This approach prioritizes qualitative management assessment—integrity, decision-making, and vision—over quantitative financial screens. This allows investment in promising but currently unprofitable companies, aiming to capture alpha earlier in their growth cycle than typical GARP strategies.
Klarna's CEO publicly boasted about replacing SaaS vendors like Salesforce with a custom AI stack, only to suffer from poor customer service and "tremendous embarrassment." The costly and distracting experiment highlights the hidden complexities and risks of trying to recreate enterprise-grade software internally.
The current market environment is characterized by sharp, headline-driven sell-offs where investors "shoot first, ask questions later." While chaotic, these dislocations create pricing inefficiencies that provide attractive entry points for active managers who have already done the fundamental research on quality companies.
Times Square Capital gained aerospace exposure by investing in Carpenter Technology, a specialty alloy maker classified under "materials." Carpenter had a consolidated market, pricing power, and traded at half the multiple of its aerospace customers, offering a less crowded, higher-value entry point to a popular theme.
The ideal entry point for capital-intensive businesses is often at the end of a major build-out cycle. Times Square initiated its Cheniere position as capex wound down, correctly timing the inflection to massive free cash flow generation, deleveraging, and substantial shareholder returns.
Times Square Capital initiated a position in JFrog after its stock fell ~30% on a $1M revenue miss. The miss was caused by a large deal slipping a few days past quarter-end—a timing issue, not a fundamental flaw. This highlights a classic market overreaction in less liquid stocks.
Times Square Capital focuses its software investments on infrastructure (tied to consumption), cybersecurity, and vertical SaaS. They are wary of seat-based models (e.g., traditional CRM, HRIS) which may face headwinds if AI-driven productivity gains lead to slower enterprise headcount growth.
Times Square Capital mitigates biotech risk by investing after a company's first drug receives FDA approval. The investment thesis then focuses on the more predictable execution and market expansion risk (e.g., scaling sales, new indications) rather than the binary, high-stakes outcome of initial clinical trials.