If You Don’t Want ‘Bragging Rights’ You Can Get Alpha Done

The quarterly investor report of VCapital Management Company looks at the opportunities for attractive returns for investors regardless of the cloudy economic conditions of 2020. It argues that alpha is to be found in the Midwest, in early-stage investing, and in two industries: healthcare/biomedical and intellectual property.

Though the report begins with a top-down view (geopolitics, the likelihood of a near-term correction in equity markets, the US/China trade tensions) it soon moves to its real concern, a granular view industry by industry and firm by firm, especially with Series A deals, where growth and value may be found for a reasonable price.

The report focuses on the Midwestern U.S. The region has a low cost of living relative to the coasts, and this allows for lesser development costs. Further, the Midwest has more conservative investors, which avoids the “sometimes irrational exuberance…that can drive deal valuations too high,” often seen on the saltwater coasts.

Since successful ventures “ultimately exit into the same national or global market,” wherever they were put together, this inland focus allows for greater returns.

Healthcare start-ups

The report says that VCapital has a “strategic commitment to healthcare/life sciences.” Healthcare accounts for 18% of the gross domestic product of the US. There is a case to be made that this percentage will increase as the population continues to age.

Accordingly, the VCapital portfolio currently includes Intensity Therapeutics, Alievio (formerly Camras Vision), Raydiant Oximetry, and most recently, SentiAR. SentiAR is a medical device start-up most noted for developing a 3D-augmented reality platform such that a real-time holographic depiction of the patient’s anatomy floats above the patient, aiding with the treatment and analysis of cardiac arrhythmias.

VCapital is also very bullish about information technology, which (as its report observes) now pervades “virtually all businesses and all lives.” The new frontiers in this space are: artificial intelligence and the Internet of Things. The current VCapital portfolio expresses a strategic commitment to these frontiers with simMachines, Xaptum, Atlas Space Operations, and the Imagineer Technology Group. It acquired a position in Imagineer because that company merged with an earlier portfolio company of VCapital’s, Synap, in February 2018.

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