Jonathan Tepper's fund targets companies with limited competition, favoring "natural monopolies" like Booking.com over regulated utilities. These platforms succeed by creating immense value for both consumers (choice, convenience) and suppliers (global reach, payment processing), building a durable, non-regulated moat.
Related Insights
Unsexy markets like plumbing or law have less competition, higher profit margins, and customers who are more receptive to expertise. This creates an environment for faster growth, akin to driving on an empty road.
Contessaria's strategy prioritizes businesses with predictable 10-year outlooks and low capital intensity. He avoids tech giants like Meta and Alphabet, which require massive, ongoing reinvestment in R&D and infrastructure, making their long-term free cash flow less durable and predictable than Visa's.
While many investors look for a competitive "moat," investor Mala Gaonkar's primary differentiator is identifying businesses with very long-duration moats. The key to finding truly great companies is assessing how long their competitive advantage can be sustained, not just that it exists today.
While many investors hunt for pure monopolies, most tech markets naturally support a handful of large players in an oligopoly structure. Markets like payments (Stripe, Adyen, PayPal) demonstrate that multiple large, successful companies can coexist, a crucial distinction for market analysis and investment strategy.
Gaonkar favors businesses with complex, "systemic" moats derived from deeply integrated processes, like TSMC's manufacturing expertise. She argues these are more durable than moats based on a single advantage, comparing it to owning the process of gold extraction rather than just owning the mine.
Dara Khosrowshahi credits Booking.com's focus on hotel supply for beating Expedia in Europe. He applied this hard-won lesson at Uber, prioritizing driver and restaurant supply as the primary growth engine, a shift from Expedia's previous demand-focused strategy.
A marginal improvement is insufficient to break customer habits and achieve dominance. Thiel's rule is that a proprietary technology must offer a 10x improvement on a key dimension to gain a true monopolistic advantage, like PayPal did for eBay payments.
The firm targets markets structured like the famous movie scene: first place wins big, second gets little, and third fails. They believe most tech markets, even B2B SaaS without network effects, concentrate value in the #1 player, making leadership essential for outsized returns.
Top compounders intentionally target and dominate small, slow-growing niche markets. These markets are unattractive to large private equity firms, allowing the compounder to build a durable competitive advantage and pricing power with little interference from deep-pocketed rivals.
Unlike industrial firms, digital marketplaces like Uber have immense operational leverage. Once the initial infrastructure is built, incremental revenue flows directly to the bottom line with minimal additional cost. The market can be slow to recognize this, creating investment opportunities in seemingly expensive stocks.
