going back to the example I just gave you with Beyond Meat, yes, we had people get in at $15, and yes after went public it went as high as $240 or $250 (I believe) after two months, but everybody wound up selling around $100 and $110 because you couldn’t sell at that point.

Toby: That can be a little painful. I actually had a friend that sold a company for multiples of hundreds of millions that was his portion, sold it to Worldcon right before they went into there and got nailed for fraud. He had restricted shares and he got to write it down. I think he lost $138 million.

Drew: That’s painful.

Toby: Yeah. He always says that, I got a story that beats yours whenever somebody comes in with their sob stories.

Drew: Now, mind you, there are other things you could do. I think we discussed this, too. You could use derivatives right against your position. I’m not doing that. Use your broker or brokerage if you want to do it yourself. It’s just my job to hold it, shoot it with baby gloves, and just make sure that it’s going to perform the way we want.

Toby: This is a good time to say, this is not your capital that you have to live on. This is not your retirement money. This is pure gambling risk. Assume you’re going to lose every cent if it goes south. Is that fair?

Drew: Yeah, that’s what I tell everybody, too. You want to make sure you have money in the bank, you have your retirement. If you’re looking for a little bit something extra, something fun, something along those lines, that’s where you’re going to the private market. You’re not emptying your 401(k) or anything like that into this.

Toby: This is getting involved, too. It’s like the Green Bay folks. You may end up getting a few returns in the Green Bay people. I’m not certain whether they sell them. The other way to buy a piece in the Green Bay Packers is actually non-profit. It’s the only non profit entity. I know they actually have shares. The point is that a lot of folks are getting into these because they actually believe in what’s going on. Beyond Meat is a great example, Space X is a great example. In other words, don’t get into this just because you want to make a ton of money. Maybe I shouldn’t be saying that because you may think, yeah, get into […] because you want to make a lot of money.

Drew: I agree with you. It’s the […]. As I tell everybody, what’s really fun about this is the world is changing so rapidly now. Technology is advancing at such a rapid pace. I’m actually working on a […] type of […] right now. All these different companies are disrupting in their own way. You’re getting a piece of something that could be the next big thing tomorrow. I’m meeting so many different people from so many different industries. You realize that, although you know a lot, the next day you’re just constantly learning more and more and more. It’s a lot of fun.

That’s one thing I like to do, too, is I have a bunch of agents. I think you spoke to Andrew. He’s the head of my private […] group. We consistently engage with clients, too. We let you guys know when there is big news coming out, any changes, anything else. Like I said, even though we’re focusing predominantly on the late-stage venture capital market right now, eventually, by next year, we’re also going to start exploring into the earlier VCs and other types of alternative, too, because it’s just really fun.

Toby: Now, Andrew’s out here on the West Coast. He’s down in California, I believe.

Drew: Yeah, he’s down in California.

Toby: And you’re in New York?

Drew: Yeah, I’m in New York. We have a nice three […].

Toby: You have a little bit of real estate available right now in New York from what I hear.

Drew: Yeah. Apparently, there is a 30% vacancy rate right now in Manhattan. I heard of it. It’s been a little while. I think you and I had this discussion. Within the next 2–3 years I’m going to start travelling a little bit and seeing somewhere else I could call home. I’ve been looking at Tennessee, Florida, North Carolina. I have a buddy that recommended Arizona, but I don’t like spiders so I’m not dealing with tarantulas.

Toby: Puerto Rico for a little over half the year and then live anywhere else.

Drew: You told me about Puerto Rico for a while and over the summer. I’ve never been.

Toby: They just have the capital gains and a zero tax rate in circumstances. That’s not a good reason to go to Puerto Rico. Puerto Rico has beautiful land, awesome. I was just throwing that out in the side. You’re down there in New York. What are the exciting areas that you’re looking at now?

Drew: FoodTech, that’s getting huge. Like I said, Impossible Foods is the main competitor of Beyond Meat. We have that available. Space is going to be huge. As you know, we got involved in SpaceX. Financial technology is very, very exciting, but there are a lot of names and it’s extremely concentrated. I love mixed reality, but there’s not really a lot of many companies in the private market right now that are solid companies. Electric […] is huge.

There’s a company called Rivian which is actually developing the electric vehicle pick up truck. It’s actually backed by Amazon. I’d been trying to get shares into that, but there’s not really a lot of secondary sellers.

Toby: I actually put […] on a Rivian Truck. When they first came out, that looked cool.

Drew: Absolutely. We put in an asterisk on there until I’d be able to find shares, but I’m definitely working on it.

Toby: What’s cool in FoodTech?

