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What on Earth is a SPAC?

A few weeks ago I was doom-scrolling Twitter and saw a link to yet-another article about SPACs and thought, “I really need to know more about these things.” My colleague, Kenny, has been casually dropping the term in our team meetings for a while, while talking about research he’s been doing, and I realized it was about time I stopped faking that I knew what he was talking about.

So I did a search and got lots of articles about Space-X, because “SPAC” and Twitter’s sub-par search engine don’t mesh. Sigh.

My bad…

If you’re looking for a lost shoe, chances are good it’s not in the refrigerator.

So I stopped being lazy and did the smart-researcher thing, which was to go directly to Investopedia. I knew it would have the answer, and who has time to waste? (Well, me apparently, because I fell through the prospect research rabbit hole and spent another two hours learning about SPACs!)

There are lots more resources I’m going to link you to at the end of this article that explain things fairly clearly including a fascinating, detailed, inside-baseball explainer from Bill Gurley, a venture capital deal-maker in Silicon Valley.

But first, I’m going to share the basics.

A SPAC is a Special Purpose Acquisition Company. Anybody can start a SPAC. You can start a SPAC. You don’t need a special license or anything. You just need to be able to raise money. (Hmmmmm)

A SPAC is a publicly-held shell company formed by an investor or group of investors, also known as sponsors. These sponsors usually have knowledge or expertise in a certain industry sector.

The ultimate purpose of a SPAC is to merge that shell with a promising privately-held company in order to take that company public without the hassle or cost of the traditional IPO process.

The sponsors will do a roadshow to institutional investors like family offices and private equity firms to drum up interest in investing in this shell company. You might see a SPAC referred to as a “blank check” company, because investors are essentially putting money toward something that doesn’t exist yet.

The sponsors might (or might not yet) have a few companies in mind that they will approach for a merger, and they’re not supposed to tell the investors even if they know – at this stage anyway (more on that in a minute).

Anyone can invest in a SPAC, too, including you and me. Shares traditionally open at $10 each.

Once there’s enough money in the pot, it goes into a blind trust. The SPAC has 24 months in which to acquire/merge with the target company. If they aren’t able to do that within 24 months, all of the money gets returned to the investors.

Now, once the SPAC sponsors have decided on a company to merge with, they can go back to the institutional investors and tell them (in confidence) about it, and ask if they want to put in more money. This is what is called a PIPE deal – a “private investment in public equities.” It sounds a little sketchy, but institutional investors are not allowed to share this insider information, and they’re not allowed to trade their shares for four months after the merger. Retail investors – you and me – can sell or buy anytime.

Who’s making money, how, and how much?

So let’s say the SPAC merges with a privately-held company. What happens then? Who makes money? How do they make money?

Let’s start with the sponsors. They make money in fees: 2% of the SPAC’s value plus $2 million for administration. Plus any profit off of the sale of shares or increase on money they put in.

The owners of the privately-held company make money when their shares increase in price and/or they sell them. In addition, they save money because the IPO process is expensive, with lawyers and investment banks and lots of other people to pay. By merging with a SPAC, they’ve avoided all of that payout.

The institutional investors make money when their shares of stock increase in price. In addition, when they originally invested they were likely also given a warrant to buy future shares of stock at a discounted price at/after a particular date. Assuming that the share price has gone up, that can make for a tidy profit.

So that’s the overview of SPACs. Don’t miss these articles and resources that fill in more of the gaps:

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Real Estate in the Age of Coronavirus

COVID-19 has impacted every single industry, usually for better or worse. But with real estate, the impact of the pandemic has been both better *and* worse, depending on the area of real estate you’re looking at. In today’s article, my colleague Josh Ostroski brings his deep knowledge of real estate to help us understand how our prospects who work in real estate (or who own well-placed properties) may be impacted now. ~Helen

There has been a lot of talk about real estate trends during the coronavirus pandemic. We have all heard about the urban exodus, housing prices increasing, and people working from home. I wanted to dig a little deeper to see if what we’re hearing is true or merely anecdotal and the reasons why.

The Urban Exodus

We have all heard that families are leaving cities to find more space in the suburbs. As the country was in lockdown, many people began to re-think what was important to them. With restaurants, bars closed, and shops closed, along with food delivery service expanding to more rural areas, there was less of need to be able to walk to amenities. However, according to a recent report by Zillow’s Economic Research team, they found that in most areas of the country “suburban housing markets have not strengthened at a disproportionately rapid pace compared to urban markets.”

There are some outliers, such as the Northeast, where new pending listings in urban zip codes re-accelerating more slowly than in the suburbs. “Some regions saw stronger evidence for a suburban-urban diverging trend than others. For example, in the New York City metro, home values in urban ZIP codes were decelerating in June relative to pre-COVID trends ( -0.2 pp) while suburban ZIP codes were accelerating (0.2 pp).

The same trend holds in Boston with urban home values down 0.5 percentage points and suburban homes values up 1.3 percentage points. However, this deceleration was already a trend (comparing February YoY to January YoY) in the Northeast Region overall, and the New York City metro.

Conversely, the Chicago metro area experienced the exact opposite trend with growth, decelerating in suburban areas while urban areas accelerated. And areas like Philadelphia and Miami saw accelerated growth in both regions, but more so in urban ZIP Codes.”

