Trendlines Group to pause creation of new startups, focus on exits to deliver dividends

SINGAPORE-LISTED The Trendlines Group is positioning itself to help its portfolio companies achieve exits this year in spite of tightening financial conditions.

The company will pause new investments and establishing new companies, said its co-chair and co-chief executive Todd Dollinger in an investor update call on Monday (Mar 27).

Much like a venture capitalist, Trendlines invests in startups with the aim of reaping significant returns when they achieve exits. It has a portfolio of 56 companies, which Dollinger said require more of the company’s time and effort to help them mature. The company made its last planned purchase on Dec 31, 2022.

Fellow co-chair and co-CEO Steve Rhodes also said that while new companies generate a lot of value for the company, they do not contribute this value for at least five to six years. Exits take about eight to 10 years on average.

Rhodes gave the example of Arcuro Medical, a company that developed a knee treatment system and launched initial commercial sales in the United States, Latin America and the United Kingdom. In the first quarter of this year alone, the company generated more sales than in the whole of last year, he estimated.

“Starting new companies today is not going to do anything... for our shareholders or for our share price and value in the short term... and so we really want to focus on those exits.

“I think that we’re going to see significant exit activity in the next couple of years, which will then enable us to distribute the dividends as we’ve promised we would do,” he said.

As for the current chill in startup interest, Dollinger noted that the company’s areas of investment are in the crucial areas of food and medical tech – which will remain relevant as populations continue to grow and age.

Furthermore, he noted, Trendlines occupies a niche in the market as its portfolio companies tend to be smaller.

“When you’re talking about raises of valuations of US$10 million, US$20 million, US$30 million, there is, in difficult times, less downward pressure on the valuations as well,” he said, adding that average valuations and total amount of funding have increased.

Still, Rhodes said, the group has continued to encourage its portfolio companies to look at their expense structures to make sure that they can extend their runway. The group also encourages companies to start fundraising activities earlier, as it could take longer to raise capital.

Trendlines posted an FY2022 net loss of US$14.5 million, reversing from a US$6.6 million net profit in FY2021, as total income declined by 84.4 per cent to US$2.5 million from US$16.1 million.

It attributed the net loss to the US$7.9 million write-off of the group’s portfolio company Stimatix, as well as an adjustment of the contingent consideration fair value of its exit from ApiFix.

Its portfolio value, however, rose to US$89.8 million as at Dec 31, 2022, from US$83 million at end-2021.

Stimatix develops low-profile solutions for colostomy management, while ApiFix provides non-fusion treatment of progressive adolescent idiopathic scoliosis. The company held an 18.6 per cent stake in ApiFix, which it sold to OrthoPediatrics in April 2020.

Shares of Trendlines closed up S$0.003 or 3.3 per cent to S$0.094 on Monday.