John Shave - VP, Business Development and Corporate Communications
Steve Zarrilli - President and CEO
Safeguard Scientifics, Inc. (SFE) J.P. Morgan 11th Annual SMid Cap Conference Transcript November 29, 2012 11:45 AM ET
Good morning. Good afternoon. My name is John Shave. I’m with Safeguard Scientifics and with me here today is our President and Chief Executive Officer, Steve Zarrilli.
Thank you, John. Good morning. My name is Steve Zarrilli. I have actually been the Chief Executive Officer of Safeguard for all of 28 days, but for those of you who have been following the stock, I’ve actually been with the company for the last four and half years, previously serving as the Chief Financial Officer.
I’m thrilled to be able to spend the next 25 to 30 minutes with you taking you through the Safeguard’s story. I’m hoping that I’ll appeal to both those who haven’t heard the story before, as well as to those who may have heard the story to give you some further insight as to what we’re attempting to accomplish.
Safeguard is a Philadelphia-based company. We’ve been on the New York Stock Exchange for more than 40 years. We’ve been in existence for just about 60 years. We’ll be celebrating our 60th anniversary in this -- summer of this coming year.
We have been a lot of things to a lot of people over the six decades in which we’ve been in existence, but for the last seven or eight years we’ve been focused very diligently on being a preferred growth capital provider to certain types of life science and technology companies.
We are, if you want an evergreen type of funding model. We take the proceeds from the gains from our deployment activities and roll them back into provide for new opportunities.
I’m going to hopefully be able to leave with you some thoughts around the team that we have, some of our recent successes, the sectors that we focus on and the resources that we have in order to conduct our game plan.
I’m -- hopefully as we go through this presentation today, you’ll have a sense that there are -- is a lot of value that may not even be apparent when you look at the financial statements of Safeguard.
We account for all of our -- virtually, except for one, all of our companies on a cost or equity method of accounting. So there is no fair value accounting that’s taking place. So if I put $1 to work and over the life of my involvement with that company, pick up my share of losses on that company. I adjusted downward, but I never adjusted upward. And then I take the difference between that adjusted value and the ultimate proceeds and that’s the gain that ultimately would work into our financial statements and into our book value.
That value is never reflected in our financial statements during the holding period and it’s that arbitrage and value that we really want to make sure shareholders and prospective shareholders focus on.
We’ve also had when we look at the track record over the last six years, we’ve had on -- in a completely blended fashion meaning winners and losers combined, we’ve had just over a two times cash on cash return history.
So if you just apply that track record to the cost of the deals in which we currently have capital deployed, which is about $190 million, multiplied by 2, compare it to, add that to the cash on the balance sheet and then compare that our market cap, you’ll see that there’s a pretty significant delta that exist between those two numbers.
We have 16 partnered companies today. I’ll give you a sense of what those companies look like. We call them partner companies. We generally like to have a stake of 20% to 50%. We generally don’t control but we have significant minority influence. We have a team that’s been in existence for a pretty substantial period of time here at Safeguard and they’ve got the skill sets and I’ll introduce to you some of those individuals in a moment. They have the skill set that we believe are important to identify, manage and then ultimately harvest the capital that we put into these companies.
Our balance sheet is strong. I can’t say that it was a strong today, it was, six years ago when I ultimately or four and half years ago when I first came to Safeguard. Safeguard had about $50 million of cash and about $150 million of debt. Today we have more than $200 million of cash. We have about $50 million of debt and that debt doesn’t come due over for another five and half years.
So the team that we are currently operating with, in addition to myself, Jim Datin has been with Safeguard for over seven years now. He runs all of our deal team operations. He has significant experience both in technology and life science. He’s been on the operating side of businesses, as well as the -- an executive that is capable of finding great deals and deploying capital.
We round out the executive team at the senior level with Brian Sisko who drives all of our activities around strategy and development and internal operations. And what’s important to know their? We do support our companies not only with capital but with other functional expertise in the areas of accounting, marketing, legal and other operating skill sets to help them through certain periods of evolution. We do want them to stand on their own but that isn’t important attribute that we bring to the table.
The three of us are then supported by the man that you see underneath them, some of these individuals like Gary Kurtzman and Phil Moyer and Erik Rasmussen have deep domain expertise in the areas of life science, technology, Internet and new media, and they drive very specific agendas around finding companies that we can deploy capital into.