San Francisco is seeing a trend to becoming a buyers’ market, as inventory and days on market are up. According to Zillow’s report, “in San Francisco, list prices have fallen 4.9% year over year and inventory has risen 96% with a flood of new listings. Higher levels of inventory, up 96% year-over-year following a flood of new listings during the pandemic, are sitting on the market in the city proper, a significantly larger jump than the surrounding suburbs. In San Francisco, though, the softening is clear as sellers flood the market with their listings and buyers have not changed their pace to match.”

The markets where the largest share of renters in the center city would gain the power to buy if they looked outside city limits are San Francisco, Seattle, Washington, D.C., and Boston.

Check Out These Market Trends

Zillow: 12 mid-sized markets to watch

Realtor.com: Hottest Zip Codes

Insurify: Cities with the greatest pandemic real estate booms

Housing Price Increases

Normally in an economic crisis, housing prices drop. However, in this pandemic, prices in many locations have increased. Part of the reason is the drop in demand was matched with a drop in supply at the same time, protecting prices. Then when people began to look to move, the lack of supply has created a seller’s market, increasing prices.

Historically Low Interest Rates

Interest rates are still at an all-time low, so buying a home is more affordable. There has also been an increase in homeowners refinancing, putting themselves in a better economic situation.

Lender Standards

During the housing crisis of 2008, the use of subprime mortgages and lenient qualifications caused homeowners that were not really qualified to purchase homes out of their price range. When prices plummeted, they owed more than the house was worth (became “upside-down” or “under water” on their mortgages). Since then, the government and mortgage lenders have become much stricter in their lending qualifications. That means more homeowners are qualified now. According to CoreLogic, lenders have tightened credit requirements or increased payment requirements, making riskier loans less common. This helps to protect homeowners in a down market.

Home Wealth Gains

According to the Federal Reserve, housing wealth is a major component of total household wealth in the United States. According to the National Association of Realtors, “as of 2018, a homeowner who purchased a typical existing home five years ago (2013) gained $79,488 in wealth (equity), of which $64,200, or 81 percent was from the home price appreciation ($197,400 in 2013 to $261,600 in 2018).”

Home equity is at an all-time high in the U.S., which has not only helped weather the economic downturn, but has allowed homeowners to use that equity to their advantage by having flexibility to be able to sell their home for something that works better for them, like investing in another property (which can generate rental income), home renovation (which further increases the home value), a child’s college education, emergency or major life events, or expenses in retirement. National Association of Realtors has calculated equity reports on 181 metropolitan areas.

Default rates have also remained low during the pandemic. According to ATTOM Data Solutions, “Equity-Rich Properties Continue to Outnumber Those Seriously Under Water by Four-to-One Margin; Portion of U.S. Homes Considered Equity-Rich Ticks Up to 27.5 Percent; Seriously Under Water Properties Down to 6 Percent.”

Second Homes

Another trend that we are seeing is people are moving into their second home and using it as their primary residences. According to an article in the Colorado Sun, schools in Aspen, Vail, and Crested Butte reported record interest in enrollment as part-time resident relocated to their second homes. At the same time, the market has seen increased home sales in these resort towns as people are wanted to get away from cities.

This is also happening in New York City, which was one of the hardest hit cities by COVID-19, where people are moving into their upstate NY, Hamptons, and CT homes.

Real estate agents are also seeing an increase in people that live in cities, but are renters, buying second homes outside of the city.

As researchers, we should keep an eye on surrounding communities outside of cities that were historically vacation areas to see if there is an increase in sale prices. This could also trigger people to sell a home in a vacation area to take advantage of the increased demand.

Commercial Real Estate

One industry that is struggling is commercial real estate. As many businesses struggle to stay afloat, they have not been able to pay rent and commercial real estate companies are feeling the effects. Also, since many companies are having their employees work remotely, they are finding out they don’t need all the space they have and once their lease is up, they are either looking for smaller space or going fully remote.

Physical distancing is also changing the physical layout needed in office areas, meaning that potential tenants are going to demand less open spacing (can this mean we can finally put a nail in the open workspace concept?), updated HVAC systems, and improved amenities.

There is an increased demand for warehouse and storage space, as e-commerce has surged. Biotech companies are also seeing increased demand for lab space.

I think it would be smart to look at a commercial real estate firm’s portfolio and see what types of companies are in their portfolio. Consider using the HBG Whitepaper on who is doing well to help you determine if the RE firm has any of those clients or companies in industries that are doing well. At the same time, if the portfolio is full of restaurants or retail it could mean lean times for the commercial real estate firm.

Also, be on the lookout for commercial real estate firms to take advantage of opportunities to acquire properties at a good price and build their portfolio. Here is a good place to keep an eye on commercial real estate transactions and news.

Working Remotely

Due to the pandemic, many people were forced to work remotely. According to Business Insider, following the pandemic more than half of Americans want to continue working remotely while two-thirds of companies may render their current work-from-home policies permanent. A few major companies have announced they will continue to have employees work remotely, including Google, American Express, Uber, and Airbnb. REI plans to have its employees work remotely indefinitely and recently sold its brand new headquarters in Bellevue, WA to Facebook for $368M.

The National Association of Realtors created a Work From Home Score that studied “3,142 counties that are best poised to provide a supportive environment for working remotely, mainly, working from home.” They used nine factors to calculate the score. The top 30 work from home counties represent the top 1%. The top five counties include:

  • Forsyth County, Georgia

Part of the Atlanta-Sandy Springs-Alpharetta metropolitan area, 11.3% of the workforce already works from home and 99% of the population is served by three or more broadband internet service providers (ISPs). It’s a fast-growing area, and the population rose nearly 21% over the last five years.

