So I’ve decided to coin a term “Active Value Investing in Digital Media” This is the thesis of my firm, Traction + Scale. So what does it mean?
The thesis behind the firm is that if you put in more work and look to invest where there’s a ton of competition from funds, you can really differentiate and succeed.
Active = Defining Active as being part of the company. Active investing is being hands on, helping build the team, hands on with strategy, doing business development and being part of the company’s development. It can mean being the operator, being an interim operator or just actively supporting the company. Though there is a huge difference between writing a check and talking to the founder every 3 months and being part of the company. I like being active and helping figuring out what to do and where to do it. It’s a great form of value creation.
Value Investing = Digital assets tend to be priced very high and bid up fast as there is a ton of capital chasing only a few deals. So how do you find value investments in a world of run up assets? Looking at things at stages where there isn’t competition and then being very careful with how you price assets. These stages are high risk and structure / price is very important if you are going in at these stages. The stages of least competition where there is lots of value is the napkin startup stage, then again at the stage between product and product market fit – just before there is a venture round and then on the flatline or distressed side – say an asset is doing $10MM a year in revenue for 3 years in a row. Odds are venture funds want out since its not growing though they may just need a new VP Sales. Find assets between phases and get Active and you can help make things successful and get great deals. Once on the distressed side post flatline there are even greater opportunities (and risk) so here price really does matter absolutely. Find unloved assets and give new love and life. Turnarounds are never easy but are very rewarding when they work and they are usually can be seen as value investments since pricing will be very low and there could be great assets underlying the company.