And then we round that out with our team of Steve and John here and Jeff, who are taking care of things like IR and Communications, and finance, and other areas of operational support.
We are a company of 30 employees. But we can act a lot bigger because of a couple of factors. One, we have a very extensive advisory board, comprised of men and women with deep domain expertise in the areas of life science and technology that we focus on.
We can dwell upon their experiences and skills and helping us to identify opportunities, evaluate opportunities, dealing with the issues that we may have, while managing those opportunities till their ultimate exit, and then helping us potentially with the exit opportunity as well. They have significant experience in all facets of the areas that we focus on and they are a very specific and meaningful resource to us.
We also have over the years have developed a track record that allows us to partner with other very experienced incredible capital providers. A lot of the opportunities that we get in -- introduce to isn’t just because of our own networking, it’s because we’re being asked by others that are around the table to come and join them in deploying capital.
And as we continue to strengthen our track record we find more and more opportunities along that pathway, and the logos that you see at the top of the page in the first third of that page, are some of the companies that we’ve worked with in the past or currently are working with, with regard to jointly deploying capital into the companies that we focus on.
And then, again, as I mentioned, we’re New York Stock Exchange company. We have a Board of Directors. They have deep domain expertise that we are able to draw upon for the development of Safeguard for the long haul.
So our model is actually fairly straightforward. It’s deploying growth capital in certain types of technology and life science companies, and then looking to achieve a well-timed risk-adjusted exit within three to five years from the date of employment, I mean, deployment.
And hoping that, not just hoping, but focusing on making sure that the capital that gets return is somewhere between two and five times initial capital deployed. And as I mentioned, our historical track record to date all winners and losers combined has been just over two times.
Some people in the market will look at us as a venture capital firm. Some will look at us as a private equity firm. We know that we have characteristics of both. But we do believe that we’re a bit different. We don’t tend to go as early as many venture capital firms, but we don’t tend to go as late as a variety of private equity firms.
But more importantly, we provide for institutional and retail shareholders the opportunity to participate in a segment of the marketplace that they might not get elsewhere. So they are able to through a New York Stock Exchange stock be able to invest amounts of capital that they think are meaningful into the -- into Safeguard and therefore get exposure to the sectors that we focus on. And we think that that’s one of the primary differences for Safeguard compared to some of the other alternatives that you may look at from an alternative asset distribution perspective.
We also probably have more operating expertise on hand than a company that would be deploying capital of a similar size. So at any given time we’re trying to maintain about $200 million to $250 million of ready capital. It helps us compete effectively against others in the marketplace. It shows that we have staying power and it shows that we have stability.
But when you look beyond that, it’s just not the MDs, the Managing Directors and managing partners who are deploying that capital. We do have investments in an infrastructure and aperture if you will that will help us with helping those companies around the areas that I mentioned before, which is finance, marketing, legal and operations, and there are important attributes that help us win deals in the market as well.
We are, as I mentioned, an East Coast-based organization, so no surprise here. Our core concentration is in the mid-Atlantic think Washington to Boston, and we spent a lot of time on the East Coast looking for opportunities.
We are not opposed to going west or even in the center of the country. If you had looked at this chart about a year ago you would have seen a couple of -- about a year and half ago you have seen a couple of other companies that we’ve ultimately monetize it, we’re located in California.
But, again, this is an East Coast focus for us in a lot of respects, because we find a lot of opportunity in the areas that we focus on, especially in that Philadelphia to New York carder things around life science are very fertile given the legacy of the -- of big pharma and the spin-out of the capabilities and opportunities that have resulted from that.
We typically look to deploy up to $25 million in an opportunity but over a period of tranches if you will and milestones been achieved. Our typical size that we are focused on is generally between $10 million and $15 million of initial capital, sometimes a little bit smaller than that but that’s a guide post for you.
We are generally looking to be the largest institutional shareholder sitting around the table, but not the only one. But we do want to have that significant influence. We’re generally trying to achieve governance in either with one out of five Board seats or two out of seven, something that gives us enough stake at the table.
We look at the growth drivers that you would expect, there are certain criteria around management and scalability that we’re focused on. But this is a -- these are the areas that we tended to put a lot of emphasis on. We like to back management teams that have had a track record. And as we continue on we are looking at opportunities at other successful management teams that we backed previously are now coming back to the table asking us to look at new opportunities that we’re considering on the go forward basis.
