Trendlines Nurtures Game-Changers for a Better Future
OREANDA-NEWS. February 22, 2016. Growing up in Chicago in the 1960s, entrepreneur Steve Rhodes dreamed of changing the world and improving the human condition.
Those dreams came true decades later when Rhodes, together with partner Todd Dollinger, established The Trendlines Group in Israel in 2007, and listed the technology incubator on Singapore Exchange’s Catalist Board last November.
One of the first Israeli companies to join the tech incubator was developing a ground-breaking device to treat spinal deformities in teenagers.
"We got letters from mothers telling us about their daughters who had terrible curves in their backs, which could not be healed with physical therapy or braces, begging us to include them in our clinical trials," Rhodes said.
Existing surgical procedures to treat Adolescent Idiopathic Scoliosis – a sideways curvature of the spine occurring mostly in teenaged girls – cost up to US\\$100,000. They involve inserting two 40-centimetre rods with 20 to 24 screws in the patient's back during a six- to eight-hour operation, which usually results in permanent loss of mobility.
But the device invented by Israeli company ApiFix requires only a 10-centimetre incision and two screws in a 45-minute procedure, at half the current cost. The device expands and straightens the patient’s spine over several months, with almost no pain or loss of mobility, he explained.
The company, awarded “Best Start-Up 2012” by the Israeli government, has been given the green light to sell the device in Europe. It is now seeking approval to introduce the system to the US.
The ApiFix device has been used in about 70 cases over the last three years and all have been successful. In one case, the teenaged patient went on to become a ballet dancer.
"When you see the tremendous impact of these medical technologies, you get a real sense of having changed people's lives for the better," Rhodes said.
"And that’s a great feeling."
Innovate & Incubate
The Trendlines Group focuses on creating and developing medical and agricultural technology companies, with a view towards successful exits. These outcomes include merger and acquisition deals, as well as listings on national stock exchanges. It also has an in-house innovation centre, Trendlines Labs, which creates new technologies and products – usually through partnerships –to address market needs.
"We saw many start-ups that had great technologies, but did not know how to execute on the business side, and a lot of them failed," recalled Rhodes, who spent nine years in commercial banking and another five running a medical devices start-up.
"So we wanted to create an incubator not only to invest in companies, but also to help overcome the inexperience of many of the entrepreneurs, to offer support in terms of technology and business development, finance, capital-raising and marketing communications," he added.
This high level of support allows the portfolio companies to focus on developing their technology, product and markets, thereby managing risks and increasing chances of success.
Trendlines has set up and incubated 60 companies since 2007, with 17 at the commercialisation stage and generating revenues. Five portfolio firms were acquired by, or have sold their assets to, multinational corporations since 2011. The returns ranged from 3.2 to 8.8 times its original investment, and in one case, the return was as high as 67 times its initial investment.
Two portfolio companies were successfully listed on the Tel-Aviv Stock Exchange in 2010 via reverse takeovers. During the period, the Group wrote off investments in 16 firms.
As of June 2015, Trendlines’ investment portfolio comprised 45 companies with an estimated fair value of US\\$84.7 million (S\\$119 million), of which the 10 most valuable firms accounted for US\\$59.5 million, or 69.3%. ApiFix is one of the most valuable companies.
At the end of last year, three portfolio companies had contracts with investment banks to explore possible M&A opportunities. One company, Tel Aviv-listed ETView Medical, said it received expressions of interest from several potential acquirers, who have signed confidentiality agreements to examine the company’s information.
The Trendlines Group has a market capitalisation of about S\\$101 million. It averaged total income of US\\$17.3 million (S\\$24 million) between 2012 and 2014, and reported pretax income in two of those three years. It posted total income of US\\$9.0 million (S\\$13 million) and pretax income of US\\$5.3 million in the six months ended June 30, 2015.
In comparison, Singapore-listed peer Hotung Investment Holdings Ltd has a market value of S\\$130 million. Peers on the London Stock Exchange include Allied Minds, Imperial Innovations Group, IP Group and PureTech Health.
A Contrarian View
Rhodes, 60, shares the roles of Chairman and Chief Executive Officer with Dollinger. He attributes the company's success to the contrarian approach they adopted to incubation.
"We decided very early on, when we started the incubators, that we would commit to being intensely involved in each and every portfolio company," said Rhodes, who holds a Master in Business Administration from the University of Chicago.
This degree of commitment and support was not an accepted practice in the industry – most investors became involved in their start-ups only when difficulties arose. And by the time problems surfaced, some were too huge to resolve, which in turn meant the seeds of failure had already been sown.
"Our approach has proven to be very successful. It’s the one 'Aha!' moment that I'm very proud of," he added.
