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Investment Thesis is our core series where we break down standout public companies so you understand exactly how they make money, where the risks lie, and why the opportunity exists long before the market agrees.

This content is intended for informational purposes only and should not be taken as investment advice. The author does not represent any third-party interest, and he may be a shareholder in the companies described in this series.

Please do your own research or consult with a professional advisor before making any financial decision. You will find a full disclaimer at the end of the post.

Context

• Business Overview

• Origins

• Industry Overview and Competitive Landscape

The Business

• Business Model

• Management

• M&A Activity

Investment Case

• Comprehensible Financials

• Catalysts Explained

• Valuation

• Risk Assessment

🔍 Business Overview

If you think organic food is just a bland, overpriced tax on people who do yoga, prepare to have your worldview completely dismantled. We are diving deep into Smart Organic ($SO), a European beast that scaled from a €20,000 shoestring startup into an international manufacturing powerhouse, all while being anchored by an owner-operator who literally locks himself in an office to meditate when tough business problems arise.

This deep dive covers everything: why taste always beats clinical logic in the grocery aisle, how they turned a string of distressed European acquisitions (like Germany’s Naughty Nuts and the UK’s LoveRaw) into a ruthless “buy-and-fix” playbook, and how they’re positioned for massive European expansion.

Expect raw ground-level factory and supermarket floor scuttlebutt, crunchy details on why their new mega-facility changes the game, and an unfiltered look at why their thin float is both a masterclass in asymmetric value and an absolute logistical headache.

Do not read this, especially the product section, if you’re hungry.

We can guarantee that the main item causing delays for us was the number of times editing this piece caused pretty intense cravings.

You have been warned.

This write-up includes takes and opinions from various stakeholders. We conducted 8 interviews and visited several facilities, gathering first-party data in the process to better understand how the business actually operates.

A lot of this information was heavily guarded, and we’re not surprised given the excellent results they’ve collected, especially in the last decade.

The most impactful conversation was with Yani Dragov, founder and CEO of Smart Organic, which helped us unpack past product selection, capital allocation, and capex-related decisions, while giving us a clear view of where the company is headed.

With this owner-operator holding an 80.76% stake (55.45% directly and 25.31% through a wholly owned holding) this is a fantastic example of skin in the game.

In many ways, it strongly mirrors how one of our past holdings, Limes Schloss Clinics, was set up for success.

If you’ve followed our research for a while, you know we typically focus on two archetypes of leadership: those who decentralize operations entirely, and detail-obsessed operators who manage every moving part of the machine.

🌱 Origin Story

In 2009, at just 28 years old and armed with a modest starting capital of €20,000, Yani Dragov laid the foundation for what would become one of Europe’s most formidable organic food success stories.

Armed with a dual background in finance and investment management, having studied in Germany and worked as an asset manager, Dragov did not set out to build a typical consumer products company.

Driven by a personal commitment to a sustainable, vegetarian, and health-conscious lifestyle (routines that traditionally begin with early morning meditation and mindfulness), his vision was anchored by a deceptively simple core paradox in the global food market:

The niche was theirs for the taking.

Historically, clean-label, organic food carried an elite, sometimes prohibitive price tag and a reputation for uninspired taste, crippled by low producer scale, outsourced manufacturing, and inefficient supply chains.

Dragov’s foundational thesis was built on solving this exact friction point: to make all yummy high-demand food genuinely healthy, completely uncompromised, and universally affordable.

From Scrappy Trading to Mega Mergers

Note: We will discuss all of these in great detail below (and everything will be linked and referenced), but we want you to both get used to the names and get a sense of how the company has developed chronologically from a single shop to mainstream large-scale production.

Smart Organic’s growth trajectory reflects an uncompromising operator’s playbook characterized by three distinct chapters:

(2009–2011) The enterprise officially began as a specialized organic retail venture in Sofia (Zelen Bio), giving management immediate, grassroots insight into consumer behavior, product gaps, and daily retail friction.

Rather than opting to remain a localized storefront operator, Dragov quickly realized that true leverage required moving upstream into bulk trading and primary distribution.

(2012–2018) Shifting focus toward production, the group began creating its own category-defining brands. This era marked the birth of global mainstays like Roobar (raw organic bars), Dragon Superfoods (functional powders and superfoods), Kookie Cat, and Bett’r.

(2021–Present) To fund aggressive capacity expansion, Smart Organic made history on the Bulgarian Stock Exchange. After successfully executing an IPO on the BEAM growth market in late 2021, the company scaled its manufacturing footprint.

This has culminated in the state-of-the-art mega-facility in Bozhurishte.

In 2024, Smart Organic achieved a historic milestone for the Sofia bourse by successfully transitioning from the SME growth tier straight onto the Main Market (Standard Segment), cementing its status as a mature, institutional-grade European food operator.

We’ll see how this story ends, but so far, this rhymes with a zero-to-hero archetype.

🌐 Industry Overview and Competitive Landscape

Unlike most of our other write-ups, traditional comparative metrics don't tell you much here.

The sector is wildly fragmented, packed with hidden shadow producers and dark-kitchen operators fulfilling unlisted white-label orders for single supermarket chains.

On the one hand, outsourcing is everywhere, making surface-level data deeply misleading.

Ranging from razor-thin margins, commoditized, undifferentiated, and tasteless food to brand-centric “Italian” delicatessens, quality control mismanagement, and uninnovative portfolios.

On the other hand, major specialist corporations have nailed production and distribution for decades and now seem to pop up everywhere but have yet to master the healthy side of the equation.

Smart Organic operates in a fragmented European organic and health-food landscape.

Because the company straddles both proprietary brand manufacturing and large-scale B2B white-label production for supermarket chains, its competitive set spans several categories:

Legacy Mega Corporation

Multinational legacy FMCG (Fast-Moving Consumer Goods) titans like Mars, Inc. and Ferrero Group do not typically challenge Smart Organic by launching organic startups from scratch; instead, they buy into the “better-for-you” space through balance-sheet scale, acquiring high-profile challenger brands and plugging them into their global supply chains and retail relationships.

Mars has assembled a healthy-snacking platform anchored by KIND Snacks (marketed as BE-KIND in continental Europe), Nature’s Bakery (soft-baked, whole-grain fig and fruit bars), and Trü Frü (real freeze-dried and frozen fruit dipped in dark and milk chocolate).

Ferrero has mirrored this pivot by moving beyond pure confectionery to build an active-nutrition and wholesome snacking arm, acquiring UK-based raw fruit-and-nut bar maker Eat Natural, European high-protein bar specialist FULFIL, North American high-protein wafer company Power Crunch, and more recently, clean-label granola and functional breakfast maker Purely Elizabeth and Brazilian protein snack producer Bold Snacks.

In the spreads and indulgent treats segment, the clash is philosophical and nutritional.

Ferrero’s Nutella remains the entrenched global king of sweet spreads, commanding unmatched brand equity and mass-market volume through a recipe driven by refined sugar and palm oil. Smart Organic’s organic nut-butter brand Naughty Nuts and Bett’r organic hazelnut spreads deliberately formulate around this legacy vulnerability by offering low-sugar, palm-oil-free, and clean-label alternatives (sweetened with coconut nectar or dates) that target consumers fleeing ultra-processed foods.

Similarly, in the vegan confectionery aisle, Mars’s plant-based extensions of iconic candy (such as vegan Galaxy, Topic, and Bounty bars in the UK) and Ferrero’s plant-based Nutella variants compete directly for mainstream vegan chocolate market share against Smart Organic’s acquired LoveRaw wafer bars and choc cups.

Megacorporations rely on long planning cycles, massive minimum-batch runs, and often high-cost outsourced co-packers for their niche acquisitions. Smart Organic operates as an agile, vertically integrated manufacturer controlling high-throughput, automated production hubs in Sofia and Bozhurishte.

While Mars and Ferrero charge a steep corporate markup on KIND or Eat Natural to cover massive overhead, Smart Organic uses its low Bulgarian conversion costs to price clean-label, bio-certified products at accessible price points while sustaining ~25% operating margins.

Note that, unlike these giants, Smart Organic captures upside that the legacy giants ignore (or don’t want to compete in): partnering with European grocers (Lidl, Aldi, dm) to formulate custom private-label organic bars and spreads that directly undercut the legacy giants’ shelf presence.

Major European and Branded Competitors

In the physical grocery store, the primary battlefield is retail shelf-space allocation and premium placement across Tier-1 supermarket chains (REWE, EDEKA, Tesco, Sainsbury’s, Carrefour, and Billa) as well as the checkout lane.

Mars’s BE-KIND and Ferrero’s Eat Natural and FULFIL sit squarely in the premium on-the-go snack bar aisle, competing directly against Smart Organic’s flagship raw and functional bar lines like Roobar and Bett’r.

Ferrero and Mars possess enormous slotting-fee budgets, multi-brand volume rebates, and trade-marketing leverage that allow them to secure eye-level positioning and exclusive end-cap displays. Smart Organic, by contrast, must defend its space through higher inventory turnover per square meter, clean organic certifications, and lower supply friction.

Large multinational consumer goods conglomerates and specialized regional manufacturers also produce competing organic snacks, plant-based foods, and superfoods distributed across major European retail chains. The ones that SO has a competing bid on (production) include REWE, Aldi, Lidl, and dm.

