Q&A with LX Ventures (V.LXV) Director, President & CEO Mike Edwards
What is LX Ventures’ (TSX: V.LXV, Stock Forum) vision?
Our vision is to gain an early entry into the onset of a tech boom that is coming our way while providing shareholders with a return from a diversified portfolio of high technology companies and opportunities from around the world. We launch, acquire and integrate companies with a focus on high ownership in innovative companies that with our resources will have multiple exit strategies.
The public markets support this vision as tech has been the best performing sector in terms of share price appreciation on the the TSX since 2012. With 2013 merely half way through, 27 equity financings have closed totalling more than $350 million. Not to mention there are 170 public technology companies on the TSX and TSX-V, which amounts to approximately $17 billion worth of stock trading on these exchanges in only the first quarter of 2013.
Tell me more about the market opportunity you see today
I truly believe that there is no better time than now to be in tech. It’s never been cheaper to start and build tech companies, and the growth potential that tech offers is exponential. With the increasing demand for new technology from a population that is avidly tech savvy, there is a supply of tech companies that are being established to meet that demand. All that is lacking is the capital to initiate and sustain that supply and demand, and that is where LX Ventures comes into the picture. Through strategic investments and internal innovations, we are providing that supply of tech products to an audience of investors, VC’s, and opportunistic individuals who believe in the value of tech and the rotation of the investment sector from resources to technology.
How do you see LX capitalizing on the market opportunity in this new tech trend?
Through our diversified portfolio approach, we are able to acquire and invest in early stage companies that we feel are going to be tomorrow’s success stories in tech. At LX Ventures we have gathered a team of extremely knowledgeable and experienced individuals who are able to support the development and financing of the opportunities we take on. By investing early on, we are able to inject our resources, capital, mentorship, and networks into each entity to make it stronger and create an even clearer path to exit or profitability.
Tell me about yourself. How did you build the track record to take this on?
I’m what they call a lifelong entrepreneur. I’ve established and invested in technology companies for more than 20 years. In the early 2000’s I bootstrapped a technology business called Area Connect and had a wonderful and very financially rewarding exit. More recently, as a co-founder of Initio Group, an early stage venture capital fund, I’ve been able to build my network and invest in some great opportunities including Punch’d, which sold to Google, Summify, which was acquired by Twitter, LaunchRock, Wander, and the 500 Startups venture capital fund. My experience in building and investing in tech startups has built my foundation, and there’s no better way to build your track record than putting both feet in and jumping right in.
Tell me about your business model
We internally innovate and strategically invest in early stage high tech companies around the world. Once the acquisitions and/or investments have been made we then insert our resources and capital into each entity and create opportunities for growth till the point of exit. At that point, we would have multiple exit strategies including spin out companies, RTO’s or to sell the company to a larger entity, all of which in turn creates returns for our investors. Think of us as a mining project generator but in technology. We aren’t a single focus, one project company - instead, we provide multiple opportunities to hit the proverbial gold mine.
How do you find the companies that you ultimately acquire and what criteria are you looking for?
Our team is heavily connected to the startup community in Canada and around the world, and we are always on the lookout for opportunities.
There are definitely some elements that we look for before acquiring a company. What I like to do is see where the company fits along the lifecycle map of a startup. Typically after a company launches they raise a family and friends round, possibly an angel round, then launch their beta product, gain traction and reach a pivotal point before a Series A Crunch or as we call it, the “Plateau of Despair.” At this point, the company doesn’t have further capital to continue on and is unaware of what direction to take. This presents a good opportunity for LX Ventures to step in and take the reins of a company that has a good team, has a growth opportunity, has traction, but is in need of that X factor - the ability to get back onto that growth trajectory that we bring based upon our track record of exits.
What are some of the companies that you have recently acquired and how are they performing as part of your portfolio?