So let me shift gears here and take you through a picture of what the 16 companies look like. There are a couple of different slides. We’ll take you through a couple of case studies, so that you can get a better feel.
This pie chart generally represents an equal weighting between life science and technology. Life sciences on the left, right, technology on the right, where the lines blur for us is in this area that we call Healthcare IT, we are seeing a substantial merging of opportunity between that which was typically only life science oriented in the past and/or only technology, and seen a marrying of opportunity. It’s being played out in this generally defined area of Healthcare IT.
From a life science perspective, a couple of important characteristics, we are trying to find opportunities where there is lesser regulatory risk. What we mean by that is, we’re looking for companies that probably have already gotten through FDA approval process and may have already scaled and gotten through the reimbursement later that they have to work through as well.
We typically focus on areas that involve either diagnostics devices or some specialty pharmaceuticals, for us it’s either typically generic -- a generic play or it’s a drug delivery capability.
As an example, Putney that you see at the bottom there, Putney is a generic drug company focused on the companion animal space, headquartered in Maine, growing quickly.
It has figured out how to take human compounds and quickly get them through an FDA approval process for the treatment of certain disease states within -- that exist within cats and dogs as you can imagine that’s a growing area for two reasons, one a lot of companion animals.
People spend a lot of money on companion animals but more importantly about 80% of the medication that’s prescribed right now in the veterinarian space are not generics and that’s the complete opposite in the human environment. There is a big opportunity to take a lot of these branded compounds and turn them in to generic compounds for greater market penetration and that’s what Putney is focused on.
From a medical device perspective, we’re looking for opportunities where a company has gone through the regulatory process and are now bringing to the market certain types of devices in the either treatment of the disease state whether the identification of a disease state. NovaSom as an example is a sleep apnea test that is done at home rather than in a sleep center.
It wirelessly takes the data that it accumulates while you’re sleeping in your own bed and then ultimately sends it to your physician. The rate of accuracy is much higher. It eliminates multiple night evaluation that might occur in a sleep center and its one-third the cost. So the insurers actually like it too because it is less costly, more accurate and that’s NovaSom.
PixelOptics as we’ll mention later in the little bit more detail. Electronic eyeglasses, we think that that could be a game changer. Molecular and Point-of-Care Diagnostics, Alverix and Good Start Genetics, certain types of testing for Good Start Genetics, it’s prenatal testing of certain genes states and mutations that couples are focused on prior to conception.
On the right hand side of the chart is technology. We break that down between Healthcare IT, Fin Tech and Internet/New media. Couple of quick takeaways from this particular slide is that we are -- some of the companies that are more mature than not for us for within this Internet/New Media space and we’re going to share a little bit more detail about them in a moment. They provide potentially the next harvesting event for us at Safeguard.
We’ve had four high profile exits over the last 24 months, which we think are examples of where we can actually drive value for our shareholders. There have been companies. Three of which were life science, one which was a technology company.
One thing to focus on as you look at the slide is the companies that acquired these partner companies were big companies and that’s an important attribute for us. When we think about exits and we think about putting money into work in a company, we’re also thinking at the same time, what will be the exit process. How long will it take and who by the chance will actually want -- will be interested in the company.
We’re very happy with the things that we’ve been able to do thus far with some of the companies and that they have had large acquirers pursuing them. And that’s a very important attribute for us.
One thing that you will see is that these four companies were very substantial to us from a return perspective. One, actually achieving a 13 times cash-on-cash return within four years. A company that went from $0 to $150 million in revenue during that four-year period of time was acquired by Shire pharmaceuticals for $750 million on the eve of its IPO, which represented a value of 25% greater than what the mid price of the IPO range was suggesting.
So if I go back to the current partner companies that exist today, another way for you to look at what -- how these companies are, where they are in their evolution. We tend to break them down into four primary categories going from left to right. Development stage means that they’re not yet generating revenue. They’ve stolen the proof of concept waiting for some form of approval.
NuPathe actually is the only company that we have an interest in that is still waiting for regulatory approval. They are -- that’s a publicly traded company for which we own approximately 20%. It is looking to achieve FDA approval on a transdermal patch that would provide the delivery of certain types of migraine medication through the skin rather than being taken orally or through injection.
We think it’s a game changer in the treatment of migraine conditions. Patients who suffer from migraines will tell you that it’s a game changer as well because a lot of them can’t take oral medication. They can’t keep it down during their episodes of migraines. We’re hoping that FDA approval will be achieved in 2013 and the company will then be going forward with its commercialization activities.
