Investing in New Frontiers

Investing in New Frontiers
Rachel Lurie

Patent attorneys have long heard the legend that in 1899, Charles H. Duell, then-Commissioner of the U.S. Patent Office, resigned, saying, “Everything that can be invented has been invented.” While the accuracy of this quote remains disputed, the fact stands that as of 2015, over 600 thousand new patents are requested globally each year. This uptick in inventions means many things to many people, but to private equity and venture capital investors, it means potentially unlimited investing opportunities.

With innovation in biotech, cryptocurrency, immersive experiences, pharmaceuticals, artificial intelligence, cannabis, logistics, robotics, and endless other industries, today’s investors are moving quickly into uncharted waters. Investing in burgeoning industries is often similar to investing in emerging markets: if you get in at the right time, you can expect to see high returns, but you also face risks like difficult, rational valuations, poor corporate governance, and an increased chance of bankruptcy.

Our increased reliance on technology coupled with new technological advancements has proven to be ample starting ground for successful new ventures. Sometimes, though, lack of effective due diligence (or lack of available research) has led to highly-publicized disasters. As private companies, these startups can provide financials and forward looking statements that aren’t subject to the same regulatory measures found in public markets. This lack of public scrutiny sometimes allows companies to self-report unaudited financials, and in many cases inflated, or even falsified growth projections have almost come to be expected.

Such was the case for investors in the now infamous Fyre Festival. Detailed in documentaries just released on both Netflix and Hulu, the unraveling of this failed luxury, immersive music festival in the Bahamas lost investors an estimated $7 million. Fyre Festival’s organizer admitted to falsifying documents to show that his stake in the company was valued at $2.5 million, as opposed to its actual value of about $1,500. Fyre Media (parent company of Fyre Festival) failed to provide information for a forensic audit to a potential investor, who ultimately decided against a $25MM investment. On a larger scale, investors were rocked for over $1 billion by Theranos, a unicorn startup claiming the ability to provide low-cost, single prick blood testing, which did not provide audited financial statements to investors, who nonetheless considered the investment a safe bet due to the pedigree of its board members and already-committed investors.

In addition to inaccurate data, investors run the risk of honest visionaries failing to deliver on their promises as a result of unrealistic goals and mismanagement, as with the 3-year implosion of online retail site Fab.com, which burned through $250 million without ever developing a viable business model. There is also, of course, potential for fraud; both Fyre Media and Theranos founders are facing repercussions for allegedly defrauding investors, and 80% of ICOs in 2017 were found to be scams.

So, when surrounded by so many new investment opportunities, how do you ensure you’re making the best possible allocation decisions, without losing out on the best new inventions and startup ideas? Employing an industry-specific software system to help gather and track due diligence data and documents, preserve context in communications, and help follow a structured, repeatable process that reduces emotional decisions is a good place to start.

Dynamo Software is a cloud-based CRM and RMS platform tailored to the alternative investment industry. With advanced research management, deal management, and data tracking modules, Dynamo is fully equipped to assist your firm’s operational due diligence from initial ideation through post-investment performance tracking.

At its core, Dynamo is a powerful CRM system, allowing you to store contact information, track communications, log activities and notes, and tag documents and data to configurable entities. Keeping a thorough record of your communications with prospective investments alongside historical streams of data allows you to preserve context, while any shift in language, messaging, or financial information is easily traced, exposing inconsistencies.

With so much information being made available now, it can be difficult to sift through and determine the highest-quality, most accurate sources. After 20 years in the industry, Dynamo is familiar with this challenge and has cultivated some of the most powerful research management tools on the market used by some of the largest global investors. With pre-built connections to several leading third-party data providers, including Preqin, Capital IQ, and Bloomberg, Dynamo provides instant access to high-quality data from within your Dynamo interface. For providers without an established connection, Dynamo offers multiple avenues for data integrations: clients can leverage our team to connect our API to internal or external sources or use their own technical resources. Data and documents can be set to be downloaded and tagged automatically, so your team can sink fewer hours into collecting information and more time analyzing it. Documents and data can be tagged by investment idea, so all intel about an industry or factor affecting the industry is easily accessible within a central location, allowing you to mitigate risk and make more educated, structured investment decisions.

With new startups and investment opportunities springing up across the globe, managers and investors can’t be expected to conduct all technical diligence from the office. With its SaaS model and robust mobile app, Dynamo can be deployed anywhere with Internet access, so your research and activities can be accessed and updated from the road and made available to you and your team in real time. With all data stored in a central location, information is easily retrieved by any authenticated users, and such permissions can be very granular and set per user or team. Documents and data can also be downloaded for offline perusal, so you can walk into every meeting prepared with the latest information.

We are in a period of widespread innovation, which means there are boundless investment opportunities as well as a glut of investors seeking to get in on them. Get ahead of competitors by accessing high-quality, structured data, tracking context, and keeping the whole team on the same page. When deal opportunities arise, your firm can have confidence in your process and resulting investment decisions being Dynamo Driven.