Niche Alternative Asset Class in a industry insulated from the global economy

13 oktober 2022

In general what are people looking for in an asset class?

  • High appreciation
  • Downside protection
  • Predictability 
  • Consistent demand to facilitate exits  &
  • Ideally, expertise to guide you in and out of the trade

This company has over 30yrs experience within a €18 billion alternative investment niche that’s decoupled from the major asset classes has been traditionally insulated from market movements and economic cycles (including world events like Covid, the 2008 Crisis, the Ukraine Conflict).

It involves sourcing top-tier horses in the EU which do well in the international show jumping events, but have qualities and characteristics that command a premium with the disciplines of the sport in the US.

These are horses which will be worth 2-3x the acquisition cost in under 6 months with a bit of development and marketing to the proper audience. This results in a 50-100% characteristic yield for each 6-month cycle on insured assets.

INDUSTRY BACKGROUND AND COMPANY FOCUS

The market for top-tier jumping horses in the US simply has too little supply for the demand. Northern Europe is recognized as the venue from where the best show jumping horses in the world are acknowledged to originate; however, sourcing them takes a local presence as some of the best horses are gone within hours. It also takes a highly developed eye for talent, especially when repurposing horses across disciplines of the sport, this company’s particular niche.

These are typically stallions with a recognized breeding history, between 4yrs of age, to a fully developed and trained 8-9yr old who is ready for the competition circuit. This endeavor is profitable and has an existing buyer base in the States and 30yrs of relationships on both continents.

Currently trades are about 1-2 per month to end-buyers, but the company has no actual inventory. Last year it did $1.5M in sales. These funds are intended to build up inventory which can be brought directly to US markets.

The marketing channels consist of a buyer network built over 25yrs and longstanding relationships with prominent stables in the US which are happy to facilitate sales or leases. In addition, there is a private Instagram channel with over 1,700 followers.

Marketing activities largely consist of  

a) bringing these horses to show jumping events where buyers come to look for prospective purchases (by scheduled appointment or otherwise);

b) sending them to stables with clients who’ve expressed an interest in a particular horse; or

c) entering them into live auctions.

Business Model:

Acquiring undervalued supply in Europe and selling it into the US market for a premium (or submitting it into lucrative leasing programs).

With this current model, return on sales are typically 50-100% in under 6 months, whereas leasing models can see the right horse lease for the purchase price for multiple years running.

Customer type:

B2C (though some business is conducted through intermediaries or B2B2C).

Preferred investor type:

Angel investor, Venture Capital, Strategische investeerder

USP’s:

  1. CHARACTERISTICALLY HIGH YIELD – Horses are selected for an expected 2-3X return in under six months (for an annualized 200% ROI);
  2. EXCEPTIONALLY STABLE MARKET – A market which wasn’t affected by Covid, the ’08 Global Financial Crisis or the Ukraine Conflict;
  3. MITIGATED RISK OF LOSS – Asset-backed with mature insurance industry to protect against downside;
  4. BOOTS ON THE GROUND – Direct relationships with suppliers in the region where the best show jumping horses are acknowledged to originate;
  5. EXISTING BUYING POOL – Longstanding relationships with the demand side of the market (prominent US stables & buyers cultivated over 25yrs);
  6. DEEP MARKET EXPERTISE – Owned over 100 horses and brokered over 200, with first horse imported from the EU in 1997;
  7. EXCELLENT TRACK RECORD – Have selected horses that have gone to the top of the sport, to Olympic-level events and winning the Maclay Finals;
  8. KEEN EYE FOR MARKET FIT – An intimate understanding of American-oriented disciplines of the sport, giving the capacity to spot when horses are undervalued and arguably misplaced;
  9. EXPERIENCE SPANNING ALL FACETS OF THE SPORT – CEO, has been a sportsman in top international jumping events, has managed stables and has 25yrs as a professional trainer, all offering multifaceted and nuanced insights.

Capital amount needed:

€1.500.000, – (however investments can be made in individual horses or bundles and we manage up to €10.000.000 in horses in this phase – or 40-50 of them)

Investment need:

– 81% horses;

– 8% care & maintenance;

– 7% transport & marketing;

– 4% contingency.

Sector:

Overige, Sporttech

Phase:

Early Growth

Number of founders:

2

Current number of employees:

1-5

Experience:

The first founder has been a sportsman in top international jumping events, a professional trainer for over 25 years, has managed stables, owned over 100 horses, and brokered over 200, many of which have gone to the top of the sport – some to the Olympic-level events and others to win the ASPCA Maclay Finals.

On numerous occasions she has had horses win ‘all their classes’ their first time out, a feat comparable to a rookie making the All-Stars. This background, combined with her keen understanding of American buyer sentiment and needs gives her an attuned eye for recognizing talent and market fit.

This founder has built up relationships throughout Europe and the US for over three decades now, including a close relationship with the vet who works on the US Olympic Team.

The second founder has been involved with multiple startups spanning Cleantech to Tech. His competence lies is in structuring models to leverage existing potentialities to align interests and optimize value.

He has a high degree of respect for co-founder’s abilities and partnered with her to evolve and scale her business model to make better use of her hard-won and natural talents and acquire supply in a more deliberate fashion.

He will be developing the demand side of the market (social, websites) while helping coordinate sales and marketing outlets (like auctions) so as to increase speed and yield of returns. He will also introduce financial protocols which will serve to remove frictions associated with entering and exiting the space.

Monthly turnover:

€100.000,-

Turnover (forecast) next 12 months:

€10.000.000,-

Turnover (forecast) months 13 – 24:

€30.000.000,-

Current monthly expenses:

€10.000,-

Additional information:

This is a profitable business which has largely been conducted on an autonomous basis and self-funded until this juncture.

This evolution was born out of a desire to acquire top-tier supply on a more deliberate basis and to facilitate sales by having physical inventory in hand.

Their offered model has financial partners maintaining control over their capital and holding registered title to the underlying horses and any insurance policies. In this model, a service fee of 25% would be paid out of each project’s net profits, with 75% to the financial partner.

 

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