The money manager and professional investor talks with the Opportunist’s Managing Editor Leslie Stone about how he selects companies to work with, which industry sectors show the most promise and why he believes America will bounce back.
George Jarkesy has a knack for founding, investing in and helping to build companies engaged in a broad range of industries. At 36 years old, he is already considered a seasoned and respected financial and corporate advisor and a dynamic public speaker. He also serves as chairman of the National Eagles and Angels Association (NEAA), a nationwide alliance of qualified individual investors and business angels. A market commentator on CNBC and FOX Business News, Jarkesy has been featured on CEO Central, iStockAnalyst and HardAssetsInvestor.com. He has been quoted in the national press, including USA Today and other national publications. In January 2011, he launched a program on blogtalkradio called “New Captains of Industry,” a show he says is “dedicated to frank and insightful discussion on the world of macroeconomics, key industry trends, politics and the stock market.”
Opportunist: George, you’ve had an interesting career. Please tell us your background.
George: Well, I started out on Wall Street as a broker with an institutional group at a broker dealer and quickly moved up the ladder. I was able to make a few good stock picks in mostly biotech and gaming, and then I went out on my own and started lending money to small public companies. When the dot-com boom hit, from ’95 through ’98, we grew steadily and ended up working with various businesses. When word got out that we were making loans for small companies, mid-tier and small investment banks would bring their clients to us for bridge loans when they needed money to clean up their balance sheet, buy out a partner and so forth. Hard money is very difficult to get when a company needs capital and isn’t quite ready for their IPO. We are value lenders and value buyers who buy companies at a discount to what we think they’re worth. Through the years, we’ve built a huge network.
Opportunist: What are some of the most dynamic industry sectors you’ve been involved with?
George: We have funded companies all over the board. We’ve been in riverboat gaming, biotech, U.S. oil, gas and coal, Canadian oil sands, uranium, light steel manufacturing, wine vineyards, cattle operations, fast food, franchises, marinas and multifamily housing. One of the more interesting was a barbecue grill manufacturing company that sold grills to Wal-Mart and Home Depot. I also cofounded two biotech companies: Adventrix (AME: ANX) and Opexa Therapeutics Inc. (NASDAQ: OPXA). Opexa is a company that takes stem cells from adults and makes personal therapy.
Opportunist: Which have given you the best return on your investment?
George: As far as returns on investment, biotech and energy have been the best. Cash flow from multifamily housing has been good too, and that’s our stable investment, but that’s kind of a different investing than the small business growth investing. People need the drugs or therapy that the biotech companies provide and they also need oil and gas.
George: I like to invest in things that people need. You tend to make more money that way. Not that we don’t have other investments, but I believe that if you invest in things that people need as opposed to want you tend to be recession proof.
Many times we’re looking for companies at a crossroads. For example, if they take Path A and within six months or a year they’ve got some major change that’s going to take them from $10 million to $100 million in revenues or they may sell out to a competitor. Path B could be they think they need $3 million and then they really needed $5 million. They’re tight on cash and start missing orders and the businesses starts missing milestones. They have to go back and get that $2 million. When the companies don’t budget correctly and come up short then you get the down round and that’s one of the more common risks for early investors. Investors take more risks by putting more money in. You can cut your investment in half by the company not budgeting correctly. We try to avoid that by making sure management is conservative in projections and allowing enough in their budget to get them through crossroads milestones. You don’t want to put capital in for people to find out if their model can be successful. People who are at crossroads just need a little boost to reach success; they were already on their way before we arrived.
Opportunist: Have you turned down any opportunities?
George: Yes. One time we were at an investment opportunity meeting with a mid-tier firm in New York. Things went well and we were ready to move forward. But management took us out to dinner at a nice restaurant and one of the top-level guys was completely overbearing and rude to the waitress and servers. It occurred to me that if this guy couldn’t even have a relationship with people who were trying to serve him, how could he run a company? We pulled out after that.
Opportunist: To what do you attribute your success?
George: I was blessed with a mentor, “Big John,” who told me: “If you do good, you’ll do well.” The wisdom he shared with me really changed my personal and my business life. I’ve made money on deals but making money is secondary because I’m going to die someday and money isn’t going to matter. The profits are insignificant compared to seeing something positive about a company you helped 10 years ago. It makes you feel good to know that you’ve helped to make people’s lives significantly better. That’s the case when you go out and fund a company and know it wouldn’t be there if you hadn’t done what you did. It’s rewarding to know people put their kids through college and live better lives because of your efforts. When you put money into a
company that does well, then you go and build another one.
Opportunist: Do you have advice for other investors who would like to achieve similar results?
George: Earn for your family or your community. It’s your job to put 110 percent into what your talents are and to give back to your family. Meet the management team, carry out your due diligence and be prepared to have the stomach to stay the course. The business plan can change but you have to see it through. Be prepared to put in late nights.
