Q1 2012 Perspective Slides

download Q1 2012 Perspective Slides

of 21

Embed Size (px)

description

Agenda for Keating Capital Q1 Presentation:Keating Capital Investment Thesis, Strategy and FocusInvesting and Selling DisciplineStock Market VolatilityU.S. IPO MarketDistributions to StockholdersPortfolio Company ReviewPerformance ScorecardKeating Capital in Perspective

Transcript of Q1 2012 Perspective Slides

  • 1. Equity Partners for Companies Primed to Become Public Nasdaq: KIPOwww.KeatingCapital.comJanuary 11, 2012Keating Capital, Inc. (Keating Capital) is a Maryland corporation that has elected to be regulated as a business development company under the Investment Company Act of 1940.Keating Investments, LLC (Keating Investments) is an SEC registered investment adviser and acts as an investment adviser and receives base management and/or incentive feesfrom Keating Capital. Keating Investments and Keating Capital operate under the generic name of Keating. This presentation is a general communication of Keating and is notintended to be a solicitation to purchase or sell any security. This presentation may contain certain forward-looking statements, including statements with regard to the futureperformance of Keating Capital. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors that could causeactual results to differ materially are included in Keating Capitals Form 10-K and Form 10-Q, and include uncertainties of economic, competitive, and market conditions, and futurebusiness decisions all of which are difficult or impossible to predict accurately, and many of which are beyond the control of Keating Capital. Although Keating Capital believes that theassumptions underlying the forward-looking statements included herein are reasonable, any of the assumptions could be inaccurate and therefore there can be no assurance that theforward-looking statements included herein will prove to be accurate. Except as required by the federal securities laws, Keating Capital undertakes no obligation to revise or updatethis presentation (including the slides presented) or any forward-looking statements contained herein, whether as a result of new information, future events or otherwise.

2. Agenda Keating Capital Investment Thesis,Strategy and Focus Investing and Selling Discipline Stock Market Volatility U.S. IPO Market Distributions to Stockholders Portfolio Company Review Performance Scorecard Keating Capital in Perspective 2 3. Investment Thesis:Investors Pay a Premium for Liquidity Public companies are typically valued 2x higher than private companies withsimilar financial attributes; Wall Street jargon: Liquidity Premium Valuation arbitrage opportunity created when private companies arecommitted to and capable of becoming public Strategy: Buy privately, sell publicly, capture the difference3 4. Investment Strategy Keating Capitals investment objective is to maximize capital appreciation Weattempt to achieve this objective through equity investments in later-stage,typically venture capital backed, micro-cap and small-cap portfolio companies Keating Capital is not focused on investments generating current yield / dividends KeatingCapital stockholders derive return principally from distributions of netcapital gains realized on sale of positions (net of incentive fees and operatingexpenses) Distributions to be made at least annually per our stated distribution policy Allows individual investors to participate in a private companys later stage, pre-IPO financing round an opportunity historically reserved for institutionalinvestors (such as venture capital funds) KeatingCapital investment lifecycle typically 3 years (although we have discretionto hold securities for a longer period) compared to 7-10 years for typical venturecapital fund4 5. Investment Focus High risk/high return strategy focused on investments in pre-IPO companies with privateenterprise values between $100 million and a $1 billion that meet core investment criteria: Revenue: $10 million+ in trailing 12 months IPO timing: within 18 months from date of investment Potential return: expectation of 2x return once the company is publicly traded over an anticipated 3-year holding period These core criteria are the primary basis for making investment decisions; however, we maynot require each portfolio company to meet all of these core criteria Manage portfolio of 20 positions, which when mature will typically consist of:5 6. Investing Discipline Focused on potential 2x return over 3-year holding period Keenly aware of cyclical valuation bubbles in late stage venture investing Attempt to avoid high profile deals with unjustified valuations Focus on companies most ready and committed to go public when IPOwindows open Negotiate structural protections (i.e., special IPO conversion provisions),whenever possible6 7. Selling Discipline Sales of portfolio company positions intended to be made during the 12months following the lockup expiration Sales are not automatic upon expiration of post-IPO lockup period (but willconsider selling shares in the IPO as a selling stockholder, if allowed) Additional shares may be acquired in open market transactions in limitedcircumstances (i.e., where our initial investment amount was restricted) Factors that we may consider include, but are not limited to, the following: The target price determined by our investment adviser based on its business judgment of intrinsic value The application of public company multiples and our proprietary analysis of a variety of operating metrics for each portfolio company Other factors including overall market conditions, industry cyclicality, or issues specific to the portfolio company7 8. Stock Market Volatility8 9. Constellation of Select 2011 IPOs9 10. Consequences of Investor Impatience10 11. U.S. IPO Market: Last 10 Years 11 12. 2011 U.S. IPO Market Key Takeaways 12 13. Historical Importance of Dividends toOverall Stock Market ReturnsAccording to a recent article by Josh Peters:Nearly 90% of historical stock market returns are explained by dividendsDuring the past 65 years, dividend income accounted for 36% of total returns of the stock market; dividend growth accounted for another 53%The value of a stock is derived from its anticipated future dividend paymentsDividends, and only dividends, provide returns that are always positive and paid in cashSource: Peters, Josh. Wall Streets Myths Debunked, Morningstar DividendInvestor,December 19, 201113 14. Keating Capital Distribution Policy Net realized capital gains (net of incentive fees and operating expenses)expected to be distributed to stockholders at least annually Distributions will be based on annual net realized capital gains at theportfolio level, not after the sale of each portfolio company position Policy considerations include, among others: Provide a meaningful return on investment to stockholders Maintain the funds assets at an optimum level to make future investments in new portfolio companies Provide opportunity for current and future stockholders to derive the targeted 2x return potential across continuing investment lifecycles14 15. Characterization and Treatment of Distributions to Keating Capital Stockholders Keating Capital must distribute net realized capital gains annually (with anyretained amounts subject to corporate-level tax) Distributions of net realized capital gains will be made at least annually (netof incentive fees paid to our investment adviser and fund operatingexpenses) Amounts retained to pay incentive fees and operating expenses (in part or inwhole) will be treated as a deemed distribution to stockholders Deemed distribution amounts will generally be taxable to stockholder (ifshares held in taxable account), but stockholder entitled to tax credit forcorporate tax paid15 16. Keating Capital Portfolio Companies16 17. Perspective on Portfolio Company Holding Periods 17 18. Performance Scorecard: Portfolio Company Phase Completion 18 19. Performance Scorecard: Capital Gains and Distributions 19 20. Keating Capital in Perspective 20 21. Equity Partners for Companies Primed to Become Public Nasdaq: KIPO www.KeatingCapital.com Margie L. BlackwellInvestor Relations Director (720) 889-0133 mb@keatinginvestments.com