February 13, 2020—Listen to Special guest Steve Feick, Vice President of Special Projects at the Mancal Corporation and President of Mancal Coal. Mancal is one of the most successful private companies in Western Canada and is involved in industries including oil and gas exploration, mineral exploration, construction, real estate development, and venture capital and merchant banking. Today we’ll cover:

-Steve’s capital allocation strategy

-Top investment opportunities in today’s environment

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Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by accelerate financial technologies. Accelerate because performance matters. Find out more at www.Accelerateshares.Com.

Julian Klymochko: Welcome investors. We have a special episode of The Absolute Return Podcast today with one of our Leadership Chats. Our special guest on today’s episode is Steve Feick, who is vice president of special projects at the Mancal Corporation and president of Mancal Coal. Now Mancal is one of the most successful private companies in Western Canada tracing its roots back over 100 years. Mancal is involved in many industries including coal mining oil and gas exploration, oil and gas transportation, mineral exploration and mining building construction, import, export, real estate development, railway maintenance as well as venture capital and merchant banking. Our conversation today focuses on Steve’s capital allocation process and where he views investment opportunities in today’s environment. We hope you enjoy our chat with Steve Feick, the investor operator.

Julian Klymochko: All right, and we are live here with Steve Feick of Mancal, which is one of the largest private companies in Canada with a really diverse range of business interests. Now what Steve does? He wears a number of hats. He works on corporate ventures, private equity, growth equity and all sorts of different businesses. So he is here to talk about various capital allocation, how he views investment opportunities, valuations, natural resource investing, AgTech and a whole number of different potential investment opportunities.

So to start off, you have quite a diverse role from investing to start-ups, growth equity, bio, natural resources, various technology, agricultural ventures. Why don’t you tell us a bit about your background.

Steve Feick: Yeah, sure. I mean, my background is largely operational. I went through a couple of start-up companies before ultimately growing one over the course about 13 years. We were in the manufacturing distribution, in the sporting goods business. My background is largely from an operational perspective. Certainly when you grow a business from zero, you learn everything from sweeping the floors to managing finance to managing people. So that’s largely my background by training a chemical engineer, but I’m really focused more on business since I finished.

Julian Klymochko: How does being an operator, like you said, with management experience and picking up all those different roles in terms of operating a business, how does that impact your investing style and how you approach various investment opportunities?

Steve Feick: Yeah, I think the one thing that helps you understand is at the end of the day, somebody needs to turn the screw is the expression I like to use. It is great to look at spreadsheets. It is great to be able to understand some of what we say, key indicators that you might drive out of a financial statement. But at the end of the day, really being able to connect with a management team, to be able to understand what they physically need to do to create value in a business is a really important thing. When we look at private capital investing, where we do have a strong touch with the management team. Not to suggest that we are directing a business, but to be able to converse with them, help them on strategic decisions by understanding the end of the day when we leave and go and look at another investment that business needs to go and execute on that. So being able to support, facilitate and bring strategic guidance to that, I think having an operational background and recognizing that operational pieces is a really important component.

Julian Klymochko: So it sounds like you are fairly actively involved in the companies that you invest in.

Steve Feick: Yeah, and that’s when I will be clear in our intention is not to be active, but only to the extent that management team seeks input guidance.  We think being able to understand is the first step to developing that deep connection with the management team. But not necessarily to roll up our sleeves and medal in a vision that they have.

Michael Kesslering: As well, could you go into a little bit about your strategy in terms of investing? So I guess comparing notes, typical VC investing in start-ups, to kind of what you execute on.