  • Douglas County, Colorado

Part of the Denver-Aurora-Lakewood metropolitan area, 11.7% percent already work from home and 98% of the population is served by three or more broadband providers.

  • Los Alamos County, New Mexico

Part of the Los Alamos micropolitan area and the Albuquerque-Santa Fe-Las Vegas combined statistical area, less than 3% work from home but what stands out is that 68% of the workforce work in office-using industries. Homes are very affordable and only 11% of homeowners pay  30% or more of their income on their mortgage.

  • Collin County, Texas

Part of the Dallas-Fort Worth-Arlington metropolitan area, 8.6% of the workforce work from home, and its population expanded 17% from 2014 to 2019, indicating it is a fast-growing county.

  • Loudoun County, Virginia

Part of the Washington-Arlington-Alexandria metropolitan area, 7.5% of residents work from home, with 44% working in office-using industries. 100% of the population is served by three or more ISPs.

These areas could also be a good place to keep an eye on if you have prospects living there as they could see an increase in their property value. It is also going to change the type of home people want to purchase, which may now include two office spaces and an area that can act as a home school.

What trends are you seeing in your area?

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Companies House: a treasure trove of info on UK companies

Carrying on with the theme of prospect research and the UK for another week, I’m delighted to welcome Toby Savin as the author of today’s Intelligent Edge article on finding information about companies and company directors from Companies House. An experienced researcher and leader in the UK prospect development community, Toby is Development Research Manager at the University of Leeds. My thanks to Toby for sharing his knowledge! ~Helen

Over here in the UK, for all the challenges we face, including (and because of) a culture where it’s still seen by many as crass or taboo to discuss money even in the context of giving it away to a worthy cause, the prospect research community has one resource that our counterparts elsewhere can only dream of: Companies House.

Companies House is the UK registrar of companies and there are 4.4 million companies (and their associated filings) on the register, many of which are privately-owned. This includes not just limited companies, whether quoted on an exchange or not, but also limited partnerships (the legal business structure of choice for private equity funds and hedge funds) and limited liability partnerships (‘LLPs’), which have been astonishingly popular across many sectors of the economy since being introduced in the UK in 2001, thanks to the twin benefits of limiting partners’ liability and not incurring UK corporation tax. It also includes companies limited by guarantee (as opposed to share capital), a structure much used by charitable trusts and foundations.

What’s more, it’s free to access this data: in 2015, a Beta version of the register – freely available to anyone with an internet connection – was launched as part of the UK government’s commitment to free, open data. Sure, the register has its faults: one major issue, which was successfully used to push for a formal consultation on reforming the register last year, is that the information filed is not actually verified or checked by anyone at Companies House.

But, unlike data on non-quoted companies that many other countries are forced to rely on (typically, top line numbers self-reported to large data vendors within a voluntary and entirely unregulated framework), in the UK there is a statutory requirement to formally submit a whole range of filings and many of the accounts themselves are externally audited. Make no mistake: this is a treasure trove of public data that ought to make us the envy of researchers across the world, especially the US, where finding reliable, detailed information on privately-held companies can be difficult or impossible.

Want to know not just who owns a particular company but how much they own? Check.

Want to know the total compensation of the highest paid director? Check.

How about estimating the value of a privately-owned business? For sure, this is a tricky pursuit at the best of times (like a house, a business is only worth what someone is prepared to pay for it) but close to impossible – and perhaps even futile – if you have only sparse, unreliable numbers to hand. Here too, Companies House can help: businesses of a certain size are required file full audited accounts with a profit and loss account, balance sheet and cash flow statement.

And in addition to the hard numbers, Companies House provides an abundance of less tangible (but equally useful) information. A Chairman’s Statement on the company’s performance and strategy, for example, might be taken with a large pinch of salt by a forensic accountant looking for fraud but in the hands of a savvy prospect researcher, the salient points can be summarised and used by a frontline fundraiser to completely transform a discovery meeting with that top prospect who hitherto has been impossible to engage.

For anyone wanting to tap this most valuable of resources as part of their prospect research (or indeed gift acceptance due diligence), here are some things to take into consideration.

Firstly, if you intend to process any personal data, you’ll need to carry out an assessment as to what research is acceptable from a data protection perspective. There is an abundance of guidance available, from bodies like the Institute of Fundraising and CASE (the Council for Advancement and Support of Education).

Secondly, you’d do well to keep tabs on any changes to the legislation governing the information that companies are required to disclose (thankfully, these are widely reported across the blogosphere and beyond) as well as changes to the search functionality and other aspects of the free Companies House beta service itself (signing up to be a member of the user panel can help with this).

Last but by no means least, you really need to know what you’re doing: the proverb “a little knowledge is a dangerous thing” might as well have its origins in interpreting data in company accounts. This one is a bit trickier to address but I’d like to highlight a couple of initiatives that will help.

Here in the UK, Researchers in Fundraising (RiF), a special interest group of the Institute of Fundraising, has launched a major project to develop a Researcher’s Handbook (including a chapter specifically on estimating wealth and capacity). Work on this is in progress and in the meantime, one very enterprising former prospect researcher has been working with some of the best talent in the sector (and me) to launch a Community Interest Company called PyroTalks offering a wide range of (virtual) conferences and training sessions, including a number that are specifically aimed at helping prospect researchers navigate some of the data you can find on the Companies House register.

