The pandemic is receding and technology is reshaping the way people across the world invest. A sense of optimism is building, but it’s still difficult to shake the uncertainties of the past year.
What are the best opportunities for your money in this environment? Investing $1 million in one shot opens up more possibilities — and of course can involve greater risk. We asked a panel of experts who offered us their best ideas on where to put that amount.
They moved well beyond the standard world of funds and 401(k)s and into the more colorful — and potentially riskier — domains of venture capital, startup investing and even sport betting.
We also asked for some alternative, creative ideas for allocating that kind of cash in your portfolio, and we got some fun responses that just might inspire you, ideas like investing in a minor league hockey team or hunting for the next big digital hit.
Leonardo Otero
Partner, Arbor Capital
From a macro standpoint, the world isn’t a very exciting place right now: You don’t have huge growth anywhere, there’s a lot of social inequality. So the real opportunity for gains lies in finding big digital businesses with fast organic growth that could benefit from a winner-takes-all strategy.
One place we’ve been looking for that is in the sport-betting sector. Sport betting was a black market in practically the entire world until 2018, when the U.S. Supreme Court paved the way to make it legal. That kicked off similar changes all around the globe, with the most recent country to legalize it being Canada.
There’s a Canadian small cap, Score Media and Gaming, which could hugely benefit in our view. Its app, theScore, is Canada’s biggest sporting media app and the third biggest in the U.S. And it’s now shifting its business model away from advertising, which has tighter margins, toward making money out of being a broker for sporting bets. If they succeed, they could see a 20-fold increase in revenues in five to seven years. It’s definitely a risky bet for $1 million, but one that could come with a nice payoff.
David Root
Founder, DBR & Co.
I’m passionate about investing and about mentoring. There’s a way to do both, through something called a “search fund.” The idea behind a search fund is to back future CEOs in their search for a good company to acquire and lead for six to 10 years. It’s part private equity, part venture capital. The term originated at Harvard Business School in 1984, was popularized at Stanford Graduate School of Business and has spread steadily to business schools, entrepreneurs and private investors around the world.
The way it typically works is that group of investors identify and back “searchers,” who may be newly minted MBAs, or MBAs that have been in the workforce for less than a decade. The group forms an investment vehicle, often a partnership structure. Then the B-school graduates go out and look for a privately held company, or companies, valued at $6 million to $10 million — it could be a car wash, a health company, a lifestyle company.
When successful, this has resulted in a relatively fast path for the young graduates to become an owner-CEO and attractive financial returns for both investors and searchers. A 2020 analysis by the Center for Entrepreneurial Studies at Stanford found that from 1984 through 2019, at least $1.4 billion of equity capital was invested in traditional search funds and their acquired companies, generating approximately $6.9 billion of equity value for investors and an estimated $1.8 billion for entrepreneurs so far.
The aggregate pre-tax internal rate of return for investors was 32.6% through the end of 2019, down from 33.7% in a 2018 analysis, and the return on invested capital was 5.5x, down from 6.9x in 2018. That reflected slightly lower returns, shorter hold periods, and a record number of new acquisitions. There is risk, of course: The 2020 analysis also found that one in three funds failed to buy a company, even after two years of full-time work trying to find one.
Michael Sonnenfeldt
Founder and Chairman, Tiger 21
Everything these days is about the transition to clean energy. It used to be very theoretical, but when you have 60 people die in Portland and hundreds in British Columbia because of the heat, it’s less so. Now when people get into cars and turn on the AC and waste energy, we have to think about the lives being put at risk because of climate change.
A major focus for me is renewable power companies. In the last decade, fossil-fuel companies have gone from being 16% of publicly traded equities to under 3%. The market has understood the clean energy transition. Politicians haven’t — many people haven’t — but the people betting dollars on the future have spelled the end of fossil fuels, and anyone not thinking about that in their investment strategy is living in the past.
I’m backing startups that have unique technology to play in the power market — not just the energy market. If the last decade was about growing use of renewable energy, the next decade will be about the growing use of renewable power. That’s when renewable power will tip over some minimum around 30% of the mix of power sources for utility companies. That tipping point will change the world as “on demand” renewable power increasingly replaces the base loads previously supplied to utilities by coal plants or intermittent peak power supplied by gas peaker plants. The same energy transition will drive adoption of electric vehicles. It’s not just Tesla. There is electric vehicle-maker Lucid Motors, which will debut in the next few months. You can trade it in the Churchill SPAC (CCIV), and more broadly, you can also play in the exchange-traded funds like LIT (the Global X Lithium and Battery Tech ETF) or TAN (the solar Invesco ETF), and of course all the individual names, as well.
