Deal To Watch: Conscious Capitalism At Its Best

Key Stats:

Summary

To date as of November 28th, 2018, Orthogonal Thinker has raised $23K

The Orthogonal Thinker team has been selected as a “Deal To Watch” by KingsCrowd. This distinction is reserved for deals selected into the top 10-20% of our deal diligence funnel. If you have questions regarding our deal diligence and selection methodology please reach out to [email protected].

The Product  

Orthogonal Thinker is an intriguing investment offering that is unlike any investment you have likely seen in the equity crowdfunding market.  

Orthogonal Thinker is an investment  holding company that provides capital and advisory services in exchange for a large equity stake in the businesses.  

Think of it in many ways as investing in a VC fund where you get access to a diversified startup investment portfolio. This is the type of opportunity that typically is only available to millionaires and requires minimum investments of $250K+.  

Orthogonal Thinker invests in companies of all different sizes, ranging from early-stage startups to growth-stage firms. It differentiates itself from other holding companies by focusing on a concept they call “Conscious Capitalism”.

This means that they invest in companies that offer a social good, or have an overall positive impact to society, like companies developing sustainable or eco-friendly farming.

Orthogonal Thinker’s investors also enjoy a higher liquidity than other crowdfunding investments. Usually, crowdfunding investments may need the company to either get acquired or undergo an IPO for investors to be able to realize their profits. However, an investment in Orthogonal Thinker may be liquified on different equity raises.

Even more, Orthogonal Thinker intends to immediately distribute a percentage of its income when one of its holdings is acquired. Specifically, Orthogonal plans to distribute 50% of its earnings back to investors and to reinvest the other 50%. The company also intends to eventually distribute dividends.

Part of the benefit of not being a straight VC, but rather a holding company is that they can actually share in the revenues and profits of the companies they invest in.

Management  

Orthogonal Thinker is led by co-founder David Nikzad, co-founder Jason Hobson, and partner Helene Servillon. So far, Orthogonal Thinker’s management has been very successful at finding good investments. Currently Orthogonal Thinker’s holdings include many famous businesses, including Betterment, Wefunder, AirBnB, Orangefund, and 24 others.

 For many of these companies, Orthogonal Thinker was an early investor. In fact, they were one of the first investors of Betterment, a company last valued at $800M. Jon Stein, CEO/co-founder of Betterment, had this to say:

“David Nikzad’s insight into the next wave of opportunity is uncanny. I know, because our company was one of them. David was one of the very first investors in Betterment when we were a little more than a great idea in need of capital to execute. Four years later, we are managing $13 billion in assets and have over 330,000 happy customers.”

 Ultimately, the most important asset that a holding company can have is capable management who are able to make the right decisions when helping companies develop from the seed stage into fully fledged corporations.

While being an early investor in a now hugely-successful corporation could be a fluke, Stein’s testimony to Nikzad’s strategic vision and early-guidance is important in confirming that Orthogonal Thinker’s management is capable and knowledgeable enough to guide partner companies to success.

Product Roadmap

The company hopes to continue on this trajectory of successful investments. So far their investments have usually ranged from $50K – $250K into seed stage companies, and they hope to continue making more investments, ideally around 11 every year with a heavy emphasis on plant and life science companies.  

One plant industry that the team plans to invest in is the cannabis and hemp market. This market is a $10B industry that is experiencing a once in a lifetime shift to become legal across many states.  

Already, Orthogonal Thinker has invested in numerous cannabis-based companies, including Meadow, a cannabis delivery app service now valued at $30M, California Dreamin,’ which produces cannabis infused sodas, and Confident Cannabis, a software company meant to facilitate cannabis lab testing.

Financials  

Orthogonal Thinker has inspired a significant amount of interest and trust from investors with over $734K raised in prior Wefunder rounds.

In 2017, the company successfully turned a revenue of $137K, achieving a gross margin of 178%.

Like most startups and VC funds, the early years prior to returns occuring do not provide rosy financials so the $327K in long term debt at the end of 2017 is not surprising, but should be noted. The challenges of liquidity for funds like this will remain for some time until early investment begin to return.  

Their growth potential could prove to be very profitable in the next few years, and Orthogonal Thinker’s early investments and equity stake could also become very valuable, despite not showing on their financial statements in the near term.

Rating

Orthogonal Thinker is a Deal to Watch. This rating is informed by a few primary reasons.

1. Experienced Management 

The most important part of holdings company is its management. The large equity stake that holdings companies have in their holdings means that they have a significant say in partner companies’ decisions. Similarly, the long investment horizons that holding companies have means that the health of the holding company is very much tied to the health of their holdings.

 These factors all point to the same conclusion – holdings companies need to be adept at guiding their partners and making good decisions. Through their prior investments, as well as their partner companies’ testimonies, it seems as though Orthogonal Thinker’s management is not only very capable of guiding companies to success, but that they are also adept at identifying companies with high potential. 

2. Company Transparency

Orthogonal Thinker remains steadfast to its conscious capitalism approach and has provided transparency into both their holdings and balance sheet position.

This transparency in the company’s activities means that prospective investors are better positioned to fairly and accurately evaluate the efficacy of an investment in Orthogonal Thinker.

3. Expansion into Cannabis

Cannabis is undoubtedly a rapidly growing industry, and Orthogonal Thinker’s pivot towards expanding its presence in cannabis is a great move. Over the next 10 years, spending on legal cannabis is projected to reach $57B.

4. Positive Track Record

Orthogonal Thinker’s management has made strong portfolio investments in the past including Betterment and Airbnb. Showing an ability to make solid early investments in high growth companies speaks to Orthogonal’s capability to execute on becoming a premier early stage investment holding company.

 The challenge with this type of investment lies in understanding what potential returns can look like. We do think there can be a significant return to investors, however due to the unique nature of the business and the payouts, we caution that returns may take an extended period of time and can be hampered by poor future investments.