Companies House isn’t the only source of useful data on UK organisations and potential donors but it is an essential part of any researcher’s tool kit; and, for all its faults, we’re lucky to have it. Take a look and expand your UK company knowledge.

Toby Savin is Development Research Manager at the University of Leeds in the UK, having joined the Alumni & Development Office there in 2010. Prior to this, he spent a decade working for a leading business risk consultancy in London and then a Nasdaq-quoted fraud prevention company, carrying out investigative due diligence and background checks on employees and vendors for banks, hedge funds and FTSE 100 clients.

In between these two ten-year periods working as a researcher, he gained first hand experience of worker-controlled co-operatives at two food co-ops in Manchester and volunteered on a number of different food and environmental projects. This experience formed the basis of a dissertation on the co-operative movement as part of a Master’s degree in Food Policy at City University in London, which he successfully completed with Distinction in 2011. Toby also holds a Bachelor’s degree, with Honours, in Hispanic Studies from the University of Birmingham, UK.

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Who is doing well now in the UK?

Back in April, I wrote a blog post about companies, individuals, and sectors in the United States that were doing well despite (or in some cases, because of) the coronavirus pandemic. Today I want to offer some research that I’ve done on the same topic, but focused across the Atlantic. For everyone who has prospects in the United Kingdom, this one’s for you.

Just as everywhere, the economy in the United Kingdom right now is on a slanting slide into sure recession. However, that doesn’t mean that every company or sector is in the red along with it. As I go through the individual companies and sectors that are doing well right now, think not only of those who are executives or major shareholders that are in these companies, but the companies themselves and others in that sector that may be prospects. Also consider if they have a corporate foundation with funding priorities that your nonprofit might fit.

Basic goods

Just like here in the States, the major supermarket chains are experiencing solid sales right now: Tesco’s sales are up 12.7% and Sainsbury’s and Waitrose are both up 12.5%. Discount grocery chain Co-op is up 30.8% and sales for mainly-frozen-foods grocer Iceland are up 29%.

In order to get those groceries, many people are relying on the UK’s main delivery service, Ocado, which is reporting sales that are up nearly 33%.

Companies and manufacturers

According to Make UK, the professional organization for the UK’s manufacturing sector, 90% of UK manufacturers have continued to operate fully or partially since March, although around 20% have furloughed or laid off staff.

Which manufacturers specifically are doing well?

Any company manufacturing Perspex (plexi-glass), for example. Every person operating a cash register or sitting at a customer service window has (or will have) a sheet of plastic between themselves and the customer, so those manufacturers are operating on all cylinders.

The same goes for anything medical related, including PPE manufacturers/suppliers (face masks, gowns, visors, aprons, thermometers), medical equipment parts and materials (beyond just respirators to the base materials like plastics and sheet metals), and companies that make household and institutional cleaning supplies, including Reckitt Benckiser, the maker of Dettol, and hand sanitizer manufacturers.

And of course early on in the lockdown just as in the United States, UK television streaming services, games, and other forms of entertainment did (and continue to do) really well, too.

Who does well all the time?

Grocery stores usually operate on fairly thin margins, but people always need groceries so they tend to be fine no matter the economic circumstance. Banks, energy companies (those delivering heating oil and gas, for example), internet and phone companies, and the infrastructures that support them do well, too.

Right now, in addition to ecommerce (like UK-based companies selling must-have items like Argos, B&Q, Curry’s, Screwfix, office suppliers, etc.), shipping (and supporting industries) are also doing well because all of those ordered items have to be delivered.

Which companies and industries are having a moment?

And speaking of delivery, a new-ish form of vehicle is increasingly important, with drones supplying medicines and PPEs in half the time over the Solent to the Isle of Wight and from mainland Scotland to the islands. Look for companies like drone operator Skyports and defense and technology companies like Thales that manufacture these useful technologies.

It’s not just corporations and UHNWIs doing well: Local bike shops can’t keep stock on the shelves – especially bikes under £500, and they can’t keep up with repairs, either. Electric bike sales are up 96%! Britain has re-discovered biking in a big way, and it’s healthy for the bikers and for the bike sellers, from local shops to chains like Halfords.

The UK is a gardener’s paradise, of course, and garden centers which have now reopened are experiencing the same sort of panic-buying (and associated boom in sales) as we Americans had with toilet paper in late March. There’s an 8-week wait for certain plants as sales at some centers have exploded 75%.

Who will be doing well moving forward?

Because of COVID-19, demand is also beginning to rise for contact-free items like touchless faucets, flushers, and dispensers, so watch those manufacturing spaces as well.

Property investors with deep reserves like Great Portland Estates, one of the largest property owners in London’s West End, bought up bargains during and after the Great Recession. They purchased nearly 60% of their current portfolio between 2009 and 2014, and according to an article in the Financial Times (paywall) they plan to do it again.

As in the United States, look for managers and investors in contrarian hedge funds. Some that shorted the market back in January and February have made hundreds of millions of dollars.

Any company with a contract to supply to the government should do well in the next year (or more) as well. Once awarded a contract, a company can expect steady payments from a reliable source. Look for connected companies like Liberty Global, (no relation to Liberty of London) which signed a deal with the UK government to provide on-street charging points for electric vehicles.

