Notes from Earth #1 – Discoveries in the World of Business Funding
“Notes from Earth” is a series of blog articles on discoveries I have made while traveling around the world to conferences and meeting individual thought-leaders in the area of innovation and business funding. The idea is to get you “grounded” in investing reality, and save you the trouble of duplicating all that traveling and expense while giving you the most valuable resources I encounter. If you want to explore further, you can order (if available) the transcripts of the event, or contact me and experts cited for more information.
This first “Note” is about the Opal Alternative Investing Summit, December 4-6, 2016, Dana Point, CA
Closing keynote by Keith Kaplan, CEO and Co-Founder, Tesla Foundation
Highlighted disruptive technologies:
- Big Data
- Augmented Reality
- 3D printing
- Virtual reality
- Artificial Intelligence (AI)
- Internet of things (IOT)
Summarizing this slide:
- The Tesla Foundation is a not-for-profit science and technology think tank focused on the transition from Industrial Revolution 3.0 to 4.0 (automated).
- The Tesla Foundation’s Tech Fund provides capital for the most promising talent from the Tesla Farm System and beyond, with a preference for sustainability-focused technology that will move humankind forward.
- The Tesla Technology Farm System is fashioned after pro sports farm systems, to develop up and coming talent, including all aspects of technology communications.
- PeopleEX is an example of a for-profit enterprise that developed out of the above programs (I believe) – an AI-enhanced big data SAAS system that facilitates conversion to industrial revolution 4.0.
- TeslaX refers to impact research that leads to for-profit autonomous and robotic products and systems.
Kaplan then presented a list of opportunities that flow from the current generation of disruptive technologies:
- Industry 4.0 industrial complexes
- Predictive modeling for Industry 4.0
- Education for the jobs of Industry 4.0
- Hyper-connectivity (IOT)
- Implementation of cyber-physical systems (AI embedded in machines)
- Consolidated big data banking
- Large scale public/private partnerships (e.g. Cancer Moonshot)
- Early stage and VC investing
- Increased machine productivity
- Ecological sustainability
- Human capital investment
- Job creation
Then he listed some of the disruptive effects of these opportunities:
- Socio-economic insecurity
- Disruption of public and commercial services
- Cyber security breakdowns
- Product life-cycle shortening
- Industry value chain disruption
- Supply chain disruption
- Reliability and productivity of the human workforce diminished
- Workforce talent strategies disrupted
- Displaced workforce unemployment
- Regulation unable to keep up
- Education unable to keep up
I’m not suggesting these lists are comprehensive. However, they are suggested of opportunities and problems for which solutions are needed.
The audience expressed concern for the impact on jobs of increasing automation. Kaplan responded that more jobs (i.e. service opportunities) are created than destroyed by these technologies and the abundance that they enable, but short-term disruptions will be painful. Training and education, not guaranteed income, are the key to reducing unemployment disruption.
If you think you can contribute or benefit from any Tesla Foundation program, Keith Kaplan can be found on LinkedIn.
Opportunities in Structured Finance and Alternative Credit Strategies
This session is of interest to investors.
- The opportunities for those providing “private credit” to obtain business funding will continue to increase even if Dodd-Frank is rolled back by the new administration, as banks will continue to be limited by banking regulation. The demand for private credit will continue to grow for the foreseeable future.
- Regarding capital supply for private credit funds and finance companies, family offices and pension funds are making increasingly large allocations to private credit funds and finance companies. A lot of funds are coming from Asia as well. For those raising capital for a private credit fund, many investors such as large family offices and Asian investors are seeking the shorter time-to-liquidity offered by credit-granting funds. Hence more capital is becoming available for private credit funds.
- There are a great many opportunities for finance companies in every part of the economy. Finance companies can borrow money from larger private credit funds and directly from investors seeking higher yield.
- From the investor point-of-view, when investing in a private credit fund, make sure the managers have skin in the game. In light of problems that occurred during the credit crisis, if you are investing in a credit-granting fund, make sure loan servicing will be sustained professionally even if the credit-granting fund or the finance companies they finance go BK.
- An example of a private credit fund investing in smaller specialty finance companies and distresses assets is Sheridan Asset Management.
Sustaining the New Age of Impact Investing
The Cooper Family Office (noted large single-family office) was the featured speaker.
He says that investors think that impact funds have lost money, despite evidence cited by the Global Impact Investment Network. This is a challenge that impact funds have to address.
Family offices are collaborating on due diligence and selection of impact investments and impact investment funds, to reduce cost and risk. If you are seeking investment from family offices, it’s helpful to find one that tends to lead the pack (like Cooper Family Office). Make sure you address the particular areas of impact that they want to address as a family.
Caution to those running funds: mixing investor types (some interested in market-rate returns and others interested mostly in “impact”) will scare off those seeking market-rates, as they will be suspicious of the advice given to, and the motivations of the fund manager, particularly if impact investors sit on the advisory board.
Takeaways for Innovators
- There are many exciting opportunities for entrepreneurship in the Industrial Revolution 4.0, both in the enabling technologies AND in handling the disruptions they cause.
- Entrepreneurs who want to avoid equity dilution should seek debt capital, which is increasing supply. If straight debt is not available, or if you want to avoid high fixed payments, then seek debt supplemented by royalties or just royalties. You can read more about royalties as a better way to finance business in my eBook on this site The Road Less Traveled the Guide to Understanding Royalties found in our free library.
- Family offices are increasingly seeking impact investment opportunities and often will settle for below-market rate returns. Many want short term liquidity in the range of 3 to 5 years. Offer them royalties as a way to achieve this liquidity goal, while retaining some of the upsides of buying equity.