q1 2012 perspective
TRANSCRIPT
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Keating Capital, Inc. (Keating Capital) is a Maryland corporation that has elected to be regulated as a business development company under the Investment Company Act of 1940.Keating Investments, LLC (Keating Investments) is an SEC registered investment adviser and acts as an investment adviser and receives base management and/or incentive feesfrom Keating Capital. Keating Investments and Keating Capital operate under the generic name of Keating. This presentation is a general communication of Keating and is notintended to be a solicitation to purchase or sell any security. This presentation may contain certain forward-looking statements, including statements with regard to the futureperformance of Keating Capital. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors that could causeactual results to differ materially are included in Keating Capitals Form 10-K and Form 10-Q, and include uncertainties of economic, competitive, and market conditions, and futurebusiness decisions all of which are difficult or impossible to predict accurately, and many of which are beyond the control of Keating Capital. Although Keating Capital believes that theassumptions underlying the forward-looking statements included herein are reasonable, any of the assumptions could be inaccurate and therefore there can be no assurance that theforward-looking statements included herein will prove to be accurate. Except as required by the federal securities laws, Keating Capital undertakes no obligation to revise or update
this presentation (including the slides presented) or any forward-looking statements contained herein, whether as a result of new information, future events or otherwise.
Equity Partners for Companies Primed to Become Public
Nasdaq: KIPO
www.KeatingCapital.com
January 11, 2012
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Keating Capital Investment Thesis,Strategy and Focus
Investing and Selling Discipline
Stock Market Volatility
U.S. IPO Market
Distributions to Stockholders
Portfolio Company Review
Performance Scorecard
Keating Capital in Perspective
Agenda
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Public companies are typically valued 2x higher than private companies withsimilar financial attributes; Wall Street jargon: Liquidity Premium
Valuation arbitrage opportunity created when private companies are
committed to and capable of becoming public
Strategy: Buy privately, sell publicly, capture the difference
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Investment Thesis:
Investors Pay a Premium for Liquidity
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Investment Strategy
Keating Capital's investment objective is to maximize capital appreciation
We attempt to achieve this objective through equity investments in later-stage,typically venture capital backed, micro-cap and small-cap portfolio companies
Keating Capital is not focused on investments generating current yield / dividends
Keating Capital stockholders derive return principally from distributions of netcapital gains realized on sale of positions (net of incentive fees and operatingexpenses)
Distributions to be made at least annually per our stated distribution policy
Allows individual investors to participate in a private company's later stage, pre-IPO financing round an opportunity historically reserved for institutionalinvestors (such as venture capital funds)
Keating Capital investment lifecycle typically 3 years (although we have discretionto hold securities for a longer period) compared to 7-10 years for typical venturecapital fund
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Investment Focus
High risk/high return strategy focused on investments in pre-IPO companies with privateenterprise values between $100 million and a $1 billion that meet core investment criteria:
Revenue: $10 million+ in trailing 12 months IPO timing: within 18 months from date of investment
Potential return: expectation of 2x return once the company is publicly traded over ananticipated 3-year holding period
These core criteria are the primary basis for making investment decisions; however, we maynot require each portfolio company to meet all of these core criteria
Manage portfolio of 20 positions, which when mature will typically consist of:
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Investing Discipline
Focused on potential 2x return over 3-year holding period
Keenly aware of cyclical valuation bubbles in late stage venture investing
Attempt to avoid high profile deals with unjustified valuations Focus on companies most ready and committed to go public when IPO
windows open
Negotiate structural protections (i.e., special IPO conversion provisions),
whenever possible
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Selling Discipline
Sales of portfolio company positions intended to be made during the 12months following the lockup expiration
Sales are not automatic upon expiration of post-IPO lockup period (but willconsider selling shares in the IPO as a selling stockholder, if allowed)
Additional shares may be acquired in open market transactions in limitedcircumstances (i.e., where our initial investment amount was restricted)
Factors that we may consider include, but are not limited to, the following:
The target price determined by our investment adviser based on itsbusiness judgment of intrinsic value
The application of public company multiples and our proprietaryanalysis of a variety of operating metrics for each portfolio company
Other factors including overall market conditions, industry cyclicality, orissues specific to the portfolio company
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Stock Market Volatility
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Constellation of Select 2011 IPOs
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Consequences of Investor Impatience
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U.S. IPO Market: Last 10 Years
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2011 U.S. IPO Market Key Takeaways
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Historical Importance of Dividends to
Overall Stock Market Returns
According to a recent article by Josh Peters:
Nearly 90% of historical stock market returnsare explained by dividends
During the past 65 years, dividend incomeaccounted for 36% of total returns of the stockmarket; dividend growth accounted foranother 53%
The value of a stock is derived from itsanticipated future dividend payments
Dividends, and only dividends, provide returnsthat are always positive and paid in cash
Source: Peters, Josh. Wall Streets Myths Debunked, Morningstar DividendInvestor,December 19, 2011
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Net realized capital gains (net of incentive fees and operating expenses)expected to be distributed to stockholders at least annually
Distributions will be based on annual net realized capital gains at theportfolio level, not after the sale of each portfolio company position
Policy considerations include, among others:
Provide a meaningful return on investment to stockholders
Maintain the funds assets at an optimum level to make futureinvestments in new portfolio companies
Provide opportunity for current and future stockholders to derive thetargeted 2x return potential across continuing investment lifecycles
Keating Capital Distribution Policy
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Keating Capital must distribute net realized capital gains annually (with anyretained amounts subject to corporate-level tax)
Distributions of net realized capital gains will be made at least annually (netof incentive fees paid to our investment adviser and fund operatingexpenses)
Amounts retained to pay incentive fees and operating expenses (in part or inwhole) will be treated as a deemed distribution to stockholders
Deemed distribution amounts will generally be taxable to stockholder (ifshares held in taxable account), but stockholder entitled to tax credit forcorporate tax paid
Characterization and Treatment of Distributions
to Keating Capital Stockholders
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Keating Capital Portfolio Companies
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Perspective on Portfolio Company Holding Periods
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Performance Scorecard: Portfolio Company Phase Completion
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Performance Scorecard: Capital Gains and Distributions
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Keating Capital in Perspective
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Equity Partners for Companies Primed to Become Public
Nasdaq: KIPO
www.KeatingCapital.com
Margie L. BlackwellInvestor Relations Director
(720) [email protected]