2023 Is Looking Like a Good Year for Alternative Investments: Here are the Sectors We’re Watching
Private equity has enjoyed a winning streak in recent decades, thanks to historically low interest rates and robust economic and equity market expansion.
Our exit from the pandemic has not left us economically unscathed. NASDAQ astutely observed the market environment in 2023 would be shaped by higher interest rates, reduced growth, and greater volatility. While this may seem unfavorable, it also presents a significant opportunity. These macro conditions have investors and asset managers exercising greater discretion when choosing their investments and maneuvering to increase allocations to alternative investment strategies.
The current investment landscape has companies more amenable to structuring deals that are good for investors – providing an increased chance to pick the right companies at favorable valuations. Investors can benefit from emerging companies that are actively competing to secure essential funding. They can seek companies that offer higher levels of due diligence and proof of concept, indicating their commitment to success and minimizing risks. Moreover, the market dynamics are constantly evolving, with emerging technologies shaking up traditional business models. This presents a chance for investors to support innovative companies that demonstrate long-term viability and differentiation.
Attractive Sectors for Investment in 2023
Investors who identify businesses with growth potential early on and provide them with capital could benefit from returns as the companies succeed in their respective markets. Some examples of sectors we think are attractive include:
Tech Start Ups
Unlike businesses, tech startups can expand rapidly, experiencing exponential growth within a brief span of time. In Venture Capital a company reaches “unicorn status” when a startup reaches $1B valuation. Square and Stripe, two different online payment services reached their $1B valuations in under 2.5 years. Lyft and Uber, ride-shares that have changed the way we move around earned their $1B valuations in under four years. It’s easy to understand why these opportunities can be alluring; there is excitement for the potential of striking it big with a start-up like these.
Initial public offering (IPO)s are another area of opportunity adding to the appeal of tech startups. The possibility of an IPO presents an exit strategy for investors to liquidate their holdings. These returns can be substantial for those who invested during the startup stages.
At Solyco Capital, our investing ethos focuses on companies that are disrupting the status quo while also demonstrating strong and conservative valuations.
FreePower (Formerly known as Aira), a Season 11 Winner on Shark Tank, is both a technology and infrastructure sector standout. When other companies could not, FreePower figured out the science to provide wireless proprietary technology that allows for faster charging, a large effective charging area and a surface that can simultaneously charge multiple devices. Most recently FreePower’s technology was leveraged for Tesla’s Wireless charging mat. The tech offers applications for automotive and hospitality industries. FreePower has an uncommonly strong competitive advantage due to IP, adoption, and profit model leveraging both tech licensing and supplier positions.
FluidLogic is an active hydration company that is taking a basic human need – drinking water – and providing a tech solution that will transform the way we hydrate. Utilizing its state-of-the-art and proprietary systems, FluidLogic plans to introduce and revolutionize hydration delivery systems across a broad range of market opportunities. The FluidLogic Hydration System began in the extreme conditions of the motorsports industry, and is now expanding into other markets, including outdoor recreation, industrial, and military.
B-File is changing how the insurance industry efficiently does business, through support of multi-line agents who are understaffed and lack systematic processes that are executed routinely every day. Using B-File’s platform the system identifies additional new opportunities that contribute to increasing the number of agents and enterprises, top line revenue and customer retention.
In 2021 the United States passed a once in a generation infrastructure package. The $1.2 trillion bi-partisan package includes road repair, EV charger installation, clean energy and broadband, and more. Aimed at improving the infrastructure across the country, the federal spending for this package will be allocated within the next five years. Investing in these areas can offer long-term stability and steady returns as demand for infrastructure projects continues to rise.
Solyco Capital is investing in companies that are solving for the infrastructure demand. EVmode aims to simplify the charging process by providing a comprehensive charging solution that includes hardware, software, and customer support. From software to hardware, EVmode is the industry’s first vertically integrated manufacturer to design and build in the USA. Leveraging cutting-edge software to manage its charging network, the EVmode platform allows users to locate and reserve charging stations, pay for charging sessions, and monitor their charging history. They have developed a modular charging system that allows charging stations to be installed in densely populated areas that include schools, shopping malls, restaurants, multi-family developments and hotels.
