Sharing Our Investment Thesis Template
Since ParkerGale created the Research team three years ago, we’ve welcomed three research intern classes, added our first associate, and scaled the investment thesis process. Our work has culminated in a new investment thesis each month and this year we’ve met about one new executive per day.
We’ve refined the most important parts of building an investment thesis, which has enabled us to standardize our process—and ultimately identify potential opportunities more efficiently. If you read “What is a Head of Research,” I cover the goal of building a research library, which encompasses:
Enhancing our firm’s thematic knowledge of different spaces
Improving the Founder experience of engaging with private equity
Our research library allows anyone at ParkerGale to get up to speed quickly on a space. We’ve already done the work of cataloging the companies that matter, the trends we should look out for, and the people in our network that could lead the companies we acquire.
Today we’re pulling back the curtains to share the template we use for each thesis that enters the Research Library. We leverage this template to collect the basic information and rely on it for sourcing. We find that executives, division leaders, or founders have the best ideas and this tool can help them organize their thoughts. The template is intentionally simple. It enables us to develop a baseline level of knowledge, establish credibility in conversations, decide where to spend our time, and bring something additive and non-transactional to the table.
Part of our job as the research team is to ensure that we have many irons in the fire. But one of the roadblocks we must be wary of is ensuring that we’re not conducting a theoretical exercise; at least one of our irons in the fire has to be investable. A space is investable when the target environment is rich, tailwinds are favorable, the price is right, and we have the right executive to lead the company. As you can imagine, convergence of these factors depend on the one thing that we can’t control: timing.
Why did we pick these items?
Simply put, they’re conversation starters. Our desktop research is a great starting point, but we value the novel perspectives executives have; these items help tease them out. We created the template because we wanted the process to be thorough, actionable, and intuitive.
This diagram provides a high-level overview of our process. And we provide more detail below on the importance of each section of the template that we are sharing today.
The “space.”
A space can be an industry, a software solution, or a group of software solutions that make sense together. We want to be specific, but not too specific. We always start broad, close the aperture a bit, and then widen again once we’ve defined the platform that we want to build. It’s more art than science with an emphasis on which targets are actionable.
Why do you like it? Why is your take differentiated? How do we win?
These questions blend our desktop research with our investment criteria and the unique perspective of someone who has worked in the field. Usually, we’re courting the person who can answer these questions to be an operator, board member, or advisor during diligence. The answers to these three questions are the secret sauce to identifying a non-obvious angle that we can execute on.
Who are the major players in the space? What key transactions have occurred; what firms have invested in the space?
By defining the competition, key transactions, and investors, we know who to watch out for, which mistakes shouldn’t be repeated, what’s been successful, and how to model exit options.
Who should we talk to? What industry shows and industry associations are relevant?
We are always looking for operators, board members, and advisors. Additionally, we think that deals come together best when we are out there talking to people and building relationships. We think that talking to the right people and attending the right industry events gets us up to speed fast and helps us make informed investment decisions.
What does the target environment look like?
This comes back to the actionability of our theses; we need to ensure that there are enough targets to buy for a thesis to be viable. We like theses that cover markets where there are lots of targets because it maximizes our changes of success.
Past Pipeline of Ideas
Here is a snapshot of past theses that have gotten traction.
Download Our Investment Thesis Template
If you would like to learn more about the investment thesis process or have an idea of your own, let’s chat. My email is david@parkergale.com.