SCHOTTENSTEIN CAPITAL IS PROPRIETARY in the sense that it gives individual, retail investors the ability to participate in deals usually only accessible by large institutions, firms or hedge funds. Our sweet spot is companies between $100-500 million valuations, whereby market inefficiencies are the greatest. The opportunities in direct investing are vast as banks continue to limit available credit, causing more public companies to access the capital markets. Because of this need, companies are willing to offer deeply discounted equity with warrant coverage and other protections. Due to the market inefficiencies with small cap companies and our direct investing strategy, we are not too correlated to the overall volatile market movements and macroeconomic pressures in general.
DIRECT INVESTING Includes:
▪ PIPEs (Private Investment in Public Equity)
▪ Private Placements
▪ Registered Directs (The "Hybrid PIPE")
▪ Convertible Notes
▪ Warrant Coverage
ADVANTAGES of DIRECT INVESTING:
▪ Stock is received at a discount (usually 10-15%) to what it is trading for on the open market
▪ Free warrant coverage in exchange for direct working capital
▪ Downside protection thru Anti-Dilution
▪ Ability to lower your cost basis thru increasing the principal or lowering the conversion price.
▪ Ability to execute confidentiality agreements with companies, gaining access to non-public due diligence.
▪ Receive Dividends thru convertible notes opposed to owning common stock of large cap multi-nationals, which have proven to not be recession-proof.
STRATEGY:
OUR GOAL is to alleviate risk but still maintain the upside potential of an asset. SC executes this strategy by scaling out of 50-100% of the position at the time of effectiveness, and holds onto the warrants as a free gift. By utilizing this strategy, SC can then redeploy the same cash into another deal, thus, BUILDING A TREASURE CHEST of WARRANTS. We are very cognizant of the liquidity of the underlying common stock for each direct investment, which further limits our risk. This style of investing has been picking up a lot of recognition in the mainstream following the recent Warren Buffet $5 Billion PIPE investment in Bank of America.
