Ladies and gentlemen, thank you for standing by, and welcome to the Overstock.com, Inc. Investor Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there'll be a question-and-answer session. To ask a question during the session, you'll need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Alexis Callahan, Director of Investor Relations. Please go ahead, ma'am.
Thank you, Operator. Good morning, and welcome to today's special investor conference call. Joining me this morning are Jonathan Johnson, CEO of Overstock and President of Medici Ventures, Adrianne Lee, CFO of Overstock, and Matt Mosman of Pelion Venture Partners. We will start the call with prepared remarks and then take questions. As a reminder, today's discussion and our responses to your questions reflect management's views as of today, January 26, 2021, and may include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in our Form 10-Q for Q3 2020, in our press release filed yesterday afternoon, and in our subsequent filings with the SEC. Please review the forward-looking statements disclosure on slide two of today's presentation. During this call, we may discuss certain non-GAAP financial measures.
Our filings with the SEC posted on our investor relations website contain additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures. Any commentary regarding Pelion Venture Partners does not constitute a solicitation for investment. This presentation is available for download on our investor relations website, and our final slide contains instructions for asking questions during the Q&A portion. With that, let me turn the call over to you, Jonathan.
Thank you, Alexis, and good morning to all. The purpose of today's call is to discuss an exciting announcement for Medici Ventures and Overstock. This deal allows us to simplify our story and operations, capture upside on the blockchain portfolio, and focus on our core e-commerce business. Overstock made its first blockchain-related investment in 2014 when it purchased companies that ultimately became tZERO. We formed Medici in 2016 in furtherance of our plan to hold and make investments in other early-stage blockchain-focused companies. We now have ownership interests in 18 different companies, and most are generating revenue and looking to scale. Medici Ventures is at a turning point. Our companies have different needs and require different skills than when we initially started investing. They require more strategic day-to-day attention.
So we've looked at a host of alternatives to address these needs and increase the likelihood of success for each of the portfolio companies with the goal of maximizing shareholder value. After evaluating several options, we decided to partner with a professional venture firm with expertise and decades of experience in helping companies like those in the Medici Ventures portfolio scale and achieve successful exits. We found exactly the right firm to do this: Pelion Venture Partners. Slide three includes a summary of what this partnership looks like. We will be converting Medici Ventures into a limited partnership that will become a Pelion Venture Partners fund. A Pelion entity will be the general partner, and Overstock will be the limited partner. Once the deal closes, Pelion will handle all day-to-day operations of the fund.
This will include operating oversight and investment decisions, and it will mean that an experienced and professional team will work to take these companies to the next level. The term of the fund is eight years. $45 million in cash has been committed to the fund. If the fund chooses to raise additional capital, Overstock has an option at its sole discretion to contribute the first additional $30 million. Pelion will earn an annual fee for running the fund and a success fee according to performance as outlined in the limited partnership agreement. This is a standard venture capital fund structure. We anticipate the deal will close in three to six months pending all required regulatory approvals. We hope we will find the right partner in Pelion. We believe this is the best way to maximize the value of both the Medici Ventures portfolio and Overstock.
It's not just that we believe Medici would benefit from more specialized oversight. It's equally important that we found the right partner, and that's Pelion Venture Partners. Pelion is experienced in investing. It has done it for nearly 20 years, and its team has over 90 years of combined investment expertise. It's focused on early stage, seed, and Series A plus, the current stages of most of Medici Ventures portfolio companies. It's focused on this space: disruptive technology. And what's more disruptive than blockchain technology? It's staffed with effective advisors, with a reputation of being trusted and active board members for its portfolio. It's a proven fundraiser. It has the ability and the networks necessary to help these portfolio companies raise additional capital when necessary. And it's staffed with proven operators. Its team knows how to help companies scale.
This decision was made in large part because we found the right partner in Pelion. Pelion is focused on and has expertise in the areas that matter most for the Medici Ventures portfolio of companies. Expertise that is exactly what these companies need and a team of seasoned professionals dedicating the required time and resources to enable the greatest chance of success. I'd like to invite Matt Mosman, General Partner of Pelion, to make a few comments. Matt.
Thanks, Jonathan. I couldn't be more thrilled to have the opportunity to be part of the Medici Ventures success story and to be leading the team that will propel the portfolio forward. I have over 30 years of experience with early-stage companies and particular expertise and key relationships in the disruptive technology space. I cut my teeth at Oracle, running the company's corporate development organization, including its very successful $500 million venture fund. At Oracle, I was responsible for a significant number of mergers and acquisitions, a joint venture, a spinoff, and over 30 successful investments. Since then, I've remained largely in the venture space, founding my own consulting firm to advise companies just like the Medici portfolio companies. I joined Pelion in 2019, first as an operating partner and recently transitioned to a general partner. I'm really excited to be leading this fund, and I'm looking forward to working with the Medici Ventures portfolio of companies.