Opportunist: How is funding a company different from, say, simply buying its stock?
George: This is up close and personal investing. It’s not like buying a share of Microsoft. Your decisions or indecision affect these businesses dramatically. Some people have a hard time stomaching the ups and downs of working with young companies like this.
Opportunist: Have you ever wished you weren’t involved?
George: There have been times that I’ve wanted to throw my hands up and walk away but when 100 employees could be out of a job if you give up, you wake up at 5 o’clock in the morning and go back to work. I don’t mean to be overly philosophical with you but you’ve got to be long-term; it’s not a trade situation or a quick hit. Those situations are rare. You build and you push and then suddenly you reach critical mass and the company starts to take off. That’s where you see your returns.
Opportunist: Tell us about your recent TV appearances.
George: What happens on TV is you’ve only got so much time and you’re rushed to try to fit in everything you want to say. Many times it’s dropped off. That happened to me recently on CNBC—and it’s not their fault. I was proposing the privatization of the postal system; I never said we should get rid of it
Opportunist: So, viewers may have assumed you wanted to eliminate the U.S. postal service altogether?
George: My point is when you speak on TV, you don’t always get to explain yourself fully. What I didn’t get to say is that the post office is the second largest private sector employer in the country. There are about 570,000 U.S. postal employees and about 2 million associated jobs. That’s a huge job loss if you just shut it down. We need to hold it up long enough until it can be privatized. It could be a good business for some investor or shareholder group.
[When discussing the Obama Administration] on Fox, I wanted to say that people don’t understand government just can’t do it all. They should provide the infrastructure and rules and regulations to foster an environment where business flourishes. What I didn’t get to say—and this comes from the U.S. Chamber of Commerce—is that a 5 percent reduction in the federal regulatory budget would create 1.2 million jobs in America. What’s more, every new nonelected bureaucratic job that you eliminate in Washington (or elsewhere) leads to the creation of 100 private sector jobs.
Opportunist: That’s a lot of jobs.
George: America has to get competitive and you cannot be competitive when 15 or 20 percent of every dollar goes to regulation and 40 percent to government taxes. For every million dollars in new regulation we eliminate 420 private sector jobs. Does that mean I think there should be no regulation? No. But regulation must consider what the revenues are.
Opportunist: How so?
George: We don’t want more regulation. We want more efficiency. We already have to be significantly higher than our competitors just based on those burdens. You cannot tax businesses and have regulations that eat away at profits.
Say we are in the coal business, for example, and we have 130 employees. Twenty percent of the staff is dedicated to regulatory compliance. That’s a problem because we don’t operate in a vacuum. We’re competing with people overseas and they are making money at that price. As a global economy the world has gotten used to cheap energy and I think that we really don’t charge enough as an entire global economy whether it be for labor or materials. America has gotten spoiled on cheap energy.
George: I’m very hopeful about our country’s future but we have to get away from all the compliance silliness that the bureaucracy has created. I believe businesses should be held accountable for their actions but we are now over-compensating for everything. Somebody slipped and fell down on something and we are putting up 50 signs and spending a million dollars to make sure people don’t slip anymore.
Opportunist: Do you see the United States making a comeback in the next decade?
George: Historically, you never go back to where you were. But America has a secret weapon that a lot of the world doesn’t have and maybe I’m more cognizant of that than others. When you have a shrinking Europe and Russia and, believe it or not China, it takes 2.15 babies per woman to keep a population flat. Without the Hispanics in America we would actually be shrinking as a country too. But because of them we are growing. Demographically, things are actually looking pretty good for us. We have the ability to feed a good portion of the world. We have 40 percent of the world’s coal reserves. America needs to develop the exportation of coal.
Opportunist: Earlier this year, you launched a blogtalkradio program called “New Captains of Industry.” Tell us about it.
George: I see the show becoming a voice for entrepreneurial growth companies. We cover economics, global issues, and politics and how they affect business and the markets themselves and our interview guests are CEOs and experts in natural resources, economic trends and growth companies. I am hoping to build the show over time.
Opportunist: Where did you get the name?
George: A captain of industry was a term originally used during England’s Industrial Revolution to describe a business leader whose means of amassing a personal fortune contributes positively to the country. It was a person who not only made money and built wealth for his own good but for the good of his community and society as opposed to all the robber barons.
Opportunist: We wish you much success with the show. Are there any potential book deals in the works for you?
George: I have ideas for a couple of books, but I won’t pursue them until this recession is way behind us. People say we are out of the recession but we are still struggling and we will continue to struggle for a while.
Opportunist: Tune in a few weeks from now for part two of our interview with George Jarkesy, as he discusses his role as chairman and founder of the National Eagles and Angels Association (NEAA).
Leslie Stone is an award-winning writer/editor with more than two decades of experience covering business, finance and lifestyle issues for newspapers, magazines and online publications.