Finally, although it would be easy to think that private equity and venture funding would be completely dried up, it’s not always the case. I spent a little time spent in Crunchbase and found that startups and young companies in the UK received $3.9 billion in the period between March 1 and June 1 of this year. A quarter of those companies are outside of London, too, so it’s not all invested in the south. Both the funders and the companies funded are worth a look to see if there are prospects for your nonprofit.

What other companies and sectors do you know of that are doing well in the UK right now? Please share in the comments for all of us to benefit from!

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Who’s doing well now?

In the past four weeks, I haven’t gotten a single solicitation from any of the charities I support on a regular basis. Not by email, not by snail mail, not by text.

One of the newer charities I support has sent two emails with links to video showing them in action, delivering meals to COVID-impacted families, low-income folks, nurses, doctors, hospital maintenance, and more.

But that’s it. Everybody else has been dead silent. And my charity didn’t ask me to help in either email.

Now, I understand, I’m not a major donor. But I am one of those long-term nonprofit-sustaining regular donors that helps pay for rent and toilet paper and electricity through my unrestricted gifts. It’s been my honor to support “my” charities, and I have been under the impression that my support was needed. I’d think so now more than ever. Their silence confuses me.

I’m not alone. There are millions of Americans looking for a way to be helpful. Even in tough times, especially in tough times, people want to give. People do give.

Perhaps the fear is that we might bother people while they’re down.

Or maybe some fundraisers are just deer in headlights right now, trying to figure out the “best practice,” “right” thing to do and are just…immobile.

I know, we’re dealing with a pandemic. This is a whoooole new playbook. But (if there’s a plus side to be found) we’re also dealing with an economic reality that we’ve seen before. Many of us lived and worked through the Great Recession, and although it’s not what we hoped for, we can do this again.

There’s a fundraising intelligence solution to this problem

Just like in the good times, our job as prospect researchers and fundraisers is to find the people and the industries that are doing well right now. We need to build an engagement strategy with them. And move forward. Because they are looking to help and they will give.

Maybe they’re current major donors (which is always the best, of course), but they don’t have to be. They can be those next-tier people further down in your portfolios, or people, companies, and foundations that you haven’t even approached or considered yet.

To help our clients right now, my colleague Angie and I started doing research into companies, industries, and people that are thriving in this upside-down economy, and we wanted to share what we found with you, too. Spoiler alert: there are a lot of people and companies doing well right now. More than you’d think.

Let’s start with the companies and industries that won’t surprise you a bit, because these are the ones that you are probably personally are relying on right now:

  • Costco
  • BJ’s
  • Walmart (hiring 100,000 new workers) and other discount retailers
  • General Mills, ConAgra, Campbell Soup and other companies making shelf-stable food
  • Companies manufacturing cleaning products (including small/nimble companies that have pivoted to meet new opportunities like Fabrizia)
  • Amazon (hiring 100,000 new workers)
  • Comcast, Charter, Cox, RCN, and other internet providers
  • Personal fitness equipment companies (treadmills, stationary bikes, weights, etc.)
  • Companies manufacturing puzzles and games
  • Online / computer gaming (Nintendo, Electronic Arts, Activision Blizzard, etc.)
  • Online education companies
  • Zoom, GoToMeeting, and other videoconferencing services
  • Project management and collaboration software
  • Netflix (and Hulu, and Disney Plus, and every other in-home entertainment-related company)

Okay, a lot of those make sense, right? It’s easy enough to go to your database and filter on company or industry code to get a list of constituents affiliated with these companies and industries. (As long as you’ve been gathering that information and keeping it up-to-date in your database. If not, here’s your opportunity to get started).

What other companies and industries are making money now?

  • Healthcare-related (medical supplies, medical equipment, diagnostics, tele-medicine)
  • Drug / vaccine companies that are in the race right now (Moderna, Sanofi, Johnson & Johnson among many others)
  • CVS, Walgreens, Rite Aid and other drugstore retailers
  • Staples/Office suppliers
  • FedEx, UPS, supply chain services and logistics
  • Private jet companies (NetJets, Wheels Up, Delta Private Jets, etc.)
  • Industrial warehousing
  • Data centers
  • Alcohol beverage companies and retailers
  • Cannabis/CBD/hemp-related growers and sellers

Don’t forget the individuals that bet on an economic downturn. Hedge fund managers expecting a downturn shorted the market and made billions. Here are just a few:

Boaz Weinstein’s Saba Capital Management Tail Fund was up 175% in March, with an estimated gain for Saba’s funds at $500 million. According to Reuters, other winners betting on a downturn and winning big included Capstone Investment Advisors, Universa Investments LP, 36 South Capital Advisors, and Cambria Investment Management LP.

You may also have read one of the many articles about Bill Ackman (of Pershing Square Holdings) who earlier this year bet $27 million in shorted high-yield bonds that made him a profit of $2.6 billion. Ackman published this letter to investors which was leaked to the media explaining in detail how (and why) he did it.

There are whole mutual funds designed to take advantage of economic downturns. Just do a search on “tail risk fund” and you’ll be amazed at the number of funds that are in the black right now.

These people and companies are not alone. While many of our prospects don’t do well in a recession, it’s good to remember that some people (and companies) do. Some even thrive, and – like Jack Dorsey – want to help.

But you don’t have to look to the billionaires. There are lots of regular fund donors who would love to support their favorite charities right now if you make a good case for why your nonprofit is relevant – and then ask.