Thanks, Matt. So let me summarize what we've done. We've really simplified our story and enabled all parties to do what they do best. Overstock is an e-commerce company. This deal allows us to focus on our core e-commerce business and what this management team does best. Pelion is a venture capital firm that speaks the language of SPACs, IPOs, strategic deals, tokenization, and fundraising. It will be able to focus on what the Medici portfolio companies need most. We'll focus on what we do best, and Pelion will focus on what it does best. And we think that's good for our shareholders. With that, let's take some questions, and Alexis will go until the top of the hour.
Thank you. As a reminder, to ask a question, you'll need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Kevin Robinson with D.A. Davidson. You may proceed with your question.
Great. Thanks. Congrats on the deal. And I had two questions. The first question I have is, Jonathan, does this change anything at all as far as the day-to-day operations of the individual assets, especially tZERO? And then my second question is, Jonathan, one of the things I like best about the deal is that it frees up your time. You've done an amazing job with the efforts with Overstock in general and retail in particular. How do you plan on using the extra time you're going to have as this deal seems like it will free up a lot more time for you?
That doesn't sound like Kevin. That sounds like it might be Tom. So thank you for questions. Day-to-day operations of the portfolio companies, I don't see those changing at all, at least initially. But once the deal closes, Pelion will be able to make all the operating and investment decisions that Overstock would have been able to make or that Medici would have been able to make relating to these companies. So nothing new immediately, but after it closes, those will be decisions for Matt and his team. And yes, I'm excited to have a little more time to focus first on the retail business, second on looking at strategic things that Overstock can do, third to continue to try and better communicate to our shareholders what we're doing.
I'll tell you, being both the CEO of Overstock, which required two hands on the steering wheel, and the president of Medici Ventures, which required a significant amount of time with hands on that steering wheel, was a taxing and busy job. Going forward, full focus on Overstock, its growth, and trying to achieve sustainable, profitable market share growth.
Great. Thank you, Jonathan. Congrats on the deal.
Thanks.
Hey, your next question comes from Ygal Arounian with Wedbush Securities. You may proceed with your question.
Hey, good morning, everyone. Thanks for the question. So on the deal side, is there anything you could share in terms of timeline of exiting, how you think about it, doing them kind of together or individually, IPOs, SPACs, selling them to other companies? Just how you think about that process and the timeline that it could play out. And then just to follow up on the first question, Jonathan, you mentioned looking at strategic things that Overstock can do. Wondering if you could expand on that a little bit. I guess there's going to be some cost savings here as you make this move. Should we be thinking about incremental investment into the core business? Maybe just a little expansion on that comment. Thanks.
Thanks, Ygal. Let me take the second question first. Strategic things, probably too early to comment on anything. We've been heads-down focused on getting this deal done and announced, and we'll be heads-down focused on getting it closed, hopefully closer to three than six months, but in the next three to six months. When we have news to announce on things that are strategic, we'll get that out. As far as timing of exiting, that's probably a question better asked of Matt and perhaps a little premature given that we're just at the beginning of this. But I know, as I mentioned in my opening remarks, that Pelion speaks the language of SPACs, IPOs, strategic deals, tokenization, and fundraising. Matt, do you have anything you want to add as far as timing of exiting and how you'll think about that in the future?
Yeah. The fund, this becomes just like any other fund from Pelion, and we treat it the same way. I've been doing this kind of thing for 30 years and seeing it done a hundred different ways, and we'll be looking at each portfolio company and trying to maximize the value of that company.
The good news is the way the fund is structured, the better Pelion does on an exit for itself, the better Overstock and its shareholders do on that same exit. We think it's elegantly structured so that both parties have the same incentives to do the best we can with each portfolio company.
All right. Great. Thanks so much.
You're welcome.
Hey, your next question comes from Rick Patel with Needham & Company. You may proceed with your question.
Thank you. Good morning, everyone, and congrats on the deal. I was hoping you could help us think through the impact on the model. I'm assuming that revenue for the BG side will go to zero, but I'm hoping you can help us understand the impact on segment expenses. Do they also go to zero, or will there still be expenses related to shared services such as finance or accounting that we should be thinking about going forward? Overall, I'm just trying to think about the impact on Adjusted EBITDA, which I believe was a loss of roughly $45 million over the last year. Just curious if that goes to zero or if there'll still be some element of a loss going forward. Thank you.
So before I turn to Adrianne to be more specific, there'll certainly be some wind-down expenses. We've operated it through January. We've got three to six more months of doing something with it. So it doesn't go to zero. And then, as we've noted, there is an annual fee we pay to Pelion. So that will be an ongoing expense. But Adrian, why don't I let you get more detailed into how it affects the model, at least what we're thinking thus far?
