In this webinar, Len Mills presents a venture capital OZ fund that has a diversified portfolio of 12 investments.

Interested In Learning More About This Opportunity?

You can visit the Official OpportunityDb Partner Page for the Verte Opportunity Fund to:

• Learn key details about the fund and related projects.
• Request more information from the fund sponsor.

Webinar Highlights

• The appeal of the venture capital model within an OZ wrapper.
• Typical investor profile for the Verte fund.
• Summary of the Verte portfolio strategy, including “long term time diversification.”
• Investment thesis, which typically involves making small investments into seed rounds.
• Review of some of the fund’s investments made to date.
• Live Q&A with OZ Pitch Day attendees.

Featured On This Webinar

• ‘Kulipari’ Hops to Hulu with 3rd Season, Film Reboot in the Works
• Sonosa Medical
• RiseKit

Industry Spotlight: Verte Opportunity Fund

Verte OZ is a Qualified Opportunity Fund uniquely designed to appeal to a broad array of investors including those with realized capital gains, self-directed IRAs, and taxable assets. The fund is structured to accommodate investors who may be looking for earlier terms, mandated and targeted investment strategy, and community-specific investments.

Learn More About Verte

• Visit VerteOZ.com

Webinar Transcript

Jimmy: …just brought Len Mills up on stage. So give Len a minute to get here. And he’s going to walk through his venture capital Opportunity Zone fund. All of the projects we’ve heard of so far, all of the funds we’ve heard from so far have been real estate. This is a little bit different. This is venture capital. Len and I have been discussing OZs since, I think, just about the very beginning. I think we met like four years ago, maybe, Len, and he’s one of the few that are doing venture capital with Opportunity Zones, investing into a lot of different portfolio companies.

Leonard: All right. Thank you so much, Jimmy. Thanks for having me. And thanks for everyone attending. Yeah, we’re talking about something kind of totally different for much of the audience here, I think. We’re talking about specifically venture capital investing in Opportunity Zones. From an investor point of view, the basic reason to consider that is basically returns, long-term returns. I like to give an example here of a typical real estate investment that over a 10-year period will give you something like 3X, plus or minus. Two X out of that 3X will be capital gains on the back end, and therefore subject to the capital gains tax benefit on the back end. In contrast, if you have a successful venture capital investment, you may see 20X, perhaps even higher. Nineteen X out of that 20X is capital gains. So tremendous upside potential for higher capital gains tax benefits generated by those higher returns.

I like to point out that our typical investor profile is…typically, it’s a real estate Opportunity Zone investor already. They’ve come into the Opportunity Zone space through real estate of some form. They’re looking for something different, more growth orientation, a little edgier, if you will, some of the diversification away from real estate. And relatively speaking, a relatively small capital commitment. So that’s some of the rationales that we see on our investor profile. With respect to our portfolio strategy, if you think about venture capital inherently on a single asset basis, it is riskier than real estate. Real estate always has the land, and the building, and so forth behind it. On a venture capital deal that single company that goes bad, you’re at risk of literally losing 100% on your investment.

How do we mitigate that risk? We mitigate that risk through asset diversification. Namely, we have wealth companies, curated companies, I call them, and we’ll talk about that in a minute, in the portfolio. We also have what I phrase here as long-term time diversification. We tend to leg into these companies over time, and I’ll speak to that as well. And finally, we have an evergreen strategy. The Opportunity Zone program technically goes out to 2047 in terms of the capital gains tax treatment. We plan to ride our winners for quite some time.

In terms of our fund expansion, we have two things going on. One is we have rolling opens for new investors annually around this time of year. So the timing is good. And we also will retain any gains in income in the portfolio for our internal expansion through 2026. Our investment strategy on an individual company basis, typically we come in on the seed round, we start that investment with a very small initial investments. As the companies mature in the venture capital space, they tend to go through multiple financing rounds, their Series A, their Series B, and so on and so forth. That gives us a natural check-in point to see how the company is doing, and decide whether we want to add on.

In contrast, companies that aren’t doing well have trouble raising additional outside capital, and they tend to take a lower concentration within our portfolio because there is no add-on investments. Because we’re interested in growth, it tends to be a technology orientation. But besides that, we’re generally industry agnostic, and we have a broad geographic dispersion as well.

Jimmy spoke about how long we’ve been at this and working together. We actually launched the fund officially in late 2019, right around the time that the final regs got published. 2020 was our first full year. We had an initial offering price of a dollar per share at that time. Each year we go through a net asset value calculation, use a third party appraisers and evaluators. At the end of 2020 we repriced the portfolio at a $1.10 per share at its net asset value. That was our offering price in 2021. Moving forward in 2022, our offering price was a $1.25 per share. And here in 2023, our offering price is flat at a $1.25 per share. In general, the public and private markets was a down year for 2022. So as part of the valuation process, we ended up roughly flat. We had some winners or losers, some upgrades, some downgrades inside the portfolio, but out to the second decimal place at least we were flat on the year.

There are some tailwinds in the fund that are currently in place, namely 2023 will be our first year of positive operating cash flow within the fund. We also expect positive cash flow, operating cash flow inside the fund in 2024. That’s an expectation, of course. Those are both based on known events that have already happened. Those provide tailwinds to that net asset value. We can’t guarantee, obviously, what the net asset will be at the end of the year, but certainly there’s some positive tailwinds behind it.

