Our Thesis: The Pursuit of Free Cash Flow
Learn more about Atlasview and our value-add for SaaS & tech-enabled SMBs
Happy Wednesday Folks!
Thanks for joining us for another week of Atlasview Insights.
This week we’re covering the following topics:
Q&A with our team
Constellation Software breakdown
Favorite reads from industry peers
For our readers — if you are a business owner, deal intermediary, or advisor with a company that could be of interest for a transaction in 2023, feel free to reach out!
Atlasview has ample dry capital and LP relationships excited to invest alongside us! Here’s a quick overview of our investment criteria ⬇️
Our Preferred 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
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 Thesis: The Pursuit of Free Cash Flow
Our goal with Atlasview Insights is to give our partners a behind-the-scenes look at our firm and value-add. This week we wanted to share a bit more about our approach to investing and why we’re so bullish on software and tech-enabled businesses.
Atlasview’s Guiding Principles
If there’s one thing we love, it’s free cash flow. In this high inflationary environment, there’s no better asset to own than a cash-flowing software or tech-enabled business. Businesses that have low ongoing capex and pricing power are well-positioned to perform well in an inflationary environment. Combine that with high margins and a high level of free cash flow, and you have a defensible asset in the event of a market downturn.
Q&A With Our Team
Why are software vertical niche software and tech-enabled businesses so attractive?
Pricing power – These businesses provide software that powers their customers’ entire operation or at least a key function/department. This makes it incredibly expensive and risky to switch to a competitor, no matter how compelling the offer may be.
Low ongoing capex – The high switching costs combined with the small addressable market typically insulate them from having to spend an exorbitant amount on R&D to keep up with the market.
Low disruption risk – Because the total addressable market is generally small for niche vertical businesses, it doesn’t attract many new entrants.
Operating leverage – In addition to pricing power, these businesses typically have net dollar retention rates that exceed 100%. This means that revenue per customer increases annually with no changes to the cost structure, driving significant operating leverage.
What are a few of the operational value-add tactics that Atlasview can provide to its partners?
The core operational ethos at Atlasview is continuous improvement. We seek businesses that already have measurable and repeatable processes in place. We also implement some of our own proven systems, processes, and best practices. Atlasview works closely with CEOs and operating partners to execute our value-add plans. Without revealing our proprietary formula, here are some examples of our operational value-add tactics:
Marketing: Allocating marketing dollars to the right programs can have a dramatic effect on any business. This means concentrating efforts on direct response marketing programs, which are proven to have the highest dollar ROI for B2B businesses.
Finances: Implementing best practices to optimize the cash conversion cycle and increase cash float within the business. Many software businesses already have negative working capital, but small improvements can unlock further cash flow.
Pricing – Effective pricing is critical to a business’s health, but often overlooked by owners. Price-increase strategies can drive significant operating leverage, and generate more revenue without changing the overall cost structure.
Outsourcing – Emerging technologies and applications have made it easier than ever to hire and manage overseas talent. The implementation of an outsourcing program can be a force multiplier in any business.
If you are interested in learning more about Atlasview, please inquire here. If you enjoyed these insights, make sure to subscribe for more learnings from our team.
Market Chatter: Name Your Offer 💰
Fellow deal-makers, reply to this thread and let us know how much you would pay to acquire this software biz!
Constellation Software Growth Breakdown
Tomasz Tunguz, Ex-MD at Redpoint VC, recently shared some remarkable insights on Constellation Software. We are huge fans of the Constellation model and what Mark Leonard has done to build a software acquisition empire.
A few noteworthy data points from Tomasz’s analysis:
From 2003 to 2014, Constellation’s revenues compounded from $80m to more than $5b.
Acquisitions were the largest growth source for the business. They increased revenue by 33%. Some other notable revenue drivers were new bookings and price increases.
It’s a great quick read with lots of valuable takeaways. You can check it out: here
Thanks for tuning in to another edition of Atlasview Insights. We’ll be posting bit-sized content every Wednesday with longer-form pieces going out on a bi-weekly/monthly basis. We have a ton of content lined up for small business owners, deal makers, and investors.
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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.