Spirit Investment Group’s Alex Dee talks with the Opportunist’s Managing Editor Leslie Stone about his company’s new portal that will pair accredited investors with revenue producing businesses and startups and why he believes this is what the U.S. economy needs.
Recently, the Securities and Exchange Commission officially implemented Title II of the JOBS (Jumpstart Our Business Startups) Act and, for the first time in 80 years, opened the door for entrepreneurs, startups and small businesses to publicly advertise their securities to accredited investors. “This will allow entrepreneurs to reach out to a broader group of investors to rally support for their businesses, boost the country’s startup economy and create jobs,” says Alex Dee, founder of Spirit Investment Group (SIG), a Dallas-based firm that teams startup and revenue producing companies with accredited investors who are able to lend their money to help the entrepreneurs get to the next level. “We are very excited to announce that Spirit Investment Group is launching an investment portal where people seeking capital can connect with those looking for deal flow. We will provide investors a one-stop-shop for all their deal flow needs—whether they are an angel investor or a particular market investor in real estate or oil and gas, for example, or a family office or an institutional fund. They will be able to run specific searches that meet their criteria and find all the projects that meet their particular needs.”
Opportunist: What is your background, Alex?
Alex Dee: My background includes everything from technology to financing to modeling and sales and marketing—with an entrepreneurial spirit. But my biggest passion is to be able to develop a model that is the best in the market. I went to law school, but after Y2K I switched directions and got my master’s degree in computer science. Since there was a lack of jobs in marketing when I graduated in 2002, I starting pursuing the entrepreneurial route with successful family members. We were very fortunate to have caught the real estate market on the upswing in the early 2000s and so we were buying and flipping businesses. By 2006 I had started working with a commodities firm and, again, I happened to catch the market at the right time just as gold was spiking up to $350 an ounce. We built our own client base and by 2007 I came up with a really great model that was very similar to factoring but involved giving money to companies that had good revenue producing models and high profit margins. We were able to come in and work out a convertible debt play for investors that averaged respectable returns on their investment. As we developed that model, we started out implementing direct investments into the company and then switched to a funding structure. When that model encountered some challenges, primarily due to the way in which it was executed, we reverted back to a direct investment model. That particular model has been performing well for us throughout the last few years.
Alex Dee: Spirit Investment Group has been five years in the making. We have been able to build up a base of 2,200 active accredited investors that includes every facet from private to institutional funding to family offices nationwide and including some international. On our direct investment models we look at over 200 projects every quarter and pick three or four that meet our criteria and the management teams present to the investors. We are a network of investors that get exposure to the type of deals that fit today’s market. One of the great aspects to our model is that it is constantly changing with the market. As the market changes and evolves, so does our model. We recently switched to a fund structure that allows people to invest into a fund that includes several investments rolled into one. We have funding partners that will run the daily operations and a broker dealer that handles all the compliance.
Opportunist: How does Spirit Investment Group’s model work?
Alex Dee: Our revenue producing companies are accessible to investors who can choose direct investments or a funding structure that allows for investing in multiple companies at one time for diversification and convenience.
Companies that are selected are invited to participate in road shows where they can go out and present and speak to the accredited investors in our network. This also gives the investors an opportunity to interact with the company directly, meet the management team and hear about some of the great new concepts that are available in the market.
Opportunist: Who is your typical investor?
Alex Dee: Per the new SEC guidelines, we only work with accredited investors. While Title II has created more opportunities for an investor to be able to see the deal flow that is currently available, it is still primarily limited to accredited investors. These are high net worth individuals who can take on the risk of participating in the opportunities. Our investors are typically in the top 2 percent and may be angel investors, institutional funders, private equity firms, and family offices that are looking for projects and interested in opportunities available within our market.
Opportunist: Are there any industry sectors that you are especially enthusiastic about? Which ones do you participate in?
Alex Dee: The businesses we work with are revenue producing companies that are across different market spaces—from auto repair financing to litigation funding—and it really depends on the market. We have also participated in real estate. One of our favorite growth sectors is web based technology, and we have a very promising model for that.
Opportunist: How does the web based technology model work?
Alex Dee: What we do is filter through 5,000 tech companies that are web based and which go through an incubator run by an eight-time successful CEO with eight successful exits. Then we take the 200 or so tech companies that make it through his success benchmarks and help them get funded through various sources from angel investors to funds that invest primarily in web based startups.
Opportunist: How do you determine which companies merit your services?
Alex Dee: First, a majority of the companies we feature come to us from our investors who already know our model. Second, we ensure the companies are revenue producing, with potentially high profit margins and a very strong management team. For situations that don’t meet our high standards, we have several alternative sources and we can send the deal flow to them to determine whether they may qualify for their funding criteria. It all depends on the nature of the deal, but due to our expansive network we can usually find a home for a project—whether it’s a startup or revenue producing company—provided that it is viable.
As our last criteria, we look for companies that have a potential exit strategy in the next two to five years. Essentially, we determine if the management team will be in place to do an exit in the form of a buyout, through going public with an IPO or a merger. Our funding structure also caters to those who are looking for growth. There are new IRS codes that allow taxpayers who invest in small companies to grow their investment for five years and take 10 times their original investment out tax free. Investors who would like to take the longer-term ride are able to take advantage of those tax benefits under section 1202 of the IRS code. The requirement for a small business is less than $50 million, so it allows for a wide spectrum of companies to qualify.
