daVinci Capital Group Blog

We at daVinci Capital Group have two fundamental elements to our strategy. The first is “partnership.” We do not wish to be involved in any investment where our interests are not aligned with management and the Board. We also do not take “Activists” roles or tactics – we are only cooperative in our approach.

The second fundamental is confidence with the game plan gained through mutual due diligence with our investment companies. We seek to increase value through a deep understanding of the current situation and the opportunities for growth. We are not “traders” motivated by short-term price/volume considerations, we are long investors.

The way we build partnerships and game plans varies. Sometimes, partnerships develop from of long-term relationships and several months of mutual due diligence. At other times, we may be more opportunistic and respond to a more rapid emerging and highly attractive situation.

However, in any case, we must be satisfied that we are in a true partnership for growth and that we understand the company, its markets and the future opportunities very well.

Our planned investments average $10 – 20 million in size and typically are structured as a direct private placement of initially restricted public securities. The form of securities could be common stock or convertible preferred stock or convertible debt, depending on the situation. The stock price (or conversion price) would typically include a moderate and reasonable discount to market, reflecting the initially illiquid nature of the securities and the large block purchase element. The private placement agreement would also specify access to ongoing company information and a board seat for daVinci as long as the stock is held by daVinci. We do not seek demand registration rights except under very unusual situations where these rights are justified, since we are not short-term investors.

Further, as the daVinci partner serving as a director would be considered an “affiliate” and be subject to rules regarding affiliates. And since the daVinci ownership would be likely over 10% of the total, the daVinci partner would not qualify as an “outside independent” director, and would not serve on the Compensation or Audit committees.

The daVinci Capital Group Principals have significant experience working with microCap companies.  We are thus highly sympathetic to these companies and the challenges they face. Here is a summary of the many roles the daVinci Principals have played.

• One of the Principals serving as the CEO of a microCap public company grew it five-fold to smallCap status; we have also served as COOs, Corporate Secretaries of microCap public companies;
• We have served as directors of private companies during their Initial Public Offering and beyond;
• We have served as directors and chairmen of public microCap companies, and participated on, or chaired the Audit, Compensation, and Governance committees;
• We have overseen private equity (PIPE) investments in our microCap companies and
• We, as independent advisors, have performed business planning and business optimization projects for public microCap companies and are very familiar with issues facing smaller public companies.

daVinci Capital Group’s goal is to exceed 25% Net Internal Rate of Return for its Limited Partners – returns which exceed market indices and are consistent with many hedge fund, venture capital and private equity target returns measured over 20 year economic cycles.

daVinci’s strategy is to invest in already public microCap technology companies and help them grow to higher valuations and liquidity. These companies are generally undervalued compared to smallCap or midCap companies in similar industry and market sectors. daVinci finds companies, which are not “broken” with failing products or extinct technologies, but where the Management Team and Board are motivated to improve their companies and are willing to receive new input and accept change for the benefit of their shareholders. We are not interested in “lifestyle” companies unwilling to take these steps.

daVinci’s Principals work with Companies in a variety of ways and seek to form solid working relationships driven towards improving shareholder value and liquidity. One way is the mutual creation with our portfolio companies of “platforms” for growth, or “platform companies.” The advance planning for this effort could range from a few weeks to several months. But, regardless of the time effort involved, we will feel very comfortable that the people, technologies, and markets are right for us before a significant daVinci investment is made.

In cases where a detailed analysis is jointly undertaken, we work with outside consultants, company officers and board members to truly understand the business and its strengths, weaknesses, opportunities, and threats. We focus on opportunities for optimization and growth of the current business and identify synergistic public and private companies, which could become part of a “roll-up” within the platform company’s niche.

A typical platform company might have a market capitalization of less than $100M, with revenues of $50M – $150M, and a corresponding Price/Revenue of 0.5x – 1.5x. In contrast, typical top-quartile technology companies have Price/Revenue of 2.5x to 3.0x. Platform company acquisitions would typically triple or even quadruple revenues over a period of 2 to 3 years; while business optimization would move the company to sustained profitability of 10%⁺.

In summary, the daVinci Capital Group carefully selects an undervalued microCap company as an investment platform and then, from its board positions, actively helps a platform company to optimize the base business and grow organically and externally through acquisitions of synergistic public or private companies. This results in expanded product offerings and/or expanded distribution of products into new markets.