Steve Feick: Yeah, I mean, for us when we look at investing, I think a couple of things. We look for some broader industries that we think have really strong fundamentals. And when I talk about that kind of leads us to the agricultural space and where we’ve been in agricultural technology. You know, I think when we look at today’s population, seven point six billion people on the earth and, you know, pretty good consensus around that driving too close to 10 billion by the time we hit 2050 outside of some dramatic effect happening. That is a pretty hard number, so that leads us to a thesis that we need to be more efficient if we’re going to be able to feed that population. So we don’t worry about as much what the overall industry is doing, then we can worry about specific companies within that as opposed to wondering, is this an industry that’s going to be disrupted by something else? So that is kind of our first step. And then the next phase, when we start to look at technology in that space, we’re pretty clear that we’re not a start-up investor so much as we look for businesses that are emerging phase. We think that is a good spot for us in a place that we can bring good value to businesses that we invest in when they are on the emerging phase. We like to think that they’ve got a product in hand, that they have a customer to, not that this is a cash flow positive business, but it’s emerging and this is their first formal equity that they might bring in. Beyond friends, family, seed, capital. And that’s where we think we can bring some really good assistance and partnership to a business at that stage of the of the space.

Julian Klymochko: And what would be your general approach to private capital investing? Is it more thematic? You mentioned this notion of population growth, Agtech, etc. or is it more so bet on the jockey, strong management team? This guy’s done well in the past or as a combination of both?

Steve Feick: I say it is a combination of both. I mean that broader piece is what leads us to certain sectors that are of interest for us. But at the end of the day, you’ve hit on a really critical component as you can get really enthused about a product or a certain component of the business. But at the end of the day, it is a management team and that is ultimately what we are partnering with is strong management teams. You know, one of the themes we talk about amongst our shop is, you know, we can look at forecasts, but nobody knows the future. And really what we’re looking at is how is this management team going to adapt and overcome different changes that are going to happen in the market. That is the winning combination.

Michael Kesslering: When you say, you know, looking at the forecasts and what not. How do you, I guess, evaluate for your portfolio companies how the management team is executing?

Steve Feick: I mean, at the end of the day, we want to see that they are creating value. And value creation we see is, you know, are they are they able to scale the business from a revenue perspective, but are they driving to a business that is also profitable? When we look at a forecast, there is certain key indicators that they might be driving towards, but the path might be a little bit more circuitous to get there. So but as long as they are building in that direction, we think they are creating value in that business. So say taking some market share from a revenue perspective and being profitable or driving towards profitability in an emerging phase business.

Michael Kesslering: And taking it through. It is kind of the life cycle of a typical investment. If there is a typical investment with your firm, how do you look at exit? Do you look at holding forever or is there kind of a somewhat of a defined exit?

Julian Klymochko: And is this a key differentiator between a standard VC or private equity growth fund?

Steve Feick: Yeah, I think that is definitely differentiator for us. We don’t think of timelines, we think that we bring what we would call patient capital, but I’m always very quick to clarify that doesn’t mean complaisant capital. And when we get into an investment, we think about what the exit opportunities may be in the future. But what’s different about us is as long as that business is continuing to create value, we may be there for a very long time. If that fits for that particular investment so we don’t go in with a typical VC fund, you know, time horizon or PE Fund, time horizon thinking, hey, we’re going to be out in the next five to seven years. We think that as long as this business is growing, as long as it is continuing to create value, we might be there longer. Although quite frankly, if there is a greater exit opportunity for the business, and that is the best future for that business and the management team has been aligned with that, then we will certainly capitalize on an exit opportunity.

Julian Klymochko: And from a general perspective, where are you seeing opportunities to be – themes, geography’s sectors, etc.?

Steve Feick: Yeah, I mean, I touched on one certainly, the agricultural sector is one that is big for us. You know, people think about autonomous driving vehicles and there is a lot of other more exciting areas to think about that when it comes to automobiles. We think about tractors, we think about, you know, more efficiencies in the field and we see those things, you know, seemingly roll out sooner, so agriculture is certainly one.

