Alice P. Neuhauser | From Seismic Capital Company

How can you participate in the growth offered by early-stage start-ups? The disruptive enterprises that are seeking to change the future. Venture capital used to be the exclusive domain of the very wealthy, but here's a look at a company that's bringing this sector into the reach of all.

Alice P. Neuhauser is Seismic Capital Company’s Chief Financial Officer and Treasurer. Since May 2017, Neuhauser has served as President of Gramarye Media, Inc., helping to develop the business model and business plan for the start-up IP incubator. From 2002 to 2018, she served as the Responsible Officer and Manager of The Kushner-Locke Company and was responsible for all financial and operational functions for the company through its bankruptcy and post-restructuring.

Seismic Capital Company is an early-stage growth investor committed to identifying, guiding, and nurturing companies seeking to meaningfully disrupt the space in which they work. With a patient capital approach to investing, Seismic provides a unique and collaborative approach to helping businesses achieve success on their own timelines.

The Seismic leadership team brings decades of business experience—in finance, technology, leadership, mentoring, marketing, sales, HR, and more—which allows it to guide and nurture its portfolio companies. The extended advisory board— featuring a suite of professionals from various industries and disciplines—builds on this expertise, creating an extensive network of knowledge for mentorship and support.

Seismic’s ability to lean on a deep bench of business knowledge provides a customized mentorship team for each portfolio company to leverage. Seismic’s investments look to support impactful companies who focus on developing technology, building products, and acquiring customers while enabling, guiding, and accelerating them within the laser-focused categories across digital, emerging technology, sustainability, education, and more.

Each investment will look to back companies who comply with the highest standards of integrity and accountability to promote and protect the environment and our communities. Through a democratized capital structure, Seismic opens the door to investors of all ages, income levels, and wealth.

TRANSCRIPT FOLLOWS AFTER THIS BRIEF MESSAGE

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EPISODE TRANSCRIPT

Alice P Neuhauser is the chief financial officer and treasurer of Seismic Capital. Seismic Capital company is an early-stage growth investor committed to identifying, guiding, and nurturing, more importantly, nurturing companies seeking to meaningfully disrupt the space in which they work. So, Alice, Tell us a bit about your background.

Alice (1m 20s):
Well, it might be a little different from your typical guest. Oddly three of the four founders of the company, we all were, for whatever reason, intending to become lawyers. And three of the four of us didn't, the fourth actually is a lawyer. So, I ended up spending a couple of years working as a paralegal in a law firm to see what I thought about that and wasn't too keen on it. The one thing I sort of did take away was that the lawyers were the ones who did evaluations and gave you all of these different options, but it was the client who got to make the decisions. And I kind of liked that piece.

Phil (1m 55s):
No responsibility.

Alice (1m 57s):
Well, I liked the getting to make the decision part of it really.

Phil (2m 0s):
Oh ok, yeah.

Alice (2m 2s):
Yeah. Where instead of just passing it off to somebody, do all that work and then say, "Okay, now it's up to you" I like the idea of really being able to take responsibility for how you're going to proceed. So, I actually moved out to California to try to get into the entertainment industry and ended up finding my way into working for large production companies that needed financing and so I became very involved in film financing. And ultimately decided that I enjoyed what I was doing, but I didn't think that I had a proper foundation for it. So, I ended up going to get my MBA while I was working and really was just looking for filling in the blanks.

Alice (2m 44s):
Since I wasn't going to be a lawyer anymore, I needed to, I felt, I had more understanding about what it was I was doing. And so, I ended up spending a number of years doing that. A company that I was working for ultimately filed for bankruptcy and I was asked to stay on and run the company through the bankruptcy and post-bankruptcy, which undoubtedly sounds like a dead-end job, but actually ended up being enormously useful for me. I ended up getting a lot of transactions that he was able to be involved in and it also gave me the opportunity to explore things on my own. And so one of the things I ended up doing while I was doing that was developing and building the first ground up film and television studio complex in the Los Angeles area in seventy-five years.