Logistics, Manufacturing, and Supply Chain
Logistics, manufacturing, and other components making up our supply chain, remain resilient in times of economic uncertainly. Whether it’s a pallet of bananas, an Xbox for your kid, or parts for your car – goods will always need to get from their place of origin to a store near you. It’s one of those unsung hero industries that our we directly benefit from daily – whether we think about it or not.
Investing in this industry allows for the potential to capitalize on increasing global demand for goods and services. Moreover, advancements in automation, robotics and digital technologies have led to greater efficiency and productivity in the manufacturing industry, making it an attractive investment option. This sector is underdeveloped and is currently witnessing a resurgence of innovative companies that is unprecedented in decades.
Palltronics (a Solyco Portfolio Company) is improving our supply chain by introducing its “smart” pallet with its IoT technology and durable design. They are the only shipping platform that can be tracked and traced in “real time”. This company is setting a new standard for how companies ship their goods and is out front of what we believe businesses will come to expect from an operational standpoint.
Environment, Social and Governance
ESG, or Environmental, Social, and Governance, is a framework for assessing a company’s societal and environmental impact, as well as its governance practices. Investing in sustainable businesses can provide financial returns while making a positive environmental impact The concept has roots in socially responsible investing from the 1960s and 1970s, it surged in popularity in the early 2000s. This growth was fueled by increasing awareness of environmental and social issues, corporate governance scandals, and a rising interest in sustainable and ethical investing.
In recent years, ESG considerations have become a central part of investment strategies, corporate governance, and business practices, reflecting a broader societal shift towards sustainability and ethical responsibility in the business world.
Investing in this sector not only aligns with environmental goals but also capitalizes on the expanding market demand for solutions that benefit the environment. In addition to consumer demands, governments and international organizations are actively supporting and incentivizing investments in the sector. From renewable energy subsidies to waste management regulations, there are numerous financial incentives and policy frameworks in place to promote sustainable investments. By leveraging these incentives, investors can enhance their financial returns while contributing to a more sustainable future.
Algas Organics (a Solyco Portfolio Company) is an agriculture biotech company tackling critical environmental and socioeconomic issues. Forbes 30 Under 30 and Algas Founder, Johanan Dujon, recognized the crippling effect of sargassum (more commonly known as seaweed) on his home island of St. Lucia. He started Algas Organics to harness the abundant, invasive seaweed that was threatening the tourism-dependent economy. In converting the seaweed, he’s also built a new industry that’s helping to preserve the marine ecosystem and tourist economy.
Why Some Companies Thrive Despite Economic Crisis
Not every industry encounters the obstacles associated with economic downturns. Businesses that perform well during recessions tend to be the ones that provide continuity through all economic cycles. Logistics supports the supply chain – delivering goods like groceries to our neighborhoods. Software as a Service (Saas) are fully integrated into business processes across industries.
Other industries like tech can leverage downturns to bring disruptive products to market. During the 2008 financial crisis, Slack recognized the need for improved workplace communication and collaboration. They developed a user-friendly team collaboration platform that enhanced productivity and streamlined communication. Its success led to its acquisition by Salesforce in 2020, further solidifying its position in the market.
Fast Forward to 2023, Bonus is a FinTech company creatively leveraging current market positions by pioneering a path for homeowners to build their wealth through residential real estate. The average American might have to sell their home to afford the next one, but Bonus offers an alternative. By partnering with homeowners, Bonus buys their equity and homeowners maintain a percentage of the ownership. The property is rented until the owner decides to sell. This approach gives homeowners access to capital without sacrificing future home value. It offers resilience – even in economic downturns thanks to rental cashflows.
Navigating Adversity Can Inspire Investment
The case studies introduced above are industry disruptors. Whether it’s a pallet with built- in GPS, a surface charger for a phone, or a FinTech company that helps homeowners build wealth – each of these innovations can improve our daily lives.
Companies that can showcase their value and relevance in challenging times, while demonstrating the potential to generate consistent returns, can make them attractive prospects for investors seeking long-term viability. While considering investment opportunities, it’s prudent for investors to exercise caution, conduct thorough due diligence, and seek professional advice prior to making investment choices.
Solyco is a private equity group that delivers capital solutions for late-stage startup and growth companies. Solyco Capital leverages Solyco Advisors for strategic, sales and operational support to help drive innovative companies to significant success. Watch these videos to learn more about Solyco Capital’s Portfolio companies.
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