Regional Organic Brands

To really understand where Smart Organic sits in Europe, you have to look at heritage heavyweights like Alnatura in Germany and Biona in the UK.

These are the original pioneers that put organic food on the map decades ago, but they built their empires around the traditional “general store” pantry. Walk down their aisles, and you’ll find walls of organic canned beans, brown rice, grains, passata, and cooking oils.

While that stuff sells consistently, it has slowly drifted into a low-margin commodity trap where everyone is cutting prices and customer loyalty is paper-thin.

For better or for worse, Yani Dragov saw this trap early on.

Smart Organic deliberately keeps its pantry staples to a minimum, using them mostly as legacy anchors or foot-in-the-door items, while pouring almost all of its R&D and capital into high-velocity, impulse-driven snacking… things like Roobar, Bett’r cups, and Naughty Nuts spreads, where taste and formulation actually give you pricing power.

Alnatura and Biona are essentially master brand curators and distributors rather than factory owners. They design recipes, run strict quality checks, and slap their famous logos on the packaging, but they outsource the heavy lifting to a vast web of third-party co-packers across Western Europe.

That setup works fine when the economy is cruising, but the moment cocoa or hazelnut prices go berserk, those co-packers pass every single cent of pain down to the brand, squeezing margins dry.

Smart Organic takes the exact opposite approach by owning the entire factory floor. When they bought broken, cash-strapped brands like Germany’s Naughty Nuts or the UK’s LoveRaw, they didn’t just redesign the wrappers; they ripped manufacturing away from expensive German and British co-packers and dropped it straight into their automated mega-hubs in Bulgaria.

That single operational shift wiped out middleman fees overnight and restored healthy gross margins.

Let’s not discount the power of volume. While Alnatura and Biona treat their brand names like sacred ground and largely avoid making products for other people, Smart Organic plays both sides of the retail counter.

They happily balance their factory output 50/50 between their own proprietary brands and custom, high-end private label runs for supermarket giants.

Because these aren’t boring commodity grains but complex chocolate-enrobed bars and nut butter cups, Smart Organic can pull roughly 25% operating margins across both sides of the house.

Their own brands capture long-term retail pricing power and street cred, while private label deals keep the automated machinery in Bozhurishte running at full blast with zero marketing spend.

Supermarket In-House Private Labels

To come full circle, you also have major retail giants (such as REWE Bio and Carrefour Bio) that have developed their own organic lines.

These compete directly with Smart Organic’s custom white-label projects, although Smart Organic simultaneously acts as a supplier to many of these same grocers.

These brands usually rely on specialized, dark-kitchen-style suppliers for distinct product groups, meaning snack suppliers are typically not the same as olive oil or tomato sauce suppliers.

To be perfectly honest, rather than pure competitors, these present a massive expansion opportunity for SO, as much of their success is driven by acquired taste.

If they can start supplying (e.g.) Carrefour with their snack bars, they will wedge their way into controlling and expanding across several Mediterranean markets.

That opens the door to easier M&A in those regions and smoother distribution, especially given how long-term relationships with these retail giants directly influence pricing and shelf-space negotiations.

🧩 Business Model

Smart Organic operates as a vertically integrated producer and distributor of certified organic, vegan, and clean-label snacks and superfoods. Their base premise is, paraphrased…

“you can be both healthy and tasty”

Rather than acting purely as a co-packer or brand marketer, the company controls the entire value chain from direct origin sourcing to manufacturing and distribution, mainly B2B but also partly B2C.

We believe the TL;DR of this business case can be summarized in four major points.

Firstly, Smart Organic purchases raw commodities (nuts, cocoa, coconut, superfood powders) directly from farming cooperatives and producers across 30+ countries.

Raw materials cost roughly half of total sales value every year. Improving and maintaining these relationships together with smart purchases and hedging practices (direct and indirect), explain most (if not all) long-term margin variations.

Secondly, production takes place across their owned and operated facilities, including the main Sofia hubs and the 6,000 m² Bozhurishte mega-facility.

The setup handles high-throughput automated lines for chocolate-enrobed bars, nut butter cups, wafers, cookies, spreads, and functional powders. Controlling all variables at this stage of production ensures quality and consistency.

Thirdly, revenue is split relatively evenly between their own brands (Roobar, Bett’r, Kookie Cat, Dragon Superfoods) and custom non-commodity private-label projects for major supermarket chains.

Lastly, roughly 70% of production is exported to over 60 countries, anchored by DACH (Germany, Austria, Switzerland), the UK, and Romania.

In Bulgaria, the group operates its own retail and e-commerce chain (Zelen Bio / ЗЕЛЕН), which doubles as an immediate R&D test center.

If you understand these four concepts, you understand what the company does.

Products. What Does Smart Organic Actually Sell?

This may not be an exhaustive list, as the company is constantly testing, discarding, and improving products.

However, we’ve done our best at providing you with the main products and subcategories that Smart Organic produces under their different brands. Custom or white-label products are, at times, harder to identify.

Organic Snack Bars

Their most recognizable product and definitely the most widely distributed across Bulgaria has to be Roobar.

These are mostly bars, but they come in different shapes and sizes, made from clean ingredients like dates, nuts, and superfood powders. Again, they usually lean on the fact that it’s high protein or just has a few calories.

Spreads, Nut Butters and Cookies

High-growth, low-sugar spreads and nut butter cups (such as Naughty Nuts), designed as healthier alternatives to legacy confectionery spreads by radically cutting sugar content.

We are personally hyper (addicted) users of these spreads, and the only one we’ve come across that can compete in the taste arena is a super niche company called Valnuts.

They commercialize their spread via their subbrand Енергия от Ядки / Energy from Nuts, and it’s freaking delicious, albeit not as healthy.

Their brand Kookie Cat should also be included here.

Confectionery and Baked Goods

Probably their most health-conscious brand is better, which is most famous for the protein pancakes. These are freaking delicious and fall under the Better brand.

This section has more than a few organic chocolates, wafers, and bite-sized treats manufactured mostly with automated lines at their modern Bulgarian facilities.

They also have instant soup, hummus and potato puree. It’s also likely their most experimental segment… healthy popcorn and all.

Superfoods and Powders

These are mostly branded under one of their longest-running subbrands, Dragon Superfoods, and they come in easy-to-use packs that usually last a few weeks.

To be perfectly honest, these are the ones we’ve tested the least, but we can guarantee you they are ever-present throughout small and large stores across the major supermarket chains in the country.

Cold-Pressed Beverages

These are mostly a new inclusion from a recent acquisition, and they account for a tiny part of revenue.

Fresh, organic cold-pressed juices and smoothies (under the Frudada / Santulita brand) serve as a specialized, non-dry-shelf complement to their main portfolio.

From their entire portfolio, this is probably the first product we came across via a local Kaufland and our personal favorite in terms of taste.

Again, the key to all of these is differentiation in both health and taste; more on this in the next section. Both contribute to stretching the products as far away from the commodity category as possible.

And this leads to acquired tastes by the population, which provides the company with both a moat and pricing power over what should be a commodity with near-zero margins.

Management is quite conscious about this.

Q: How would you categorize your brand? Would you say it’s on the one that you have like super commodity and on the other hand you have like super premium? Where would you place your brands and what are you looking to see that develop like into the future?

Yani: Yes, so how much do you know about our portfolio?

Q: Well, I think I’ve tested most of it out. (Wink) I mean, I ate all the avaible product. I don’t know so much about the white label stuff because I haven’t identified everything, but definitely have eaten most bars and protein-related products.

Yani: Yeah, so we have the snacking. So snacking is the biggest part of our business. Snacking like bars, cookies, cups, these products and they are far away from commodity.

The closest to commodity would be organic lentils and organic rice, these kind of things. It’s a part of our business.

(But I ) would say much bigger part is the more added value and we’re also focusing on that. We want to sell more and more bigger added value products. This is our future.

This commodity, don’t believe in that. I have friends in Germany who have this (type of) company just packing organic commodities and just the margins, they just earn the same type of package, if at all. So risky, they never have money to grow and pay the invoices. It’s big struggle.

So we want to go as far as possible away from this. And we’re doing it. We have very few products which are close to that. We only started in Bulgaria because we have been doing it originally, so we keep doing that. But we don’t expand this range. We don’t grow in that.

Taste vs. Health (Core Philosophy)

Early lessons proved that consumers do not make food choices based purely on clinical logic.

Consequently, Smart Organic’s core expertise lies in formulating products that combine strict clean-label/health parameters with mainstream taste appeal.

Q: Well, that was exactly my question. But if you had to prioritize one, would you go for the healthy or would you go for the tasty? Would you rather have tasty but unhealthy?

Yanni: I got your point. This is exactly why we’re both at the same time.

This is our core expertise to make it healthy AND tasty. We’re working on combining both. In the past we’ve been focusing on healthy. Our early years, we realized this is not going to work. People are not, I mean, they’re just not… logic, don’t take logical decisions; they just take decisions based on taste. This is the first thing.

So, like you saw in our presentation that I sent you, taste is the number one factor when people choose food. So we prioritize taste.