Yeah. Hey, Rick. Good morning. I'll just share with you a few kind of our high-level accounting thoughts at this point. It is our belief, because Pelion is overseeing the day-to-day operating and investing activities of the fund, that we will not be required to consolidate the Medici Ventures businesses post-close. And kind of how that will look is we will have an equity interest presented on our balance sheet as an asset. And then quarterly, we'll pick up our proportional share of that fund's activity. It is really important to note, though, that we are seeking pre-clearance with the SEC on this accounting treatment. So what I just described could change. But again, essentially, it will be treated as an investment in a fund, so an asset on our balance sheet where we'll pick up the quarterly fund P&L activity, our proportionate share. Does that help, Rick?
Thank you. That's very helpful. Thank you very much and all the best.
Thanks, Rick.
Thank you. Our next question comes from Peter Keith with Piper Sandler. You may proceed with your question.
Hi, thanks. Good morning, everyone, and congrats on this announcement. Jonathan, just could you help me understand the ownership structure that Overstock has with the blockchain assets that are moving over to the LP? So in effect, your ownership structure or stake is not changing whatsoever, but could potentially become diluted over time with further capital raises to the LP?
Peter, great question. The answer is yes. You've described it very well. So what Medici Ventures, the C Corp, has owned will be exactly what Medici Ventures, the limited partnership, the fund, will own. Just as we had always hoped that these companies would be able to raise third-party capital, validate their business models that way, and grow and be diluted, that may happen now that the assets are in a fund. The one piece of ownership, one company whose ownership structure I ought to explain a little more in depth is tZERO. Right now, all of the equity that Overstock/Medici owns is owned by Medici Ventures, and that will be owned by the fund. There is a significant amount of convertible debt that Overstock "owns" or holds that, when it's converted, will not go to the fund, but will remain with Overstock.
So post-that debt conversion, if I were putting this in kind of rough numbers, tZERO, Overstock/Medici would own about 90%. And that's probably roughly, really roughly, 45/45 each, 45 for the fund, 45 for Overstock. I hope that addresses the question, Peter.
Yeah, that does. I just want to help with investors who I think always liked that they had this investment in some intriguing blockchain assets. So your investment over time could become diluted, but I guess that would kind of come hand in hand with value appreciation of these blockchain assets. In other words, raising capital to further fund the growth. Is that kind of a fair way to think about it?
Sure. Yes. If the fund's investment becomes diluted, the theory is bigger pie, smaller piece. Today, we might have a bigger piece, smaller pie. The goal will always be to maximize our interests, maximize shareholder value. If we can have a bigger pie, smaller piece, and that turns out to be more pie, that's what we want.
Okay. That's a good succinct way to put it. Maybe one last question, maybe for Adrian, just on the cash. So we understand that the cash contributions are now limited over eight years. Any sense in whether it's 2020 or the last couple of years, the average cash contribution that you've made to the blockchain assets that are moving over to the LP? Just so we can understand maybe the cash investment delta.
Yeah, Peter, thanks. Good question. And what I would point back to is I would look at our segment financials. Our quarterly reporting and our earnings release has our segment results. And I think you can get a pretty good view of kind of the cash burn over time. Jonathan, anything else to add to Peter's comment?
So, Adrian, correct me if I'm wrong. That would show kind of the operating cash that we've given to tZERO and Medici. It would not necessarily show the cash invested by Medici in the different portfolio companies. That's varied over time. Adrianne, maybe you could point to where they could find that in the financials. Anyway, we've made it.
Yeah, Peter.
Go ahead.
Oh, yes. So, Peter, again, I would go within kind of the segment financials, and we'll have disclosures within there as well.
Okay. All right. Well, sounds good. We'll take a look at that, and congrats and good luck with closing this.
Thank you, Peter. Appreciate it.
Thank you. Our next question comes from Brad Safalow with PPA Research. You may proceed with your question.
Thank you, guys, for taking the questions. I guess this one is for Matt. Can you perhaps, in the Group A companies that you listed in the schedule in the LP agreement or the venture agreement, which of the three or four are you most excited about their growth prospects?
Matt?
I have six sons, and I would be loath to comment on which one is my favorite. I think in all the Group A companies, we're excited about those. In all the Group B companies, we're excited about those. We're trying to drive value in each of them. I don't really want to comment on which of them I like the best.
Okay. And then separately, how did you guys get to the threshold NAVs?