Alice (3m 31s):
And ultimately that really kicked off the current global production facilities and services businesses that, you know, I think people even outside of the film industry at this point are fully aware of because they become such an integral part of how people want to drive business into their local areas. And so funnily enough as well, that bankruptcy experience took me into other distress companies that various lenders asked me to come into either liquidate or try to turn around. And that also became an enormously useful learning experience for me because I got to identify where a lot of problems might crop up in businesses. And to really have that understanding of how to be forward looking to anticipate what kinds of problems, whether it's cashflow or otherwise, you might run into.

Alice (4m 18s):
So, it ended up being, I think, a very useful case study for how you want to run your business as opposed to how you don't want to run your business. And then ultimately, I ended up partnering with my partners on Seismic and started a brand-new venture, trying to do things a little bit different from everyone else. I mean, just shaking up this part of the business, as well as looking for companies that shake up the businesses.

Phil (4m 42s):
Is your experience in film financing, something that you can carry forward to venture capital start-ups? Because it's something about films as well, you never know what you're going to end up with financially. You know, some films are going to be incredibly successful and other films they're not going to be successful at all. Did you bring any of that experience forward to the venture capital space?

Alice (5m 3s):
Yeah, that's interesting, nobody's ever pointed that out before and I think you're correct. And it goes to both the idea that you don't know what it is and you're taking a flyer, but it's also all of the pieces that underlie that, which is understanding that you have lots of different parties who are involved in things and finding a way of planning your way through that. And likewise, I ended up deciding that for somebody like me, who I don't consider very creative, my creativity comes about when there are hurdles or roadblocks and trying to find ways to work your way around. So just as we would run into that on the film, finance and production and delivery side of things, it's the same for these start-up companies where you don't know what are going to be the obstacles you're going to come across.

Alice (5m 51s):
And it's how you deal with them. And kind of a willingness to find that as a useful challenge, instead of getting scared or throwing your hands up or saying, I guess we're done.

Phil (6m 2s):
And it's dealing with creative people again as well, really in this space, isn't it?

Alice (6m 5s):
It is. You're, you're right about that as well. Hopefully there's also a business component that founders have that they can bring along with them, but as well, no, that isn't always the case. And that's why you need to have a good support system behind you.

Phil (6m 18s):
What is venture capital and how has it been changing? And I guess just to give us a bit of a background on this as venture capital is a space that only incredibly wealthy, sophisticated investors up until now have had access to. So how are you seeing it, this space and how it's changing and especially on the financing side.

Alice (6m 37s):
It's a really interesting question. And I guess just, you know, for people who are listening, who might not have an idea that this is private equity essentially, right? So it's not debt, it's somebody who you're going to actually invest your cash into their company. Cause it's you think it will be interesting or worthwhile or whatever it is. And as you mentioned, the problem has been that most venture capital companies are funds. And so there are limited number of investors that they can have in their fund. And as a result, in order to have enough capital to be worthwhile, you need to have those investors come in with pretty large capital infusions. So it, by definition limits the number of people who have access because they have to have a lot of capital as they can invest.

Alice (7m 24s):
And they also have to, especially in those cases, they have to be investors who are accredited. And that means that they have to meet certain benchmarks of either income or wealth. And again, for somebody particularly somebody who's younger, unless they've inherited some money or had some other lucky success, you just don't have that ability to meet those benchmarks. And so therefore even if they were available on an open basis, you still couldn't qualify to get in. And I would say somewhat as a result of that, I think that venture capital has generated a bit of a bad reputation thinking of it as vulture capital. And likewise it is highly risky, but you know, it really is dependent on who are the people involved, just like any other venture that you get into, right?

Alice (8m 11s):
How responsible are they? What are their objectives? How are they going to meet them? But I think the thing that has been the biggest game changer is really looking at that concept of risk and you know, how risky is it compared to other asset classes? And I think that a lot of that disconnect has come from the belief that venture capital is really just the seed capital as opposed to various kinds of early stage investing. So you're at that point at which it is the highest risk point. And so I think as a result has gotten a bit of a negative reputation that it hasn't earned

Phil (8m 49s):
At what stage are the companies that you're looking at? Are they right at that seed capital stage or are they already generating revenue or is it a combination of birth?

