[RWS #717] Investor Tips from The Founder of Topgolf

Picture of Golf Clubs for Real Wealth Show Podcast Episode #717

I’m not a very good golfer, and I’m even worse at Topgolf because there’s an audience and alcohol involved. But I am excited to introduce today’s guest, who came up with the wild idea of turning a high rise bar into a driving range. It’s the epitome of cool, and has been quite a success.

This interview was done live at Singularity University’s Global Summit in San Francisco last month. You may have heard about Singularity through its famous founders, Peter Diamandis and Ray Kurzweil. SU is located in the Silicon Valley and it’s not only a business incubator, it’s a global community that uses cutting edge “exponential” technologies to tackle the world’s biggest challenges.

I am happy to have as our guest today the Executive Chairman of Singularity University, Erik Anderson. Erik is the Founder and Chief Executive Officer of WestRiver Group (WRG) since 2002. WRG is a collaboration of leading investment firms providing integrated capital solutions to the global innovation economy.  Anderson is also the Executive Chairman of Topgolf Entertainment Group, a global sports entertainment company. In this role, he has received numerous honors, including the Ernst & Young Entrepreneur of the Year Award.  In 2018 and 2017 he was honored by Goldman Sachs as one of their Top 100 Most Intriguing Entrepreneurs. In 2018 he was ranked by Golf Inc. as the No. 3 most powerful person in the golf industry after being ranked No. 8 the previous year.

Anderson is Vice-Chairman of ONEHOPE, a cause-centric consumer brand and technology company, most commonly known for their award-winning wine and world-class vineyard in Napa, Calif. Additionally, Anderson is the founder of America’s Foundation for Chess, currently serving 160,000 children in the United States with its First Move curriculum.  

Podcast Transcript

Kathy: Erik, welcome to the Real Wealth Show.

Erik: Thank you. It’s great to be here.

Kathy: I see you were named as one of Goldman Sachs Top 100 Most Intriguing Entrepreneurs.

Erik: Yes, that’s true. For two years, I guess.

Kathy: Two years in a row? Me too. I won that award in 2012 and 2013 for the work we were doing after the housing crisis because we were going into neighborhoods that were just lined with foreclosures and we were encouraging investors to go in and buy them and fix them up and make those neighborhoods safe again.

Erik: Oh, great.

Kathy: What a party. I wish I could go back.

Erik: It was a good party.

Kathy: Tell me your involvement with Singularity University.

Erik: I’m the executive chairman. My investment group, we’re also the largest investor in Singularity so we’re working with them both to capitalize the company, but I work with the leadership team and Ray and Peter and the board to move the company forward.

Kathy: So exciting. What are the breakthrough technologies you’re most excited about today? I know that’s a hard question.

Erik: I’m very focused on AI. That’s not probably a surprising answer either but we’re really just learning about how man and machine and computers in that regard are going to really work together. What I’m hoping is that we learn from the social media experience that we have to think more deeply about what the consequences or unintended consequences of this is because there’s many great parts to it. We’re all connected but then how do you make sure there’s good information, “good”. I hope we learn from that, that we’re really looking at AI, that we appreciate what’s good but we really try to think deeply about how to minimize negative consequences.

Kathy: Minimizing the negative. That sounds like a tall order. How do you even begin to control that?

Erik: I don’t know how to control. It’s hard for governments to decide around the world, let alone our government, all of them to figure this out. Hopefully, we’ll just think deeply and be thoughtful. It’s going to happen. We’re not going to stop the development of the technology. Nothing has stopped the development of technology in history. Not famine, not wars. It inexorably proceeds but I think we can do better about thinking about it.

Kathy: Sure. Now you’re the CEO of Topgolf?

Erik: Executive chairman. I have been the CEO, right now I’m the executive chairman of Topgolf.

Kathy: What an interesting contrast as something so fun, and then talking about robots that could control the world.

