Low Multiple Tech Investing

Mehtab Bhogal shares his perspective on finding value in distressed and operationally-intensive businesses, particularly in the D2C space, focusing on manufacturing and physical operations rather than pure tech plays.

Key Points:

• Investment Philosophy:

  • Focus on businesses with physical manufacturing requirements in US/Mexico
  • Look for companies that others are unwilling or unable to tackle
  • Prefer deals where you can get money back quickly (2-3 months) vs traditional equity appreciation

• Operational Advantages:

  • Manufacturing operations are more portable and consistent company to company
  • Marketing strategies don't transfer cleanly between businesses
  • Lean manufacturing principles apply universally across different companies

• Deal Structure:

  • Enter at below market valuations
  • Often work with distressed companies or forced sellers
  • Structure deals with royalties until initial investment is paid back
  • Can buy $100M revenue companies for $10-15M in equity when distressed

• Competitive Moats:

  • Physical manufacturing creates barriers to entry
  • Overseas competition limited due to shipping/logistics constraints
  • Most e-commerce entrepreneurs avoid operational complexity
  • Manufacturing in Mexico provides quality talent at reasonable costs

• Deal Sourcing:

  • Work with senior lenders and creditors
  • Handle emotional founders of distressed companies
  • Focus on companies doing $10-15M in revenue
  • Look for businesses with clear paths to margin improvement

• Investment Criteria:

  • Strong operating moats
  • Physical manufacturing requirements
  • Potential for significant margin expansion
  • Ability to implement lean manufacturing principles