I would say the other one is on financial technology, financial transactions. You know, things have continued to accelerate the number of transactions that are occurring. And we’ve seen, you know, even banks, big banks. You think about is more stagnant beasts that are investing in financial technology components, we see that as a broad theme that is continuing to grow and we like that sector. You know, the other one is the Internet of Things. You know, the ability for remote censoring, remote capabilities. We think that is another sector that is continuing to grow. You know, areas where we don’t see people moving back to paper for cash transactions, and same thing with Internet of Things. We see that people are continuing to move to remote censoring. How can we more effectively monitor things, whether it is in the field from an industrial application perspective or pieces of infrastructure, how they can be monitored? So those are three key areas. I think that we see opportunity in, you know, and geographically, you know, for us, we continue to look at geographies outside of where we are here in in Calgary. But we’re seeing a tremendous number of great entrepreneurs that have been pivoting from their traditional spaces in an energy, and these are smart people that have now perhaps some freedom to explore the development of new businesses. And so along the theme of we’re always looking for good management teams as a critical part. You know, we continue to see opportunities right here in our backyard.

Julian Klymochko: There is certainly a lot of talent to that seems to have left the oil and gas sector and gone on to find a lot of different opportunities out there. The other interesting thing you mentioned is in terms of financial technology, they say that data is the new oil and that is really kind of a new, seemingly unlimited resource that can be harvested quite profitably. But that being said, there’s this distinction between private markets and public markets. How would you compare the two markets? Is there a difference in valuations as is one more inefficient than the other? How do you view the difference between the two?

Steve Feick: Yeah, I mean, I wouldn’t characterize myself as a as a public market guy, but I would certainly look and see that, you know, you see perhaps a little bit more noise in the public markets where people react and can react because of the market. Call it efficiency that they can react almost instantaneously, whereas then in the private markets, those are perhaps a little bit slower, but that might mean from my perspective that it lands in much more critical evaluation than it does in noise. We certainly see differences in valuation for sure. I think in the public sector, or in the private capital investment space, you certainly see those that see an idea and attach a very high valuation to it. But I think most are more pragmatic and you’d see lower valuations in the private market, at least in the early stages, and it’s not till they move on to more mature businesses that you start to see them compete with public market valuations.

Julian Klymochko: Interesting, and because we are kind of in the heart of the oil patch in Canada. What do you think of natural resource investing on a go forward basis, especially with there’s a lot of talk on ESG. The government is looking to get carbon neutral. A lot of different policies coming down from a regulatory perspective and really a lot of attitudes in the market changing whether that cyclical or secular, who really knows. But how do you think that industry will develop on a go forward basis?

Steve Feick: Yeah, I mean, that sector is certainly being burdened by additional costs associated with exactly as you have described, ESG regulation, etc. And some of those things are positive steps are needed to ensure responsible development, but perhaps this harkens back to my background when I think about something as a manufacturing business. I think when I look at the natural resource sector; it is perhaps being driven today to understanding it more. Is that manufacturing business, you need to find low cost reserves or low cost resource that you’re going to be able to develop effectively, which is your manufacturing piece. And you need to do that in the context of meeting, you know, ESG standards that have continued to evolve and regulation. So I think there is certainly a deeper dive, at least in my view, where you need to understand those pieces and think, is this business competitive to produce that product into this market from a cost perspective. No longer, I think are we going to see these commodity price swings that can make what are perhaps inefficient resources or inefficient areas of the resources cost effective.

Julian Klymochko: That is interesting because you look at something like the natural gas business and obviously the lowest cost producer wins. But you know, if you have prices sub two dollars, it seems like no one is winning in that business. So it’s certainly a tough out there, just the cyclicality of it all, and it seems like we’re in a real deep cycle here in the energy space. But on to, you know, these kind of newer opportunities.

What advice do you have for managements of, say, you know, growth equity business that would perhaps be looking for investors or entrepreneurs, CEOs that, you know, what sort of wisdom do you have from your investing and operating experience?

