Compounders 101
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Compounders 101
Atlasview Insights -- bite-sized weekly insights that are relevant to all business owners, dealmakers, and investors.
Happy Wednesday folks!
Thanks for joining us for another edition of Atlasview Insights. We’re back with another week of sharing bite-sized insights that are relevant to small business owners, dealmakers, and investors.
If you are not familiar with Atlasview Equity, we are a private equity firm specializing in software and tech-enabled businesses. You can learn more about our team and investment criteria: here.
In this newsletter, we cover:
Compounders 101
Atlasview’s Investment Criteria Breakdown
Our Favorite Reads
Insights From Our Team
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We look for the following characteristics in our partner companies:
Industry: Software and tech-enabled businesses
Business Profile: Sticky B2B customer base
Size: Minimum $1m EBITDA or $5m ARR
Geography: The US & Canada
Whether you’re a business owner interested in working with us, or an intermediary with a deal to share, always feel free to reach out and get in touch with us!
Atlasview Perspectives: Compounders 101
Last month, Jay Vasantharajah (Managing Partner of Atlasview), was asked to do a fireside chat on his favourite compounders and lessons we can learn from them. Our team wanted to share a few of his thoughts surrounding the conversation below:
What are "compounders"?
Companies that have reinvested earnings at a high rate over a long period of time. Though arbitrary, I will say "high rate" means 15%+ and "long period of time" means 15+ years.
It sounds simple enough, but these companies are rare and it is a difficult feat (which is why they are worth studying).
Why study publicly traded businesses?
Though we spend the majority of our time looking at privately held businesses, our team does spend a chunk of time studying publicly traded companies as well.
We believe everyone should study publicly traded companies for 3 main reasons:
Some of the best companies of all time are publicly listed. This makes sense, at a certain point in size, for many companies, an IPO is inevitable as insiders want liquidity (amongst other benefits). So by studying some of the best companies in the world, you are standing on the shoulders of giants.
The scoreboard is visible and accurate. The performance of these companies is out in the open, you can calculate the ROIC and returns of shareholders very easily. Not only is it difficult to obtain private company data, but it's also not always accurate as well (valuations can become subjective, and investor IRRs can be easily manipulated).
Lots of equity research is available on publicly traded businesses. There is an army of very intelligent analysts putting their research out there on their favourite stock picks. You can greatly benefit from studying their work, and piggybacking on their analysis can make you very efficient in your own analysis. There is nowhere near as much research and analysis out there on private companies for obvious reasons.
Commonalities across compounders:
Inorganic growth (hard to reinvest into organic growth over a long time)
Traditional industries (none are really considered innovative or high tech, demand has stabilized and unit economics, profitability are well known)
Skilled capital allocator at the helm and or sensible capital allocation policies (discipline around IRR/hurdle rates for capital deployment)
These organizations focus more on supply (and capturing it) instead of demand (and chasing it)
You can check out his blog on the fireside chat: here
Our Favorite Reads
Insights from our Team
Operations
Investing
Atlasview’s Investment Criteria
We look for the following characteristics in our partner companies:
Industry: Software and tech-enabled businesses
Business Profile: Sticky B2B customer base
Size: Minimum $1m EBITDA or $5m ARR
Geography: The US & Canada preferred
Whether you’re a business owner interested in working with us, or an intermediary with a deal to share, always feel free to reach out and get in touch with us!
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About Us
Atlasview Equity is a private equity firm specializing in software and tech-enabled businesses. We combine patient capital with proven operational strategies to deliver predictable results for our stakeholders.