This webinar was co-hosted by Doug Harp and Bill O’Such from Momenta. Doug Harp is an accomplished leader and business builder who has successfully led both product and service firms in automation, IT, and IoT. Bill O'Such has over 20 years of extensive history of Connected Industry leadership roles in M&A, strategic partnerships and investments driving international business and expansion for Fortune 500 companies.
Our panelists included,
- Sean Houseworth, VP of Investments, Bertram Capital
- Robert Muench, Origination Analyst, Bertram Capital
- Abhiram Karuppur, Origination Analyst, Ara Partners
How Ara Partners Searches for Companies
Q: Before Grata, how would you search for “bioplastic” companies?
Abhiram Karuppur: The topic I want to discuss today is bioplastics. I'm sure many of you know, but for those who aren't as familiar with the space, plastics derived from crude oil are a major source of pollution in the manufacturing industry.
We use plastics in a lot of different industries, and being able to come up with similar quality materials that are derived from environmentally-friendly sources would go a long way in speeding up the industry to reducing pollution.
So we here at Ara Partners believe that bioplastics are this next generation material that can really help decarbonize a lot of different sectors at once.
So in the old days, we would go to Google and just type in “bioplastic.” That's the first way we would look. And there are a number of industry publications, industry trade groups, and a lot of these companies, especially those that maybe venture-backed, like to issue a lot of press releases.
And so that's kind of how we find out who are the companies that are in the space today? What stage are they? Something like bioplastics, which is not only a focus for investors, but it’s also a significant focus for entrenched chemical companies. It can be a little bit difficult to find opportunities that fit our thesis because we're not looking for a company that is looking for a $10 million valuation. We're looking for companies that are ready to go to stage two of their growth plan. They need equity, but they also recognize that they have a lot of distance to go in terms of growth over time.
And so we're really looking for the companies that the market has overlooked–not the flashy Silicon Valley type companies.
Q: Let's run this in Grata. How, first of all, is there, is there even an industry category or taxonomy for bioplastics?
Abhiram Karuppur: Not really. It's tough because it can fall under a lot of different industries. Chemicals, but it could also be materials and manufacturing. It's not just plastic and it's not just plant-derived materials. It's a combination of things.
So I've honestly just found the keyword search to be the best approach.
Typing in "bioplastics" itself in Grata, that one word generates a ton of results. And what's great about this tool is that we can then filter out companies. I'm not interested in publicly traded companies because they're going to command a pretty high valuation. We’re not looking for companies that are located in developing countries. That's just not our investment thesis. So we constrain ourselves to the US and Europe by and large.
Finally, we use the tags “Investor-backed” and “Bootstrapped.” Those tags are super useful for us because that's again, an indication about value. A bootstrapped company probably means this is a company that could really value partnering with a long term group like us and they're probably more realistic about valuation.
So first we start with bootstrap companies, then we, we don't luck out there, we move to investor-backed companies.
Bertram Capital's Top-Down Keyword Sourcing
Q: Sean, can you tell us a little bit about your investment thesis in electric vehicles?
Sean Houseworth: At Bertram, we operate a thesis-driven approach to our platform investments that can range across a variety of industries. One that we have been spending a significant amount of time on over the past couple years has been in the electrification ecosystem.
We can all understand there's a lot of tailwinds in the market from private funding to public funding to government spending that has been driving a lot spending in the space. This has sparked a lot of venture-backed players in the market space who've raised a lot of money and have novel concepts and ideas.
We are a growth oriented private equity firm. We're not investing in startups or high growth investments. We're looking for established platforms who serve a diverse customer base, have specialized productization, and can benefit from those tailwinds. So as we think about the Teslas, Panasonics, or ChargePoints of the world, there's a lot of specialized components that go into their offerings and they rely on a lot of suppliers who offer products and services that power their ultimate product.
As we've been thinking about thesis-oriented searches within the electric vehicle space, we've been focused on those specialized component engineered companies that are manufacturing products that eventually can be utilized by those larger companies.
Q: Tell us a little bit about how you actually run an EV component search.
Robert Muench: We really like the keyword function in Grata when it comes to the web search model.
