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2012 DSA Annual Meeting Speech

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25th Annual ROTH Conference

Every year ROTH Capital Partners holds a three day conference of presentations and meetings which act as a forum for connecting emerging growth companies with premier institutional investors.  

This year, at the Ritz-Carlton in Laguna Nigel, there were over 370 companies presenting to more than 2,500 attendees.  ROTH's aim is to provide institutional investors with new investment ideas in mostly small cap companies; and this year the event included an increased number of private companies.  

Some of the metrics that fund managers look for are the O'Neil ratings, 3-yr and 5-yr Revenue and EPS growth, as well as the usual Ratios like PE, ROI, Pre- and Aftertax margin.  Some of the current data they look at are the Alpha and Beta values, Debt Percentage, R&D as a percent of sales, and what percent of stock the management of the company holds.  

With direct sales companies, fund managers look for the number of distributors of product, or "stores", and average sales per month of those "stores".  They look for a run rate on number of distributors.  Which means they are looking for future growth potential based on current growth.  All this means that the direct sales startup is not where the institutional investor typically invests.   Get the incubation period over with, that 2-3 year trial and error period in which the engine is being built and tested, is revving up and stalls, and goes out for testing again, all the while the investment in infrastructure has had to be made to be ready for the ramp up.  Once the run rate can be established, breakeven achieved, the consumer appeal of the product and opportunity established, investors will be interested.

Although institutional investors view direct selling companies as harder to understand because they don't fit nicely into the modeling that fund managers create and update to track, they do know that there is great profit and cash flow potential in direct selling companies.   My visit to Southern California proved that fund managers like to check out direct selling companies which they view as having a competitive advantage.  And they are always on the lookout for the right deals at the right time.

Ritz Carlton, Laguna Nigel

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