Moats: Prioritizing Defensibility in Investments
5 Type Of Moats Ranked By Performance
Happy Tuesday folks!
Thanks for joining us for another edition of Atlasview Insights. We use this newsletter to share our strategies, philosophies, experiences, and lessons we’ve learned along the way. Small bite-sized insights for business owners, dealmakers, and investors.
In this newsletter, we cover:
Our Investment Criteria
Moats, and Which Ones We Come Across
Rest in Peace Charlie Munger
ICYMI - Popular Previous Issues
Our Deal Process
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Have An Opportunity For Us?
Before jumping into this issue, a quick reminder, Atlasview Equity is a private equity firm acquiring and investing in software, services, and other asset-light B2B businesses. We are actively looking for businesses with the following characteristics:
Business Model: Software, services, other asset-light
Business Size: Minimum $1m EBITDA or $5m ARR
Business Profile: Sticky B2B customer base
Business HQ: 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 contact us!
Moats, and Which Ones We Come Across
A moat is an element of a business that protects its core operations from competitors and new entrants. Moats enable businesses to generate an attractive return on their invested capital. Moats come in various flavours and strengths, but all good businesses have at least one solid moat.
Here is a chart that ranks 5 types of moats by their performance, based on a study of ~1500 businesses:
At Atlasview, given our area of focus, the two most common moats we come across are intangible assets and switching costs.
Intangible assets typically include software code, exclusive customer/vendor contracts, and industry knowledge. Software is expensive/time-consuming to develop and optimize. This makes it difficult for competitors to replicate, as substantial capital investment is required. Exclusive contracts with customers or vendors give a business distribution that competitors cannot access. Industry knowledge is an underrated intangible asset, particularly in vertically-focused businesses (our favorite type). Decades of experience in a specific vertical (such as auto dealers, libraries, or credit unions) results in proprietary knowledge woven into the fabric of the service/software. New upstarts can’t easily replicate this knowledge, and build a comparable product.
Switching costs are straightforward - the cost and risks associated with switching to a competitor. We want to see that the business is deeply entrenched and vitally important to its customers. The cost of switching would just never economically make sense or be worth the risk. This a powerful moat that drives predictable free cash flow.
Have a vertically focused business with high switching costs? Let’s chat - reach out to us today!
Rest in Peace Charlie Munger
We are saddened about the passing of Charlie Munger last week. He served as a major inspiration for the firm, and we deeply respected him as both an investor and a human being.
Many of Atlasview’s investment philosophies, including our focus on pricing power, came directly from Munger and his teachings. We thought we’d share one of our favourite Munger quotes:
There are actually people out there who don’t price everything as high as the market will easily stand. And once you figure that out, it’s like finding money in the street.
In Case You Missed It
Here are some of our previous popular issues:
Our Process at Atlasview
We pride ourselves on having a simple and transparent process. Our streamlined process enables us to move quickly to get you answers fast. We are proud to say that we have a 100% close rate on our signed LOIs.
Step 1: Contact Us
Step 2: Execute NDA & Schedule Call
Step 3: Receive Offer & High-Level Terms
Step 4: Execute LOI & Complete DD
Step 5: Close Deal & Receive The Cash
Step 6: The Fun Part Begins!
Whether you’re a business owner interested in working with us, or an intermediary with a deal to share, always feel free to contact us!
About Us
Atlasview Equity is a private equity firm acquiring and investing in software, services, and other asset-light B2B businesses. We combine patient capital with proven strategies to deliver predictable results for our stakeholders.