The Path Forward
Investing in Venture Capital post-election & Covid-19
Since election day, investors have bid up share prices, as a divided congress means that the status quo, such as it is, will remain intact for the foreseeable future. Economically, Presidential elections matter very little—despite the dramatic talk and copious promises made by politicians and their party platforms. Notwithstanding the increased volatility around election time—historically—Presidential election results have little long-term impact on market returns, so Adit Ventures remains focused on the economic fundamentals. As the economy recovers from the Covid-19 recession, positive fundamentals are in place despite the tragic levels of infection. The Covid-19 virus and the transition from the Trump Administration to the Biden administration remain unknowns, but with a finish line, at some point Adit believes, in sight.
S&P 500 Returns
(Source: Yahoo Finance, taken 11/6/20)
Today, auto sales are growing, with electric vehicles powering consumer interest, alongside the desire for greater mobility[iii]. The current efforts for future modes of autonomous transportation are attractive and likely to be realized within the next few years.
Housing is also booming[v]. Due to the extended lockdowns, many consumers have been busy either improving their current homes or finding new ones in less densely populated areas. Interest rates are low, stimulating demand and allowing for more affordable mortgage payments. Demand from the millennial generation is high, as they are moving into peak earnings & housing needs as they raise families. This demographic is material as this is currently the largest generation[iv] and one of the wealthiest as the “Baby Boomer” assets get passed from one generation to the next[vii].
(Source: Freddie Mac[viii])
Employment is also growing, despite the Covid-19 pandemic shutdown triggering a massive loss of employment for over 20MM Americans[ix]. This number has been halved in the past three months as the economy has reopened. As the chart below shows, this has been historic both in the decline and the growth back. We expect to see continued fiscal and monetary stimulus going forward.
US Unemployment Rate
The cloud also remains a source of growth as the technological infrastructure gets built out to manage the new remote working demand. Cloud storage, security, and management are a critical part of corporate IT budgets and are expected to see a rise in spending in 2021[xi]. Adit has investments in Cohesity, Rubrik, and Netskope among others here. The Covid-19 crisis has accelerated capital expenditures across many technology sectors, and this is a clear long-term winner. The Cloud, while identified by Adit in 2014 as a key sector, remains in a powerful secular uptrend as we continue to move closer to better, easier, faster, and more secure access globally, with significant growth ahead. Adit sees the Cloud Computing Industry growing at a CAGR of 17.5% over the next five years[xii]—at least.
Companies like Robinhood have opened more than 13MM retail brokerage accounts since 2015, more than all the big 4 players in the industry combined: Charles Schwab, Fidelity, TD Ameritrade, TD Ameritrade[xiii]. SoFi is another fintech player seeking to serve the needs of the millennial consumer, be it loans, investing, insurance, or cash management. We hope to add these positions into a robust Adit portfolio of leading fintechs, which already includes Klarna, the Swedish version of “Amazon-meets-Paypal”. Klarna—which has nearly doubled in value over the past year—is now the largest privately held fintech company in Europe valued at over $11.5B[xiv]. With 15 years of robust growth, and consistent profitability, we expect them to complete a public offering within a year to eighteen months from now.
The World of Education is changing dramatically both because of the Covid-19 pandemic and the increasing cost of education. Education is the second largest GDP category after healthcare with over $6.3T per year between global public and private education spending[xv]. Over ~$200B of that is specifically for EdTech technology and solutions—expected to grow to over $400B by 2025 at a CAGR of 16.3%. Esme Learning Solutions is an Adit investment with dynamic growth and cognitive science-based learning models developed at MIT and Harvard. Its Emmy-award winning production values results in graduation rates over 90%, and industry-leading com scores reflecting high levels of student satisfaction. Esme provides proprietary content and technology for collaborative learning, data collection & analysis and feedback to augment the learning experience for both students and teachers. We see growth over 100% for the next several years as society seeks to retrain and reskill its workers and students to manage in today’s rapidly evolving world. Expect to hear a lot more about Esme & Adit Ventures in coming months. Please contact us if you seek additional information, or have any questions, as always.