I mean, taste is very important, but we don’t sacrifice healthy; we don’t sacrifice using harmful ingredients or something that doesn’t fit in our values. This we don’t do. We just keep working in the lab until we find a tasty enough product with all the clean-level characteristics.

Mainstream confectionery brands often rely heavily on cheap inputs like refined sugar and palm oil (e.g., legacy hazelnut spreads containing ~56g sugar per 100g).

Smart Organic prices its premium, low-sugar alternatives (sweetened with erythritol, dates, or coconut blossom nectar) at an affordable markup over mass-market brands while drastically undercutting legacy specialty health-food store pricing.

This is only possible thanks to their initial jump in a lower cost country like Bulgaria back in 2009, and nowadays it’s sustained through their economies of scale.

To be perfectly honest, it is a challenge to start from scratch today, especially with the inclusion in the Euro which provides a great position for Yani and his team. Starting early and having scale are effectively a moat.

Pricing Power. Value-Add Cost-Plus

Even though we haven’t been able to find accurate and reliable measures of their market share, multiple sources affirm that the company (combining private label and white label) sells the majority of products in their category within Bulgarian borders.

Because Smart Organic is the dominant organic market leader in Bulgaria by a wide margin, it holds substantial negotiation power with major supermarket chains (Kaufland, Lidl, Billa)… if a dispute arises, half of a retailer’s organic shelf space would go empty.

A lot of these collaborations, especially with German supermarket chains, make a very strong case for their positioning both inside and outside of the country.

Smart Organic deliberately avoids competing in low-margin commodity auctions. Instead, it prices its products based on functional differentiation, speed to market, and dynamic cost management:

The company avoids complex commodity hedging (except for selective forwards like USD or cacao). Instead, it leverages 1-year supplier contracts and directly passes input price swings through to retail and B2B clients.

Q: A lot of these are essentially commodities that you’re purchasing. How do you deal with the prices? Do you have a hedging strategy, or do you just have multiple sources and just buy from the best at any given point in time?

Yani: We have multiple sources, but we also like our long-term suppliers that we work with them long-term. We check prices to make sure nobody speculates with us, but we like to work with the same suppliers for longer. We have many suppliers.

We don’t do hedging right now.

We can do it; maybe we’d plan to do the featuring with Cacao, but the market was so volatile and we also it would prefer to wait, and our clients also they understand when that some raw material is going up, they see that and they accept higher prices. I mean, our B2B clients are supermarket chains and everybody, so right now we have preferred to pass on the price movement up or down to our selling price (rather) than hedging.

But the cacao is something that we can hedge. Others we cannot hedge. Other raw materials, they’re not… I mean, you cannot hedge hazelnuts or pistachio, etc.

The company procures raw materials globally from over 30 countries via a dedicated 5-person team.

To manage currency volatility, they utilize forward contracts (such as buying forward US dollars) when necessary, though they primarily absorb or pass foreign exchange and commodity price fluctuations directly into their final selling prices.

While gross margins on own brands are higher before marketing spend, the bottom-line net return between proprietary brands and custom private label runs is roughly equal.

Private label projects achieve unit economics through volume and zero marketing overhead, while own brands capture long-term retail pricing power.

Long-term White-Label Contracts

Smart Organic balances its revenue roughly equally between private label production and proprietary brands.

[Note: this one quote is parraphrased given his English was not too good]

Q: What would you guess is the balance between private label and white label

Plant Manager: I cannot speak for other plants, but for us, it comes out to be about half-half. At times, contracts for white label can freeze because they maybe are reordering inventories or negotiating prices or something, so for a week or a month we almost only produce our own stuff, but at the end of the year the balance is always 50/50.

They completely avoid low-margin commodity auctions, focusing instead on unique custom projects for retailers where they only compete with themselves.

Again, net margins between private label and own brands equalize once marketing expenditures are factored in.

Q: It seems the market here has a few very dominant German brands, like the Kauflands of the world. Is it hard to deal with these people? Are they tough negotiators, or are they more friendly than one would expect?

Yani: Some are more friendly, some are less friendly. It’s never easy. Whoever tells you it’s easy to negotiate with the big supermarkets is not true. It’s never easy.

We’re managing right now in a good position, especially in Bulgaria, in a very good position because we are market leaders with a big distance to everybody else. So if we don’t agree with them, half of their organic shelf will be empty. And it’s a growing category. They don’t want that for sure.

So we have a little bit more negotiation power right now (than in the) last 7, 8, 10 years. […] So it’s quite balanced. It’s a balanced thing. Give and take.

Zelen Bio (ЗЕЛЕН). Their Own Retail Shops

Back in 2008, before Smart Organic grew into a massive international manufacturing and distribution company, founder Yani Dragov started his journey in the organic sector by opening one of the very first physical organic food stores in Bulgaria under the name Zelen.

While Smart Organic’s primary scale today comes from B2B manufacturing, global exports, and its proprietary brands (Dragon Superfoods, Roobar, Kookie Cat), the Zelen retail arm serves as their direct-to-consumer footprint.

These physical shops (and their accompanying online platform, zelen.bg) offer a curated selection of organic groceries, superfoods, natural cosmetics, and fresh healthy snacks.

Our take is that operating their own retail shops gives the company a direct testing ground for new product launches, consumer feedback, and retail trends.

It’s great to focus on large-scale manufacturing, but first you need to focus on understanding the end consumer and this is the perfect way of doing exactly that.

Major Base Currency Changes

Starting 2026, Bulgaria officially changed its currency from Leva to Euros. We should know, we were there…

… and that has heavily affected all businesses.

On the one hand you have cost pressures from raw goods, distribution and wages. On the other hand, you have the lag of everyone adjusting to the new prices.

We’d say it’ll take 2 years for everone to adjust but in the mean time core goods ranging from cooking oil all the way to real estate should see the changes happening nearly in real time

Q: Have you had any issues with the transition from Leva over to Euros in the sense of raising capital but also in terms of costs, particularly on the financial end of things right now?

Yani: We haven’t had any issues. Of course, when we take down new loans, they might be a little bit more expensive. We haven’t yet taken a loan since we’re in the Euro. Last, just before, I mean, in December, we signed a big loan for our new project. We signed it still in Leva, so it was on the outterms. So, we might need to pay somewhere around a little less than 1 % more interest.

Now we’re paying about 2.3%. We might need to go to 1%, maybe more. 3 points or something. It depends on the year report. I usually pay for something like 1 % plus the year report, plus three months year report.

Q: What about on the cost end, so on the operating end, have you seen any changes because of the currency change? Cost pressures, materials pressures, imports restrictions.

Yani: We buy most of our materials abroad.

Q: Well, I was just curious. I wouldn’t expect any, but maybe you had like some random guy who increased, prices by 30% and you were like, what are you doing, man?

Yani: No, I think this is the sphere of solitude, generally (we’re safe from) competition in the market. One guy decides (to increase) so we go to another guy.

It happens in retail. I think it happens on these small tickets. If you buy something, if it was costing 129 leva and then now somebody makes it 99 euros (194 leva). But on the small things, it’s the bigger change, and it’s mostly on the retail.

Competitive Advantage and Runway

We outlined the core competitive advantages here:

Beyond these core advantages, and to achieve long-term success, management is working on deep market penetration in key Western European regions.

Smart Organic prefers establishing its own local distribution and marketing teams rather than relying solely on third-party brokers (with active setups already in the UK, Germany, and Romania).

Unlike most other companies we see, SO has the ability to scale up, from our perspective, infinitely. There is no ceiling preventing sales, margins, and consequently market cap from scaling 10x or 100x from here.

The growth percentage on a given year, though, may be capped as growing in volume requires capacity (and CAPEX) and growing in price may only be possible by retaining their position plus inflation. This latter option is really not a lever they can pull.

Product Cannibalization & R&D

Management embraces internal product cannibalization, preferring its own superior products to compete against and replace older lines rather than losing shelf space to external competitors.

An in-house R&D team of 6 people operates out of a dedicated laboratory, prioritizing rapid testing and market speed over exhaustive analysis.

Q: I’m asking because one of the issues I’ve seen is, especially when you put them all in the same shelf, there’s a little bit of cannibalization. Your products compete against each other. How are you combating that? How are you setting up a shelf, for example, in one of these supermarkets?

Yani: I don’t mind competing with our own products. I prefer that we compete with our own products, not somebody else.

So whenever we launch a new product and it’s super cool, and even if it will cannibalize some of our old products, we don’t mind doing that. We’ve done that in the past.

When doing that, it’s fine because, I mean, if you have a good product, better launch it and people will buy more of it. Even if you kill a little bit old, something old from yours, it’s fine.

Facilities Overview

The company has two major production centers and they recently raised money in April to build another one.

Note: A lot of what happens internally remains extraordinarily confidential, so we cannot really disclose a lot of what we know, and we probably only know 20-30% of what’s going on inside of these.

Karpuzitsa Base (Sofia)

The company’s established operational base features specialized manufacturing and warehousing spaces (including an expanded 5,000 m² building equipped with a 330 kW rooftop solar park).

This site located at 6 Damyanitsa str., 1619 Sofia, Bulgaria, serves as both their head office and the original production center. All managerial decisions are taken from this building right here.

This location also houses the corporate R&D laboratory where a dedicated team tests and iterates new product formulations.

We only wish we could be part of THAT team. That really does sound like a fun job.

