Last year was not quite the investing disaster for us that it would have seemed if you had only listened to the financial news panic screeds. We did see our first venture fails, of course. These were relatively small, and I think there are some blazingly obvious (in retrospect) lessons to be learned. Also, two of our other venture investments hit key milestones, while also both scratching at the butt hairs of $10m of revenue. Moreover, our public portfolio did quite well, given the environment. Early defensive moves into dividend-payers paid off on both a price basis (we were ahead of the rush to safety which bid these up) and, by definition, an income basis: we received almost $90k in dividends over the course of the year. Tempering this, sadly, was my wrong-headed conviction on Alibaba, which spent the entire year being shat on by COVID and shoveled up by the Chinese state. At least we harvested some tax losses, I guess? Sigh.

One note about the report. The algo I had been using to calc the portfolio's MTM in prior reports had a flaw, which I've corrected. The flaw undercounted MTM. Consequently, you will see a boost in MTM from $3.5m in the last report to $5.0m in this one (the breakdown: roughly $1.0m in stocks, $650k in cash, $500k in Northfield (because they are already selling lots for 50% more than they anticipated), $1.5m in ScreenMeet (based on Ben's expected valuation for a next round), $1.25m for Smartemis (based on the valuation for the April round), and $200k for Lung Therapeutics (held at cost), Bloom Intelligence (held at 50% discount), and Linden Drive (held at cost). Again, none of the underlying assumptions have changed. Our "outperformance" expectations for the portfolio dropped by $600k to $9.2m based on the failure of NextAlim and The Transportation Authority as well as the more conservative reconfiguring of our stock portfolio post the Nov 10 tax-loss sales.

FY 2022 gross returns: -$145.2k (-133.6%). We ended the year down, for the first time — a drop of 4.7% on our average principal exposure over the year ($3.1m). The loss is due to the two deals that failed this year: NextAlim (-$120.4k) and Transportation Authority (-$95.0k). Perhaps surprisingly, we ended the year up on our public investments at +$70.3k (+4.4% on average exposure of $1.6m). The S&P's total return was -18.1% for the year, but who's comparing? Well, perhaps I am: for the past three years (the first three years we've been fully invested in stocks), we're outperforming the S&P by some distance. Since inception (April Fool's Day, 2016), we have earned $1.27m on average equity capital of $2.13m, or a +59.5% pre-tax return, equivalent to a +14.9% annual return.

FY 2022 expenses: $35.1k (+25.4% YoY). Expenses were sharply up in 2022, due to higher credit card expenses (Mexico) and office furniture (John's painting). All other line items were consistent with prior years. Our office rent increased slightly (+3.3%), and we signed a new three-year lease. I will start breaking out more thoroughly our credit card expenses going forward; for historical data, Wells recently made a change which now limits us to seeing 120 days of past transactions, so I need to figure that out.

New private deals: 7, for $635.1k (+8.0% YoY). Private deals gains/losses: 2, for -$215.4k (-12.8% of private investments outstanding). Notably, we did our first two debt deals in this period in the form of promissory notes: $45k to take a piece of debt in the Assembly Authority investment, bringing our total exposure there up to $95k, and a $92k loan to partially fund a Drexler family property in Cedar Rapids. With the exception of the latter, the investments only included one new obligor: Lung Therapeutics, a biotechnology company pursuing two drugs to treat lung fibrosis, into which we invested $50k. Of particular note: we increased our investment in Smartemis this year by 2.5x, to ~$634k (€550k) from ~$185k, due to positive progression in their sign-up of vet clinics in Germany—they ended the year with 10 clinics closed with a combined revenue of €10m. Net, we ended the year with $1.70m of exposure to private deals across 6 unique deals (and 12 tranches).

The progress that Ben is making with ScreenMeet seems encouraging. They seem to be on the cusp of achieving $10m in sales, which should justify even higher valuations than the one at which we currently have them marked. Tempering this progress is the dual threat of integration and management problems at Salesforce (one of the most likely purchasers of ScreenMeet), and the general softening of the private equity bid going into 2023.

We also saw our first losses since ABBQ in the private space. Both NextAlim and Assembly Authority sent us notes that they would not be able to continue operations. This represents a total loss of $215,425.90. In both cases, there are specific lessons to learn. Irritatingly, one of the commonalities is that both raised debt instruments (in which we participated) just months before they folded. This, to me, is clearly a due diligence failure on our end. There is more work to be done here to ensure we're taking away the right lessons.

New public investments: 0, or $0.0m (-100.0% YoY). Public deals gains/losses: +$70.3k (+4.4% of public investments outstanding). We did not make any public stock or bond purchases in 2022, due to deteriorating market conditions. We did, however, sell stocks to the tune of $771k this year, mainly in early November for tax loss harvesting. Since our tax-loss sales were mainly focused on the tech sector, our public portfolio distribution has become even more heavily biased towards dividend-payers, with 98.8% of our holdings in dividend-paying stocks, and the last 1.2% in "punts" (UEC, a uranium play).

The math behind the outperformance: we took $275.3k in realized losses on Nov 10, led by Alibaba, Citigroup, and Compass Pathways; we earned $83.8k in dividends over the year; and our unrealized gains went from -$63.0k at the end of 2021 to a positive $198.8k, led by AbbVie, Lockheed Martin, and CVS. Two moments jump out: first, we dodged some of the downturn in the first part of the year because we moved from tech to dividend stocks at the end of 2021, even though BABA continued to be a drag. Then, our tax harvesting sale on Nov 10 ended up being quite defensive—our post-sale portfolio remained flat-ish over the tail end of the year (-0.8% from Nov 10 to Dec 31) as the major indices fell (S&P: -3.1% over the same period). So basically, we missed a bunch of the worst moments and sectors in 2022, while getting a boost from the dividend-heavy health and defense sectors.