TRENDLINES GROUP: How we review our portfolio, identify exit candidates

The following insights came from Trendlines Group Co-Chairman Steve Rhodes during a 2Q16 earnings conference call yesterday.

"... we want to use each quarterly conference call as an opportunity to give you a look into a different aspect of The Trendlines Group and how we run the business.  This quarter we will be looking at our portfolio review process, particularly as regards identifying potential exit candidates and working with them to increase the likelihood of an exit.

"The end result of the review is a list of companies that we have identified as being exit candidates over the next two years. The purpose of this exercise is to develop a plan for each company as to what steps need to be taken in the near-term in order to increase the likelihood of an exit actually occurring over the 24-month period." -- Steve Rhodes (photo), Co-Chairman and Co-CEO of Trendlines Group. (NextInsight file photo)

"Once a month, we meet and review the status of every portfolio company. This review looks at every aspect of the portfolio company, including R&D status, business development status, patent issues, and financial issues. A strong emphasis is placed on identifying any problems or challenges within the portfolio company and assigning responsibility for addressing these problems.

"At the end of each discussion, we assign a three-tier risk rating to each company, primarily for the purpose of identifying those where we need to place particular attention in the coming month. Participants in the project review meeting typically include the incubator manager, our two Chairmen, our CFO, our COO, and – from the incubator, its VP Business Development, CTO, VP New Investments, controller, operations manager, and business development consultant.

"On a quarterly basis, we expand the company review to also identify which companies could be exit candidates in the coming 24-month period. In identifying exit candidates, we typically look for a number of factors:

• Product development is in an advanced stage or has been completed altogether.
• Meaningful real-world demonstration of the product’s efficacy in clinical trials or field trials.
• A strong IP position.
• Often, we also look for a company which has begun or will initiate sales in the near term.

"The end result of the review is a list of companies that we have identified as being exit candidates over the next two years. The purpose of this exercise is to develop a plan for each company as to what steps need to be taken in the near-term in order to increase the likelihood of an exit actually occurring over the 24-month period.

"Ultimately, based on this review, we may also recommend to a portfolio company that it should engage an investment banker to manage an exit process. Although the timing of exits is unpredictable and not within our control, we believe that it is important to take a proactive approach to exits and to define as clear a path as is practical and possible."

For information on the 2Q16 results, see Trendlines' powerpoint material.