Adit Ventures Q3 2020 Review & Outlook

October 12,2020

Reports

Review and Outlook

"Patience is so like fortitude that she seems either her sister or daughter.  

- Aristotle

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Covid-19 continues to dominate the headlines with over 2 million cases worldwide, and over 200,000 Americans dead from this virus[i]. Now six months into the pandemic, our patience is being tested as over 100 pharmaceutical firms race to develop a vaccine—testing tens of thousands of patients and preparing to file the results with the FDA and regulators to inoculate the global population[ii]. Adit likes to ask “when” not “If” questions, as the virus is testing our patience & fortitude. Adit believes vaccines mean Covid-19 will diminish, as ’20 comes to a tumultuous end.

Q3 2020 saw continued volatility in the markets. Optimism for a vaccine rallied the equity markets, which then saw declines as economic & health concerns increased with the economy’s reopening in certain areas[iii]. Over the last 3 months, the NASDAQ rose 8.08%, while the S&P gained 7.50% with 10% fluctuations along the way[iv]. Bonds saw even lower yields as US corporate bond issuance increased dramatically to over $1.4 trillion in 2020[v]. Technology, autos, healthcare, housing, and consumer products led the recovery as people are staying put, enjoying life as best they can, amidst the uncertainty Covid-19 has wrought.

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Adit invests for growth alongside long-term secular themes, such as AI/ML, Big Data, Cloud, Cybersecurity, Digital Healthcare, Education, Fintech, Space and the Internet of Things, all of which have been accelerated by the pandemic. Adit’s portfolio companies have seen sharply increased levels of activity: business development, capital raises and solid revenue growth— despite the Covid-19 crisis. Good balance sheets, experienced management and strong products & services are some of the key criteria in our selection process. Market position, corporate ethos and global macro trends keep the momentum positive for our select ideas. Active dialogue with the C-suite keeps us close to our management teams and allows us the opportunity to be good investors and partners in assisting our portfolio companies.

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The IPO market has seen a renaissance with many new companies going into the public markets with great success. We see this continuing for the foreseeable future, as the overall number of stocks is down by 50% over the past two decades due to mergers & acquisitions, bankruptcies, and consolidation overall[vi].

This generation of new issues are more seasoned. As companies are taking longer to go public, they do so with more established business models, real revenues, stronger teams, more robust marketing, and deep analysis on client solutions. Valuations are across a wide spectrum, but generally appear fair and justified by dynamic growth in a slow-growth macro environment.

Going forward, Adit sees tremendous opportunity as major components of the economy such as healthcare, education and services are undergoing profound changes. FDA approval timelines for vaccines and therapeutics have rapidly compressed as we watch an unprecedented level of cooperation between global governments and big pharma to expedite approvals for essential medical programs & solutions. Given that healthcare is the single largest part of GDP, Adit sees continued growth ahead here, as the global population ages[vii].  

Education is a close 2nd in GDP, and there is an “education revolution” underway in this $6.3 Trillion marketplace[viii]. Be it in K-12, adult or higher education, or re-skilling & training citizens of the world, the need is apparent, and benefits are clear. Growth here is accelerating to over $10 Trillion per year within the decade[ix]. The path to remedy inequality begins with education in our eyes.

Connectivity via the cloud has exploded over these past six months, as have fintech solutions for doing business online, shopping online & having goods/services delivered efficiently & safely. Adit sees decades of growth ahead despite Covid-19, with short-term economic cycles & election-related volatility in the near future. Adit focuses on the data, finding actionable information on these profound economic & societal changes now and for future generations. Change is here to stay as it is the only constant in our experience.

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Team Adit is growing almost as fast as our portfolio companies with our 10th professional joining last month. With a presence in California, Florida, Texas & Utah, as well as our flagship in NYC, we see great opportunity ahead to source, diligence, and execute great deals across both Growth Equity as well as other stages. Expect to see more from Adit Ventures in the months ahead, as we broaden our client services, improve reporting & add new products designed to help our investor-partners achieve goals. On behalf of all of us at Team Adit, we are deeply grateful for the opportunity to serve you and share our investment ideas here.

Fall is here, and with it Flu season, so we expect to see a spike in Covid-19 infection as was forecasted by public health officials[x]. Elections are a month away, and Q3 earnings will begin to be reported. Adit is looking to ’21 for a rebound after Covid-19 in ’20. No one saw this pandemic coming, nor lasting six months plus. There will be other challenges ahead, no doubt, but the vaccines which we believe are coming, make Covid-19 inoculation a “when” not “if” question. Things generally take longer than one would like, and this is no exception. Adit believes in the triumph of the human spirit over adversity, depression, disease, and pestilence. This is part of our evolutionary process. Adit is pleased to see our portfolio performing well in stormy seas. We appreciate the trust you have placed in us as we navigate the private markets, seeking growth in quality companies, making our world better be it via education, healthcare, and in other ways.

Stay safe & well. Celebrate your family & friendships as we do ours, this Fall as we give thanks. Please know Team Adit is working diligently on driving the results of our portfolios each & every day, across the globe, seeking growth in every way we can. This is our mission now & always.

Sincerely,

Eric Munson & Team Adit


[i] https://coronavirus.jhu.edu/map.html

[ii] https://www.nytimes.com/interactive/2020/science/coronavirus-vaccine-tracker.html

[iii] https://www.troweprice.com/financial-intermediary/us/en/insights/articles/2020/q3/global-markets-quarterly-update.html

[iv] https://finance.yahoo.com

[v] https://www.wsj.com/articles/after-record-u-s-corporate-bond-sales-slowdown-expected-11601631003

[vi] https://www.cnbc.com/2019/01/03/shrinking-public-markets-alter-playing-field-for-average-investors.html#:~:text=In%20the%20last%2020%20years,a%20Credit%20Suisse%20research%20study.

[vii] https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NHE-Fact-Sheet#:~:text=Historical%20NHE%2C%202018%3A,21%20percent%20of%20total%20NHE.

[viii] https://www.holoniq.com/notes/global-education-technology-market-to-reach-404b-by-2025/

[ix] https://www.holoniq.com/2030/10-trillion-global-education-market/

[x] https://www.cnbc.com/2020/09/04/key-coronavirus-forecast-predicts-over-410000-total-us-deaths-by-jan-1.html

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