Trendlines reviews about 500 deals annually and shortlists around 10% of them for detailed screening. It supports and invests in about 20% of the companies shortlisted. The Group has also partnered with German healthcare provider B. Braun Melsungen AG – a cornerstone investor in its IPO with a 4.2% stake – to establish mutual deal flow, screen potential new investments, as well as develop new incubators and medical technologies.
Rhodes strives to create a unique relationship between Trendlines and its portfolio companies.
"It's normal to have a lot of tension between investors and the companies they invest in, as both have different agendas – there's the entrepreneur in love with his technology, and there's the big bad investor who’s focused on ROI and tries to push the entrepreneur around."
But for Trendlines, it's all about partnerships. "We work closely together, not 100 percent harmoniously all the time, but we share the same goals – when we criticise the entrepreneurs, we do it out of a desire to see them succeed, not because we want to push them out of their companies," he added.
Building Tomorrow’s World
His management values also revolve around honesty and integrity.
“People may not like or agree with us, but no one will accuse us of having anything other than the best intentions for our companies,” Rhodes said. “It’s more than just making money – we’re also doing something to help improve the world.”
Rhodes wants his staff and entrepreneurs to be passionate about what they do, and have fun at the same time.
"Todd and I shared the same idea – all of us spend so many hours at work, so as far as possible, we want everyone to come to work with a smile and go home with a smile," he said.
“That may not always happen, but at the end of the day, we still enjoy what we do.”
These are the same values Rhodes tries to instill in his two daughters and son, aged 24 to 28, who are just starting their own careers.
“I always tell them, it’s not enough to have a good job – you need to feel good about your job too,” he added.
And Rhodes is excited about the road ahead for The Trendlines Group.
“We’ve spent the last eight years developing the model, fine-tuning it, building the team to support it, and now we are at an inflection point where we can take the base that we have, and scale it dramatically.”
Scaling means starting more incubators and more companies, he added. The Group aims to start an incubator in Singapore this year, and “that’s moving forward nicely”. It also plans to set up incubators in regional markets like China over the next few years.
The Singapore incubator will target entrepreneurs from the Asia-Pacific region. “We believe that products, which are right for Asia Pacific, are also right for the rest of the world, especially in the medical field,” Rhodes said.
“The US is looking for ways to reduce costs, while China is looking for more sophisticated products. Increasingly, there is a meeting ground between products created specifically for Asia Pacific, and products appropriate for the US and European markets.”
Beating World Hunger
What is surprising is Singapore’s degree of interest in agricultural technologies, particularly in areas of food production, security, safety, he noted. “There’re really interesting assets and needs in Singapore, and that combination creates great potential in the agricultural and food technology space here.”
Agtech also offers tremendous growth prospects.
“Almost one billion people go to bed hungry every night. While that is a horrible human tragedy, I am sorry to say that it is also an enormous market opportunity – the only way to feed them is through better agricultural technologies,” Rhodes said.
Israel has been grappling with serious agricultural problems for several decades, and as a result, has developed methods to deal with its chronic water shortage and dwindling arable land.
“The rest of the world suffers the same problems, and climate changes are making it harder and harder to produce crops. We have solutions to help, and hope to play a part in ending world hunger,” he added.
Another Trendlines portfolio company – BioFishency – has created a water treatment system for land-based aquaculture that uses 85% less water and produces a two- to five-fold increase in fish yields. This cost-effective technology consumes relatively little power and works with different aquaculture methods.
“In places like China, there’re a lot of small fish farms owned by families, and this technology could dramatically improve quality of life for those families by doubling or tripling their productivity levels, yet without having a negative impact on the environment,” he said.
Rewards aside, challenges abound in the incubator space. A self-confessed worrywart, Rhodes frets constantly over funding options for his companies.
“Even though we’ve had a lot of success in raising capital for our companies, it always scares me, and I worry about funding all the time,” he said, with a hint of sheepishness.
Trendlines assesses alternative capital-raising options – including venture capital, government funds and other investment vehicles – to see what works best. New models such as crowdfunding have also sprung up, and are becoming “a big thing”, he added.
“Competition in Israel for deal flows is intense, especially on the medical side. But our reputation and track record help us clinch the best deals.”
|Year ended 31 December (US\\$ '000)||1H 2015||2014||2013||2012|
|Total Portfolio Fair Value*||84,697||77,494||74,639||NA|
|Income/Loss before Income Taxes||5,329||-2,855||22,909||8,610|
The Trendlines Group Ltd
Trendlines is an early-stage investment company focused on inventing, discovering, investing in, and incubating innovation-based medical and agricultural technologies. As intensely hands-on investors, the Group is involved in all aspects of its portfolio companies, from technology development to business building. It invests principally through its incubators – Israeli government-franchised Trendlines Medical and Trendlines Agtech – and its in-house innovation centre, Trendlines Labs.