Mark Mitchell, principal of Red Thread Ventures, is no stranger to investing. But with his new venture, the Intangible Properties Exchange (IPEX), he finds himself on the other side of the coin.
We chatted with Mitchell to unpack the unconventional ideas behind his two Vancouver companies.
“Sorry for the noise in the background, just outside waiting for an UBER.” Mark Mitchell is on the other end of my AirPods informing me of the impending sound. The background noise is noted but welcomed. Investment money hadn’t dried up during the pandemic like commutes and in-person meetings had, but the reuniting of money and people transported me back in time.
Our call was soundtracked, in the best possible way, by traffic noise and a need to redirect the UBER driver taking Mitchell to his next meeting. It all had a very Wall Street feel to it. Yet, Vancouver-based Red Thread Ventures—Mitchell is principal and director—takes far more care than Jackson Steinem & Co. “Money is Here Should You Need it” seems a more fitting slogan than “Money Never Sleeps.”
I called Mitchell when Red Thread Ventures led a funding raise in the smart shower system, RainStick. For the venture firm, the focus is on community and not clout. “Red Thread Ventures is essentially an investment and advisory community. We have a strong network of professional CFOs and capital markets experts. We’re combining it with our investment funds that we use to syndicate investments that are typically into pre-seed and seed-stage companies, right across North America,” Mitchell told me.
Mitchell and his team seek to build, not just fund. “We’re taking a venture builder approach. We’re finding companies before they're even raising their financing rounds and we're helping them get ready for the financing. We're using our community to help them fill the financing. But, we're really active with the whole process from getting ready for pitching investors to actually finding investors to strengthening their data room and making sure that there's really a story that encapsulates the value proposition correctly.”
Red Thread made its first investment in April 2020. That number is now up to 18 according to CrunchBase, totaling over $15 million in disclosed financing. Plus, the firm has done it all with a unique approach to how their investors actually invest the cash.
“You have very limited options when you're wanting to get into this industry, especially as someone who is just learning. How do we lower the barrier to entry? By investing $5-10-15,000 into 10 deals, as opposed to investing $150,000 into one deal. That’s what we want newer angel investors to be able to do. That's totally why I think we've seen success with our syndicates because we're building a community of these kinds of people. We're really close to a lot of the more traditional angel networks. By plugging ourselves into those, we can be the group that can do this front-end due diligence for everyone. We can also offer a platform to syndicate the investment for the angels that want to come in, but can't necessarily write the $50,000 cheque. They can come in at a lower price point and can combine investments together,” Mitchell pointed out.
This approach, one that values bringing everyone along with it, extends to the companies in which Red Thread Ventures invests in addition to who they invest with.
“That's what we're trying to do—find these opportunities early on and actually make an impact with getting them ready for investment then also during the investment. That's a chore in itself, trying to raise your first round of financing as a new company. Then, ideally, although we're still at the front end of this exercise, trying to be super active with the company post-investment, help them with business development, or marketing or making introductions to specific people in our network that could help,” Mitchell said, before continuing on the mechanics of it all.
“Our goal is to actually insert a contract CFO or contract venture builder, usually a financial advisor, into the relationship, post financing—a conduit between investor and founder. Sometimes what can happen is, you can be told one thing by the founder, but maybe it's not the whole picture. Having that person as an insider, who also is motivated in the same way that the investors are through the equity, is really valuable. It gives you a really intimate view of what's going on in the company. It’s part of our thesis,” Mitchell shared.
“For us, it really comes down to building a very solid rapport with the founding team,” he summarized. With an announcement earlier this week and the benefit of hindsight, this tidbit was a piece of foreshadowing. Mitchell announced that he was on the other side of the coin—himself now a founder—on September 21.
IPEX, short for Intangible Properties Exchange, “came out of stealth mode” earlier this week. Mitchell is the founding Chief Investment Officer and outlined to me the problem IPEX is here to solve.
“There’s a huge problem with most companies—even really big companies—where they have a hard time reflecting the true value of their intangible assets on their balance sheet. By intangible asset, I mean things like IP patents, software, code, marketing materials, proprietary processes. All these things are actually the main value drivers behind technology companies but are poorly reflected, in a number sense, on a company's financial statement. It's an accounting problem, really. When accountants do this valuation and when they do financial statements, they usually put a lot of stuff in what's called goodwill. It’s like a black box and doesn't really tell you what the true value of some of this stuff is,” Mitchell explained.
In short, IPEX exists to value, structure and monetize the intangible—yet highly valuable—asset class of IP. Mitchell compares this process to real estate.
“By doing this, it allows [companies] to securitize and potentially collateralize their IP, similar to if you owned a building. You can go to the bank and be like, ‘Hey, give me a line of credit because I own this building.’ If you're a startup company, and you have a patent, that's arguably more valuable than any building. But, you can't really go to the bank and be like, ‘Hey, give me a line of credit for this patent,’” he pointed out.
Similar to Red Thread’s community-centred approach, it took a village to launch IPEX. The September 21 announcement revealed a seven-member c-suite of Western Canadian founders, including Vancouverite Andry Tanusdjaja as CFO. The feeling that IPEX and Mitchell’s fellow founders are on the precipice of a burgeoning, breakthrough technology emanated throughout our entire conversation, but peaked towards the end.
“This new asset class basically represents most of the value of the world's companies in 2021. It’s all intangible assets: no one's investing into Apple for Apple's real estate. They're investing because of the software. So, we're building this platform where asset owners can value their IP properly. There's no reason that this couldn't be traded on the NASDAQ or the New York Stock Exchange. We're at the very front end of this exercise,” he said.
I guess there is some Wall Street energy around Mitchell and his companies, after all.
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