The real money with growth-stage companies is often made by investing when they are still private. As an extreme example, some investors turned a $5,000 investment made in Uber's early days into a $25 million payday at last year's IPO.
Venturing into the earlier stages in the life cycle of companies, to pick the very few long-term winners and then support their growth with capital and expertise, requires a highly specialised skillset though.
This is where we came across Jamie Odell, who has three decades behind him leading successful companies, most recently an 8.5-year tenure at the helm of Aristocrat Leisure, during which time the share price increased six-fold.
Jamie now brings this front-line experience into his role as Portfolio Manager at JAADE Private Assets Fund, which is part of Ellerston Capital and the only Private Equity Fund in Australia with a recommended rating from Zenith.
Globally there is a trend toward investing more in private markets. Just this week, US-based Durable Capital had one of the largest fund launches in history, with $6 billion raised to have a key focus on private companies.
We are also seeing growing interest here in Australia, so we reached out to Jamie to find out more about JAADE and how he approached this fascinating part of the market.
Q: What you are doing these days and can you talk a bit about JAADE?
Since leaving Aristocrat in early 2017, I’ve been spending the majority of my time in the private sector, investing in and working with young Australian technology companies. My focus is not pre-revenue start-ups, but later stage companies with established business models who are seeking resources such as investment dollars and broad advice to accelerate their growth and reach the next level of their potential.
Initially, I started to do this as an individual, but quickly came to realise that I would find it more fulfilling and rewarding to work as part of a team, and this is how JAADE came about.
I had strong relationships with Ashok Jacob and Chris Kourtis at Ellerston, who had been significant investors in Aristocrat during my time there, and our complementary skill sets and mutual respect work well together. I was also already an investor in Ellerston Ventures, which had been established by David Leslie and Anthony Klok, and (alongside Toni Korsanos, ex CFO at Aristocrat and now a widely respected Non-Executive Director) we decided to partner and start the JAADE fund – which is named after the initials of the founding partners and Ellerston.
Essentially to be effective for our investors, we have to identify the right targets at the right price, add value to founders as they grow their businesses, and eventually help the business to move onto the next level, which in most cases is likely to be a strategic sale or IPO. We look at investments to hold for up to four years, although of course in some cases this timing will vary depending on factors such as the readiness of the business and general market conditions. It’s this broad set of capabilities which is critical to our success, and core to the value we see in this partnership with Ellerston.
A key area of focus we have within JAADE is adding operational value, by sitting on Boards for example, and also by using the experiences and contacts we’ve gained through our own careers to help each business grow. A good example of this is global expansion – many young Australian companies need to expand overseas to realise their potential (particularly, although not exclusively, to the US), and of course I have many years of experience of growing businesses overseas through my time at both Fosters and Aristocrat.
We’re supported by a really talented and experienced Advisory Board, and use the broad investment wisdom and experience of the Ellerston team to help guide our decision making.
Q: You’ve had a remarkable career already, why the change of strategy to now channel your energy into JAADE?
Having spent the vast majority of my career in public companies, I became aware along the journey that we had acquired many private companies and added significant value to them by bringing in resources (such as talent and technology) which successfully built on the foundations that were developed by founders.
As soon as I left the public arena, I was keen to explore this more personally. JAADE is more than funds management as I outlined before, as we actively seek to add value to our investments and not be silent investors.
Personally I’m finding this much more rewarding than working with public companies, and whilst I did explore some ASX Board opportunities shortly after leaving Aristocrat, I’m very pleased to have made my focus growing private companies - it’s my clear intention to continue in that manner.
Whilst I have great respect for the work that the majority of public company boards do, and understand their vital governance role looking after shareholder interests, I find myself better suited working with private company founders and their teams. This better suits my personal skill set, plus I enjoy it more.
Q: What are the 3 skills you most expect to leverage in this role?
As I mentioned previously, it’s extremely valuable in JAADE working with the team and Ellerston. Whilst we all share responsibility for identifying investment targets, we’re very lucky that David Leslie and the Ellerston team have great access to (and awareness of) private investment opportunities, and the majority of my time is therefore spent with the businesses; looking to add value where needed by the various founders.
In terms of condensing this into three specific skills, I would highlight mentoring, developing strategy and providing access to our broader network and resources.
