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Here’s How Gaining Access to Private Companies Before They Go Public Can be Very Rewarding

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Vince Annable: [00:00:25] Hey, good day. Welcome to Secrets of the Super Rich. Today’s podcast is for you and those that are actually learning or yearning to understand what some of the secrets of the super rich are. How do they amass wealth? How do they create wealth? How do they become successful? What types of strategies do they use? How do they do their tax planning? All of that we bring to you on our podcast. And today we’re going to talk about access. We’re going to talk about how the super rich accumulate vast amounts of wealth by having access to private companies before they become listed on the New York Stock Exchange back in their infancy at some time. And we’re going to talk about IPOs. Pre IPOs actually is what we’re going to talk about. We have a special guest today. His name is Michael Whitney, and he is going to educate you on private access. Why it’s important. What is pre IPO? What is private equity? What is venture capital? We’re going to talk about that a little bit. And the reason you want to understand all this is because you may have an interest in seeking out ways to take advantage of this access that the super-rich have. So we’re going to talk to Michael Whitney today. He’s vice president of sales in the U.S., western U.S., if you will, located out of Colorado. The company is InvestX Capital. They provide our investors access to private equity through a large-scale pre-IPO company strategy. So, Mike, welcome to the program. Would you mind helping these people understand a little bit about InvestX, who they are and more importantly, really what this strategy is–this pre-IPO access that we talked about?


Michael Whitney: [00:02:41] I’d love to Vince, and first off, just thanks for letting me join your podcast, I find this to be really exciting whenever I can share the story of what InvestX is doing. But you know, it’s funny you hit the nail right on the head. Private companies are private, right? And before they go public, they have the opportunity to basically do whatever they want. They don’t have to answer to shareholders. They can get private money in and at InvestX. We realize that there was a missing link there and that link was it was only people that were walking around with really, really big bags full of cash, you know, fifty, a hundred, $250 million dollars that would go into these companies and say, hey, we have money. We want to invest. We like what you’re doing, how do we become part of it? But the reality is, is that most people aren’t walking around with 50 and 100 million bags of cash to give to one company. And we found that there was an opportunity at InvestX for us to be able to bring this out in a structure that we could essentially fractionalized or give access to individual investors on. So back in 2014 we came out with our first offering. And what we did is we went to a private company. We bought millions of dollars of their stock and then divided it up into smaller increments and sold it to investors that were aligned with InvestX. We’ve continued to do that every single year since 2014. We’ve done over 60 different deals with private companies. There’s names that you’d be really familiar with, like people like Uber and people like Space X. Then there’s going to be some names you might be less familiar with, like a Gingko Bioworks or somebody like Varro Bank that we’re participating with right now. So we look at a lot of different things, b ut the reality is is we try to find those private companies that have the right type of metrics and get that access for our end investors.


Vince Annable: [00:04:53] Can you give a description, a little bit more detail, on the process because there are different firms out there that we’re aware of that have some sort of access to some private companies through the employees that are selling their stock options or whatever it might be. Can you give us a little bit more detail on what sets InvestX apart? The others can remain nameless, but the other strategies and why this has been such a very popular way for people to get this access.


Michael Whitney: [00:05:30] Yeah, I’d love to Vince. If you don’t mind, I want to take a step back before I talk about my process and talk about why it’s important for people to want to have access to private companies. And the reality is, is that if we look back for the last 10 years, we’ve started to hear like if you listen to CNBC or you know, you pay attention to the business news at all, you’ll hear this terminology unicorn. Have you heard about unicorns before? Yeah. What are they talking about? They’re talking about billion dollar companies that came out of nowhere that are revolutionizing whatever industry they’re in. The reality is is that the number of unicorns that we’ve seen produced in the last ten years is massive, and those companies are choosing to stay private because, like I said earlier, they’re able to bring in capital and they don’t have to answer to shareholders. But at a certain point, they are going to go public, and what we’re looking for is we’re looking for that time period where we can get into those companies and experience some of that stratospheric growth that they have but not have to wait eight or ten years for it. We’re going to wait more like one to three years for us to be able to have that liquidity event or that company go public. And, you know as well as I do that’s the part that’s really important when they go public, that’s when you really make money. So go ahead. So what I was going to say is, we like to talk about it from the life cycle of the company first, right? You start out, you’re a young company. I’ll you, I’ll use you as an example, right? You’re you’ve got the next great idea on whatever you want and what’s going to happen?