Bozhurishte Mega-Facility (Industrial Zone near Sofia):

To support its heavy international export demand across 60+ countries, Smart Organic constructed a state-of-the-art 6,000 m² production and logistics complex in Bozhurishte.

It was built intensively throughout 2023 and 2024, received its official Act 16 (Certificate of Occupancy) in December 2024, and officially commenced production in early 2025.

The facility is now being expanded with an adjacent 6,500 m² second production and warehousing base, which doubles capacity.

Operationalized to triple manufacturing output, this facility features highly automated lines dedicated to chocolate products, nut butter cups, spreads, wafers, and raw bars.

Q: So if I’m not mistaken, Bozhurishte would be your facility, the stuff you set up in 2024.

Can you talk a little bit about capacity usage since it is a major project and whether you've gotten to a hundred percent use? Whether you’re able to absorb the overhead, the fixed cost that comes with it? Look at it from two years down the road, do you think it’s been worth it? What would you have changed over there? Give me your thoughts on the facility and how it’s working out for the company

Yani: In terms of capacity, it depends on different aspects. One is the capacity of the machinery. One is the capacity of the people you have and the people with how many shifts you are making.

Q: Yeah.

Yani: So with the current machinery, we can produce much more. We have the capacity. At the same time, now we’re building a new factory because we’re doing different projects, different products. So we have capacity for one product and we’re growing, but we have developed an amazing product we want to launch and we need new machinery for that. And some of the coolest products help us also open doors where we can sell some also more simple like more simple products.

So that’s why we want to invest now, even though we have some capacity. We invest in a new factory, and we already have the financing for that. Now in the process of construction

As a fun fact, and because you probably don’t understand the context, building or expanding one of these facilities is a massive endeavor in every single sense of the word.

If Eastern Orthodox Europeans quite literally baptize (they're technically blessed by a priest) their cars for around €50 plus the taxi ride for the priest, you can imagine what building something like this entails.

And if you can’t, as they say, “a picture is worth a thousand words”.

Manufacturing Capacity, CAPEX and OPEX

New facilities (such as the Bozhurishte expansion) require heavy physical capital for buildings and machinery, but we know internal estimations are set achieve to fast capital payback period of 2 to 3 years once operational on $20m invested.

Sources also confirmed that future manufacturing will prioritize full automation on dedicated single-product lines to handle high volume efficiently.

This may seem like a minor topic, but beyond raw goods, wages and administration are by far the largest cost, adding up to nearly 31.9% of revenue in 2025.

Factory wage growth in Bulgaria historically ran at double-digit percentages driven by tight labor supply, but labor intensity and wage pressure have cooled off as general manufacturing demand stabilized and certain external industrial plants closed down.

In these processed the company also has to manage inventories. The company manages raw material inventory buffers spanning 3 to 4 months.

To eliminate legacy system errors and streamline cross-border integrations with e-commerce platforms (like Shopify) and marketing tools, they transitioned to Microsoft Business Central.

Note that this system is not even close to perfect.

There’s a great example of a past inventory write-downs were largely administrative or system-based rather than product spoilage. We’re talking about their €200,000 write-off caused by an ERP error that failed to track wooden pallets exiting the system.

This has been confirmed as a mistake by management and is also the main reason that prompted a complete system migration to Microsoft Business Central together with more frequent and rigorous physical inventories.

Raising Money. EU and Bulgarian

When looking at where to list the company, the most logical starting point for Smart Organic was right at home in Bulgaria.

While many growing companies of similar scale opt for a dual listing on prominent Western exchanges like Germany, France, or the UK, management has deliberately chosen to stick to the local market for now.

Maintaining a listing in a market like Germany comes with heavy overhead price tag, running an estimated €200,000 annually in various fees and costs.

Because management’s goal is to fund business operations efficiently rather than pay for prestige or popularity, paying those recurring costs without an urgent capital requirement simply doesn’t make sense.

Instead, management takes a pragmatic approach: if a massive capital-raising project materializes down the road (anywhere from €30m to €50m confirmed by management), that is when they will pull the trigger on a German listing.

Until then, utilizing the local Bulgarian exchange keeps overhead low while the stock price grows alongside the underlying business

Q: Okay, there’s a cost embedded into all of these but more in terms of visibility… because investors, particularly Western European investors, they will participate in projects that are listed in countries like Germany but not so much in Eastern Europe.

Yani: Yes, but keep in mind we are being listed because we want to finance our business. We’re not listed to be popular.

And if we get the money that we need in our local stock market, then that’s cheaper for us. And if the market appreciate our stock. I mean, if our stock value grows with the growth of the company, I’m happy. I don’t need to go abroad, spend a lot of money. Because if we get local investors doing that, why bother about German stock market?

But the time will come because we’re growing a lot. Next time we need to raise a big amount. I mean, now €10 million, we made a small round.

But my plan maybe after 2030, maybe about three, four years to make what we have the need, especially if we grow outside Europe. And these are our plans, we want to expand to build factories also on other continents. And we just will need much bigger amounts of money.

As pointed out before on the facility section and just now in the transcription, the company raised €10.6m to expand their Bozhurishte facility in April 2026.

The only thing we would note is that, even though obvious, this increases the free float and therefore derisks for us in any investment as it increases liquidity for the company.

Here’s the presentation for the raise in case you want to dive in a bit deeper. It includes their entire product catalogue at the end which is not a recommended read for people on a diet.

Smart Organic Presentation Capital Increase 2026

9.79MB ∙ PDF file

Download

Download

Related-Party Matters

We can’t claim to have done a proper analysis without stopping and acknowledging their related party transactions. Even though the company is under the complete control of it’s CEO, governance still matters and on that we must underline the influence of Yani’s brother in all of this.

Yani Dragov's brother is Konstantin Veselinov Dragov (Константин Веселинов Драгов), with whom he co-manages and co-owns joint business ventures such as Dragov Brothers OOD. He’s also been involved with the company until recently where he got replaced as a director (March 2024).

Related-party activities (such as distributing cosmetics for Orenda Group, aid to “yoga studio” The Art of Living or light production work for family-associated entities) represent negligible turnover relative to group scale, and board structures have been formally adjusted to include independent members as part of public compliance.

We’re not big fans though (of the whole thing), but we can’t do anything about it either.

Note: We know very little about it, but The Art of Living looks to me like a mega cult (on the surface). We asked Claude about it, as we don’t want to waste time here, and apparently it’s a legally dubious international wellness and humanitarian brand founded in 1981 by a guru-like figure called Sri Sri Ravi Shankar.

Take out whatever conclusion you want from this data point, we’re only here to inform not to opine.

👥 Management

Yani Dragov – CEO
Yani is the co-founder and Chief Executive who guiding pretty much everything including the company’s overall strategy, international expansion, and production operations.

Originally transitioning from a background as a financial analyst, Yani maintains a firm grip on operational control as a strict "red line" to prevent losing majority oversight while the company scales toward its long-term goal of hitting €1bn in revenue.

Even though in Bulgarian, this chat was quite good and it tells you a lot about his qualities and character. In this TEDx talk Yani Dragov shares how foundational spiritual principles… stuff like radical sincerity, living in the present moment, taking full responsibility instead of complaining, practicing meditation for creative problem-solving, and focusing on a win-win mindset.

He claims all of these elements helped him scale Smart Organic from modest beginnings into a major international manufacturer.

You’ll need to read the English translation though… so you’re welcome.

Entrepreneurship And Spirituality Yani Dragov Tedxstarazagora Tedx Talks [en]

67.3KB ∙ PDF file

Download

Download

Teodora Karadzhova – CMO
Teodora is the Chief Marketing Officer who oversees brand development, commercial positioning, and market growth across international retail channels.

Petya Stoyanova – CFO
Petya is SO’s Chief Financial Officer managing dialy corporate finances, financial planning, regulatory reporting, and fiscal administration.

🤝 M&A

For Smart Organic, international market entries (such as entering Romania or the UK) are frequently triggered by opportunistic acquisitions of locally known brands, allowing them to leverage already existing (brand) visibility while manufacturing the products in-house to retain their high margins.

To date, Smart Organic has executed a disciplined, highly opportunistic inorganic growth strategy that complements it’s already excellent organic strat.

Rather than buying expensive, fully priced revenue streams, management targets asset-light or distressed consumer brands that possess strong product-market fit and consumer pull, but suffer from broken unit economics or sub-scale manufacturing.

By acquiring these targets through accelerated M&A processes or bankruptcy proceedings and immediately shifting production into its automated Bulgarian facilities, Smart Organic rehabilitates their cost profiles, purchases client portoflios and unlocks immediate gross margin expansion.

We’ll review each one indicidually but here’s a overview of what they’ve done to date.

Comprehensive M&A Audit (Last 7 Years)

Please note that many of the price tag figures are not publicly disclosed and are derived from our own internal financial analysis and estimates, meaning there may be some inaccuracies in these valuations.

Amigos International Trade B.V. (Acquired January 2022)

Finalized in January 2022 for an undisclosed amount estimated at roughly €400k, this 100% equity acquisition of Netherlands-based organic food and sustainable sweetener distributor Amigos International Trade B.V..