Adrian, do you want to talk to that? How we got to the threshold NAVs for part of what we did is we looked at where we're carrying them. We tried to look at the valuations. You'll note that for the Group B companies, it's probably pretty close to where we're carrying them. And for the Group A companies, we saw, we had to put a little upside onto it. Let me tell you, those threshold NAVs are not target sale prices. They're not. They're kind of bogeys to get above. And I know certainly, as we've talked to Matt and to Pelion throughout this, no one should be confused that those are target prices. Those are bogeys to get above and then move forward.
Okay. And then the last question, prospectively, as we move forward and you guys really start to harvest and work with these companies, from a shareholder perspective, what is the communication going to look like? There's a lot of companies in the portfolio. They're obviously all in different phases of their genesis. Some have raised money in the past and put outside capital. Some have achieved very significant benchmarks or contracts or engagements. But I guess from a shareholder perspective, what are we going to see from you quarterly about what's going on with this portfolio so that we can have a better sense of the developments and progress of each of these assets?
Well, great question. And I'm glad someone asked it because I think it's an answer that's important to hear. Probably not much. We are a home furnishings e-commerce company. That's the engine that is revving here. That's the engine that we want to fine-tune and rev faster, rev stronger. We will give updates when warranted, when there's a material development. But we're mainly going to be focused on reporting and discussing what we've been calling the Overstock retail business, or I'll just call the Overstock business now. And as there are big events, we'll report out on them. There may be some, Adrian. You may talk. Can you talk a little bit about how we expect to report them in the financial statements month to month or quarter to quarter or year to year?
Yeah, absolutely. So I think Brad has mentioned it. Pardon me. Thank you. Sure, Jonathan. As I mentioned earlier, Brad, we are seeking pre-clearance on the accounting treatment. But if you think about our financials post-deal, we'll expect to have an investment in a fund. So currently, we hold our minority interest in the equity line within our balance sheet. So it will be something very similar to that. And then we will record our quarterly proportionate share of the fund's performance. So you'll see some movement in the P&L from that quarterly mark. And that's how we will disclose our financial results from the fund. And that's probably how we'll talk about it in that financial sense on how it impacted our P&L, that asset movement. Does that help, Brad?
It does. I am going to implore everyone on this call to consider releasing information. Here's an update on news flow, whether they're doing capital raises, significant catalysts, either monthly or quarterly, because I know everyone who's listening here has high expectations given we brought in to now manage this portfolio, the potential of these assets, and I do not want to be in a scenario where the rest of the investment community is trying to dig around to find out what's going on with these 20-plus portfolio companies when some of them have multi-billion dollar, many of them have multi-billion dollar potential. This is a great transaction. Everyone is incentivized, but we need to see more as to how things are progressing, and I think it probably makes sense to keep it away from your quarterly releases for Overstock, a.k.a. what used to be called Overstock retail.
But if you can give us something like, "Hey, every quarter, here's 20 things that happened with these portfolio companies," people need to see more about what's going on with these companies. So I know you don't want to cloud the message about all the great things you're doing at what used to be called retail. So I think you can do something separate, but I really implore you guys to consider that.
Your input is heard. We will think about it. I do want to mention, I think one of the things that's hampered some of these companies is that they've been in. These are startups. Some are further along. tZERO is certainly further along than Amber, for example, but being in the spotlight of a publicly traded company is difficult. When there are things that are material, absolutely. When there are things that are noteworthy, absolutely. We want our shareholders to know. We're going to be transparent that way, but I don't want to be in the business of artificially coming up with a list of 20 things every month or every quarter that we think need to be listed. If they're material, you'll hear about them.
but I really want to focus on growing Overstock retail and doing what's best for our shareholders to maximize the value of what we have in some great blockchain companies. We're no less bullish on blockchain today than we were last week. In fact, I think we're more bullish because we've got the right people in place helping to grow these companies. So, Brad, thank you. We're going to think about it. We'll do the best we can. But don't expect a monthly blockchain newsletter. I'm just going to be candid enough about that.
I'd say quarterly would be fine. These are massive call options, Jonathan, that I will take the time to try and figure out. I'm guessing that the majority of people on this call will not. So I think you should consider that. And hopefully, you will hear me out on that.
Hear you loud and clear. Thank you, Brad. And look, you give good advice. You were the one that in March of last year, February of last year, said, "More insiders need to own Overstock." Thank you. I was a purchaser. Followed your advice. That was a great thing to do. So you've got a good track record, Brad. We'll keep on it.
All right. Thank you.
Thank you, everyone. Yep. I want to thank everyone for participating on today's call. I can't tell you how excited we are to announce this deal, to be in a partnership with Pelion Venture Partners. They're great. I appreciate your interest and ownership in Overstock. We'll look forward to reporting our annual results at the end of next month. Until then, stay safe, stay healthy, and we'll talk to you soon. Bye-bye.
Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect.