Notes From The Week #8

Welcome back everyone. Hope you’ve all had a good week. I turned 27 this week so it’s been a reflective and introspective week. Another year around the sun and I’m grateful for the journey. I want to begin by saying that there’s a climate disaster taking place in Pakistan which requires all of our attention. To learn more about the Pakistan floods or to donate to the organised relief efforts please click here. I’ll dig further into the Pakistan floods later on but wanted to make mention of it from the very onset.

Kim Kardashian & SKKY Partners 

This week Kim Kardashian and, former Carlyle partner, Jay Sammons launched a private equity firm, SKKY Partners. Their vision is to leverage their complementary expertise to build the next generation Consumer & Media private equity firm. In addition to investing in consumer and media companies, the firm will also look to target companies in the hospitality, luxury, digital, and e-commerce sectors.

To understand the potential of the newest Private Equity firm in town lets quickly break down the fundamental objectives of a private equity firm: a private equity firm’s main objective is to provide a return on invested capital to its’ external investors. The business model of a private equity firm can vary depending on industry, market cycle timing and market conditions but is largely as follows:

1. raise capital from external sources (investors)

2. invest the capital raised into private equity deals (stakes in companies)

3. sell (or “exit”) those investments

4. return the proceeds from these exits to the external capital partners while holding (usually) 20% of the total profits for the partners of the private equity firm

For a private equity firm to be viable they will have to do a number of things well, most notably:

• Deal sourcing - finding attractive investment opportunities

• Research and due diligence - forming a view on the future of a given industry or market, and then on the potential of a particular company within that market

• Financial engineering - structuring the deal in such a way to ensure it is mutually viable

• Operating skills - adding value to the investments (portfolio companies)

• Salesmanship - gaining the confidence of various parties: investors, management of portfolio companies, potential buyers of portfolio companies

Where I believe Kim will thrive will be in the arena of operating skills. Once a private equity firm makes an investment into a company—the GPs are tasked with adding value to the company. If you stay long enough in the VC/PE space you’ll hear this phrase used quite a bit. It simply means improving the process, performance, product or people of a company so as to ensure the value of the company rises to a point where it is more valuable than the initial investment into the company.

Kim Kardashian’s value add will be incredibly useful for two reasons:

1. Track record of building (and raising funds for) consumer companies

   1. Kim Kardashian has her own companies in the consumer space: SKKN BY KIM (a skincare brand) and Skims (a shape-wear apparel label). Skims is currently valued at $3.2 billion after it raised $240 million earlier this year. This becomes equally valuable as she will be able to call upon existing investor relationships when looking to attract capital to the fund.

2. Built-in distribution for portfolio companies

   1. Kim Kardashian is one of the most followed people across social media. She has 328 million followers on Instagram and another 73.5 million followers on Twitter. As a result of her social media—Kim Kardashian will be able to provide an incredible amount of visibility to portfolio companies helping to bolster their brand awareness.

Do you think there are any other vantage points that Kim Kardashian could bring value to? Feel free to hit me back and add your thoughts on this.

Pakistan Floods & Climate Change

“It is worse, much worse, than you think” is the opening line from the book The Uninhabitable Earth: the bestseller from David Wallace-Wells which discusses the consequences of global warming. I was reminded of this line when I saw the comments from the United Nations secretary general, António Guterres, upon his visit of Pakistan as he visited the areas that have been ravaged by the floods: “I have seen many humanitarian disasters in the world, but I have never seen climate carnage on this scale.”

Over the last few months, irregular monsoon rains have thrashed the fifth-most populous nation in the world. In conjunction with this Pakistan’s glaciers are melting at an unprecedented rate. These two elements combined to create a super-flood which has devastated the nation. The triggered floods have killed at least 1,391 people and disrupted another estimated 33 million. The economic impact is estimated to be a loss of approximately $30 billion.

The nonuniform effects of climate change are not only underpinned by geographical location but by complex histories and discordant power relations. I watched a documentary a few months back which discussed the idea of environmental racism—and how climate change will disproportionately impact black and brown people. Pakistan serves as a perfect example.

It is the global South that will largely feel the burden of climate change this century. However, climate change will touch every single part of this planet. That is unavoidable unless we make significant trends to change our energy set. Climate justice is fundamental for the impacted areas of the world that are dealing with the devastating effects of climate change but have played a little part in the extensive burning of fossil fuels.

Hyper-Local is Global

First let me start by saying Lil Baby is the truth. Respect to the whole 4PF and love to the city of Atlanta. If you haven’t already I would strongly recommend watching Untrapped: The Story of Lil Baby on Amazon Prime. It follows the story of international superstar Lil Baby and his meteoric rise to international stardom.

I was speaking to a friend earlier today about the role that democratised media on the internet has had in providing people the opportunity to build and maintain communities. Democratised media has provided a fantastic avenue for one to create, find and participate in communities that share common interests. He mentioned the fact that whereas before one would have been largely confined to interacting with the people in their immediate vicinity (town, city, region) the internet has provided the opportunity to build tangible connections with people across the globe: “you could have 10 people in South Korea that really rock with what you do and you might have never visited Asia in your life: that’s possible because of social media.”

I thought about how Untrapped made mention of Lil Baby’s success coming partially as a result of his hyper-local music resonating globally:

Lil Baby’s music is hyper-local. For those that grew up in the Oakland City his lyrics told their story and resonated deeply with them. This was vital as it provided him a concentrated and loyal fan-base who deeply bonded with both his music and person. His hyper-local music compounded well with the universal themes of poverty, social mobility and ambition that frequently flavour his songs. This was shown in the documentary when one of the founders of Quality Control Music, the label which Lil Baby is signed to as an artist, made sure he would visit the areas that resembled Lil Baby’s home of Oakland City, Atlanta:

A perfect example of Lil Baby’s music cutting through and resonating globally is shown below.

Until next week. Peace.