Alice (8m 58s):
Yeah, it tends to be a bit of a combination of both. We're looking for a product and generally a client as well. So that doesn't mean that they have to be generating any kind of substantial revenue that they need to have moved past the place where they just have a great idea. And that was really an important part in how we were developing all of this. When we were first looking into this, we commissioned a study of over 35,000 start-ups and we're really looking for those critical reasons for failure. And it had to do with a lack of a business model and an inability to attract customers, which again is because you don't have the product and you don't have a customer yet.

Alice (9m 40s):
And related to that, not having enough start-up capital. And so then, you know, you're distracted and looking around to try to get enough money so that you can maybe then move forward with creating your product and acquiring the customers. And it just becomes a bit of a death spiral. So we come in after that, we still like to be early stage so that we can both provide the financing, but also the, as you were mentioning the support systems that we can help to put in place to give people a better opportunity for success.

Phil (10m 9s):
So let's go through the criteria for Seismic's investment in these companies, you've got pretty strict criteria, don't you?

Alice (10m 21s):
Well, we do, as I said, we, we sort of have a product to the customer. We have a full due diligence, so that we're looking at the market, we're looking at who they are. We're looking at what the competitive landscape is, as well as valuation. And those things. We actually have third parties who we've hired to do that, so that we don't just fall in love with the company and allow that to bias the way that we might be interpreting things. So we make sure that the due diligence piece is done as well as having the personnel due diligence done. So having those pieces in place and having a product and a customer, we want to make sure that there is somebody who we think is really going to make a difference.

Alice (11m 4s):
They're going to shake up their sector and really provide both the company and us an opportunity for something pretty significant. But on top of that, it's also very important to us who the founders are, what kind of people they are, how they operate their businesses, how they treat their customers, how they treat their employees, ESG focus is important to us, and we want it to be important to the people who are bringing in under our umbrella.

Phil (11m 31s):
Apart from the financial support, you are nurturing these companies and what's the shape of this nurturing. How do you nurture, what extra value do you provide these companies? Can you give us a specific example?

Alice (11m 42s):
Yeah, actually there are a lot of examples. Really what we want our founders to do is to focus on getting that product out to the customers and building that business. And so what we do is offer them the opportunity, not to worry about all of the other pieces. So that's why we have it structured that we actually acquire the companies and they come into our company. They're still going to have yet, you know, their financial benefits that they would as if we had just been a basic investor. But by being part of our company, they get to offload the extraneous work. So they don't have to deal with human resources and payroll and accounting and tax preparation, compliance, all of that.

Alice (12m 25s):
We manage on their behalf. So they can really focus on that business. The same time we have a pretty extensive board of advisors, and we were very particular in the people who we brought on board, because we wanted them to represent lots of different areas of expertise, as well as their deep and also the word nobody knows any more, but rolodexes, so that in whatever way, the various founders were going to need some level of support, we would be able to immediately be able to address that as well as go out on a wider basis. And that, of course, we, as the top management also have our own networks and business experience.

Phil (13m 8s):
How long has this Seismic been going for and how many companies are there in the portfolio?

Alice (13m 13s):
We started July 1, well, officially July 1, 2020. It took a very long time to work our way through the SEC qualification process. They did not have an understanding of what our business was because nobody had ever done what we were doing through a Reg A offering. And so we came to the realization that ultimately they were trying to put us in a bucket that we didn't belong in. And so we ended up being able to have a direct conversation with them and then be able to address their concerns in the filing we had subsequently. But in the meantime, we, we spent a lot of time trying to get them to understand where we were coming

Phil (13m 55s):
From. So it's a very unique model. Isn't

Alice (13m 58s):
It is. Yeah. So it is a unique model, as we say, we're not aware of anybody else who's done anything like this sort of generally, but more specifically in the Reg A space.

Phil (14m 8s):
Sorry, just before you go on, what is Reg A? It's not that a beautiful beat from Jamaica, is it, that's what it's sounding like?