Known for Red Ape wild-harvested Indonesian Arenga sugar protecting rainforest orangutan habitats, the purchase was designed to establish a direct Benelux distribution foothold and source ethically branded sweeteners.

Although it initially gave Smart organic market access, the setup proved difficult to scale independently. Management ultimately made the decision to wind down and close the non-operational entity, fully writing off its initial asset carrying value and minor €30k goodwill allocation to protect capital.

Biopack EOOD (Acquired July 2022, Merged March 2023)

Finalized on July 30, 2022, the 100% equity acquisition of Biopack EOOD was completed via a purchase agreement with an estimated net asset book value transfer of €140k.

These are key supplier of compostable HORECA (above) packaging, cups, and eco-friendly bags designed to replace single-use plastics

Designed to capture supply chain synergies for sustainable packaging materials and expand HORECA channel reach, management executed an internal legal absorption via a merger-by-acquisition (вливане) on March 14, 2023.

This legally dissolved Biopack and transferred its net assets directly into the parent company on May 18, 2023, ultimately eliminating external supplier markups on eco-packaging, saving over 55 tons of historical carbon emissions, and streamlining administrative overhead through full corporate consolidation.

Santulita OOOD / Frudada (Acquired July 2022)

This company was and still is leading Bulgarian producer of 100% natural, cold-pressed fruit and vegetable smoothies and juices sold under the Frudada brand without added sugars, preservatives, or water.

Acquired on July 1, 2022, the 70% controlling equity stake in Santulita OOD involved a purchase price of €250k (~490k BGN).

Part of this transaction was settled via newly issued Smart Organic shares transferred from the majority shareholder, generating a corresponding premium reserve addition, alongside a put/call option structure exercisable between June 1, 2026, and June 1, 2028, to buy out the remaining 30% minority stake.

Designed for immediate expansion into the cold-storage liquid beverage category to complement dry-shelf snacks with refrigerated health-conscious drinks, the acquisition added a premier regional cold-press brand with €1m+ in baseline revenue (~2% of group sales) and solidified domestic leadership in functional beverages.

Anchoring a major chunk of group goodwill at €837k, the business has since been optimized to generate steady incremental cash flow despite initial break-even friction.

Naughty Nuts Vertriebs GmbH (Acquired 2023/2024 Integration)

Founded in Cologne in January 2021 by Benjamin Porten and Lorenz Greiner, Naughty Nuts is a fast-growing German bio-food startup specializing in innovative flavored organic nut spreads (fantastic stuff like salted caramel and raspberry rumble) distributed across 1,200+ retail locations including REWE, EDEKA, and denn’s.

Acquired out of insolvency and bankruptcy proceedings for a nominal cash consideration of €150,000 for assets only with zero historical liabilities, Smart Organic established a German subsidiary (Naughty Nuts Vertriebs GmbH) holding a 68% controlling stake, while the original founders retained 32% and stayed on to operate the business.

Designed to establish a high-velocity direct-to-consumer and retail footprint in the core DACH market while rescuing a distressed brand suffering from high-growth cash burn, the acquisition addressed a company that had generated €2.5m in turnover during 2022 before falling into insolvency due to a lack of institutional growth capital.

Smart Organic solved this instantly by shifting production from high-cost German co-packers to its low-cost Bulgarian facilities, a single operational fix that restored gross margins and drove a 100% sales increase for Naughty Nuts over the course of 2025, perfectly validating the group’s “buy-and-fix” playbook.

LoveRaw Limited (Acquired April 2025)

Founded in 2013 by Manav and Rimi Thapar, LoveRaw is a premier UK-based vegan confectionery brand famous for palm oil-free, dairy-free chocolate wafer bars, peanut butter cups, and choc balls, which at its peak was stocked in 13,000 retail outlets across 25 countries and generated £3m in revenue, earning a spot on the Financial Times FT 1000 list.

Clients include Tesco, Asda, Waitrose, Ocado, Co-op, and Whole Foods.

Acquired via an accelerated M&A process while under administration, with Joint Administrators Jimmy Saunders and Mike Lennon appointed on April 16, 2025, the brand and business assets were bought through Bettfr Food Limited (legally still LoveRaw), a wholly owned UK subsidiary of Smart Organic.

Designed to aggressively scale the group’s footprint in the UK retail market, cross-sell into Tier-1 Western European grocers, and absorb high-potential confectionery IP, the transaction targeted a brand that had suffered sharp revenue contractions in 2024 due to supply chain disruptions and investment bottlenecks.

Smart Organic immediately began integrating production into the newly opened Bozhurishte mega-facility, with management targeting medium-term run-rate revenues of £6m to £9m from LoveRaw-branded products alone, alongside high-margin private label upside in the UK region.

💵 Comprehensible Financials

As always, we’ll keep this part simple. We look for five core traits in every company we own:

1. Sensible leverage. Healthy debt levels and smart, disciplined use of it

2. Profitable growth. Steady revenue expansion supported by strong margins

3. High returns on capital. Efficient use of every dollar invested or employed

4. Cash discipline. Capital requirements and consistent free cash flow

5. Shareholder alignment. Minimal dilution and thoughtful per-share allocation

Note: Please understand that we used USD as the base currency for all of these figures, as it provides a much more stable constant YoY comparison following the EUR integration. In terms of underlying trends, this is more accurate, and for the valuation itself, we will translate the final figures into EUR.

The long-term trend for returns should see an ROIC or ROCE of around 20%. However, this figure will spike down hard in times of investment, essentially through a denominator effect where we have to spend a substantial amount of money to acquire assets (land, buildings, machinery, etc.) to build out capacity while revenue and margins experience a lag.

However, because the investment was recently done, we can pretty much guarantee that we are currently on the lower end, especially after the April 2026 raise. We should now expect the trend to be upwards from the 2025/2026 figures.

Read more

A great place to start is our latest post.

We’ve published one on the first Wednesday of every month since June 2024… that’s 27 editions and counting.

Everything we’ve built, our full thought process, and the underlying data behind our decision-making, distilled into an extraordinarily thorough 30-minute read.

Here are the easy-access links to every series mentioned in the video, in the exact order we cover them:

• Pick of the Week (Mini Thesis)

• The Institutional Deep Dive (Full Thesis)

• The Hermit Portfolio

• Priority Briefs

Hope you enjoy!

Alejandro Yela

Get the Unredacted Report

Index

1. Executive Summary & Asset Allocation

• 1.1.- Public Equities: Detailed YTD Performance, Asset Allocation, and Holdings Overview

• 1.2.- Private Assets: PE Update and Core Business Developments

2. August Review

• 2.1.- Macro Context, Market Observations and MicroStrategy (now Strategy)

• 2.2.- Cash & Treasury Compartment: Currency Transition, Remuneration & FX Drag

• 2.3.- ETF Compartment: Broad Index and Emerging/Frontier Markets

• 2.4.- Opportunistic Compartment: Individual Names and Goals

3. Holdings & Portfolio Activity

• 3.1.- Position Sizing, Entries and Exits

• 3.2.- Earnings Releases, Upcoming Catalysts, Insights and Updates

• 3.3.- Options Strategy Update

Briefing

This 27th edition is packed with context on what is unfolding at both the macro and micro levels.

The tides are shifting in the SaaS-pocalypse theme just as we predicted (and positioned for), we are applying our schmuck insurance principles in creative ways, and we are evaluating a few new UK names to round out a portfolio of already excellent companies.

The overall premise of our strategy comes down to a simple rule:

That is why we plan, stress-test, and iterate every day on our portfolio architecture. A clear example is how we’ve built directly on the blueprint outlined in last month’s update.

We truly love having these conversations with our community, and as always, we are deeply grateful to have you here.

This is quite an extensive report on everything that has unfolded over the past month… and I can guarantee you a lot has happened.

Feel free to use the index to jump directly to the sections you find most interesting, as reading the entire memo in one sitting might feel a bit dense.

While it isn’t overly long, it is definitely packed with very high-signal detail that you won’t find anywhere else.

This publication is confidential and intended solely for the use of the person or entity to whom it is given or sent. It may not be reproduced, distributed, or transmitted without the author’s prior written consent.

By accepting to receive the full post as a 🧙‍♂️ Inner Circle member, the recipient agrees to be bound by the foregoing limitations.

None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.

📊 Portfolio Overview

Returns (Asset-Weighted)

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You haven’t just subscribed to a newsletter. You have gained access to the research engine of the previously hedge fund Equity Focus FIL, and now our permanent home for businesses, Hermit Ventures.

Whether you found us via a friend, an algorithm, or pure luck, you are here because you suspect that everyone else is looking in the wrong places.

And… You’re probably right.

Our Edge: The “Too Small” Advantage

We focus exclusively on extraordinary companies with a market cap under $2bn.

Why? Because big funds can’t buy them. They are structurally forbidden from owning these stocks due to liquidity rules.

That leaves the field open for us. We exploit this information asymmetry to find mispriced monopolies, forgotten compounders, and deep-value assets.

Our Process Explained

We hunt for certainty. Our system demands patience. On average, we’ve uncovered 2 to 5 purchasable companies per year, which doesn’t sound like much until you see how these have compounded for us at 21%+ over the last 8 years.

As you can probably imagine, when we find one, we don’t hesitate.

Every investment is the result of a 3+ month due diligence process:

• 📊 Financials: We rebuild the statements from scratch.

