“Our thesis is quite different from other firms, in that, in a recessionary or corrective environment, we are acquiring or investing in profitable companies,” says James Clarke, CEO and Managing Partner at Clarke Capital.
As the founder of Clearlink―which he exited through a transaction with Pamlico Capital in 2011 followed by another sale to Sykes in 2016―Clarke developed a love for starting and scaling businesses. After selling Clearlink, Clarke started Clarke Capital and wrote his first checks to GoPro competitor Contour and pet health business PetIQ.
His intention was to seek out the next generation of startups and use his prowess as a company builder to grow them–and he did just that. Contour was acquired in one of the largest intellectual property transactions of the decade and PetIQ went on to become a billion-dollar company that Clarke helped take public as its chairman.
But he didn’t want to find the failures and revive them. It wasn’t the “good deals” that most interested him. He wanted, “the spark;” the thing he knew could become a flame if only it had the right kindling. “While others would normally look for promising fledgling companies,” Clarke says, “we look for companies who have really nailed it—and are perhaps a bit more mature—then we help them scale.”
Building the recession-resistant business
The firm’s “operator first, investment second” mantra served them well when 2020 brought with it a challenging economic environment, among other things. “Our businesses generally don’t carry debt. They are in a good position because they don’t normally depend on that next round of financing to survive—they have real cashflow,” Clarke attests.
One example is Brandless. “In two years they raised nearly $300 million. Then, Softbank, their financial sponsor―amidst the challenges of their portfolio companies WeWork and Uber―decided they didn’t believe in the company’s ability to scale, so they closed up shop, took back the remainder of their capital, and we stepped in and acquired the business,” Clarke says.
The company makes the sort of good sense that Clarke and his team are after. They focus on selling home, personal care, and wellness products without a hidden agenda―or even a prominent logo. Instead of squeezing profits from increasingly cheap ingredients and excessively high markups, Brandless takes the opposite approach, increasing quality, saving in the supply chain, then passing those savings onto their customers.
Not only was the company a good fit economically for the firm, it also fit so well within Clarke’s thesis of “de-risking deals on day one.” “With the Brandless acquisition, we bought more than the brand equity associated with a fairly well-known early-stage company,” Clarke says. “We also acquired inventory valued several multiples higher than the price paid to buy the assets.”
Avoiding the pitfalls of Silicon Valley
“The first order of business was to bring their headquarters to Utah,” Clarke says when discussing the acquisition of Brandless. “Where they failed starting out in Silicon Valley they will thrive within Silicon Slopes.”
Clarke’s Utah-centric ethos comes from experience. Though Clarke Capital operates in London, New York, and Miami, and their portfolio companies employ some 35,000 people across the globe, they see Utah as the best place to operate companies, which is why they’ve kept their headquarters in Provo.
The decision has everything to do with a certain attitude―mainly the fact that Utah doesn’t have one. Clarke believes tech booms foster a certain elitism that is perhaps detrimental to small startups and integral to Silicon Valley. Instead, he encourages entrepreneurs to focus less on their ego and more on their creativity and execution.
“Utah just has something,” Clarke says. “It’s the combination of talent and the culture of people here who want to do and execute. Starting and running a business is hard, and for a lot of people, it’s impossible. But with the attitude here in this state, people are able to go over, under, around, and through. We come from pioneers and still see ourselves as such. In certain ways, we have a bit of a chip on our shoulder to prove ourselves. And our actions speak for themselves.”
Choosing the right partner
Contour’s story is still being written as it battles for market share with rival GoPro.
Originally headquartered in Seattle, the company made a few wrong turns early on, so Clarke Capital stepped in to acquire the assets. Initially, Clarke was a minority investor, but as the company failed, the team saw an opportunity to reinvigorate the brand and pivot the strategy. They hoped to bring out the best of Contour and give it the ingredients to succeed.
“We took the key essence of it, brought it to Utah, and built a team around it,” says former Contour CEO and Clarke managing partner, James Harrison. “My experience was in building online retail in the UK, but another key partner at Clarke Capital, James Thayer, had talents related to intellectual property law from his time practicing at global powerhouses Freshfields and Goldman Sachs. Leveraging those skills, the team was able to reposition the company and maximize enterprise value through a valuable family of patents.”
Contour continues to grow well after its sale and under a new team’s leadership. “We’ve all heard stories of companies being sold at sky-high prices then founders buying them back for peanuts. That’s not us. We believe in building to last and being good buyers of companies, but we also believe in being very good sellers,” Clarke states.
“It’s just who we are,” adds Harrison.
Contour is one of many companies that have been the recipient of the Clarke treatment, including medical startup Curza which hopes to combat antibiotic resistance and has been awarded over $60 million in validating government grants to further its novel approach. Cosmetics newcomer Perfectly Posh has exploded in growth during this challenging year and PetIQ will generate nearly $800 million in revenue over the next 12 months. They chose Utah early on for the location of their 250,000-square-foot facility.
Clarke Capital is more than an investment firm, it’s a company accelerator―with the entire C-Suite built right in. They add accounting, legal, marketing, and general management expertise to any company that partners with them. “Our entire team has been there on the front lines building our own companies—it’s really what sets us apart. We believe that every great thing in life starts with desire,” Clarke says.
“There’s this great desire for an up-and-coming cadre of entrepreneurs to do wonderful things right here in Utah. Especially, during this COVID era. That is important to our firm―and so far it is yielding sensational results.”