Your org doesn’t have to be COVID-specific, either. Botanic gardens and nonprofit parks that are open provide much-needed relief now. Symphonies and theaters are reaching out with online concerts and plays to meet our need for entertainment. Libraries, bless them, are still loaning e-books and doing story hours for kids via video.

There are prospects out there with capacity, inclination, and connection to all of our nonprofits. We have to give them the opportunity to be helpful.

FOR FURTHER READING

Coronavirus Business Tracker: How The Private Sector Is Fighting The COVID-19 Pandemic, Forbes

Some Big Investors Smell Profit in Virus-Plagued Companies, New York Times

Hedge Funds Legends Quietly Contacting Investors, Citing Historic Buying Opportunity, Institutional Investor

This Hedge Fund Saw Risks of Coronavirus Early. Now It’s Up 36%. Wall Street Journal

The Booming, Cloistered, & Rarefied World of Private Jet Pandemic Travel, Institutional Investor

Grocery delivery apps see record downloads amid coronavirus outbreak, TechCrunch – Includes download numbers. Data supplied in the TechCrunch article available here.

Gaming Stocks Are Holding Up Relatively Well as Consumers Stay Home, The Street

Coronavirus Pandemic Widens Divide Between Online, Traditional Businesses, Wall Street Journal

A note of special thanks to my colleague Angie Stapleton, who provided absolutely stellar background research for this article.

 

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How GIS mapping can improve your real estate searching

This week I’m delighted to welcome Senior Researcher Josh Ostroski back to The Intelligent Edge. If you’re a long-time reader, you’ll know that Josh is our go-to guy on real estate research here at HBG, and this week he has a great article to share on a very clever way to find property information. Take it away, Josh! ~Helen

I had planned to write a blog post about some of the things I’ve learned in my 15 years as a Prospect Researcher since all I ever seem to write about is real estate. However, I’ve been noticing a new trend while researching properties that I think would be helpful for everyone – Assessor GIS Mapping – so I decided to go for a real estate theme for a blog post again.

Geographic Information System, or GIS mapping for short, is not necessarily a new technology, but I’ve noticed that it has popped up on most of the assessor sites now. I’ve found it so helpful that I wanted to share it so that more in the prospect development world are aware of it.

What is GIS Mapping?

GIS Mapping allows you to search for a property by address or by location and you will be able to see the property lines and, in most cases at least, who owns it and basic information about the property. Like all assessor sites, not all counties in the country share the same information and some are more robust than others.

Each site has its unique features and allows you to see different information, so be patient and play with each county (or sometimes state) sites. Even if it doesn’t give you all the information you need, you can at least have a visual of what the property looks like. Then you can use what you know and other resources to find out more specific information about the property. Often times the traditional assessor site will have more robust information on its site about the property.

Here is an example of what the map looks like. Each separate lot is outlined and you can simply click on the lot (be aware that some GIS Maps require you click on a tool in order for the assessor information to pop up), and the information will come up.

How is GIS Mapping Helpful?

I always use this feature when I’m looking at a property that has multiple lots; that way I can see what the property actually looks like. I’ve also found it helpful when someone may have multiple lots, but they are owned by different LLC’s or by family members.

Another way it is useful is when a mailing address and a property address don’t match. Sometimes that could be because the property is split between different streets or the owners bought an adjacent lot at a later date and use that mailing address.

Below is a screenshot from the San Miguel County, Colorado, GIS Mapping site. The property in question was located at 115 Francisco, Telluride, CO, which is Tom Cruise’s estate. It has been on the market for $59M.

What this shows us is that the property is owned by Client 2177 Living Trust, which if you run the property report shows an address in Los Angeles, CA, that is home to Chapman Bird Grey & Tessler, a Hollywood business management firm that Tom Cruise has been associated with. The other thing it shows is the properties adjacent to the main home that are owned by the same entity.

 

 

 

 

 

 

 

 

 

 

In this example, the adjacent properties are owned by the same name, but I have often found the names can be different but have the same mailing address. One example I came across just the other day was a home in New Jersey that consisted of six separate lots; each lot owned by a different limited liability company (LLC) (ex: 123 Briar Lane Acquisiton LLC, 129 Briar Lane Acquisiton LLC).

I always use a satellite view when using the GIS Mapping tool (I actually always use satellite view in life); that way you can really see what the home and property look like. You can also sometimes tell if a home was recently renovated or differs from what the assessment records indicate, which could be due to a delay in new information being uploaded.

Another example of how this has been very useful was a request from a gift officer after a meeting with a prospect. The prospect had mentioned in passing that he was selling some land he had accumulated over the years to a developer. It turned out he owned dozens of separate lots, all under different LLC’s and many with different mailing addresses. By using the GIS Map, I was able to click on all the lots in the area and determine if they were his or not.

He was indeed selling them off and to a developer that was building a new golf course community. We were also able to tell which lots he had recently sold and for how much. With traditional resources, it would have taken me much much longer to do and I don’t think it would have been as accurate.

How to Find GIS Mapping Tools

NETROnline.com is a great resource for individual assessor sites, including listing GIS Mapping links. The assessor sites are under the Public Records Online tab.

You can also do a search for “[County Name] Assessor GIS Map” and you will probably have luck. I’ve rarely found a county that does not have this capability. There are some outliers: Massachusetts, for example, does not do it by county, but the entire state has one map you can search.