Alice (14m 16s):
It does a like, yeah, so it's a Regulation A offering. And so as opposed to what people have more standardly known of where you're actually qualifying and getting approved by the sec to go out and raise private capital, this was really developed as a way for smaller businesses to get earlier financing. So a lot of people are very familiar with, for instance, a regulation CF, the crowdfunding, and that was for very small businesses. And so this is sort of the middle ground between a regular offering and a regulation CF. So for us, it means that we can actually get investments from non-accredited investors.

Alice (14m 58s):
So as I mentioned earlier on, for those people who don't qualify by income or by wealth to be able to invest in a private company. And so generally this has been with, you know, very specific companies that somebody is looking to finance that does one thing. And what we were looking to do was to be able to invest in and acquire various companies. And that was sort of the novelty of it that the SEC didn't understand that they weren't sure if we were actually trying to come in as a backdoor SPAC, which you definitely were not. And so it just means that now, as we were talking about earlier venture capital, which had never been available for people who didn't need the certain income and wealth thresholds would have an opportunity to invest in venture capital quite recently, PitchBook has come out with an analysis that showed that venture capital returns on a one-year rolling basis, surpassed 65%.

Phil (15m 58s):
So it's good that someone's doing some democratization here and making this sort of thing available to ordinary investors.

Alice (16m 5s):
Yeah. And that was really what the objective was, you know, how could we make this available for everybody who can qualify for it and has an interest in it? So, yeah, that was really the Genesis of it. And so we're out being our Seismic cells for ourselves and then we'll do it. Hopefully we're the companies who would bring in.

Phil (16m 24s):
Yeah. And Seismic's good for California as well, as well as, you know, what these companies are going to be doing.

Alice (16m 29s):
Yes, exactly.

Phil (16m 29s):
So tell us about some of these enterprises. What are some of the stories behind this fund?

Alice (16m 35s):
Yeah, it's interesting. We started off being pretty agnostic, so just opening the doors and hearing what we could hear. And there were lots of interesting companies and there still are. We've found that some of them fall into some similar buckets, such as FinTech and medtech process improvement and some of which cross within them. And so it's been interesting seeing the, the variety that we have out there. So a couple of particularly interesting ones I can mention right now it's a digital therapeutic company that's focused on women's mental health that takes them through their entire life cycle from adolescence to old age, the founders, just amazing with deep experience in healthcare and life sciences industry.

Alice (17m 21s):
And she has done a remarkable job of navigating the development and regulatory processes and is just an incredible leader as well as a really wonderful person. Another great company has developed a business to serve the un-banked and under-banked communities, which in the US represents about 40% of African-Americans and 30% of Latinos. And that lack of access creates barriers to people clearly on a daily basis, as well as costs for managing everyday matters. So you think about throughout the pandemic when people really were not accepting cash very much. So they were looking for credit cards or ACH or Venmo or something like that.

Alice (18m 4s):
But if you don't have a bank account that can underlie those transactions, you can't participate. And even thinking about, you know, when the government was quickly sending out relief money, that would go straight into somebody who had a bank account. But if you don't have one, then how are you going to get those funds? And then how are you going to convert them into cash? So it's a pretty meaningful thing on a day to day basis, but there are also long-term costs. Bank accounts are part of that foundation that's required for wealth creation. So you need to be able to get loans so you can have a credit history. And so revolving credit like credit cards and car loans are really out of reach without a bank account. And we're also just think that, again, this founder's just a really dynamic person.

Alice (18m 48s):
Who's dedicated so many years to cracking this nut and we are just really excited to partner with him.

Phil (18m 53s):
Now, I know you've got processes in place so that you don't fall in love with companies, but you do have certain feelings of affection for some of these enterprises. And what's one particular example.

Alice (19m 4s):
Well, it's interesting because one of the ones who I fell in love with, we ended up not being able to invest in because our interest in them really demonstrated to their earliest investors, what a really great company it was. And they decided that they're just going to keep that to themselves. I always thought that was an interesting change of pace. So part of what interested me in the company was the simplicity of what they were doing. I tend to not withstanding being involved in the film industry for so long. I was always on the, what I call the less sexy side. And I'm very drawn to things like that.