Michael Whitney: [00:07:15] You’re going to go to your friends and family. You’re going to try and generate some money from there, you know, get interest. Hey, I’ve got this great idea. I’m going to come out with the next best dog leash and we’re going to revolutionize dog leashes right? From there your friends might give you some cash. And what do you do once you’ve tapped out all your friends and family? You’re going to go to the bank. That’s right. You’re going to go to the bank. The bank is going to go, Hey, Vince is awesome. This is the best dog leash ever. Here’s some more money. Right? But then you’re going to run out of capital and you’re going to start seeing those people you mentioned in the intro, right? The venture capital guys will come running around with some money in what’s called early stage private equity. But the problem is, is that Vince, at that point, we may have a really great idea or we might have a dog, you know, and you don’t know. So you take big bets there. But at InvestX, we’ve waited for those dogs to kind of get out of the way. Right? We’re looking for companies that have been around for a long period of time that have really strong balance sheets that are making a bunch of cash that are hopefully, you know, they’re either at or near profitability, but they have a definite dominant position in the market, and we see how they’re going to become a really big player, and that’s when we choose to invest with them. Not when it’s too early to know, right? But once there’s kind of a known commodity in that space.


Vince Annable: [00:08:46] So typically when you’re looking at companies, you’re already identifying companies that have revenue. They may even have or be close to generating profits.


Michael Whitney: [00:08:59] Exactly right. That’s right. So we have a five step process that we look at. First and foremost, we talk about this idea. You know, we mentioned unicorns just a minute ago. We’re looking for unicorns only, right? So a billion dollars or more. A lot of times these are going to be household names. Like I mentioned, we participated with Uber. We did Hootsuite. We did Airbnb and Palantir and names that would be pretty familiar to some people. We’re looking for those companies. We need to be able to get access to information because the reality is some of those other folks that you had said you might be able to get shares, but you have no idea if you’re getting a good deal. So while it might be cool to drive the nicest car or to have the best thing, it’s not cool to know you paid three times more than everybody else. Right? And what we’re trying to do is make sure that you get the coolest thing and also that you get it at the right price.


Vince Annable: [00:09:59] So the process and working with you with our clients has been you will identify typically one opportunity at a time and you will bring that opportunity out to the broker dealer network, to the RIA network to high net worth. This is for accredited investors only, and you will introduce that. It’ll get filtered down to guys like me, but it’s very, you guys are very selective about who you bring the opportunities to as far as the distributor, i.e. the broker dealer network and which advisors you work with. They can’t go to the big name brand wirehouses as they’re called, that have, you know, the big buildings because those guys don’t have access to this. It’s very interesting how in this case, the little guys if you will, compared to those guys, have access to this very selective opportunity. So walk us through the process, if you will.


Michael Whitney: [00:11:15] Yeah. So I guess I want to touch on two of the points that you mentioned, and there are a number one we tend to do about a deal a month, right, is our general idea. We bring out one deal a month, not because we want to bring out one deal a month, but that’s how long it tends to take to be able to do the research and find out what’s out there and find out if shares are available. Our team looks at 12 to 15 deals every single month and chooses one. That’s it, just one. And generally, it started by not us looking at investments, but those companies coming to us saying we have a need for some liquidity. Are you guys interested? So what happens is we end up going out. We find the opportunity by them coming to us and we say, you know what? We’re very interested if we are right. Of course, there’s ones where we say, hey, I know you need money, and we know why, right? You’re not looking like a very good company. But the reality is, is that we’re going to see that opportunity. We’re going to say now that you’ve established that we can be a great partner to you, we need to see all of your financials. We’re going to have really deep conversations with the management. We’re going to talk to the chief financial officer about what the financials look like and the chief marketing officer about what the plans look like for expansion. We’re going to talk to the CEO about what’s their plans for going public and what are their investors want because it has to match up with what we need. So our investment committee is constantly going through those conversations and sourcing those shares.


Michael Whitney: [00:12:52] But the shares come from essentially all the same places. It’s either early stage venture companies that are looking to get out of a position that they’ve owned for five or seven or ten years. Because let’s face it, liquidity is king, right? Some folks want to get out of an investment earlier. They want cash and we can buy it at a discount, which we love. Vince, I always want to buy something for less expensive than the market, right? (Vince: Amen.) The next thing that we do is we might go in there and we’ll talk to that CFO and we’ll say, hey, we’ve established an opportunity for us to buy 15 or $20 million of shares in your company. Do you know of anybody else that would like to liquidate? And they’ll send out a lot of times emails to early investors, to early executives in the company, current employees. The joke is always you take your wife on vacation to Santa Barbara and what happens? You come home with a house in Santa Barbara? Right? Same thing happens with these high level executives at these companies. You know, they go out and there’s a need for liquidity because before that company goes public, those shares, there’s nothing they can really do with them, right? People have college educations to pay for and cars to buy and houses to buy and vacations they want to go on, especially when they’ve been working really, really hard for a startup for eight years. So they need to get liquidity. We come in, we provide a service and then we obviously after we’ve done all the analysis and make sure we like it, we provide.


Vince Annable: [00:14:21] And that’s what that’s called. Let me interject just a second here, Mike. Yeah. This is called the due diligence process. Most of you have probably heard that term used before. This is called due diligence. This is where they go in and they turn all–he’s being nice about what they do–but they really go in with an x ray machine, turn these people upside down inside out, and look at every nook and cranny in the company before they make a decision to buy those shares.