Let me know what you think of GIS mapping tools, and what other interesting tools you use to find real estate information.

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Growing your corporate fundraising through better data tracking

Last week’s article about improving our use of interest codes to more effectively identify, engage, and steward donors got me wondering about doing the same sort of thing for companies that support our nonprofits. I asked Amanda Jarman, (aka the “Fundraising Nerd”) to share her perspective on the topic this week. Companies are made up of people, of course, and Amanda uses the term “biographic data” to help us consider tracking the many interconnections between companies, the people within companies our nonprofits are connected to, and our nonprofits themselves.  Thanks, Amanda!  ~Helen

Paying attention to the “biographic” data you track about companies can help you step up your corporate fundraising game. This is data that lives in the biographic section of your database, along with names, addresses, communication preferences, and the like – but instead of being related to an individual, it’s related to a company.

There’s a variety of information you might track about companies, including:

  • Contact people
  • Other important employees (such as alumni or volunteers, for example)
  • Matching gift information
  • Size/annual revenue range
  • Sector and/or SIC code
  • Subsidiaries
  • Funding priorities – company (philanthropy and sponsorship)
  • Funding priorities – company foundation

Just like with any data management process, your data coding needs start with your business needs. Depending on the type of corporate giving you are pursuing and the complexity of your fundraising program, you may need to only track some of this information, or you may want to collect all of it.

Here are some other types of data you may want to consider collecting as well:

Corporate Sponsorship Programs

Sponsorship is one of the most common types of corporate giving. If you have an active corporate sponsorship program, you’ll definitely want to keep track of the names and contact information of your primary contact(s) for sponsorship requests and stewardship.

Matching Gift Programs

Many companies match their employees’ giving to your organization. If you have an active matching gift program, you may choose to store information about a company’s matching conditions. This helps to project matching gift revenue and also helps you inform your donors about their employer’s matching program. You may choose to track an employer’s match rate (1:1, 1:2, etc.), match dollar limit, and any funding limitations related to your organization (e.g. some corporations do not fund athletics programs). In addition to tracking information about the employer’s matching program, be sure to link constituents like alumni, volunteers, members, and friends to employer records.

Corporate Major Giving Program

If your organization raises major gifts from corporate donors, consider tracking annual revenue range to help you prioritize among corporate prospects. You may also track likelihood to give and funding priorities (i.e. which of your programs the corporation prefers to give to).

This is similar to the kind of information you might track about individual major gift prospects to prioritize and focus your asks on the best philanthropic match between your organization and your prospective donors.

Corporate Partnership Program

Some organizations partner with companies beyond giving, e.g. hosting employees as volunteers, co-hosting other types of events, and/or developing programmatic partnerships like sponsored research. If your organization has a strong corporate partnership program, then linking individual constituents to their employer’s record is essential. This way, you can see the companies – and people – with which you already have a firm connection. These companies are great fits for employee volunteer or giving days.

Complex Organization with Multiple Funding Priorities

If your organization is complex and/or has multiple funding priorities, you may need to track information to help you align corporate donors with your program areas. Consider tracking business sector, either using your own categories or SIC  or NAICS code, which are used to categorize businesses by industry.

This is particularly important in the prospecting stage. As you begin to develop relationships with corporate funders, you will start to uncover the company’s funding interests which may or may not be related to your organization’s overall sector, but to one or more of your programs or research strengths.

Corporations with Multiple Locations

Many corporations have multiple locations, multiple philanthropic interests, and even multiple corporate foundations and giving programs. For example, one corporation may have several subsidiaries and branch locations, with matching gift programs, sponsored research, and corporate foundations or giving programs related to each one. To get a full picture of the corporation’s giving and relationship with your organization, it is helpful to link subsidiary and branch records to a corporate headquarters record.

Getting started

To get started with tracking corporate biographical data, first determine which of these data points will support and enhance your fundraising priorities. Next, assess your database: how can this data be stored? Do you need to customize your system?

Finally, determine how you will collect this information and keep it updated. You may choose to purchase SIC/NAICS code and/or matching gift program data from a vendor. You can also decide to survey your constituents about their employment, and/or purchase employer information about your constituents. Some information-gathering may have to be done the old-fashioned way, with a researcher, intern, or student hand-entering the information.

No matter which way you decide to do, enhancing your company “biographic” information is a great way to strengthen your organization’s capacity for fundraising success.

For more donor data management tips and tools, Amanda Jarman can be found at www.fundraisingnerd.com.

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Are We in a New Golden Era of CSR?

“Albert Above All” (c) 2018 Julie Kahn

This week my colleague Angie Stapleton kicks off February with a focus on companies and corporate giving. How does your nonprofit position itself with corporate donors? Do you have a written annual strategy with staff dedicated to company fundraising, or are companies a constituency you have yet to focus on? In this article, Angie sets the stage for us to think about companies and their impact on philanthropy – and our nonprofits – today. ~Helen

The national conversation on ultra-high net worth individuals (UHNWIs) and their role in philanthropy is beginning to shift. As we’ve discussed on this blog, a wave of critiques on traditional philanthropy – including Anand Giridharadas’s Winner Take All or Rob Reich’s Just Giving – have begun to impact public debate about effective philanthropy and the greater good.

