- "Incentives in the public sector are notoriously absent and/or misaligned, so the impetus for a salaried government employee to lobby for a change in software vendor rarely exists."
- "There are estimated to be 40,000+ vertical market software which are potential targets for Constellation"
- "VMS businesses were high gross margin and sticky, and selling mission-critical software that was instrumental in a buyer's operations"
- "Our analysis of software vendors indicate substantial fragmentation with approximately 38,000 VMS vendors spanning more than 12 vertical markets, with the highest concentrations in Retail and Media & Services verticals – see Exhibit 8.
- "Constellation has over 30,000 targets (adding 4k+ targets per year for the last 3-4 years). Each target has a contact name next to it, with the expectation of staying in contact 3-4 times a year"
- "Human scale - All the employees know each other, and if a team member isn't trusted and pulling his weight, he tends to get weeded-out"
- "The more likely outcome, is that the R&D manager isn't a brilliant workaholic and cannot cope as the team size exceeds double digits. Instead, he'll break his team up into multiple teams. A new level of middle managers will be born, with all the potential for overhead creation, politics, and bureaucracy that comes with another tier of middle managers."
- "Something wonderful happens when you spin off a new business unit.” … “With a clean sheet of paper, the leader only takes those he needs. They set up in an open office with good communication and no overheads. They cover for each other. They leave all the bureaucracy and the crap behind"
- "Don't share sales, R&D, HR, etc. because the accountants never get the allocations right and the business units always treat the allocated costs as outside their control"
- "A Player/Coach continues to run their BU, but ambition drives them to acquire a sizable business, usually in another geography or another vertical"
- "Our employee bonus plan requires that all employees who make more than a threshold level of compensation invest in CSI shares and hold those shares for an average of at least 4 years" - interesting
- "One of the fundamental beliefs at CSI, is that autonomy motivates people, and bureaucracy does the opposite, so we try to do as many of the important monitoring tasks with as light a touch as possible."
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- There are two approaches:
- 1) The Operator approach buys and grows: you buy products with the intent to actively work on them and grow ARR over the lifetime of the investment. This assumes you’re buying back most of your time through portfolio cashflow, reinvesting it into growing ARR and driving your return through that ARR multiple; or -2. ) The Investor approach buys and holds: you buy products with the intent to passively maintain them, collect cashflows and recollect your original investment when you exit the investment. Your return is manifested in the cashflows you perceive, and any additional capital-gain when you exit is a pure bonus. You’re free to work on something else with your time (i.e. big startup idea).
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- Recommended by Craig
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- Using the conservative multiple of the breakout companies, the overall return multiple will be =~ 3.67
- Using the realistic multiple the overall return multiple will be =~ 6.86.
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- Value investing is different from speculation
- An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.
- Value investing depends on the intrinsic value
- Value investors seek a margin of safety
- Think in terms of years or decades, not weeks or months
- Value investing requires a contrarian mindset
- Avoiding losses is the first priority
- Know what you own and why you own it
- Think like a business owner, because you are.
- Seek an "adequate return"
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over 3 years ago
- "Business building happens by a series of 1% improvement. But business domination comes with step functions"
- "If you want to build a $1 billion ARR business, you will need a step function along the way."
- "We tend to lean into constant 1% improvements is that it feels really good"
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- "buyouts of software firms, a sector with above-average multiples, rose from 6 to 17 percent of all deals over the past decade."
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