Initial revenue stage companies are generally up to about $5 million of revenue, expansion stage up to $20 million and then high traction means that they’re north of $20 million in revenue and generally generating profits at least an EBITDA line.
You can also see from this that we generally are trying to acquire a 20% to 50% ownership stake in any one of these companies. And that’s very consistently applied through without this chart. The other thing to keep in mind, we don’t have to start at the left and get to the right before we can have an exit event.
On the previous chart, you may have seen Avid Radiopharmaceuticals. Avid was a company that was started on the campus of University of Pennsylvania. It’s the first of its kind, FDA approved, capability to diagnose or detect the plaque buildup associated with Alzheimer’s disease. It is now -- it is now owned by Lilly.
Lilly is not only commercializing that by virtue of offering it as a test to patients who believe that they may have a condition of early-onset dementia or Alzheimer’s. But they’re also using it as a tool in the development of clinical trials around new compounds that may be used as therapeutics in the treatment of Alzheimer’s going forward.
Avid never got out of the development stage when we ultimately were able to sell it to Eli Lilly. So we don’t have to start at the left and get to the right. We’re able to invest across any one of these stages and ultimately find exit opportunities even as they’re moving away through the maturation process.
So couple of case studies. I mentioned PixelOptics. There’s been three primary evolutions in our glassware over the last 300 years. The first were bifocals and Ben Franklin at Philadelphia developed those back in the 1700s, early 1800s. Then in the 20th century, we had the advent of progressive lenses, which for those of you who wear glasses, it’s lens that basically is trying to achieve a couple of multiple purposes, one distant vision as well as near-end vision.
PixelOptics was developed by an ophthalmologist that of Roanoke, Virginia. It’s raised over its life about $100 million of capital. It’s about four months from commercialization. Safeguard invested about 15 months ago in a Series D round of capital. We own just north of 25% of PixelOptics.
And Pixel has created the ability to take lens that is actually two lenses fused together with liquid crystals, which is then charged by a battery that exist in the frame and instantaneously change that lens from either distance need or near-end need with the movement of your head or the swiping of the lens.
The next innovation for Pixel will be also the ability to tilt those lenses by moving -- by touching the frame in a particular way as well. We believe that this is a game changer. We believe that for every 1% of penetration into the high-end prescription lens market that there’s about $400 million revenue opportunity on an annual basis for PixelOptics.
Those glasses will actually be retailed at about $1200 a pair and in 2013, there’s a planned dual launch both here in the U.S. as well as in parts of Europe. One last point about PixelOptics before I move onto the next case study is that we within the last year hired a new CEO. That CEO was previously with Transitions.
Transitions was a product you may recall. That still exist where if you walk outside the lens shades as they become sunglasses and when you walk back inside it clears. Brett Craig, our CEO of PixelOptics, actually was part of the management team, was the CLO of that business who took it from $100 million to a $1 billion in revenue over the last decade. Brett is now leading Pixel and we have a lot of high hopes for PixelOptics.
AHS is a medical billing company located in New Jersey, with operations in a five-state area although capable of providing its services beyond that five-state area. They are typically providing back-office billing capability for principally non-patient facing medical groups, pathologist, radiologist and the like.
We have deployed $15 million in AHS since 2006. They’ve been growing both organically and through acquisition. They are most likely going to be on a run rate basis in excess of $50 million of revenue as they exit 2012 and are looking to scale that even more quickly as they move forward with some well-timed additional acquisitions.
AHS is one of those mature companies within the Safeguard family that we believe has an opportunity for an exit in the near-term. And they’ve been growing very steadily during the period of time that we’ve been a shareholder.
MediaMath located here in Philadelphia. MediaMath is a company that is focused on what we call the Ad Techs space. So one of the things that MediaMath does think about Bloomberg in its early years, and been an innovator in providing the ability to see financial data in a variety of ways using our proprietary technology often delivered through terminals, if you will, a visual representation of that data.
MediaMath has been able to develop a technology platform that allows online advertisers to have similar levels of detailed knowledge and information around what’s going on in a current state mode of their web advertising initiatives. They provide their services and platforms to both companies that are doing their own online ad acquisitions and managing their own campaigns as well as providing the services and capabilities into the agency spaces while companies that are being paid to acquire online advertising.