While most of these discussions have centered on UHNWIs and individual giving, it has also cast renewed interest on the role corporations play in our society and their giving – also known as their Corporate Social Responsibility (CSR). [Read more…]

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A few of our favorite things

Over the past week I’ve added more new links than I can count to our HBG Prospect Research Links pages. At the moment there are 5 regional pages, covering (mainly free) resources for the Americas, Europe and the United Kingdom, the Middle East, Asia Pacific, and the Baltics (which is a little slim, but we decided to make it public anyway. If you have any resources you’d like to share, don’t be shy).

We’ve also built a page for due diligence and data protection/GDPR resources. Also in the works is a resource page for off-shore sources of information. [Read more…]

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Back-of-the-napkin privately-held company value calculator

Coming up with the value of a privately-held company is one of the hardest balancing acts that prospect researchers do. No matter how hard we try, we will get it wrong around 100 per cent of the time. The only consolation is that it’s very likely that not even the owner of the privately-held company has any idea what their own company is really worth. The value is simply what someone else is willing to pay on any given day.

The Small Business & Entrepreneurship Council reports that the vast majority of companies in the United States – 99.7% of employers – are privately-held small businesses, and firms with less than 20 workers made up 89.4 percent of businesses in America.

That’s a lot of businesses that aren’t publicly-held, but when I talk with researchers about things that are hard to do, there are few who don’t express doubt in their ability to read and interpret SEC forms. Understanding them is important, but it’s not what a researcher is going to spend 99.7 percent of their time doing, and – to my mind – valuing privately-held companies is harder by about the same percentage.

Of special note is the fact that, according to a U.S. Small Business Administration report, women own 36% of all businesses and 20% of employer businesses. That figure continues to grow as entrepreneurial women, eager to sidestep short-runged corporate ladders, continue the trend of building opportunities for themselves. As these successful women become a larger part of our frontline fundraisers’ portfolios, understanding how to value their companies (and understand their philanthropic priorities) becomes increasingly important for us, too.

So, how do we value privately-held companies?

Normally when we want to value a privately-held company, we do one of a few things:

  1. We get lucky and find that an intrepid business reporter has valued it for us.
  1. We get lucky and learn that the owner has revealed the information themselves, either on their company website, or in a published interview, or in conversation with a fundraiser.
  1. We get lucky and see that Dun & Bradstreet has estimated a value for the company in its Business Information Report. (NB: this is a red herring. D&B estimates are to be trusted as much as an unsupervised Labrador with a coffee table full of appetizers.)

When none of those pans out, we start doing the hard work of estimating a privately-held company…

  1. We look for a comparable company or “comp,” which means that we try to find a publicly-held company that is in the same line of business with the same number of employees in the same geographical area with roughly the same sales. We then look at the publicly-held company’s market value, and…there you go. (Except there you don’t go, because finding apples-to-apples comps are as common as finding a lost Picasso print in someone’s attic. It happens, but not often.)
  1. We go through a highly scientific process to estimate value using betas, estimating revenue, expenses, etc. to come up with a value. To assist you in this venture if you dare, here is a 170-slide masterclass from NYU professor Aswath Damodaran walking you through four valuation examples. (It’s useful to know this, and I do highly recommend further education on how businesses work, and balance sheets, and P & L statements because you should know this, but we’re prospect researchers, not Goldman Sachs executives working out an IPO and we’re usually on a deadline.)

SO:

  1. Here’s my small business, private company, back-of-the-napkin estimating tactic to use if you don’t know the company’s sales. (If you do know its sales, stop now and go to the end of this article).

This technique won’t work for every company (the sole-practitioner attorney or the self-investing money manager, for example). But I think it’s a quick conservative baseline to use for companies with ~5-25 employees because we’re going to focus on how much a small company with employees has to generate annually in order to simply pay their bills. If they’re running a demonstrably successful company, then you can be sure they’ve got at least that much (and probably more besides). How much more you  want to add into the calculation based on your – and your frontline fundraiser’s knowledge – is then up to you.

First, you calculate Payroll

How many employees are there? Check the company’s website, or D&B (caveat: see above), or LinkedIn, or the company’s Facebook page.

What’s the average salary for people in that profession? Check salary websites or job descriptions on search & recruitment sites for ranges.

Now, take the employee number times the average salary = S

Multiply S times .3 to calculate benefits = B (benefits cost ± an additional third of an employee’s salary)

If this is a profession that frequently rewards employees with extras like bonuses or commission, multiply that average amount per employee to calculate Extras = E.

Add S + B + E = Payroll

Second, look at annual Costs

Ignoring things that a business owner would only have to buy once (like computers, desks and chairs, etc.) what does it cost to do what this profession does annually?

  • Insurance?
  • Rent/Mortgage payment/Upkeep?
  • Travel/Fuel?
  • Software fees? (Lexis? Bloomberg? Salesforce?)
  • Phone/internet?

Add these together to estimate Cost = C of doing business.

Add Payroll + Cost to calculate Total Expenses

This figure is what the owner has to come up with every year simply to stay afloat, so you know the company’s sales are at least its Total Expenses. (And so, to circle back to my comment earlier, if you know the sales figure, you can simply use that as a baseline to spitball the value of the company.)

Voilà, a back of the napkin company value.

Caveat caveat blah blah caveat

This isn’t perfect, I know that. But there are a lot of things we’re never going to know, like a privately-held company’s sales, its debts, and if the owner is offshoring profits.

But if we have a pile of profiles to work on and need to come up with a baseline estimation, I offer this rough estimate as a good place to start.

I’d love to hear if you have other off-the-cuff valuations that you use!

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