How do you nail the "wow factor" in a pitch?
I've never recruited for HFs, but I will be soon and have many friends in the industry. Time and time again, I have heard that including a pitch with your resume/cover letter when applying to HFs is crucial/makes a huge difference. Does anyone have any tips for hitting the wow factor in a pitch?
Personally speaking, I have always found the wow factor to be easy to show in event driven situations -- forced selling created by spin-offs/emergence from restructuring/ETF in-flows or out-flows. In event driven, the mispricing is easy to explain and it just seems like it makes more sense. This makes it sound more impressive, in my opinion. BUT, event driven HFs are a dying breed, and I have my eye on a few L/S shops that are more focused on TMT and consumer stuff.
If the fund is not event driven, it doesn't really make sense to pitch an event driven name...you should always pitch something in line with the fund's strat. How do you hit the wow factor for something non-event driven, say some SaaS or enterprise software name? I feel like by saying "Company XYZ has only penetrated 5% of a $100bn industry" just doesn't cut it. Sure, that's the kind of shit that has made money over the past 5 years, but let's be honest anything with the word SaaS or enterprise software in public markets over the past 5 years has just skyrocketed, and I feel like that kind of pitch would not impress a PM at whatever HF you're trying to land a seat at. I guess you could use alt data, but how much of that is there for SaaS names anyway?
If someone could please give some tips for how to really wow someone in the TMT/consumer space, or any pitches from the past that A. made sense AND B. made money, that would be HIGHLY appreciated!!! The whole "Secular growth, room to penetrate market" thing just doesn't seem to cut it, in my opinion.
Listen to Paul Enrights episode of invest like the best. His FB and Nokia examples are good.
Focus on where you are different from consensus and why. A lot of pitches come across as naive because they're "buy XYZ because it's a good company and it's cheap". It doesn't mean the idea won't work, but that pitch is too basic. Everyone knows it's a good co and you can see valuation multiples on yahoo finance, so why is this stock going to move when all that info is out there and widely available.
A real pro will know what the bear thesis is, will address it, and convince you why the bears are wrong. The more supporting evidence you can provide or differentiated analysis you have done, the better. If on top of that you can identify the catalysts that will wake the market up to your prior thesis, you will have hit the jackpot.
Completely agree. Cheap + strong business model is weak IMO, which is why things with defined catalysts tend to make more sense + oftentimes work out in your favor. I guess what I'm getting at is, what are some types of catalysts for TMT/Enterprise software/SaaS and Consumer businesses? Not too many spins and reorg equity situations there. And again, I guesses digging for info that others have not found. What are some kinds of alt data sources for those types of business? I appreciate your insights!!
It is very hard to find that proprietary/differentiated angle. I don't have it in most of my ideas, and that's OK. It's very idyosincratic to each situation. In some cases like FB recently it was about realizing that the threat from Apple's new iOS wasnt such a big deal. In some, it may be about regulatory overhang also overdone. In others, maybe the Covid one-off impact isn't that much of a one off and is more permanent because of structural changes to consumer habits (AMZN?), etc.
I gave you what the perfect pitch should have, but it's damn hard to find something that checks all the boxes.
I'll take a stab - for SaaS, there's a substantial amount of PE money chasing this space, providing a cover bid support for anything that trades off meaningfully or is "cheap" by SaaS standards (let's call this sub-5x ARR). The model lends itself (no pun intended) to creditors very well and thus can be good LBO stories once a sponsor right sizes the cost structure for rational, profitable growth. There are plenty of SaaS businesses with sub $10bn mkt caps, some of which are profitable or close to EBITDA b/e, that fit the sweet spot for PE on size. Many of them are in correction mode over the L3M. I think there is a clear take-private catalyst for a good amount of them if you make a good PE thesis - cost-take out, perhaps a vertical specialization that can be further consolidated under this platform or maybe a vertical that was even Covid-disrupted that will self-correct, and identify larger strategics that would buy a more scaled player once it's further scaled under PE.