Erik: Yes. I guess that was just my personal journey. I had an investment company that focuses on global innovation, and Topgolf was a form of innovation on the scene of sport and we decided to keep investing that and not sell it so I ended up being active in that for a long time, building that. Then we kept building our innovation investment platform and that led us to Singularity. I think the common theme there is a real focus on innovation.

Kathy: We have thousands of investors who listen to this show. Many of them invest in real estate as a safe place potentially to put their money. Do any of your organizations also make real estate a part of the investment? Does Topgolf own its properties?

Erik: Maybe we own one or two. In general, we have leased them, and then work with the refinancing vehicles. Your audience probably maybe invest in REITs that are investing in Topgolf. Our general strategy around real estate at Topgolf has been to to lease the properties.

Kathy: Interesting. Again, we have lots of investors listening, most of them in the Silicon Valley. It’s been an interesting development where companies can be worth billions of dollars but have no profit. What would you say would be the most important things for investors to look for today when the fundamentals are changing so much or maybe not even there?

Erik: I think there’s a few elements that I would look at. One is, to start at the top, is it a large audience? Who’s the customer base? My view is the most defensible long-term asset is a direct to consumer company. The most valuable companies in the world, Facebook, Amazon, Google, they’re all direct to the consumer. The consumer is not going away. You and I aren’t going away. The fact having the relationship. Now, how we get it, whether we go to the store at Nordstrom’s or whether someone brings it to us in a drone, that’s a decision for us but that connection, I think that’s an enduring asset.

I think that’s one of the most important things. The other element would be, are there actually margins in the business? If it’s not making money but it’s making money at the unit economic level, then that’s really another very important thing. I think another really good test is to look at how much cash is used and how much cash has been used. How much revenue did it create?

Now, these are not traditional EBITDA near term return on capital ideas but you can get a sense of if they’re creating a lot of revenue and that revenue is creating margin and it’s not using that much cash, then either at some point in time, those will probably cross or that would be a very attractive acquisition candidate for a company that has scale because they have all the infrastructure. It doesn’t take a lot of cash to generate the revenues and they’d have gross margins. You have to look around the income statement stack and then understand how the balance sheet interacts with them.

Kathy: Interesting. We are actually building a wine village in Shasta.

Erik: [unintelligible]

Kathy: Really? That was the idea was to have it be direct to consumer.

Erik: That’s pretty exciting. It sounds like the wine village is trying to create like a mini Napa Valley with maybe some different wine tasting capabilities. Is that what you’re doing?

Kathy: Yes, the idea was that there’s so many great wineries that are not in Napa.

Erik: There are?

Kathy: There’s a couple but hidden in the hills that no one will ever go to. They have to go through a distributor who takes a lot. We thought this was on the way to Shasta and it still is on the way to Shasta. It’s right off the freeway but then, the fires burned a lot of things in that area so we’re a little delayed on the project. That was the idea that these really good wineries that are hidden, people can come and taste them all in one place.

Erik: Yes, that’s great. That creates that experience. That’s what Topgolf is. It’s an experiential economy so when you figure out a way with whatever idea, that sounds like a great one, where you create an experience and that’s an important investment theme as well.

Kathy: Now, one of the things I always wondered about Topgolf was how you combine alcohol with swinging metal clubs. I always wondered that because there’s no barrier. How do you get insurance for something like that or how do you get financing?

Erik: It’s not as dangerous as skiing.

Safety is first at Topgolf. It’s actually quite carefully designed with spills or tumbles in mind. While there’s no barrier, there’s a net out in front that should catch you should you unfortunately, do that. We have the lines pretty well marked that if they’re swinging here, you should stand here, don’t get too close but when we have tens of millions of visitors [unintelligible] large numbers, somebody does something.

Kathy: For sure. Love Topgolf though, even though I’m really, really bad at it. Back to real estate. Again, our investors look at real estate as a place that generates cash flow, you can’t create more of it supposedly but now I’m wondering, after hearing everything today, maybe you can create more land, maybe we’re actually going to be developing on other planets. Where would you say, given where we are in the recession, how can investors still invest in the future while protecting their wealth?