“Charging stations”, “component”, and “electric vehicles” would be keywords we add. We want to see everything that's out there and these keywords give us a manageable list.
From those 228 companies, we can start breaking down by operating model. We choose “manufacturing” as the model since we are interested in companies actually building the pieces within the sector.
We’re looking for more US-based companies, so we focus our search in the US mainly. And then also, you know, trying to get the smaller sized list, we might go into the employee count and limit that number to 2000 employees to see how narrow we can get this list.
Momenta's Sourcing Strategies
Q: We know that to do deals you also need volume. So I'm actually gonna pass the search to Momenta who, who knows the EV space inside out and can talk to us about how they conduct a bottom-up approach to sourcing in Grata.
Bill O’Such: Zooming way out, our clients have the same goal. They're trying to find the off the radar companies, not trying to buy the next VC back company. They're trying to find companies that are bootstrapped or maybe need their next growth round.
And so our bottoms up approach takes our industry knowledge of the marketplace and gets us really to a targeted set of companies.
To start this search, we're gonna look at one of the subsystems and EVs that's really critical for both consumer and especially commercial, is “telematics”. Because the blending of telematics is important for not only monitoring what the vehicle is doing or where it is, but also how it's operationally working.
Let's start off with finding similar companies for a public company that has a lot of the information on their website that intersects with this goal here. So let's put in MIX Telematics.
Using Grata’s similar company search, what we're trying to do is create a list of similar companies–now we wanna narrow down this list a little bit, so we include the keyword “electric vehicle” in the search.
From this first similar company search, we’ll grab a few of these companies and create a list. We'll include ABAX and GreenRoad in that list. They talk about EVs and how telematics intersects with that sector.
Now we go to that list we’ve created. There's an algorithm behind the find similar companies feature that is going through websites and trying to find the right information. So we repeat the process here. We discover similar companies to the companies on this list and use filters to narrow down by location and employee size.
We found this methodology actually to be fairly fast as long as you have a little bit of knowledge about some companies in the space and knowledge about the industry. After we’ve repeated the process and grown the list, we'll then use the list to conduct outreach.
Contacting Business Executives
Q: Finding the right opportunities is only step one. How do you actually engage with founders and CEOs and management teams to source deals and get deals done?
Doug Harp, Momenta: As everybody on this call knows outreach isn't easiest with bootstrap companies or founder-led companies, the ones that we're all trying to engage with. They're fairly defensive. So we use a lot of Grata data in our outreach, all the way through our discovery and diligence process as we're helping our customers move through that process. All through the process, we're trying to understand the tie back to our deal thesis, and at the same time, what other potential companies could come into play. We might buy a core company and then build off of it with two or three others.
Sean Houseworth, Bertram Capital: We are in a very competitive environment where capital is now a commodity and there's a lot of people reaching out to these companies, whether it's private equity firms, investment bankers, brokers, et cetera.
And so what we have found to be successful in terms of our outreach and contact with founders and CEOs is that myself or someone else from the investment team who helped develop this thesis or worked on the Grata searches can come to those companies with our homework done and talk about why we find this company interesting relative to others in the industry and why we think it might be a good investment opportunity. And so we're able to come to that founder or CEO and say, "I work on the investment team. I will be with you from the beginning of the investment to the end. I'm not gonna hand you off to somebody else to help with the transaction or help you with the operational improvement. We’re able to say, I'm gonna be your partner through this process."
Abhiram Karuppur, Ara Partners: The companies that we're going after are small, mom and pop companies, they may not even know what a private equity fund is. That's the landscape we step into so our sourcing approach is a little bit different. What we love about Grata is that a lot of companies have email addresses and phone numbers. As opposed to calling the general number, we're able to contact key decision makers of the company over phone or email directly.
We usually open up by saying we're an investment fund focused on decarbonization technologies, and we go into our sales pitch. You are in effect asking the owner to sell the business to you, but at the same time, you need to sell yourself, sell your mission, sell the value you're providing as a fund to somebody who's never needed one for the whole lifetime of the business. That's how we frame our conversations.
Watch the Full Webinar Recording
In November 2022, deal sourcing experts from Momenta, Bertram Capital, and Ara Partners shared how they find and attract hidden middle market opportunities with Grata.