Steve Feick: Yeah, I think, you know, an important piece for them is to, you know, find somebody that can help them in areas that they may not have the expertise. I think it is important to recognize we all have our strengths and weaknesses. And so I think as an entrepreneur starts out and whether they bring a research component or they’ve developed a new product, they’re a very good inventor that surrounding themselves, whether it’s with a formal management team at the time. But that may not be appropriate, so it’s finding other advisors that might be able to give them some help on the business side so that they’re developing and advancing all parts of their business.

And I think that’s the first phase. And as they start to look at bringing in equity, I think this is something that entrepreneurs, business owners, you know, CEOs of emerging business have already started to realize is that partnering with good capital is important. Gone are the days, I will take any money I can get. I think there is money out there and make sure that they partner with the right capital to allow them continue on that. To execute that plan that they have is another piece of advice I would give them.

Julian Klymochko: And what would be some attributes of that so-called good capital like what would those investors bring to the table in order to help the business grow and become successful?

Steve Feick: Yeah, part of it depends on what the business is looking for. You know, if a business is looking for a connection to a certain space, they might look for an investor that can bring that connection to them. If it is an operational piece, then they might want to bring in an investor that brings an operational component that can help them advice on how might be scaling or growing that part of the business. I think it really depends on the business, but I think looking for more than just the, capital is an important piece.

Michael Kesslering: And a little bit further to that. When you talk about a little bit of value, add on the investor side, how do you look at different relationships perhaps that you can, you know, harness between your portfolio companies? Is that something that you look at? Perhaps synergies amongst different areas in your portfolio companies?

Steve Feick: Yeah, very good question. I think that is certainly something that a lot of VC funds talk about is, you know, they are developing a portfolio of businesses and it is great if they can be synergistic or find ways that they can augment or add value to each other. That is not something that we would necessarily seek out. If an opportunity is there, then we are glad to make that connection if it is appropriate, but because we probably have a greater diversity. We are not focused solely on Agtech. We are not focused solely in one segment, so we perhaps don’t have as much of that, but we do think that our diversity also brings different perspectives that might be beneficial to some of those businesses. But businesses but no, we don’t try and drive that in our portfolio.

Julian Klymochko: Interesting. One thing that I wanted to touch on, you know, prior to this podcast coming to an end is, you know, where do you get educated? What do you learn from? Do you like reading books? You have a mentor? You know, what sort of channels do you pay attention to? Are you reading anything interesting as of late?

Steve Feick: Yeah. I try and talk to as many people as I can. You know, I think there is a lot of people that if you can chat with them, if you can make that connection, can bring a lot of different expertise and advice. So certainly I read a lot that way, I should not say a lot.

I think there is a lot of people that read quite a bit, but certainly trying to keep up to speed on news and recent events is important and, you know, do a lot of research in that regard. But I think the other part is speaking to a lot of knowledgeable and interesting people is a part that I spend a lot of time on.

Julian Klymochko: And if you boil it down just to one kind of general theme, what would you say would be the key to your success in business thus far?

Steve Feick: Yeah, I have been fortunate to work with a lot of great people. And, you know, I think early on. And one of my businesses, I had the fortunate benefit of having two great mentors at the time, one from an operational and business development side, but one from a governance perspective. Having the benefit of working with them early on, one is an investor and one as a colleague was certainly instrumental in my career.

Julian Klymochko: Great. Well, I always give podcast guests the ability to allow people to find out how they can learn more about you. Obviously, I know you are highly private and work for a very private company. So that opportunity is there, if you would like to utilize it, not much online about you. And I don’t think you have a Twitter account, do you?

Steve Feick: I do not know.

Julian Klymochko: Okay, Great. Well, there you have it, folks Steve Feick. Operator, investor and a lot of great business wisdom and advice for you. So thank you so much, Steve, for your time today.

Michael Kesslering: Great.

Steve Feick: Thanks, guys.

Julian Klymochko: All right. Cheers.

Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.


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