Upgrading Our Portfolio – September 2017

Upgrading Our Portfolio

Somar’s mission is to support the financial success of our investors by investing their capital in businesses
with both a leading customer-value proposition and a large market opportunity ahead.
We find attractive opportunities in underfollowed companies that have outgrown Venture Capital’s sweet
spot but that are not yet big enough to be ETF-owned.

  • Unlike Venture Capital, most of our companies are profitable and have demonstrated early traction
    with their target market through strong market share gains.
  • Unlike ETF-owned, maturing companies, our companies are in the early stages of capturing their
    overall market opportunity. We believe most of them to be far less than 50% penetrated into their
    overall opportunity.
    This is a thriving and growing universe. This year we have found more opportunities to invest than at any
    time in our career. We believe this is likely to continue due to:
  • The wide range of secular change processes ongoing today: eCommerce, electronic payments,
    electric cars, artificial intelligence, digital media, blockchain, electronic consumer marketplaces,
    cloud computing, fast fashion, sharing economy, internet TV, renewable energy, mobile, augmented
    reality / virtual reality, autonomous driving, genome sequencing and editing, social media, robotics
    and drones, crowdsourcing and crowdfunding, among others.
  • The acceleration in the adoption of the above mentioned secular changes.
  • The reduced amount of capital available to invest in our target universe compared to the growth in
    funds dedicated to investing in ETFs and Venture Capital.

Here is a sample of the opportunities we are excited about:

  • Healthequity is a leading provider of Health Savings Accounts1. They are only ~1% penetrated into
    what we assess to be their ultimate opportunity.
  • Zooplus, which we wrote to you about in our letter from May 2017, is only 4% penetrated into their
    ultimate opportunity. They offer lower prices, wider assortment and fast delivery. We believe
    Zooplus to be worth far more than its current value.
  • We are invested in the first global outsourcer for game studios. They are world leaders touching 500
    games per year compared to about 12 for a leading game studio. Their current market share is only
    2% of their estimated $5 Bn opportunity, but it is growing fast. They offer lower costs and faster
    time-to-market to their game studio clients. They offer their employees job security and exposure to
    more games. We expect to make multiples of our original investment.
  • As we reported to you in last months’ letter we have a very profitable investment in food delivery
    aggregators. They offer customers wider choice, fast and reliable delivery at no extra charge. We
    expect to make multiples of our original investment.
  • An on-line disruptive travel leader in Europe has about 25% market share of its home market. It is
    taking market share at a strong clip. They offer travelers cheaper travel options with more flexibility
    around dates and places of stay. We believe the business is worth at least double what we paid.
    This is only a subset of the wide array of opportunities we are seeing. Please call us if you want to discuss
    any of these or other opportunities in more depth.
    It is important to note that these businesses bring superior value to their customers. This could be either in
    the form of lower prices, wider assortment, better quality or better service. Innovations like these tend to
    expand the existing market. Conservatively speaking, we are probably underestimating the ultimate size of
    the opportunity.

Every day we scour the world on your behalf, for opportunities better than the ones described above. If we
find them, we upgrade our portfolio and substitute a great idea by an even better one. Fortunately for all of
us we found a lot of them in the first three quarters of this year. Currently we don’t see this pace decelerating.
We will keep updating you on our progress.

 

1 For more details, please read our letter of November 2016

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