Alice (19m 46s):
And so this was a business that was doing essentially process improvement through being able to monitor and manage power usage. So it's not on the power generation sides and not putting up solar panels. But if you have solar panels, then how do you want to direct where that power is being used? And so you go to, you know, like a McDonald's and so, you know, what's the best way for having your lights and refrigeration units and all of those things. And like I said, a very simple model, but if you went out to each McDonald's, that would be really costly customer acquisition for something that doesn't actually cost those customers a whole lot of money.

Alice (20m 31s):
So by finding a way to access all of them on a higher level, right? So if you have someone who is a large franchisee, or if you go to McDonald's and they can then push it down into each of the different companies that are being managed by individual franchisees or more managers, you're providing a benefit to every one of those companies on a basis that they can absolutely afford. And yet you're doing it on a volume that makes it worthwhile for you. And everybody's benefiting because they're managing their businesses for less money and using less power. And I just, I want that company,

Phil (21m 7s):
You missed out on it, that's terrible.

Alice (21m 10s):
I've I missed out on them, but, you know, I let them know when they left that, you know, if they ever needed anything. And I would love to say

Phil (21m 19s):
The door's always open

Alice (21m 20s):
Because you never know with anything,

Phil (21m 22s):
What's the time horizon, where these companies, that you're looking at them, and that's obviously not going to be something that's going to be paying off within the next six months or a year. Presumably

Alice (21m 31s):
It actually varies by company. So for instance, that company, I just mentioned, it probably would have been right for acquisition within, I dunno, 12 to 18 months, maybe, you know, if you think about Microsoft or Google, where they've come to realize that they're not very good at innovating at this point, right? So they're happy to have somebody else go out, demonstrate that they have a really interesting product or service, get that going, and then they'll come in and buy them, but they don't want to really can't manage that process for actually starting it up. So you don't have to necessarily gotten that far down the path before somebody who's in that business, identifies it as something that would be really useful for them to internalize.

Alice (22m 20s):
On the other hand, others, as you mentioned, you know, it's going to be out there for three or four or five years before we have some kind of a liquidity event relating to it, but there'll be a nice mix. I think of some that are shorter term and some that are longer term in terms of our at least initial investment horizon with them, we start off with two years of investment capital, and we did that because we didn't want to have everything benchmarked. So that as a founder, you can get stuck in a little bit of the hamster wheel of I have to achieve this in order to get any more money, even though that might not be where your business should be going right now, maybe you should be adapting to something else, but you feel locked into that.

Alice (23m 7s):
And at the same time, if that company who's been financing, you doesn't have a follow on commitment. You're thinking, okay. So I hit that benchmark and I gotta run out and try to find more money again. So both of those things, once again, are detracting from what we view as the core business, which is to grow your business and acquire customers. So we look at things every six months and see, do we need to be modifying, you know, what the cash needs are and just build inflexibilities so that the companies can do what's best for building the company.

Phil (23m 42s):
What's the long-term pathway for these companies. Are you looking to have them listed, acquired, or just hanging on to them as revenue generators? What's the long-term path,

Alice (23m 52s):
All of the above,

Phil (23m 54s):
All of them agnostic on outcomes.

Alice (23m 56s):
Yeah, absolutely. I personally think that sometimes people don't put enough value on cashflow, probably because I was involved with dealing with broken companies that I always love cashflow. And there are fewer, fewer opportunities nowadays to have companies that you can actually get some cash from, right? Because people don't really dividend the way they used to. You don't have utilities that are providing that kind of income. And so cashflow I think is, is always nice. As I mentioned, there are companies that I think are just going to be acquired because it's a nice fit within that industry. And then some, we just made spin off as an IPO.