Drew: Impossible Foods is growing. They’re using soya-based meats to really replace meats. They’re saying by 2030–2035 the food alternative market should make up anywhere between 1%–5% of the total meat-based market, which isn’t huge, but anybody that gets in there should be ample opportunity for that. I tell everybody, meats aren’t going away anytime soon. Personally, I still like steak, I still like burgers, but I’ve had the Impossible burger, I’ve had the Beyond Meat burger. They taste great, and we’re having this whole new trend of vegans hopping on board that’s really driving sales for these different companies.

We got involved with Beyond Meat. That was about a year-and-a-half ago now. Now, Impossible Foods is the next one. Their valuation is a little lofty in the private market because as Beyond Meat tracts up in the public market, there’s a significant correlating increase in evaluation in the private as well. That’s definitely an exciting company.

Like I said, SpaceX, it’s you and actually a few other people were the last ones that we got into SpaceX. There’s been a few changes over the last few weeks. I should be getting access to more. There’s actually a nice little story behind that and what’s going on with that company as well.

Toby: I love that story. I like Starlink. That’s the satellite system to bring WiFi around the world. Nobody has ever been able to do it. It’s a dumpster fire for people’s money when they were going in there, but Elon Musk has got his eye on it. What’s going in with Starlink?

Drew: Yeah, that’s the thing, too. Elon Musk—for whatever reason—is pretty polarizing. I either have clients that want to really get into SpaceX because they love Elon Musk or clients that want to shy away from it because they can’t stand him. The bottom line is, love him or hate him the guy is doing really good solid stuff.

I think SpaceX is a fundamentally better company than Tesla. We can get into the whole conversation of how I think Tesla’s overvalued. SpaceX is definitely a fundamentally solid company. I think the military just approached Elon a few days ago saying, can we get fast delivery within an hour or something like that. You just launch more satellites. It seems that every week he’s either working on a Rocketship launch or launching more satellites into the lower-earth orbit. That’s definitely an exciting company.

I’m currently working on getting more shares. Like I said, you were one of the few last individuals that I got involved with. Ever since they raised that $1.9 billion late August and the fact that there’s just consistent news with the company, there’s just been a lot of demand for SpaceX right now.

Toby: It’s interesting. We keep seeing it. I’m one of those guys that just thinks the world is getting smaller and smaller every day. Again, I love the SpaceX launches and stuff, but I love the idea of having a low-level satellite system for WiFi.

Drew: Yeah. That’s the thing. On Starlink, the revenue generator for Starlink, by 2025 should make up anywhere between 60%–70% of SpaceX’s revenue. There are even whispers about maybe spinning Starlink off in its separate IPO. That’s the thing. I have clients say, do I get a share of Starlink or a share of SpaceX? The bottom line is, I’m not going to comment on that because I don’t know as of yet. We’ll know if that does in fact happen. But the bottom line is, a lot of people—you do, you realize it—don’t realize that Starlink is actually the main revenue driver for SpaceX as we speak.

Toby: Oh yeah. How many satellites will they be putting into the lower atmosphere when it’s…?

Drew: They want to put 40,000. We’ll see what happens. People need to also understand the difference between selling and saying verbally, I guess, and what’s really reality. Elon Musk has been able to achieve what he says it is, but it just doesn’t happen. Typically, he says it’ll happen in the quarter, and the quarter spans in 5–6 years, so going to have to take everything that’s said at face value.

Toby: This reminds me of when Fantasy Football came out. I grew up in Philadelphia, some people know that, some people don’t. They’re watching your team and as soon as I left Philadelphia—I moved out to Seattle—all of a sudden, you’re not following your team as much. They’re still kind of your team, but you’re not getting the day-to-day. You’re not as interested in what’s going on right in front of you.

Drew: What’s your team?

Toby: Now it’s got to be the Raiders. Although I hate the Raiders, it’s the Las Vegas Raiders. I’m like, oh man. I still follow Seattle. Anything with a bird on in I pretty much follow. I love the Eagles, I like the SeaHawks.

Drew: I was going to say, if you’re going to say the Eagles, I’m a hardcore Giants fan. Nothing happening this year.

Toby: That day is timeless, Drew.

Toby: I like the Giants. I liked the […]. I’m sad that they…

Drew: So am I.

Toby: If you didn’t forget, what did he get? Two Super Bowls?

Drew: Yeah. He got two Super Bowls and he got numbers culpable to Bret Harte so I don’t know why people say, oh, he wasn’t good. He was a good quarterback, he was one of the […] quarterbacks […].

