Maybe you've always wanted to invest in a startup but never had the ability to risk a large chunk of cash. Well, Santa Claus has just found an opportunity for you. Joel
Shulman, (aka Santa) an entrepreneurship professor at Babson College in Massachusetts (a great school, by the way), is about to officially launch a mutual fund of publicly traded companies that have entrepreneurial characteristics. It's called the EntrepreneurShares Global Fund and it's comprised of more than 200 companies, 60% of which are U.S. companies and the remaining are from China, Canada, the U.K. and Hong Kong. Shulman soft launched the fund November 11, attracting about $10 million in institutional investors as well as a number of his most loyal students.
Greg Gomer, a former student of Shulman's, is sold on the fund, which is based on the track record of privately managed funds that have generated annualized returns of more than 11%. Shulman has developed a proprietary list of 15 criteria that are used to identify companies for the index fund and its five sub funds. Here they are:
- Organic growth opportunities
- Above average ownership stake among key stakeholders
- Low SG&A
- Above average return on invested capital
- Sustainable growth
- Manageable debt
- Active strategic alliances/partnerships/licensing
- Aligned executive compensation packages
- Low executive turnover
- Transparent governance
- Long duration of key managers
- Low or no dividends
- Family involvement
- High EBITDA Margin %
- Other significant stakeholder relationship
It's not any one or two of these characteristics that make a winning company- it's the combination of all of them interacting that produce the best odds for a winner. The fund's "one-pager" report on its site shows that if you had invested $10,000 in the fund on August 1, 2005 (remember, the fund didn't exist then, so this is hypothetical), on October 29, 2010, your investment would have been worth $17,550. Not bad, considering the Great Recession ate up a lot of that time. In fact, the fund would have out-performed the S&P 500, the Russell 3000 Index, and the MSCI World Index.
If I've tweaked your interest, you definitely want to read the prospectus, which will give you all the risks in gory detail, and you might want to do your own tracking of this fund for a while before you invest. You also might want to check out a research paper Shulman wrote in 2009 to give yourself a better sense of his philosophy; it also goes into great detail on the methodology he used to come up with the fund. This is a very interesting approach to investing in entrepreneurs. Good holiday reading!