• 📑 Filings: We read every footnote.

• 🕵️ Scuttlebutt: We interview management, suppliers, and competitors.

• 📈 Technical: We thoroughly review price action for entry points.

Navigating The Hermit (Your Deliverables)

We publish heavily researched content twice a week. Here is how to use it:

1. The Institutional Deep Dive

• For Paid Subscribers

• A 30+ page thesis covering the business model, vetted competitive advantages, catalysts, valuation, and risks.

2. Priority Briefs

• For Inner Circle

• We share direct and actionable insights from our 1-on-1 interviews.

3. The Hermit Portfolio

• For Inner Circle

• Full transparency. We share exactly what we are buying/selling with audited returns.

4. Pick of the Week (Saturdays)

• For Paid Subscribers

• A concise snapshot of a company on our radar. It focuses on one or more key angles: Asset Value, Backlog, or Margins.

5. Our Investing Journey

• For Everyone

• Essays on cognitive biases, the psychology of money, and the reality of running a business.

Hall of Fame (Start With These)

If you are new, don’t start with today’s post. Start with our Hall of Fame.

These write-ups demonstrate exactly what we do and how we do it.

The Monopolies (Our Bread & Butter)

• Limes Clinics: [Mostly Free] The world’s most exclusive mental health operator. High margins, high barriers to entry

• Crox: [Mostly Free] The ultimate Ugly-Cool monopoly. A masterclass in high-margin manufacturing (60% gross margins) and the art of the brand reset

• Computer Modelling Group: The dominant duopoly in reservoir simulation software for oil & gas with EBIT margins north of 40% since 1978.

The Compounders & Consolidators

• Atlas Engineered Products: A structural winner in the Canadian building market. “Truss(t)” the process of consolidation

• QXO: The “Brad Jacobs” Playbook. How a serial compounder is building the next construction giant

• Omni-Lite Industries: Inside a multi-division Aerospace & Defense powerhouse making precision components

The Special Situations

• Spartan Delta: An Oil & Gas consolidator with massive operational leverage. A masterclass in acquisition-driven value creation

• Aurora Spine: How a screwless, minimally invasive approach is disrupting the $10B spinal implant market

• BluMetric: The water-tech turnaround with a massive backlog of military contracts

The Mindset

• Why Bitcoin Is Going to Zero: A framework for valuing non-productive assets

• The K-Shaped Reality: Navigating the widening gap between the haves and have-nots in a high-interest, AI-driven labor market

The Toolkit

We believe in open-sourcing our methods. Here are the tools we use regularly:

• Valuation Tool: The simple model we use to sanity-check price targets

• The Scuttlebutt Guide: How to interview management like a journalist

• The All-Weather Portfolio: How to structure your capital for decades of survival

Skin in the Game

We are capital allocators. We have been doing the job successfully for over a decade, with independently audited returns since 2018.

We began as allocators in a family office in 2014.

We then set up and operated Equity Focus FIL, our regulated European hedge fund (no longer adding LPs).

While we continue buying listed stocks, we have expanded the team to acquire entire companies and operate them directly through Hermit Ventures.

Every action since June 2024 is published here. Feel free to verify.

Welcome to the community!

Alejandro Yela
Hermit Ventures

As always, we’ve included our usual short overview, in this case one for each company, but if you’re already familiar with the companies, feel free to skip straight to the earnings review and the insights from our 1-on-1 interview.

Access the Inner Circle

Priority Briefings. Investing is dynamic, so our research never sits still. We don’t file a report and walk away; we maintain an active, ongoing dialogue with the key stakeholders and management teams of our past, present, and future holdings.

Think of these briefs as your “insider access” to those calls. We bring you direct contextualized highlights and actionable updates. You’ll see exactly how the business is evolving in real-time, long before it hits the quarterly report.

This series is exclusively for 🧙‍♂️ Inner Circle members

None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.

Omni-Lite Industries ($OML) Brief

Omni-Lite Industries (TSXV: OML) is a precision manufacturer serving niche corners of the aerospace and defense sectors. While publicly listed in Canada, its core manufacturing engine is firmly rooted in North America across AS9100D- and ITAR-certified facilities in California, New Hampshire, and Ontario.

They are essentially the high-reliability precision backbone supplying the fasteners, electronic modules, and cast alloy components that keep modern commercial aircraft flying and defense systems operational.

The company operates through three integrated, highly technical divisions that solve difficult engineering, weight, and extreme-heat challenges:

• Multi-Die Cold Forming (California): Instead of slowly chipping away at expensive metal using traditional subtractive machining, Omni uses multi-station presses and custom sensor-equipped tooling to cold-shape superalloys (such as Inconel, Titanium, and A286) into complex, near-net-shape fasteners at high speed with close to zero material waste.

• Defense Microelectronics (Monzite in New Hampshire): Specializes in designing and manufacturing custom RF, microwave, and millimeter-wave modules, alongside next-gen Gallium Nitride (GaN) sensor electronics. These high-bandwidth assemblies serve as the brains for missile guidance, radar systems, and air defense platforms.

• Precision Investment Casting (DP Cast in Ontario): Pours complex superalloys using proprietary counter-gravity fill techniques and in-house non-destructive testing (NDT) to produce flight-critical engine housings, brackets, and structural components capable of withstanding extreme thermal stress.

Their production is scaling up across two high-priority application areas:

• Commercial Aerospace Programs: Supplying qualified blind fasteners and structural hardware for composite-heavy, high-build-rate aircraft like the Boeing 737 MAX, 787 Dreamliner, and Airbus A320neo. All of these platforms require 2-3x more engineered fastener content than legacy planes.

• Missile Defense & Radar Modernization: Producing ruggedized RF driver modules, GaN sensors, and structural engine hardware for defense prime programs, including SHORAD (Short-Range Air Defense) systems and tier-one jet engine platforms (Pratt & Whitney, Rolls-Royce).

Omni-Lite operates as a qualified, sole- or dual-source domestic manufacturing partner for major aerospace OEMs and defense contractors. With production lines operating at roughly 60% capacity and strict ITAR/Buy America requirements locking in high switching costs, the business offers massive operating leverage alongside a new opportunistic and accretive acquisition strategy focused on bolt-on aerospace roll-ups.

If you want more information about the company, check out our write-up:

AND…

California Nanotechnologies ($CNO) Brief

California Nanotechnologies (TSXV: CNO) is a quasi-monopoly manufacturer in the advanced materials sector. While listed in Canada, it is entirely US-based, headquartered in Southern California, and is currently the only commercial provider of its core technologies in North America.

They’re essentially the high-tech foundry for the next generation of materials that will build the future of space travel, defense, and clean energy.

The company specializes in two highly technical processes that solve the hardest problems in material science… making things stronger, lighter, and more heat-resistant.

1. Spark Plasma Sintering (SPS): Traditional manufacturing melts materials to form them. SPS uses pulsed electricity and massive pressure to bond powders into solid parts without fully melting them. This is faster, uses 80% less energy, and creates super-materials (like transparent metal alloys) that traditional methods simply can’t handle.

2. Cryogenic Milling (Cryomilling): Imagine a high-tech rock tumbler filled with liquid nitrogen. Calnano grinds powders at extreme sub-zero temperatures, which prevents heat-related damage and creates alloys up to 3x stronger than standard materials.

Their production is scaling up across two high-priority application areas:

• Defense & Aerospace: Producing custom, ultra-dense metallurgical and ceramic parts built for extreme operating environments including missile systems, armor, and military equipment.

• Nuclear Energy (SMRs): (A more recent pivot into…) Manufacturing consumable hardware for next-generation Small Modular Reactors. This includes components designed to withstand extreme radiation and heat, such as reactor control rods and thermal heat shielding. These parts wear down during reactor operation and require ongoing replacement cycles.

Calnano operates as a specialized domestic partner for commercial clients, aerospace primes, and government-backed programs looking to onshore critical component supply chains.

A move encouraged (and funded) by the current administration.

If you want the full picture of the company, check out our write-up:

Note: After this conversation, we placed two limit buy orders for Omni-Lite at C$2.10 and C$2.00, one of which was partially filled. We have not placed any orders for Calnano.

We are disclosing this now because the share price has spiked, so the risk of being front-run is minimal. The takeaways from this conversation are invaluable and it’s a great example of how (ongoing) Scuttlebutt is the best way of investing. Investing through conviction.

Earnings Update ($OML)

Read more

Because of these catalysts, looking at standard EV multiples or ROIC figures is essentially useless.

Read until the end and you’ll get 2 or 3 valuable insights that Claude simply can't grasp… drawn both from our deep understanding of FDA approval pathways (like we broke down for MODD) and direct conversations with stakeholders.

Hold onto your seat and let’s break this one down.

As we now do every week for transparency, here is our list of past Pick of the Week posts and their returns since publishing:

• All picks (equally weighted): +21.06%

• Our picks (executed): +29.83%

Note: We’ve been traveling since Thursday to visit companies, so this data was last updated on August 20th. Moving forward we will eliminate any picks we don’t hold past one year. You may notice CROX is our #2 PoW.

Pick of the Week. A curated series of high-conviction research on companies currently under our microscope. We screen for specific dislocations where the market has mispriced the balance sheet or earnings power.