Toby: But I didn’t just look at it like that. When Fantasy Football came out, it just made people pay attention to it a little bit more. The reason I bring this up isn’t because I want you to play Fantasy Football, but it’s because when you invest in companies and when you start looking at that, I believe that people are going to start to do with companies what they do with Fantasy Football and other things. They’re going to start to vote with their pocketbook on companies they want to support.

It used to be that way. People look at it and maybe it’s the revenue vehicle whatnot. But from a social conscious standpoint, if you are somebody who believes in meat alternatives, that’s where they tend to generate. If you are somebody that loves space and you want to be paying attention to it, it takes you to a different level, so that when you look at and you’re like, hey, I have a piece of that.

Drew: The age-old adage that everybody really invests in the story. Everybody wants the story. Now, I love the story as the next person, but I also want to see the result. If anybody who’s not named Elon Musk can’t pull off what he did with having the company like Tesla grow, that was not profitable all those years, you get value 10 times more than Ford and General Motors.

Toby: Same situation. I’m scared to death of both companies that would never do it from a fundamental standpoint just because I’m a cash flow guy. I like things that make money. I don’t buy houses because they look good. I’m buying them because they pay rent. This is what you do with your side money and it’s so much fun. I’ll just say that people. It’s so cool when you get to do these things. You may fall flat on your face, that’s why you use your risk capital, but it is really fun when you start getting to say to somebody, hey, I was able to get in and get on to some things early. You’re talking to a guy who’s sat on an initial investment. I think it was 2001 that just cashed out. Sometimes it takes a while.

Drew: That’s another thing, too. I’m actually the only retail firm that doesn’t charge a carry fee. What that means is once the company goes public, whatever profit’s in there, I’m not taking 20% like everybody else. I let the client keep it because, as I tell everybody, you can look short-term and you can look long-term. There are a lot of companies that go public that don’t perform well for the first one or two years that wind up blowing up years later. Facebook is the perfect example. Not charging a carry fee to clients, it allows me to just deposit the shares once that lock up is done and then they could add-in into what they want. If they want to sell, they could sell, but I tell everybody, you got in before it went public, tuck under the pillow, and just hold on to it.

Toby: And wait. It’s fun. I just think it’s cool. It sounds like you get these periodically. How many deals a year do you actually invest in, if I could ask?

Drew: It depends. Typically, anywhere between five and seven companies. But pretty much on a monthly basis, I’m going out there and purchasing more shares to put into the fund. Trust me, I’ve made mistakes over the last few years, learned what not to do, what to do, and how to do it actually. Typically, what I do is I’ll speak to clients, I’ll get indications, and then once I have sufficient indications, I’ll go out there and I make a purchase.

Toby: Perfect. That sounds fair. Let’s just say a handful of companies, you get to know them, you get to know what you’re doing.

Drew: Yeah. Like I said, I work with a few different firms. I’ve learned that you want to keep it to a certain group of individuals or entities, I should say, because they become reliable. Unfortunately, there’s a lot of unreliable firms out there, but I won’t even get into that. That being said, I do have a network where they all have different companies that they’re working with, too. I have access to Robinhood and companies like Charm—a FinTech company—but those are companies that I typically, for whatever reason I’m not really actively going into. I’m not really a fan of Robinhood, Charm’s okay.

Virgin Hyperloop, I can get involved in, but it’s not really at the top of my list. With that being said, that’s why there are some clients out there that might turn around and say, well listen, I would like Robinhood or I would like Virgin Hyperloop. Then that becomes a case by case basis. We could see if we could get it done, but I always like to direct clients into certain companies that are on the top of our list.

Toby: Perfect. I don’t want to take up any more of your time. I just want to say thanks for coming in. I know we’re not soliciting or anything like that, but if somebody’s an excited investor and they do want to reach out, where’d they do it?

Drew: You got my email, dspaventa@thespaventagroup.com. I’ll also drop you my office line as well, I’ll include my website, we have a Facebook page, a LinkedIn page. I’m personally on Twitter as well. I think I told you I’m also looking at the social media presence for both myself and my firm. Just to really get my stuff out there.

Another that I’ve realized is a lot of these firms like to operate from the shadows. Not because they’re doing anything shady, but they just like to fly under the radar. That’s not me. I really want to get the Spaventa Group out there, again, myself out there and really become a known figure in this space.

Toby: Perfect.

Drew: I thank you for the opportunity. I appreciate it.

Toby: We’ll post all that stuff and if anybody wants to reach out to you, they can do it absolutely. I like working with you. You came through a client that I’ve known and trust for years. That’s always something nice, is when you have somebody who’s worked with you in the past who says, hey, this has been really great and these guys are fun to work with.

Drew: I agree, 100%.

Toby: Thanks, Drew.

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