Erik: Oh, boy. I think a lot about this even from my own personal balance sheet. Maybe I’ll tell you how I’ve thought about it and maybe that’ll be interesting for people. I think you have to realize that the safest place to be is probably in the innovation economy because that’s where the only real growth is. It doesn’t mean it will always go up and it doesn’t mean if you buy now, might not go down somewhere but I think even Warren Buffett the other day said that Amazon is a value company, is a value investment. That’s quite an amazing statement for someone like Warren Buffet who invested in Coca Cola, for example.

I think you have to have exposure to the global innovation economy. Now, there’s a lot of ways to do that. You can go do Tesla or you can look into companies that are really spending a lot of time in innovation. Some of those have nice cash on cash embedded yields. Disney does some interesting — Comcast, you can look at these companies and say, “I think embedded in that they’re making money, they’re just investing it.” I think you have to have exposure to the global innovation economy.

I use a barbell after that myself as I said, “Okay, if I’m there then what are areas which I think are defensible sectors that you can deal with?’ It’s always hard to be a diversified portfolio. My good colleague Gary Brinson who led a lot of that work. It’s hard to be a low fee diversified portfolio. Risk is a hard thing to define all the time. It’s over what time period what are you trying to risk? What risks aren’t you going to take? Because you always take some risks.

Kathy: Yes. I know a lot of our listeners are also young. We’ve got some millennials who are just getting started in life. How did you get started, and what would you say would be some sage advice to people who come to something like Singularity University and really want to make a difference?

Erik: Well, I was pretty patient in a way early on, so I worked with some really good companies, what I might call good brands with Goldman Sachs, Booz Allen, different places where I learned, I think, some good principals and learn from some good people. One strategy is, are you around some brands that you think you’re going to get some good practice and some good early fundamentals?

Then, I think I just believe in keeping a pretty low cost structure, which is don’t overbuy either cars or houses because then you can actually invest your time either in startups or in your own career or spending time working on a company in your garage. Balance your cost structure. The other thing I did early on, which was my best investment is when I was very young, like early twenties, if I could get it done for $20 an hour, then I had somebody else do it. So, I got all my time back.

If you thought about the compounding effect of if you were to get, maybe that took you three or five hours a week to do all of your grass, bills, laundry, grocery shopping, pick a number. If you do that all the time in a year, you get 250 hours. That actually turns out to be like six weeks of extra time, which is an amazing amount of time.

If you do that for 30 years, you get 180 weeks, you get three years. My number one investment was, keep a low-cost structure, and then anything I didn’t want to do — If you like doing dishes, because I was pretty sure that since everybody does dishes it was the most fun thing to do in the world – but if you didn’t like to do it, pay somebody else to do it and you get all your time back. That made a huge difference for me.

Kathy: Especially if that person’s better at it than you. I’m a terrible house cleaner.

Erik: All right. Yes, just all of that. Yes.

Kathy: Yes. That’s what I tell a lot of people starting out. Give away the thing that you’re just not good at and don’t like to do. I was terrible at bookkeeping as well and that was a game-changer for us starting our business. Wonderful. All right. Well, any last suggestions? Do you invest in real estate?

Erik: Sure. Yes, I look at real estate. That hasn’t been my primary point because my own strategy, which fits my own risk appetite was. I was very long global innovation, and then I had a view that utilities, I still think utilities are a great investment in a low interest rate environment because the regulatory environment, it doesn’t push the cost to capital down low enough. There’s actually a real return, I think, in the utility market.

Kathy: Even today after all the fires in California?

Erik: I didn’t say buy in California. You told me that. [laughter]

Kathy: Maybe it is a good buy time with it being low. Who knows? All right. Well, thank you so much for taking the time to share your wisdom with us.

Erik: That was great. Thank you, enjoyed it.

Kathy: Thank you for joining me here on the Real Wealth Show.

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