We recently acquired Sosido Networks and Mobio Technologies. Sosido is a web service that provides healthcare associations and their members with a better way to share knowledge. Sosido is the first addition to our HealthTech vertical, and we feel that Sosido presents a disruptive opportunity in providing a highly integral service for physicians, associations, pharmaceutical companies, and other health centered organizations. The opportunity is just beginning to unfold, and we see a lot more growth coming their way.
Mobio Technologies is a fan-artist engagement platform that provides a two way channel to interact with and make requests for rewards, access, and offers from stars and brands in a way that has not been possible in the past. It potentially solves a much bigger problem than just this but we’ll save this for another time. Our team has been working very closely with the Mobio team to streamline their current business processes, and refine their platform to increase their exposure and profits. So far, we are pleased with the results and we look forward to seeing Mobio excel even further.
You recently announced a new acquisition – Mobio Technologies, what attracted you to this company?
We were attracted to Mobio by their ad technology, team, and customer base. Mobio is breaking new ground in engagement advertising. They have figured out how to capture the engagement that a fan has with the music star they love, and how to leverage it for brand partners and for the star themselves. Hence, Mobio is seeing double digit percentage ad unit consumption, which blows traditional digital ad consumption rates out of the water. They have a team of experienced entrepreneurs and operators, and they have also attracted major pop star customers such as Ke$ha, T.Mills, Cher Lloyd and Hot Chelle Rae. All these factors combined made Mobio a highly attractive acquisition target.
How should investors track LXV’s success? You aren’t a one trick pony but offer exposure to multiple companies under one umbrella. What is the ultimate exit strategy?
Our share price is our currency, and the sheer amount of media attention we are getting are both indicators of how we are progressing and growing. Not to mention, our vision, our team, and our past track record all show investors our ability to bring an opportunity to the table that is unreachable elsewhere.
Our website, lxventures.com is a great place to track our success as we post the individual pieces of press that our companies and executives receive. The ultimate exit is quite simple. Once our wholly owned subsidiaries have gained tremendous amounts of traction and growth, we enter an M&A, buyout, or direct exit to a bigger player in the market. We want to grow our companies as big as we can, and we will do just that before they are ready to exit.
How have you been able to finance your acquisitions and company initiatives to date?
Being a public company, we are able to leverage both direct capital and our shares as a means to finance our acquisitions. We are backed by supportive investors and VC’s. VC’s typically invest only in private companies but with us they have the potential of funding our individual subsidiaries separately at no dilution to the share capital of LXV. This is an extremely powerful opportunity and one that allows us to be a lot larger and manage our growth.
LX has quite an impressive management and advisory board team, tell me about the role they play in the company and how LX Ventures was originally formed?
This has been a longtime vision of mine. I always thought there was a better way of accessing a lot of the venture capital here in Canada. The fact of the matter is that much of these investment dollars get deployed into smaller companies that trade on the TSX and TSX Venture Exchanges. So, through championing my cause, and leveraging relationships that I have developed over the years, friends and associates bought into my vision and wanted to help. We’ve brought in best of breed, domain expertise into each role within the company. Between management and our advisory board, we have more than $2B worth of successful exits within the last 6 years with the last, a $526M all-cash exit being completed this past January. We’re lucky to have assembled talent capable of this.
How has the market reception been in a country that is more familiar with investing in resource stocks?
After seeing the mess of 2008 and the current surplus of junior mining deals with little to no opportunity to ever generate revenue, and minimal opportunity to raise capital, the market and its investors are definitely turning their attention to other sectors, including technology. You can’t ignore statisticians when they state that more than $3.4 billion in equity has been raised for 350 public technology companies. Or that in 2000, about 40% of the Canadian capital markets were invested into technology while just 11% were invested into resource companies. The pendulum has swung drastically during the last decade with resource stocks now making up about 40% of the market and technology only representing about 4%. We believe we’re in the midst of a bit of a sector rotation. Market participants are noticing the amount of growth and stock price appreciation that is occurring in the technology sector and have begun their due diligence to learn more.
Disclosure: LX Ventures is a Stockhouse client.