Healthcare spending, the largest component of GDP, has increased dramatically in the Pandemic with future growth ahead[xvi]. Adit sees great opportunity in the sector and other VCs agree as Healthcare investments are soaring across the Venture ecosystem, whether in early stage, late stage, or growth. MendTogether is a healthcare technology platform that Adit seeded and currently serves as a board member for. The company is doing amazing work with oncology patients providing best practices, connectivity, ideas for referrals, and resources via a “GoFundMe” feature as well. Stay tuned for further information on upcoming opportunities here or visit aditventures.com.
Consumer spending has also been permanently affected by the pandemic. As the Baby Boomer generation passes along its considerable wealth to the Millennials, there are major growth opportunities, as the traditional banking model has failed to meet the needs of many modern consumers. Fintech investments have been extremely active, as these new players profoundly affect the financial services landscape
Space is another dynamically growing secular trend driving today’s economy as both Merrill Lynch & Morgan Stanley have published extensive research reports on the sector. Adit has both early stage & late stage names here to discuss should you wish to invest in the space area which we see tripling to over $1 Trillion by 2030[xvii]. Adit has a barbell strategy in space, thus far with two investments: Astrocast is a Swiss-based nanosatellite company while SpaceX is the leading space development and exploration company on the planet, and perhaps our solar system. Please click links below to see reports & garner a better understanding of the growth opportunity in space that lies ahead. As Buzz Lightyear said so profoundly, “To Infinity and Beyond!”.
Adit is pleased to announce two additions to our advisory board, Bill Bennett & Sherry Witter. Both provide Adit additional decades of experience in education and global investing, across the full spectrum of opportunity. We are honored to welcome them and work alongside them, now and in the years ahead.
Housekeeping item of note: our third diversified Growth Equity Fund, “Founder’s Circle” class of shares, which offers you a 50% discount of all fees, is closing as of 12/31/20. Consider adding to your existing account, or opening a new one. Please also note we are offering consolidated statements as Adit continues to seek ways to provide more transparency on your portfolio, and all positions with our regular quarterly research and strategic event-driven updates. Please use Opus’ portal to access your account 24/7 with their team to assist you.
As we pause for the holidays, Team Adit is deeply grateful for your support. This year has been a tremendous challenge to us all, and while our portfolios have thrived, it has not been easy for anyone. Team Adit, I’m proud to share, has come together well in difficult times. Adit Ventures is still growing, in our drive to provide better service and continued robust returns with streamlined operations and servicing of client requests. We work remotely, with Team Adit professionals in our offices in NY, Florida, Texas, and California.
We are honored & privileged to invest in & work with companies like Airbnb, Astrocast, DSIC, Esme, Klarna, MendTogether, Palantir, SoFi, SpaceX. Expect more in ’21, as we’re rolling-out the Adit Genesis portfolio for early-stage investing. Exciting opportunities abound, both despite and in part of a disruptive 2020 & the rapidly converging secular trends driving capital flows.
Adit remains committed to providing access, insights, & ongoing due diligence while working with hundreds of trusted advisors, clients & investor-partners across the country & around the world. We are thankful for being able to provide good returns, as we have consistently over the past six years. Adit will be making a six-figure charitable donation as a result of our success in Palantir to a variety of charities around the world. We welcome your inputs and suggestions to this end, as we will announce the beneficiaries in our ’20 year-end letter, publishing in January.
I want to personally thank you for the trust you have placed in us to manage capital on your behalf, as we take our stewardship of your assets seriously. Please also know that our employees & all our respective families’ capital—in excess of $10MM—is invested alongside you, on the same terms and conditions as our investor-partners, across every deal. While it has been hard work, it has been deeply gratifying to have shared these positive results with you. We are optimistic about the future. Stay safe & well & take care of your family & friends. Adit wishes you a happy, healthy holiday season, as we remain focused on the fundamentals.
Good Health. Peace. Prosperity. Now & Always.
Eric Munson & Team Adit
[xiii] Pitchbook Q3 Analyst Note, Robinhood Shifts Trading to the Masses, Robert Le. August 24, 2020
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