No surprise to anyone in this room that space of online advertising is growing by leaps and bounds. And I believe that within the last 12 months, it has overtaken print advertising in its share of spend. MediaMath is a major league player in providing tools that will allow companies to be more effective in these activities. It is also growing very rapidly and expects to increase its revenues in 2013 at a rate that’s at least 30% greater than -- I’m sorry 2012 was 30% -- at least 30% greater than that in 2011.
We’ve deployed $18 million into MediaMath since 2009. It’s again one of the more mature companies within the Safeguard family. We expect that at some point sooner rather than later there will be some opportunities to consider some exit opportunities for MediaMath and we own approximately 20% of MediaMath.
Another way to think about these 16 companies and their evolution is to look at this aggregate revenue chart that we have in front of you. The green is life science, the blue is technology. Green is a little bit smaller than the blue right now because the life science companies that we currently have an interest in are in that early stage of revenue development.
Had you look at this chart two years ago, you would have seen the life science portion being actually far larger than the technology portion. But two of those companies that comprise that revenue aggregation back then were actually acquired by Shire Pharmaceutical and GE.
We do have 26 Board seats across these 16 companies and 15 of these companies as I mentioned before are generating revenue. And actually nine are generating profits at some level today.
We’ve realized since 2006 from our activities about $650 million of cash and in the current 16 companies that we have today, we have deployed almost $190 million. But keep in mind as I mentioned before, $190 million was the original cost. The carrying value on our balance sheet today is closer to about $120 million and so that delta between original cost and carrying value exists in our financials and there is no step up to fair value on a quarterly or annual basis for any of these companies.
Some financial highlights at 9/30 the last reported date, we had about $183 million of net cash, that’s net of about $47 million of debt at the time, which are -- the debt is a convertible debt instrument that we just announced two weeks ago we had actually extinguished and issued a new instrument for $55 million that carries an interest coupon that’s half of what the old issuance was. So tenant went from to 5.25.
The maturity is 66 months. The conversion feature provides for an opportunity for the holders to convert into the shares of stock of Safeguard at something north of $18 a share. But we maintain the flexibility of satisfying that put to us, if that were to occur with either stock or cash, which we think is important to our shareholders.
In Q3, our primary -- we had a use of cash between operating expenses and deployment into some existing partner companies. And we have a total projected use of cash for 2012 to be somewhere between $65 million and $85 million spread between capital deployment into new partner companies into existing partner companies, some corporate expenses and some platform expansion initiatives as well as one other platform that we have a significant ownership stake in which is a lower middle market mezzanine fund that we owned 36% off and generate somewhere between $1.2 million to $1.5 million annually right now in interest income to us to offset our operating expenses.
So, we have the strategy for growth that’s going to focus on continuing to build value in our existing partner companies, realizing some well-timed exits to provide that the monetization of those assets in a way that will enhance shareholder value and increase book value of Safeguard continue to replenish the holdings to ultimately have a greater stable of companies than we have today.
Our goal is to have something closer to 25 next -- by this time next year. And to look for ways, which we might be able to take our infrastructure and expand it to other pools of capitals where we are able to provide direct value back to our shareholders in those activities.
So, they are my formal remarks. One more slide, I am sorry. So, why own Safeguard? One principal point that I like to leave with you, if you take our cash and the net carrying value of the assets that we currently have today and assume that you apply that two times multiple to the original cost of those companies that number in it of itself would suggest there is probably somewhere between $5 to $10 of additional value immediately as it relates to Safeguard.
There is a big delta between the net asset value and the book value of Safeguard currently today and that’s the delta that we are trying to educate potential and existing shareholders about.
We think we’ve got a great stable of companies. We’re looking to add to those companies going forward. We have a very proven team to do this work. You could see from our data that we have the financial flexibility and strength to proceed against this game plan. And finally, I’ll leave you with this other thought around compensation and alignment of interests.
The vast majority of these long-term incentive instruments that management holds within Safeguard vest only upon achieving certain types of cash on cash returns that are directly inline with the expectations that our shareholders would have. So, our performance metrics are tied to the return of capital. And we don’t achieve for vesting in our equity instruments until we achieve at least the three times cash on cash return.
So with that, I am going to stop and open it up for any questions that you might have with regard to Safeguard in the information that I’ve presented today.
