Payments, peer-to-peer, mobile lead tectonic tech shift
Tech
Tech
Technology is the new resources, says tech expert Kevin O’Hara, Group chief investment officer for Tulla Private Equity Group
How would you explain your job to someone who knows nothing about investing?
I work for an ultimate high-net-worth family and my role is gatekeeper. We get inundated on any given day with people pitching us for investment and my role is to sort through the different opportunities, analyse them, bring them in-house and then serve up to an investment committee anything that I feel is worthy of our interest.
Tulla is one of the most diverse family offices in Australia. We have investment portfolios in mining and resources; services and logistics; technology asset management; health, wellness and lifestyle; and property. My particular focus is technology and asset management.
What is your feeling about the technology sector at the moment?
We are diversifying and shifting capital into the technology sector. As opposed to the 2000 dotcom boom and bust, this is now a tectonic shift. This is literally disrupting the way that people do business. It’s disrupting business models and ultimately, we are getting as involved as we possibly can because technology is the new resources — it’s the new commodities. It’s extremely strong and going from strength to strength.
What technologies do you think will be important in the next 12 months, particularly for emerging companies?
I think there’s a very large push on software-as-a-service adoption at a corporate level now. People are coming to the realisation that they have got to get into the cloud, so cloud-based migration and software as a service will be important. We’re seeing strength in payments, peer-to-peer anything, augmented reality, anything that involves customer engagement or is mobile-focused. Virtual reality is also starting to move, but slowly.
What skills and personality traits make a good portfolio manager or investor?
Someone who has at least some background in the start-up sector, understanding the mindsets of the entrepreneurs. Somebody that doesn’t mind dealing with adversity, because on any given day your portfolio will have any number of challenges and fires to put out. You have to be patient, you have to be understanding. You need to be thorough and rigorous in your approach to getting under the hood of these companies. And I think you need a very solid background in the technology sector and particularly emerging trends. You’ve got to know where things are moving and where your exits are. Where are the likely suitors of any technology investment you’re making.
Which market trend are you following closely, and why?
I like the small cap and micro cap technology sector. We’re starting to see smaller more emerging companies getting on to the ASX and then really driving growth and that’s giving investors the ability to get in at low valuations and take advantage of the growth.
What three things do you look for when investing in a company?
What’s an important lesson you’ve learned when investing in small cap companies?
Make sure you manage cash flow. A lot of the time in small cap companies they will win contracts where they are batting above their weight, and when these contracts come in all of a sudden they need expansion capital quickly. So, you have to keep your eye on where the next big lick of cash is going to come from, at the same time as pushing into the marketing itself. It’s all well and good for a software company to win a major global contract, but if they can’t fund it, then it’s not a good position to be in.
What small cap stock picks are you most proud of?
GetSwift (ASX:GSW), Cann Group (ASX:CAN), Fastbrick Robotics (ASX:FBR)
What’s a common mistake among investors when investing in small cap stocks?
A common mistake is to believe you can measure a business based on the traditional fundamental analysis. In small cap land, sometimes you have to be a bit more speculative. So, there’s a bit more risk down that end of the curve and a lot of the time fundamentals don’t accurately represent the potential of the businesses in the same way they would for larger cap stocks.
Small and micro cap companies often lack earning history. What are the other key financials to study when considering such stocks?
You always want to look at the long-term incentive scheme associated with the directors because a lot of the time they can’t provide forecasts. If you look at what the directors have tied their own future to, that allows you to take a quasi forecast out of the business. If the directors are saying they will bet their shares and incentive scheme on doubling, tripling, quadrupling the revenue, then you can reasonably assume that they’re somewhat comfortable in doing that. And you want to look at current market participants and where the unique value proposition is. What is it this company has that others don’t?
Is there a book, movie or TV show you’re particularly passionate about at the moment?
Rich Dad Poor Dad [by Robert Kiyosaki]. It just provides a really fascinating insight into the mindset of somebody that’s out to make money. You have to look at things differently, you’ve got to take risk.
Kevin O’Hara and Tulla owns shares in Cann Group.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.