None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.

💊 Elite Pharmaceuticals Inc. ($ELTP)

⭐ Overall Grade: 8.5 / 10

Elite Pharmaceuticals ($ELTP) has executed an internal model turnaround by transitioning from a partner-dependent R&D shop into a vertically integrated specialty generic manufacturer, capturing all of the downstream margins under its proprietary “Elite Labs” label.

Read more

What if the stock market crashes tomorrow and I lose 54% of all MY money?

What if I sell my company today, and tomorrow the buyer flips the business for 10 times what I got?

Well…

Schmuck Insurance is corporate law and Wall Street slang for a very real protection clause in these types of deals.

That’s great and all… but why should you care, and how do you actually use it?

Let’s break it down.

Subscribe now

Where Did the Term Come From?

If you’ve ever watched Shark Tank or Dragon’s Den (the UK version), you’ve almost certainly seen this play out.

But the phrase was actually coined (or at least popularized) by MHR Fund Management, a private equity firm led by investor Mark Rachesky, during high-stakes restructuring deals in the late 1990s and 2000s.

In distressed debt and bankruptcy workouts, existing investors or creditors are routinely asked to take a massive haircut, implying they have to sell their equity or debt for pennies on the dollar to let new capital save the company.

Naturally, those sellers are terrified of getting squeezed out right before the turnaround happens.

To bridge the gap, deals began including clauses that said, in plain terms:

“We’ll sell to you at this low valuation now, but if you re-sell the company or go public within 18 to 36 months at a massive profit, we get a cut of that upside.”

Wall Street traders and lawyers quickly dubbed this “schmuck insurance”, effectively the financial equivalent of buying a safety net so you don’t end up in a business textbook under “Worst Selling Decisions in History.”

How It Works in Practice

Schmuck insurance isn’t a single formal contract title, but more so an umbrella term for several structural mechanisms:

1. Top-Up Provisions / Earn-Out “Trailing” Rights: If the new buyer sells the company or its core assets above a set threshold within a specific timeframe (say, 12 to 24 months), the original seller receives an additional cash payout to match a percentage of that higher valuation.

2. Warrants & Penny Equity: A seller agrees to a lower upfront buyout price, but retains cheap warrants or nominal shares. If the business explodes upward later, those warrants convert into real equity value.

3. Anti-Embarrassment Clauses: Frequently used in private equity across Europe and the UK, this clause explicitly mandates price adjustments if a secondary sale occurs shortly after the initial transaction.

Why Dealmakers Use It

Beyond protecting not-so-fragile egos, schmuck insurance actually gets deals done that would otherwise collapse.

When a buyer and seller are miles apart on valuation, sellers refuse to pull the trigger out of fear of seller’s remorse.

This is especially true during market turmoil, corporate restructurings, or general distress.

Schmuck insurance lowers the stakes and prevents cooling off of the market. In fact, it actively encourages market participation.

If the buyer takes control today while giving the seller enough lingering upside that they can sleep at night, you create a lot of win-win situations.

Plus, M&A bankers get to collect their delicious fees. Who wouldn’t want that to happen?

How Can YOU Use It?

In M&A, schmuck insurance protects against selling too early. In portfolio management, you can flip this logic on its head: spend a trivial amount of capital to insure against your own regret.

There are many ways to use this, but my favorite is using extreme out-of-the-money options and taking tiny positions in low-probability setups with extraordinary payouts.

(#1) Say you think SpaceX is going to the moon (pun intended) in 10 years.

Great! Put 0.5% of your portfolio into the stock and hold it forever.

Pro tip: maybe wait until it’s trading under a $1 trillion valuation first

(#2) Or maybe you don’t fully get Bitcoin, but you’re sick of hearing about how your idiot cousin Jerry is printing money while you sit on the sidelines.

Great. Take 0.2% of your portfolio and park it in a spot Bitcoin ETF.

Scratch the itch without the hassle of setting up cold storage, managing seed phrases, or pretending you understand anything that’s going on.

(#3) Or maybe you think a stock market collapse is coming in the next year.

Check the VIX first.

Is it below 15?

If not, wait.

Once it drops below 15, put 0.1% of your portfolio into 2-year dated Nasdaq puts with a ~15,000 strike.

But once a year, when reviewing your portfolio, consider these extreme tail-risk scenarios, pick the best one, and push 0.1% to 0.5% of your capital into it.

Framing the Thought

Back when I managed split accounts for different clients, I gave them a very rigid setup with a single opt-in option.

That’s the capital reserved for wild, speculative bets based on far-fetched theories. Denying that urge is pointless. It really is baked directly into human psychology.

It’s why people buy lottery tickets, play casino games, and chase moonshots.

We love simplifying probabilities, and we naturally hate dwelling on worst-case scenarios.

So stop fighting human nature and just build a firewall.

Run a disciplined, institutional setup with 90%+ of your capital to compound steadily, and use a small portion to chase your latest, craziest hunches.

Keep them strictly separate (separate accounts) to avoid bending the rule.

Just know that the most likely scenario is that nothing happens, and you lose a small slice of capital.

But, oh boy, if one of those crazy bets actually hits… well, you’ll love raking in the 1,000%+ return, and more importantly, the bragging rights.

And since this one is also on the not-so-long side, let me add on a little meme to spice up your day:

Do you love or detest these shorter, bite-sized breakdowns? Let us know in the comments below, and don't forget to hit the ❤️ button if you enjoyed this piece.

And if you liked this post, we’re confident you’ll love this:

As always, we’ve included our usual short overview of Calnano, but if you’re already familiar with the company, feel free to skip straight to the earnings review or the insights from our 1-on-1 interview.

Access the Inner Circle

Priority Briefings. Investing is dynamic, so our research never sits still. We don’t file a report and walk away; we maintain an active, ongoing dialogue with the key stakeholders and management teams of our past, present, and future holdings.

Think of these briefs as your “insider access” to those calls. We strip away the corporate speak to bring you the direct highlights and actionable updates. You’ll see exactly how the business is evolving in real-time, long before it hits the quarterly report.

This series is exclusively for 🧙‍♂️ Inner Circle members

None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.

California Nanotechnologies ($CNO) Brief

California Nanotechnologies (TSXV: CNO, OTC: CANOF) is a quasi-monopoly manufacturer in the advanced materials sector. While listed in Canada, it is entirely US-based, headquartered in Southern California, and is currently the only commercial provider of its core technologies in North America.

They’re essentially the high-tech foundry for the next generation of materials that will build the future of space travel, defense, and clean energy.

The company specializes in two highly technical processes that solve the hardest problems in material science… making things stronger, lighter, and more heat-resistant.

1. Spark Plasma Sintering (SPS): Traditional manufacturing melts materials to form them. SPS uses pulsed electricity and massive pressure to bond powders into solid parts without fully melting them. This is faster, uses 80% less energy, and creates super-materials (like transparent metal alloys) that traditional methods simply can’t handle.

2. Cryogenic Milling (Cryomilling): Imagine a high-tech rock tumbler filled with liquid nitrogen. Calnano grinds powders at extreme sub-zero temperatures, which prevents heat-related damage and creates alloys up to 3x stronger than standard materials.

Their production is scaling up across two high-priority application areas:

• Defense & Aerospace: Producing custom, ultra-dense metallurgical and ceramic parts built for extreme operating environments including missile systems, armor, and military equipment.

• Nuclear Energy (SMRs): (A more recent pivot into…) Manufacturing consumable hardware for next-generation Small Modular Reactors. This includes components designed to withstand extreme radiation and heat, such as reactor control rods and thermal heat shielding. These parts wear down during reactor operation and require ongoing replacement cycles.

Calnano operates as a specialized domestic partner for commercial clients, aerospace primes, and government-backed programs looking to onshore critical component supply chains.

A move encouraged (and funded) by the current administration.

If you want the full picture of the company, check out our write-up:

We discussed these updates a few days ago in the chat…

…but since many of you prefer a written format over audio, here is a concise breakdown of the key takeaways from the quarterly review and our conversation with the CEO.

Quick reminder to join the chat if you haven’t already:

Graphic Summary and Financial Update

Read more

Feel free to verify it yourselves… or ask Chatty/Claude to do so.

So as a thank you, and to keep building a top-tier community of serious investors, we’re making all past and future picks fully transparent, both retroactively and going forward.

You’ll find the ticker for each at the beginning of the article from now on.

Honestly, the ticker symbols are a tiny part of the story.

In fact, they’re almost secondary to what we actually do here… and that's the whole point. As a brand-new Inner Circle member put it earlier today:

The real sauce is in the legwork: the raw data, the scuttlebutt, and the repeatable process behind each decision.

For our paid members: don’t worry, your information edge remains completely intact.

Free public disclosures carry a strict 3-month lag, while you get immediate access to real-time research drops, primary data, and timely updates like our major write ups and priority briefs (e.g. yesterday’s NLH CEO insights), delivered cleanly and straight to your inbox.

What’s coming up:

• On Saturday, we’re unlocking one of these PoW write-ups for everyone.

• Next week’s PoW is a killer company.

• We’re also working on a major report for a company located just 20 km from us. We’ve gone all-in on primary research…. HQ visits, facility tours, management Q&As, and distributor checks.