And since we are in a webcast and not knowing if that’s going to be heard through the webcast, let me just then restate the question. Why the delta between NAV and the book value? I think it’s principally related to the fact that most shareholders or potential shareholders, I should say are not take enough time to understand the underlying elements of Safeguard, number one.
Number two, until recently we didn’t have this kind of steady proven track record of producing gains from the activities that we were pursuing. And as we continue to develop that track record, I think we are going to get credit for capital that’s deployed. But today, it’s a wait-and-see game for a lot of our shareholders.
For those who take the time, they realize that at some point, we’re going to execute as we described. There will be substantial gains associated with the holdings that we have that will flow into book value and the share price will move.
History, we’ll tell you that. If you just look back over the last six years where we’ve had these large monetization events, the stock moves. But it moves either when it’s occurred or right about when it’s -- when there’s enough visibility that it’s almost for certain. What we need to do is get people to understand that if we’ve been able to do it in the past, we’re able to do it in the future and start to give us credit for some of that built up value that they are necessarily giving us credit for today.
Any other questions? Yes.
Can you talk about the pipeline of -- you mentioned getting maybe 25 companies this time next year, can you talk about that pipeline?
Sure. So, the pipeline with respect to going forward, we see in some formal fashion more than a thousand opportunities a year. Now, I’ll tell you that half of those get quickly dismissed as not meeting our filter for either segment focus, size or even geography in some respects.
So, once we get through that 500, we then take probably all that 500, another 200 and quickly dismiss them as not meeting other criteria that we have. Then over the course of the 12-month period of time, we are taking those 300 and trying to evaluate them in some formal fashion at a more detailed level. But it generally results in about 20 that we think have real merit. And out of that 20, we try to issue somewhere between 5 to 10 term sheets and on average, we’re generally successful in about 50 to 60% of those cases.
We believe that the pipeline that we have today and that we can see in the future in the way the historical pipeline has reacted for us that we should be able to produce enough opportunity that over the course of the next 12 months even with some monetizations that on a net basis, we can add 8 to 10 companies to the -- to Safeguard’s portfolio over that period of time. Yes.
Do you want to say something about MediaMath that’s spaces obviously been somewhat hot recently? Is it time to sell it to WPP?
Yeah. So, the question is some additional information with regard to MediaMath. So, at the risk of over hyping a partner company, MediaMath has been growing consistently and substantially over the last four years. It is actually exceeded our expectations as with respect to its growth rate. It’s now actually operating both here domestically and internationally and they’ve got a very strong management team.
The reality is we believe that we’re now in that -- at that moment of time with -- within a reasonable period of time where there is going to be credible interest acknowledged for MediaMath. And we are working with management to try to figure out, how to ultimately take advantage of the interest that will be provided and indicated for MediaMath.
So, we’re actually looking at MediaMath as one of those partner companies that we feel has an opportunity to become and exit opportunity for us within a reasonable period of time. I can’t tell you, who might that be. It could be an agency, but it could be a technology player as well that finds their underpinnings, their offerings to be very synergistic with what they’re trying to do in the marketplace as well.
Could you comment on the partner companies, how you get comfortable because they are in a number of different industries with respect to their risk management practices and what risks they’re expose to their industries? Thank you.
Yeah. Sure. So, the question with regard to evaluation of risk and risk management on the part of the partner companies, every situation is unique. So, we do know that we have spent a fair amount of time and energy evaluating each company. We have build up certain levels of domain expertise in the areas that we focus on. So, if we’ve seen somewhere else, we can generally take our education and apply to our current thought around a new opportunity for the life science companies.
Things like reimbursement and regulatory approval, protection of IP are all part and parcel to the evaluation process. We look to if we’re coming into an opportunity where we’re a Series C or Series D investor. We’re looking to have deep conversations with the existing investors and understand their diligence processes as well and the findings that they had uncovered during their processes to help us understand what’s taking place.
From a techno -- Information Technology or Internet/New media, similar things obviously regulations and reimbursement aren’t part and parcel to their business models. IP though is and it’s a big area for us to focus on. We want to make sure that we are not going to get burned from not having protected IP. But we’re also looking to see especially with the technology companies that are built around hopefully recurring revenue models or the underpinnings of that recurring revenue model in place and are they scalable and dependable.
And then at the end of the day, it’s all about betting on the right management team. And we spent a lot of time evaluating the management team through reference checks and other means. And I think we’re almost out of time. Thank you.
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