Next I want to turn to some examples of the portfolio companies. I picked 4 out of the 12. These represent the breadth of the portfolio, and some of the more interesting aspects that are going on. In the upper left there we have the Outlook company. It is an animation studio based in Baltimore, Maryland. It’s more than just an animation studio. They own their own IP, or as known in the entertainment industry, the content creators. They have a series out on Netflix and Hulu called “Kulipari.” It’s about frogs that live in the outback of Australia.

They have a new season on that series coming out in late 2023, and a movie coming out in late 2024 under contract with Hulu. And as you may know, Hulu is probably going to get acquired by Disney so they will be on the Disney platform. They also have new content in process. They have a preschool series called “Benny Blueprints.” They’re expanding internationally. They have video and VR games using the same technology that’s based on the animation. Another interesting aspect of this particular investment for us is we were the lead investors, but two other OZ funds invested in the same company.

In the upper right, we have AAC East. That is a building materials company located in Bennettsville, South Carolina, a rural part of South Carolina. The specific name of the building material is a long name there, Autoclaved Aerated Concrete. That is German technology. The company has a protected license in the U.S. In fact, right now, the only protected license in the U.S. The basic properties of this concrete, it’s lighter, it’s stronger, better for fire and sound installation, which makes it ideal for multifamily and townhome construction. That’s the principal users of this technology or this concrete. Right now, they have several homebuilders and lumber yards already on the platform. They have strong sales. The company is profitable.

In the bottom right, we have Sonosa. It’s a medical device company, particularly treating sleep apnea, which is a huge market. And if you think about…if you know anyone with sleep apnea, the current treatments with the CPAP machines are largely ineffective for most people. So this is a technology based on ultrasound. They have a number of patents already, and some pending. They’ve been the recipient of several non-dilutive grants, which is tremendous value to the investor. They’re in clinical trials, hopefully on their path to FDA approval. Another interesting aspect of this company. It was launched by the MDC Engineering Studio, which is an affiliate of the Verte Funds. For us, this is a strong source of deals for medical devices, and is one of the heavier concentrations within our portfolio.

And finally, on the bottom right, we have RiseKit, which is software as a service for job seekers, underrepresented job seekers. Basically connects these job seekers who typically have some kind of barriers to entry to things like child care support, transportation support, training, those kinds of things that are preventing them from getting jobs. There’s a host of nonprofits and local governments and services that seek to aid these job seekers. But quite honestly, it’s a mess for the individual job seeker. They don’t know where to turn. There’s so many of them, and it’s very hard to connect with them directly, and of course, the companies seeking these types of employees.

So the technology is quite interesting. It’s based on text messaging. This particular group of job seekers are different than what you might see on Indeed. They don’t go to websites, but they all have phones, they all text message, and that’s the preferred technology. And it’s very interactive with individuals inside of those institutions. They were originally based in Chicago, Illinois, but they now have expansion in Oklahoma City and Memphis, Tennessee. And I’m going to pause there, Jimmy. I think I’ve left some time, hopefully.

Jimmy: Yeah. Yeah, you have left some time for some questions. And I’ve got a question for you. As we mentioned before, there really aren’t a lot of Opportunity Zone funds that are doing what you are doing, Len, in terms of this isn’t a real estate deal. It’s not a portfolio of real estate ground-up development projects. These are operating businesses. What have been some of the biggest challenges for you in terms of keeping your fund in compliance with these qualified Opportunity Zone business portfolio companies?

Leonard: Well, it’s actually surprisingly…at this stage, it’s not bad at all. These are typically smaller companies. They’re located in one spot. All their employees are located in one spot. Many of them have technology-based tools that they need, computers and lab equipment and things. So they’re all located in one spot. And importantly, they all lease their space. They do not own the property. They’re purely operating businesses. And if you look closely at the regs, some of the regs are about improving the property because they lease the space. It’s considered a new use every time it comes into play. So there’s no improvement in the property that’s required. So from a compliance point of view, I often say it’s actually easier if you have a small business that’s leasing this property.

Jimmy: Are any of these companies starting to cash flow? And have you made any distributions to your investors so far?

Leonard: They are starting to cash flow just now. Our strategy is to continue to grow the portfolio at least through 2026, when the current program expires. So we are not planning to make distributions. We’re in it for the long term, through 2026. After 2026, we will be making decisions, along those lines. But the principal exit strategies, if you will, in a venture capital space is exactly that. And namely, the company gets acquired would be the typical exit for us. They could even do a public offering of some type if they really get big. But those are lumpy events, those acquisitions. So we anticipate spreading those out over time.

Jimmy: Very good. Well, Len, we have run out of time now. Your contact information is on the screen there. Please do reach out to Len, [email protected]. I’ll put that email address in the chat. And you have his number there as well, (301) 651-4809. I’ll put his phone number in the chat.

Leonard: Yeah. And we’re pretty active on LinkedIn. So I would encourage people to look for our postings about our various companies in LinkedIn for more information there. And we have a full data room available for anyone as well.

Jimmy: Okay, that’s excellent. Len, thank you so much for joining on Pitch Day today. I’m just typing this note right here. Make sure I got your phone number right. There you go. So please do reach out to Len to request additional information, or if you’re interested in making an investment really unique type of Opportunity Zone fund. I wish we could see more of these, but Len, it seems like you’ve just about cornered the market in this space, fortunately for you.

Leonard: Yeah. We’re definitely unique, and definitely have something interesting, in my opinion.

Jimmy: Very good. Well, Len, again, thanks again so much for joining me today. Really appreciate your time.

Leonard: Thank you.