WARNING: This one is going to take a little while so you may want to grab some more coffee (or smelling salts) and then sit back down. The fact that BCYP has brought in another $500K is really incidental to this post but we love to see Mr. Chez’s increasing involvement. On that point though, we feel quite secure in saying that Blue Calypso shouldn’t need any more money until say, mid-next year, or 4-6 months after their Markman hearing in early February. We like that a lot. Having said that, what investors are s-l-o-w-l-y beginning to realize is that Blue Calypso has both a viable ramping plan and some compelling products, products which are patented, central to where digital advertising and peer to peer marketing is headed, and getting noticed by a much larger audience. For anyone that missed it, Blue Calypso’s Dash Tagg is slated to be the official mobile gamification platform at ad:tech in New York in early November. This show is attended by some 9,000 people involved in the tech space who are employed in a multitude of capacities. For some investors (and we include ourselves in this group at times) the knee jerk reaction is to just say… yeah yeah, big deal. We get that but how many yeah yeah, big deal’s are we going to say about Blue Calypso before understanding that BCYP just might be a big deal. Let’s look at where we are:
-Company management includes some pretty top shelf people. Principally, we have Andrew Levi (an entrepreneur who understands business and one of the original inventors of the BCYP patents, important in and of itself) and Bill Ogle, with a recent background in growing and overseeing a very large operation at Motorola. Take a look at the following section of the announcement of Mr. Ogle’s departure from Motorola to join Blue Calypso:
“Ogle has a deep knowledge of brand and consumer marketing, as well as the digital and mobile industries thanks to an extensive marketing background that spans 20 years. While at Motorola, he helped lead the successful launches of DROID, DROID X and the DROID RAZR. Prior to his tenure at Motorola, Mr. Ogle served as Chief Marketing Officer for Samsung Telecommunications America where he developed an extensive knowledge of the mobile device industry as he helped drive that company’s rise in the North American market. He also served as Chief Marketing Officer of Pizza Hut, where he helped reposition the brand and achieved significant sales and market share growth. Following Google’s acquisition of Motorola Mobility on May 22, 2012 for $12.5 Billion, Ogle, recognizing the potential of the next generation advertising platform of Blue Calypso, decided to pursue his passion for entrepreneurism and join the Blue Calypso team where he will work to make the company a leader in the world of digital marketing.” The connections he brings and the visibility he has achieved for Blue Calypso since his arrival are a big deal. And that is not to give short shrift to anyone else at BCYP, they are assembling a formidable team, we just have to finish this post.
-Settlements. For those following this space closely we obviously don’t need to tell you that settling and entering licensing agreements well before discovery is even half complete is unusual to say the least. This is a space that often sees “winners of jury verdicts” tied up on appeal, sometimes for years. So settlements which incorporate licensing agreements are desirable for a whole host of reasons. We do note that getting settlement agreements that are desirable (from a monetary standpoint) most often comes from a mix of carrots and sticks (litigation), not just carrots as some groups desirous of licensing revenue may currently be pursuing. BCYP has licensing agreements in place with MyLikes (ex-Google Adwords professionals-a reported 3.5% of revenues) and Living Social (undisclosed). Other defendants who are party to the same litigation (and we have some of those left here – a few of them key defendants) often get a little nervous when they see settlements from other co-defendants, this isn’t just hype on our part I assure you. The reason for this is that smart executives (and smart lawyers who represent those executives) become a little curious and perhaps somewhat concerned about what the settling company’s lawyers may have seen in these patents that they didn’t like when considering whether their client was infringing. There are additional factors for remaining defendants to consider when analyzing the current lay of the land. Could an important competitor gain an exclusive license pertaining to a “specific” business segment? Yeah yeah, big deal though right…hmm.
-Patent Portfolio. Five granted patents intrinsic to the peer to peer endorsed digital advertising space (with a concentration in mobile), which is where so much of this business is headed. FB recently reported that approximately 50% of its revenue comes from mobile ads and analysts tracking the mobile ad space keep revising their dollar estimates upward. A report on the Guardian’s Blog just a couple of days ago said that in a survey conducted using a sample size of 300 U.S. Marketers, 74% of them planned to increase their mobile ad spend over the next two years. It is no secret that any successful mobile strategy must, for want of effectiveness, employ endorsed advertising. (see below)
Sept. 17, 2013 – New York – Eighty-four percent of consumers around the world say they trust word-of-mouth recommendations from friends and family, a form of earned media, above all other sources of advertising, according to a new study from Nielsen, a leading global provider of information and insights into what consumers watch and buy. Trust in word-of-mouth recommendations increased 6 percentage points since 2007. So word of mouth recommendations are even more trusted than they were six years ago. Yeah but big deal right…hmm.