Alice (24m 37s):
So there are lots of opportunities. And that's, again, part of the benefit that we love of, of having this organized the way it is is we have flexibility on, on how we manage things. I sometimes mentioned to people that this is a little bit like Berkshire Hathaway without the valuation and without Warren buffet. And they deal with mature companies and we deal with early stage companies. But the idea is the same, which is you're a holding company and you're there to embrace and empower the companies that you have invested in

Phil (25m 10s):
And seek them out

Alice (25m 12s):
And seek them out. You know, if I could have bought stock in Cs, I would have, but I can't buy stock in Berkshire Hathaway. So,

Phil (25m 18s):
And how do you manage risk across a diversified portfolio of these companies?

Alice (25m 24s):
Well, as I mentioned, we start off with having due diligence and we're actively involved. So first of all, we're actually managing their books. So we certainly have an idea of what's going on there and we're involved in their day-to-day operations. And it also means that they have the benefit of people like us and our advisors who are, who are looking downstream and evaluating what risks might be. I mean, it's interesting. Cause I think even within say the med tech sector for companies that we're looking at there, they are such different kinds of businesses that they're not even subject to the same risk as each other.

Alice (26m 8s):
So even though they're both in the medical field, one might be more dependent on external forces and one might be more dependent on internal forces or whatever it might be, but they they're just not subject to all of the same risks. Obviously we've seen in the last couple of years between bombing countries and the pandemic that there are lots of external risks out there, but for standard business matters, they all are just different. They're approaching things in a different way. And from my perspective, it's sort of the benefit of not buying a single stock, which carries so much risk, but you're buying a stock that encompasses, you know, an entire portfolio of stocks, essentially.

Phil (26m 56s):
So if someone's considering an investment in Seismic, what's the upside for someone coming in investing, how would they be looking at the valuation of their investment?

Alice (27m 7s):
So we actually, as a result of being SEC regulated, we file different forms with the SEC on a semi-annual and annual basis. So people get a view into what the valuations are there and we have to maintain actual valuation so they can see how they're doing our intention is to be able to get cash back into our investors' hands as a result of liquidity events on occasion. Ideally, what we'd like to do is return the full value of their investment and let them ride the upside with the rest of it. And then on a longer-term basis, we expect that there'll be a decent market that can be made in trading the shares.

Alice (27m 54s):
It's part of that growing sector and FinTech that I think you mentioned in the beginning where there are more outlets for being able to really make a market in various types of investments.

Phil (28m 4s):
So investing in units of Seismic, what does that entitle investors to?

Alice (28m 10s):
Well, actually we are just a regular holding company. So there are units. People are buying shares just as you would be with anybody else,

Phil (28m 20s):
But like a private equity kind of investment.

Alice (28m 23s):
Well, just like if you were buying a share in Google, you're just buying a piece of the company. Although usually of course, with Google, you're buying it from somebody else, but here you're buying it directly from the company.

Phil (28m 34s):
And are they tradeable?

Alice (28m 35s):
There are increasingly markets that are being created for doing that. So we are not traded on, on any exchanges at this point, but the idea was that we all have the same shares of stock. So the founder's shares are the same as the investor shares. Nobody is taking out dividends before anybody else. Everybody gets treated exactly the same. And you are just owning a company,

Phil (29m 1s):
No preferential shares,

Alice (29m 2s):
No preferential shares, no special voting shares nothing.

Phil (29m 5s):
And what's the minimum investment.

Alice (29m 8s):
Minimum investment is a thousand dollars.

Phil (29m 10s):
It's pretty achievable. Yeah.

Alice (29m 12s):
And we also, we work pretty hard. And part of the way we structured ourselves was to make sure that we could be a qualified small business stock. And that means that if people invest in this early stage before our valuation gets higher, or we have more investment in there that if you hold the stock for five years, then your federal capital gains taxes are reduced or eliminated. It's a little hard to tell right now because potentially making some changes on that at the SEC, I think there will always be at least a percentage. So it's a nice way to have the tax benefit investment without it actually being in your retirement portfolio.

Alice (29m 54s):
Although that's an option as well.

Phil (29m 57s):
So if people want to find out more, where can they find out about Seismic?

Alice (30m 0s):
They can go to seismic.company. It's not .com seismic.company

Phil (30m 3s):
Fantastic. Alice Neuhauser, thank you very much for joining me today.

Alice (30m 12s):
Thank you, Phil.

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