Michael Whitney: [00:14:51] One hundred percent. Yeah. And during that time period, which is really important, Vince, is we are actually building great relationships with them as well, right, where they’re willing to give us more information, they’re willing to share with us even more. And that’s how we can go from saying, well, maybe there was three or five or $10 million to saying, hey, there’s an opportunity for us to get a bit more. Right? And we become a very valuable partner to them, and they want to tell us even more because they know that we are going to help them with what they need and in turn, be able to get them access to more capital, which is always great. So I’ll talk a little bit about the process, too, if you don’t mind, because once we do that, once we establish no go ahead, we get we get shares. Now there’s a thing called “rofr.” Have you ever heard of that before? Right of first refusal–rofr. (Vince: Right.) In private share world, you’ve got to be really careful with that because you mentioned there’s some other providers out there that might do something like us. The problem is is that those folks don’t always know that those shares are going to be available to them at the price they think they’re going to pay so they can go all the way to the end and try to buy those shares. And the company can go, hey, Vince, we’re not selling our shares at that price. There’s no way. And they pull them back and they buy them themselves. We make sure we do that diligence upfront to make sure that we can to the best of our ability, control that “rofer” process as much as we can. They can always change their mind last minute. I mean, let’s face it, they’re private companies. They can do whatever they want. I build in that relationship during that time period. It’s really important we can find out, hey, if we if we are buying at this price, is that OK for you? Right? And then they’ll they’ll let us know.


Vince Annable: [00:16:46] Ok, so what’s next?


Michael Whitney: [00:16:49] So from there, we get the shares, your clients are simultaneously working with you. Right. And what we do is we bring it out to our very selective group of broker dealers around the country. We have a broker dealers here in the United States. We have a few in Canada that we work with. And then we have a team that works with ultra high net worth individuals from around the world, offices in Dubai, offices in Paris, offices in London and Switzerland. And we bring those deals out to that network and it goes really fast. So typically, our deals sell out and about four to six weeks, but we introduce them to you. We give you the opportunity for you to look at the at some of the financials. We can’t give it all because we have to sign NDAs, nondisclosure agreements, but we give you some general information to say, hey, we’ve done our due diligence. Here’s what we’re thinking. This is why we like the investment. And from there, we bring that out to that broker dealer community, and we sell it candidly as quickly as we can. Because everybody jumps all over it.


Vince Annable: [00:18:02] And the reason we call this program Secrets of the Super Rich, you have just heard the secrets of the super rich are access to private investments, private companies that you don’t normally hear about, and this is one of the ways that we are able to help our clients have that private access, have that opportunity to grow their wealth, and in some cases have huge returns. Sometimes they get a very conservative return. Other times they may get a huge return, which is what is expected out of being involved in a private company before it goes public. One of the reasons you want to do that is because typically the opportunities are for a much larger return. Well, with that, Michael, would you like to close with any closing comments?


Michael Whitney: [00:18:54] Well, Vince, I want to touch on one thing you said there, and then I’ll close off and you said that we are looking at the opportunity for returns. Part of our investment thesis is if we can’t see a way to make an average an annual return in excess of 40 percent, we don’t even consider the company. Right? So considerably looking to outpace what’s happening in the S&P 500 or the Nasdaq or any other public market that’s out there. But the reality is, is that we view that what we’re doing is to be both innovative, provide that access, but ultimately it’s a service, right? I mean, this is a service that we’re providing to investors to help them get access to companies before they’re in the public markets. And by doing that through you, you know, we’re excited to be able to offer up some of the best names and some of the best opportunities for investing that we’ve seen since 2014.


Vince Annable: [00:19:52] Ok, that’s a wrap. Great, great show, great program. I want to thank Mr. Michael Whitney for being on the show today. (Michael: Thank you, Vince.) I’d like to thank you. You’re certainly welcome. Michael, thank you for educating all of us into this process and the various opportunities and highlighting one of the super rich secrets, if you will. So we would like to ask all of you listeners to please subscribe to our podcast by visiting vfoag.com. Just enter your name and your email in the address section down at the bottom of the page, click submit. We’ll send you links to subscribe and also the audio version of this video. I’ll also pass along our digital version of our white paper introducing you to the virtual family office, explaining to you how our VFO addresses the complex wealth management and lifestyle needs of affluent families. You don’t have to be super rich to take advantage of the VFO. So again, that’s at our website vfoag.com. My name is Vince Annable signing off. Thanks for joining me. I’ll talk to you again on the next edition of Secrets of the Super Rich.


Announcer: {Disclosure} This program has been presented for the education of our audience only and is not intended as investment advice, nor is it intended as a solicitation of investment products or services of any kind. We encourage you to seek the advice of a licensed professional financial advisor before making any investment decisions.