Special Situations Investing in Private Markets

Every time I hear the words special situations investing or event-driven investing, my ears perk up. When looking for a podcast to listen to last weekend, I came across a very interesting one where Patrick O’Shaughnessy interviews Jeremy Giffon about his unique investing approach in private markets. It has been almost a year since I wrote a review of the book Dead Companies Walking and I figured I would do something different this time, a podcast review instead.

Jeremy Giffon started his career at Victoria, B.C. based MediaCore, which was acquired by Workday (WDAY) in 2015. He was the first employee and general partner at the private equity firm Tiny (TSXV: TINY). This May 2023 shareholder presentation that discusses the merger of Tiny with WeCommerce is chock full of information about the firm.

Tiny was co-founded by Andrew Wilkinson and when Jeremy mentioned his name during the podcast interview, it rang a bell. I later realized that he was the same person I had referenced in this article about Asana (ASAN) last year. Mr. Wilkinson had gone toe-to-toe against Asana with a product called Flow, burned through $10 million of capital and finally gave up.

Getting back to the interview, I usually look for three key insights from a book or a podcast. I’ve found this process of looking for key insights useful in helping me internalize what I am learning. The three key insights that stood out from Jeremy’s interview were:

• Opportunities in the private markets where different stakeholders are in a jog jam can translate into a great investment if you can help them unravel the jog jam. It could be two founders who no longer want the third founder in the company or a VC portfolio company that is performing, but not well enough, to generate successful outcomes for either the VC or the founders. He specifically goes on to say:

“This one’s great because it involves two parties that don’t know anything about finance or capital structures, which are founders and VCs. And so that presents a lot of opportunities. In this present day, you have all these companies that massively over raised and are now realizing that even with a good, viable business, the founder person is never going to make any money because of the pref stack and because they just raised too much, and you get this weird situation where VCs don’t have any incentive to tell you to shut down.”

• Another type of opportunity he discussed, which as arbitrageurs most of us are very familiar with, is when a large company needs to divest a small asset either because they need to satisfy regulatory requirements or the company needs to pivot and a specific product is no longer relevant to their core business.

“I’ve seen examples where the company has pivoted and you had a product that was kind of working, but maybe it wasn’t working well enough to become a multibillion-dollar outcome and then you need to get rid of that asset. There’s obviously a bunch of stuff in bankruptcies that can be great. I’ve seen situations where start-ups build marketing assets or basically like lead gen businesses that end up being better businesses than the main one. And so when the main business goes under, you can buy those marketing assets or whatever.” 

• The third insight was more behavioral and in some ways confirmed what I have believed in for a while. I wrote about pattern matching last June and it was interesting to hear Jeremy talk about pattern recognition and acting based on gut instincts, especially if those gut instincts have been developed over a long period of time that involved a large number of investments. He specifically says:

“I think a lot of investing is pattern recognition. It’s nice because compound interest dovetails well with pattern recognition. So I think part of it is you just see what matters and what doesn’t. A first-time buyer will always care about things that just don’t matter at all. I think a lot of that comes from just reps.

A great investment should just smack you in the face. Probably the best thing we ever took from Charlie was the too hard box. A good investment is just something that should be really easy to sell to the team, you should be able to pitch it in a few sentences. It just makes sense.”

These were insights just from the first 30 minutes of the podcast. They go on to discuss how Andre Agassi approaches the game of tennis vs. Novak Djokovic (finding something that you really love doing), the events that create a hard-to-kill organization and the tremendous value of a meaningful social presence. The full interview runs a little over one hour forty minutes and you can check it out here. Jeremy can be found on Twitter here.