Investment Strategy

Public Equities
vs. Private Equity

Throughout our careers, we have spent more time investing in private companies (including early-stage “angel” investments, growth equity, and buyouts) than in the public markets. Nonetheless, we founded LASP with a focus on public market investments because we believe that public equities offer a more compelling set of value creation opportunities without much of the “friction” inherent in Private Equity investing:

Public Equities	Private Equity
Able to invest in a publicly-traded company at any time	May only have an opportunity to invest in a given company once every ~5 years – and often must compete against 100+ buyers in an auction process
Take advantage of market volatility to invest at lower valuations	For high-quality companies, investment opportunities usually occur at the best time for current / selling shareholders
Liquid security – can exit an investment at any time	Illiquid security – usually takes many months to execute an exit process once that decision is made
Limited “overhead” expenses required to invest in public equities	To compete effectively for deals, Private Equity firms need to invest in deal sourcing and portfolio support functions
Generally able to manage tax implications more effectively with a portfolio of publicly-traded securities	Successful exits typically result in significant capital gains
The best companies in the world tend to be publicly-traded – and it’s possible to observe these companies over time before investing	Usually only have a very discrete window to make an investment decision, and the sustainable performance of a company can be obscured

The above critique of Private Equity aside, it is important to note the advantage of Private Equity in “forcing” a long-term investment horizon. After making an investment, Private Equity investors are most focused on the fundamental financial performance of their companies over a multi-year period – very different than most public markets investors who stare at stock prices all day.

At LASP, we try to use this Private Equity mindset for our public equity investments: expect to hold a given position for multiple years, focus on strong fundamental financial performance under the belief that compelling investment returns will follow, and ignore all of the “noise” of stock price movements and day-to-day market news / commentary. This ability to maintain a long-term horizon is fundamentally enabled by LASP’s lean operating structure and orientation of our capital base (the majority of which is our own).

Unique Perspective

As investors turned operators / entrepreneurs turned investors again, we believe that our diverse career experiences can produce unique insights relative to other public equity investors who have primarily been stock pickers their entire careers.

Specifically, our investment theses are based on very “tangible” elements, which had to be our focus when we were trying to build real businesses earlier in our careers – and avoiding investment theses and analyses that look good in a PowerPoint presentation, but may not ultimately be achievable or relevant.

Elements of a LASP Investment Thesis	What We Try to Avoid
Large addressable market	Growth strategies that make sense in theory, but that don’t have any tangible evidence of success yet
Recurring or highly re-occurring revenue model	Macro theses – i.e. “the world is changing this way, and therefore this company will do well”
Track record of consistent growth	Turnaround plays – we generally believe that great companies tend to continue doing well, while mediocre companies tend to continue their poor performance
High-quality financial characteristics, which can imply competitive differentiation and strong management execution	Assessments of management teams based on limited, highly “scripted” interactions with public investors
Solid ROI on Sales & Marketing shows up on the Income Statement	Anecdotal competitor / product feedback that can often product false negatives / positives
Enterprise Value / Gross Profit multiple is reasonable based on projected growth	Investment cases based on a valuation multiple re-rating

Global Approach, Industry-Agnostic

At LASP, the most succinct summary of our investment approach is: invest is the best companies we can find while trying to manage risk around valuation (i.e. multiple compression). To do this, it’s most advantageous to have as wide of an aperture as possible – we wouldn’t want a restriction around geography or industry to preclude us from investing in a great business when we find one.

We believe that having experienced negative outcomes as both investors and operators / entrepreneurs provides us with a unique perspective to be able to recognize great businesses when we see them – making expertise around a particular geography or industry less relevant. We’ve also had experiences in which “industry experts” can actually have very significant blind spots, particularly with respect to the opportunity for disruptive models to achieve sustainable success.

We also believe that our presence in Los Angeles and São Paulo can provide us with a unique ability to invest globally and have seen this play-out with some specific examples:

Parallels between the build-out of MercadoLibre’s own logistics network in Latin America and what Amazon has done in the U.S. over the past 5-10 years, which provides the ability to expand into non-durable product categories that can result in much higher purchase frequency
Brazilian acquisitions by multinational companies
SaaS companies that have developed a meaningful presence in Latin America as part of their global expansion strategy
Consumer-facing companies like Uber that have expanded successfully into Latin America
Pinterest’s ability to drive continued growth in international markets
More generally, being able to avoid simply following the NYC “hedge fund crowd”
Also from a general perspective, bringing a more objective outsider’s perspective to U.S. companies – particularly consumer-facing businesses for which investment judgment could be incorrectly influenced by personal experiences

LASP Investment Philosophy

Our investment philosophy is based around the following core beliefs:

Growth is the most reliable form of value creation for an equity investment
Recurring or highly re-occurring revenue models produce the most consistent fundamental financial performance
High-quality financial characteristics can imply competitive differentiation and strong management execution
It’s OK for a company to not yet be profitable, as long as it is producing a compelling ROI on its OpEx / CapEx spend
Projections are generally worth the paper that they’re written on
Enterprise Value / Gross Profit is a very effective valuation multiple: provides the ability to compare profitable companies with unprofitable ones and normalizes for differences in Gross Margins (compared with an EV / Revenue multiple)

Long-Only Strategy

LASP’s strategy is long-only – we do not short stocks – for the following reasons:

Although certainly related, we believe that the skill sets required to identify great companies for long positions are not necessarily aligned with those necessary to identify consistently compelling opportunities to short stocks
As the number of hedge funds pursing long-short strategies has grown over the past 20-30 years, short trades can often be too “crowded” to produce the intended result – even if the short thesis is indeed accurate
The introduction of Reg FD in 2000 arguably eliminated many opportunities to leverage information that wasn’t widely disseminated that had previously allowed hedge funds to short stocks more effectively
If you catch a typical hedge fund manager in an honest moment, they’ll more likely than not tell you how much time they “waste” shorting stocks with limited positive contribution to overall performance
A long-short strategy is most effective in delivering more stable performance for a portfolio over a shorter-term horizon. Since our investment horizon is measured in years if not decades, muting shorter-term volatility is simply not relevant to us
Investors can sometimes forget that a stock, at the end of the day, represents a business that has employees – most of whom show up to work each day trying to create value for their employer. Therefore, for a short thesis that’s based around an expectation of financial underperformance, an investor is ultimately betting against hundreds or thousands of employees at a company failing to achieve their intended goal. We’d prefer to make bets on people doing great things and achieving positive results, rather than the opposite