Opportunist: Can you tell us about one of your projects?
Alex Dee: Sure. One of our companies is currently litigating against E&O [errors and omissions] insurance providers for homes that were grossly overvalued prior to the housing bubble eruption. What’s great about this project is that it helps the homeowner get out of a grossly overvalued home while holding the party responsible for the errors and omissions that occurred during that period of time. It’s been a very good model. The FDIC has successfully used this model in the last few years as well and Australia also used this model when their housing market faced a similar situation.
Opportunist: That’s great. Tell us more about the future and the investor portal. How will it work?
Alex Dee: Entrepreneurs and projects—the deal flow—will have the opportunity to post their deals and access a wide range of investors. Their deal will receive the type of exposure that would expand beyond what they could do locally. It’s truly a win-win relationship and that’s the great thing about today’s age with all the technology and the new compliance. It allows us to expand and build a model that encompasses everything. Whether someone has a project they need to fund or they’re an investor with capital seeking a deal flow, we will be able to provide to both and fulfill a very big need in the market.
Opportunist: Who are your competitors?
Alex Dee: Currently, there are a few portals already out there as well as those that are launching with the passing of Title II of the JOBS Act. But they are very industry specific and some only cater to tech startups. The only other one we’ve encountered that has been successful deals primarily with family offices but does not deal with all market sectors. Our portal will give access to all types of deals, from real estate to oil and gas to startups to revenue producing companies. So it will fit a wide range for a different spectrum of investors who will be utilizing the platform. We find opportunities that aren’t available to the average investor.
Opportunist: How do you accomplish this?
Alex Dee: By sharing the knowledge base of our group and networking with others who are successful.
I am sure there are going to be other competitors in the market and we expect it and make sure we have our broker-dealer in place so that we are always in compliance. I believe we have one of the best tech partners to not only provide a great user experience but to also facilitate customer feedback. I believe we do have an advantage because on the very date that we launch we will receive feedback from over 10,000 projects and over 3,000 investors—from angels to institutional to family offices. This will allow us to build the best model in the market to fit their needs.
If we are not the best we will constantly tweak our model and adapt it and be flexible until we have the best. That is truly our mission statement and what drives us and I think that is also what is going to keep us ahead of the competition. The interesting thing is you can have lots of different models that work. I respect competitors who have been able to develop models that work because they are few and far between. Only a small minority have been able to do so. We are definitely open to making it a collaborative effort and to having some of the best minds working together if that model can be created.
Alex Dee: To finish the demo version of our project and complete our funding so that we can begin the New Year with great momentum. We expect the demo versions of our portal to be ready by the end of the first quarter. Those who have an interest in learning more can visit our website and sign up and we will be happy to give them access to the system. Once you sign up, you can stay tuned in to what is happening in today’s market.
Opportunist: What role do you believe companies such as yours will play in revitalizing the country’s economic growth?
Alex Dee: What’s great about companies like ours is being able to invest back into companies that are helping to revitalize the U.S. economy. They are providing employment as well as technologies that are currently serving a need in the market. As we continue to grow, we will be able to take advantage of more of those opportunities.
Opportunist: Where do you see Spirit Investment Group in the next five years?
Alex Dee: That’s a great question. I believe SIG will serve to launch one of the premier sought out platforms for anyone seeking deal flow or capital. And we will be able to provide investors that opportunity for a relatively low cost compared to what they are currently spending and more importantly, we will save them what I believe is their most valuable asset, time. They will be able to run search criteria and only look at deal flow that matches their respective investment parameters. We will also be able to get exposure for projects to capital for the same price they are currently paying for online systems that store their due diligence documents. Our goal is to be the one-stop-shop for all deal flow and capital—where anyone seeking either one has the ability to simply go to our website and connect. It’s going to be a great service and a fun ride! I’m looking forward to it!
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. Originally from Virginia, she currently resides in Florida. Follow her on Twitter at @les7989
Spirit Investment Group (SIG) - http://www.spiritinvestmentgroup.com/
Disclaimer: Pursuant to SEC rules, these projects are only accessible to accredited investors. Those who wish to become SIG member or gain access to the portal must adhere to the rules incorporated under Title II of the JOBS Act.
SIG is not licensed as a securities broker or dealer or investment advisor and does not act as such. SIG introduces investors to potential investment opportunities. In so doing it acts only as a “finder” and does not negotiate on behalf of either the investor or the entity seeking investment. SIG is paid a fee by the project based upon the time they expend in seeking out potential investors, whether or not any particular transaction is consummated. The other entities which the partners own, including the investor portal, will be separate from SIG and the investor will receive the proper disclaimer and disclosure information for those respective entities.
While SIG believes that the investment opportunities it introduces to investors are legitimate and have viable business models, the investor must conduct his or her own due diligence and seek out advice of his or her own financial, legal, and business advisors. SIG does not render legal or business advice and makes no representations of any kind regarding the potential investment or the capital seeking entity.