We could continue with this line of thinking but we invite investors to consider what has occurred at Blue Calypso over the past year or so for themselves. We find what they are doing and what they have done to be a bit different (in a favorable way) from others in the space.
So back to Mr. Chez…
In an amended 13d filing after market close yesterday Ronald Chez increased his ownership stake to approximately 9%. In the filing (in which it is announced that Mr. Chez received the same PPS as Bernay Box, Chairman of Points International Ltd.) it states: “The Reporting Person and his associates continue to work with senior management of the Company to introduce potential customers of the Company to the Company’s social media technology solutions.” Interesting. Who are Mr. Chez’s associates? For starters lets look at Mr. Bernay Box. The story of Mr. Box is one of uncompromising effort (take a moment to read his back story), belief in oneself, a healthy degree of risk and of course significant success. Take a look at his profile on Forbes.com which begins with his present role at Points International:
Mr. Box was appointed as a director of the Corporation in May of 2009 and is currently the Chairman of the Board of Directors and a member of the Human Resources and Corporate Governance Committee. Mr. Box is the President and CEO of Bonanza Fund Management, Inc. and the managing partner of Bonanza Capital, Ltd, a private investment partnership based in Dallas, Texas. Mr. Box has over 20 years of investment experience. Bonanza Capital managed over half a billion dollars for some of the largest financial institutions, wealthiest families and most prestigious non-profit organizations in the country. Focusing on smaller capitalization companies, Bonanza earned a reputation for finding and investing in companies well before their intrinsic value became noticed by Wall Street. He is also the Interim CEO and Chairman of Terra Nova Financial Group in Chicago, Illinois. Mr. Box is a graduate of Baylor University.
Mr. Box seems to have been introduced to Andrew Levi, Bill Ogle and the folks at BCYP either by Mr. Chez directly or from someone else at Merriman Capital. Merriman was retained by Blue Calypso in June 2012 as its capital markets adviser and issued a speculative buy rating on BCYP in May of this year. Mr. Chez serves as Co-Chairman at Merriman with Jon Merriman. Points International is a terrific story of growth in which the company continues to expand its service dramatically. Notably, Points International Ltd. was also upgraded by Merriman Capital in May from $15 to $22…about where it sits today. (Note too that the upgrade from Merriman on BCYP was long before any settlements or for that matter many of the important developments that we have seen in recent months.) A well researched article by Rochelle Jenks on PCOM may be found here. Whether someone at Merriman or Mr. Chez deserves credit for the introduction of Mr. Box doesn’t really matter. This is clearly a story of pass it on. Both Blue Calypso and Mr. Box must clearly see the fit with Points International’s client base and Blue Calypso’s Ad Platform. Equally important, any investigation into Mr. Chez’s and Mr. Box’s investing background shows that with growth plays like Blue Calypso these guys take a long view, are aggressive about seeing these companies grow and usually continue to add to their positions along the way. It should be noted that there are no demand registration rights on the shares to these gentlemen so Mr. Chez and Mr. Box have put their money where there mouth is and may not sell until long after Markman. We note that it is typical in these deals for an investor to receive a warrant “kicker” and no kicker was present here which certainly explains some of the discount but really the discount was received for what Mr. Chez and Mr. Box bring to the table which we think is many fold more than a discount of a few cents on some shares.
Who else might be lurking in the shadows, interested in these emerging growth companies with a lesser known story and with extremely valuable IP? We may know just the guy. His name is Brett Hendrikson, and as you might have guessed, he is also located in Dallas – by way of California where one Bernay Box was a client. Box was his employer and early mentor when he moved to Dallas. Mr. Hendrikson started a hedge fund called Nokomis Capital Partners with only $4M toward the beginning of the recession in early 2008. His is quite a story as well. He now has a multitude of investments and close to $300M under management. He counts as investments positions in VHC and UPIP. Not exactly sure what is happening in Dallas but there is definitely something in the water. There are many more connections we have uncovered than we are prepared to document here but this should give many of you a view to what we see. For those in the “yeah-but” crowd we think you are standing in front of a fast moving train but of course that is every person’s right.
Lastly, we note that Blue Calypso is hosting an investor conference call and Q&A on October 30th. For our part we look forward to hearing from Mr. Ogle and we will not be surprised to see further news of positive note from BCYP prior to that date.