Building on these a little, founders in fast-growing businesses are often so busy managing growth with limited resources, that I’ve found they may need to be supported to think about longer-term strategic opportunities outside the core business, and often this includes helping establish clear direction to expand into new geographies, and making the right connections in those potential markets.
I’m full of respect for successful founders and how they’ve built their business from the ground up, and our role is to help them continue that growth. I’d go so far as to say that the most important part of our due diligence before agreeing to invest in any private company is ensuring that we will have an effective and open relationship with our founders.
Q: What are the criteria for the companies you are investing in?
The fund has around 10 factors that we score every company on, such as revenue, market size, growth, unit economics etc. We look for growing businesses with established revenues which need additional resources to accelerate growth, and we particularly want to see that a high proportion of revenues are, or can be, of a recurring nature.
This scorecard approach provides an objective way to compare any potential investment, however, this quantitive approach is just one input to our screening process.
We believe the most important factor is assessing founders, management and shareholders, and trying to determine how well aligned we are and how we can work most effectively together.
Investing in private companies is not like listed companies. If strategy changes or market conditions are adverse, we cannot simply sell out shares and move onto the next trade. It is critical that we feel we can work together and when the business faces challenges or important decisions, we are happy to roll up our sleeves and assist.
Q: Can you use a company you have invested in as an example, and outline your expectations for it over the next 2-4 years?
Mable was JAADE’s first investment, and we acquired a significant stake in February 2019. I’m particularly proud that this is a “for profit, for purpose” business. We already knew the company well, as Ellerston Ventures first invested in August 2016, and we’re well represented on the Board by David Leslie and myself (as Chair).
Mable is a safeguarded eMarketplace connecting independent support workers, therapists and nurses with clients; primarily in the disability and aged care sectors. Both these sectors are high priorities for government, with the NDIS and Consumer Directed Care in Home Care Packages being rolled out across all states.
Mable has experienced exceptional growth ever since it was founded by Peter Scutt and Tony Charara in 2014, and this continues to be the case, delivering more than 145% revenue growth over the last twelve months.
The last round of investment has enabled us to make a number of key senior hires to support the founders (notably a COO, CTO and CMO), as well as build out the technology stack and invest in marketing and community engagement. We now have an extremely strong platform to drive further growth, which will be our focus over the next period, until such time as we consider ourselves ready to consider our strategic options.
Q: Complete this sentence: "The best way for private companies to realise value is...
… to recognise that sustainable growth is essential for long term success, and that there comes a point in their growth cycle when partnering closely with well connected and successful, experienced investors can help them to realise their full potential.
Q: What do you like to do outside of your work?
Since leaving Aristocrat I’ve really enjoyed moving into property development, working with my friend Jake Gunther of Gunther Developments, and in addition to having two development projects underway in Brighton, Victoria, my wife and I are also building a new home there. I really enjoy the balance between art, design and technology which is inherent in the word architecture!
In a strange way, I find it similar to my days of running wineries back in Fosters – you need a balance of creative intuition and science to be successful in these fields. I also keep up my interest in wine, chairing the Advisory Board for Chateau Tanunda in the Barossa.
Q: What was the last report, book, or documentary that really stunned you?
It’s always difficult to choose one, but I was deeply concerned when I saw the documentary “The Great Hack”.
When I first decided to invest in private companies I looked at age care and cybersecurity as two sectors which would undoubtedly become more important in the future, and I invested in both. The realisation of just how far surveillance of individuals can be taken to influence outcomes (in this case the election process in that world’s largest economy) is frightening. Using big data to disrupt critical decisions which impact the lives of millions of people is a great concern, and hence the role of cybersecurity in trying to be one step ahead of the hackers is becoming more and more important.
Find out more
Ellerston JAADE Australian Private Assets Fund is an Australian Expansion / Growth stage and Pre IPO investment fund operated as an open-ended unit trust. It is the only Private Equity Fund in Australia that has achieved a recommended rating by Zenith Investment Partners. To find out more click the contact button below.
How to avoid the next dividend cut
If you enjoyed that discussion with Jamie, we also recently interviewed Chris Hall, Chief Investment Officer at Ellerston Capital, which you can read here. We looked at how Chris achieves a low volatility income strategy, how he finds dividend champions (including a few examples), we look at his sell process and a recent divestment and find out why he's keeping clear of the big four banks.