Pulling all this together takes time, but it’s the only way to deliver what we care about most:

Subscribe now

Here are our last 5 picks if you want to check them out:

If you found value in this analysis, please hit the ❤️ button and share your thoughts in the comments. It helps us bring institutional-grade research to a wider audience.

And if you liked this post, we’re confident you’ll love this:

As always, we’ve included our usual short overview of Nova Leap Home Health, but if you’re already familiar with the company, feel free to skip straight to the update.

Access the Inner Circle

Priority Briefings. Investing is dynamic, so our research never sits still. We don’t file a report and walk away; we maintain an active, ongoing dialogue with the key stakeholders and management teams of our past, present, and future holdings.

Think of these briefs as your “insider access” to those calls. We strip away the corporate speak to bring you the direct highlights and actionable updates. You’ll see exactly how the business is evolving in real-time, long before it hits the quarterly report.

This series is exclusively for 🧙‍♂️ Inner Circle members

None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.

Nova Leap Health ($NLH) Brief

Nova Leap Home Health is an operational compounder scaling across the fragmented, multi-billion-dollar North American home healthcare and community care market. While technically a Canadian-listed entity (trading on the TSXV under NLH), the company manages cross-border operations delivering non-medical and personal care across the US and Canada.

To add precision, Nova Leap Health Corp. operates across 10 US states as well as Nova Scotia, Canada. Its geographical presence covers key markets across four main regions in the US:

• Canadian Operations: Nova Scotia (where corporate headquarters are located in Halifax).

• New England Region: Massachusetts, New Hampshire, Rhode Island, and Vermont.

• South Central / Southwestern Region: Texas and Oklahoma.

• Midwest / Central Region: Ohio, Indiana, and Kentucky.

• Southeastern Region: Florida.

Unlike capex-intensive healthcare providers burdened by heavy real estate footprints or complex hospital bureaucracy, Nova Leap operates a decentralized, hyper-local agency model.

They act as the architects of home-based care, filling the gap between hospital discharge and long-term independent living for an aging population.

Operational Overview

Nova Leap focuses on localized (sensitive and very personal) services designed to keep seniors safe, independent, and comfortably in their own homes:

• Core Personal & Dementia Care: Through its network of local agencies, Nova Leap provides essential personal care, specialized dementia care, companion services, and palliative care. By maintaining 10-15-year operational legacies and referral networks when acquiring agencies, they capture strong local market share while keeping client acquisition costs low.

• Emerging Care Management & Specialized Services: Launched as a dedicated division in early 2026, Nova Leap’s Care Management offering acts as a new organic growth engine. These high-touch (personalized and 1-on-1) services expand the continuum of care, pairing professional care coordination with core home care services to drive deeper client engagement.

• De Novo & Cluster Expansion Strategy: Alongside accretive M&A, Nova Leap selectively executes “De Novo” (from scratch) locations in high-density territories.

Recent Financials & Operational Execution

Nova Leap spent recent years reinvesting heavily into agency-level personnel and digital marketing, shifting the business into a high-leverage phase where expanding scale converts directly into the operating cash flows we see today:

• Record Scale & Inflection Point (Q2 2026): Consolidated quarterly revenue hit a record $9.39m (+17.1% YoY), driven primarily by organic billable hour growth across regional agencies. Trailing twelve-month (TTM) revenue reached a historic peak of $33.6m.

• Expanding Margin Leverage: Adjusted EBITDA surged 65.2% YoY in Q2 2026 to $954.8k, crossing the 10% Adjusted EBITDA margin threshold for the first time in company history. Income from operating activities more than doubled (+115.4% YoY) to $754.7k, while Net Income turned strongly positive at $650k (a dramatic reversal from a -$484k loss in Q2 2025).

• Disciplined M&A & Capital Structure: In May 2026, Nova Leap acquired Nova Scotia-based Parkwood Home Care for CAD $3.5m. Management preserves strict valuation discipline by acquiring targets at 3x-5x EBITDA, funding deals with a conservative mix of cash on hand, seller promissory notes, and low-cost credit facilities. Leverage remains comfortable at 1.36x TTM Adjusted EBITDA against a self-imposed 3.0x ceiling.

• Insider Alignment: Management and directors hold 42.58% of common shares, creating extreme alignment with shareholders and reinforcing a policy of smart capital preservation, equity scarcity, and long-term compounding over unnecessary stock issuances. Despite the high ownership rates, insiders have historically acquired share to increase their stakes even more.

Here is where things get interesting…

Executive Summary

Nova Leap Healthcare just posted its strongest financial results ever in Q2 2026.

Revenue reached a record $9.39m (+17.1% YoY), while Adjusted EBITDA surged by 65.2% to $954,836, breaking the 10% EBITDA margin milestone for the first time.

Net income turned strongly positive at $649,977 (compared to a loss in Q2 2025), and TTM revenue crossed $33.5m.

Rather than relying on a single breakthrough, management attributes this record performance to simple operational execution and expanding scale across all regions.

Revenue Drivers & Unit Economics

What’s Driving the Top Line?

Read more

Imagine a business that earns a 26.6% Return on Invested Capital (ROIC), carries zero bank debt, and converts over 100% of its earnings into hard free cash flow.

It’s not a mega-hyped, high-flying tech company but rather an asset-light B2B and B2C platform that manufactures and distributes everyday essential products across thousands of retail doors.

At a $250m market cap, the business trades at an absurd 4x EV/EBITDA, or, as we prefer to read it, a 16.4% Free Cash Flow yield with a 4% dividend on top.

Mispricing?

Since 2023, the market has been all about the sector getting regulated. In our eyes, during that time, management has proven that they know what they’re doing.

They digitized their supply chain and leveraged their already strong balance sheet to turn a regulatory hellhole into an actual core component of their moat.

The incoming pressures required (and still require) massive amounts of working capital, which crush smaller (especially leveraged) competitors. This company is perfectly positioned to absorb their lost market share and emerge with higher margins.

This also happens to be an actual owner-operator setup where management owns over 50%+ of the outstanding shares. That means that their wealth is driven by share price performance, not padded cash bonuses or dilutive stock grants.

Their capital discipline track record is on point:

• Zero dilution: Shareholder dilution is historically non-existent.

• Self-funded growth: All major acquisitions are paid for purely via organic free cash flow.

• Opportunistic buybacks: When the market mispriced the stock, they (very quietly) retired a small part of the float.

Since it’s not too illiquid, we should disclose that we’ve already deployed ~50% of our intended capital at current (depressed) prices, holding the rest to monitor the final regulatory rollout and a few other key events that we will discuss below.

Let’s break it down.

But before we do, note that we’ve been tracking this company for about two years, spoken with key stakeholders for a long time, and featured it on several past watchlists.

The Inner Circle already knows what’s up 😉

If you haven’t jumped into the group chat yet, you’re missing out. Here’s a quick peek at what went down this week alone.

You won’t find any hyped up signal-trading scammy behavior here. Instead, expect insightful commentary on our holdings, major changes, dives into earnings and interviews, and early heads-up on upcoming releases (plus a say in what we’re building).

You get instant access to 13 years of hard-earned experience and back-and-forths with a genuinely top-notch community.

As we now do every week for transparency, here is our list of past Pick of the Week posts and their returns since publishing:

• All picks (equally weighted): +19.15%

• Our picks (executed): +31.17%

Pick of the Week. A curated series of high-conviction research on companies currently under our microscope. We screen for specific dislocations where the market has mispriced the balance sheet or earnings power.

None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.

🛡️ Supreme Plc. ($SUP)

⭐ Overall Grade: 9.0 / 10

Supreme PLC operates a vertically integrated consumer goods business that captures dual margins, both brand owner and contract manufacturer, by producing 65-70% of its profit output in-house and distributing across 55k UK and European retail points.

Read more

With so much time now on my hands, it was time to make some changes around the house. I could either…

1. Go crazy with more-or-less productive (PokerStars) and not-so-productive side hustles (League of Legends).

2. (or) Start studying firsthand practices like the noble art of oenology… the art of wine making and, in my case, tasting.

3. (or) Focus on improving my existing set of investing practices.

And last week, I chose… all of the above.

I qualified for the Barcelona Open, consolidated my D4 position, tested some sample product (😉) during field research, and dove deep into a few companies that were going through earnings.

And in the midst of all of this “grueling work”, I had a deep discussion about one of these companies with my brother, and, to his credit, he told me that…

“I was being dull because there was a lot more juice to be squeezed.”

Given he’s much smarter than I am, the right course of action is to go through with his thought experiment… at least test it out.

In my mind, if you combine his entrepreneurial idea-milking maxxing with my mega risk-averse personality, you should get a new (profit maxxing?) strategy.

And that’s what we’re going to discuss today.

Let’s break it down.

Ready to follow along? Grab your seat

What’s The Strategy

First and foremost, we’re not reinventing the wheel here. This is a more than tried-and-tested strategy. However, our twist is what makes it unique, as it all comes down to sizing and, obviously, information.

Note: None of this involves insider information. The informational edge essentially comes down to the fact that in the micro-cap space, there just aren’t enough eyeballs that care about the outcome.

Therefore, the difference in information between someone actually gathering data versus your average investor (or the passive index holding this) is a few orders of magnitude greater than it would be for a mega-cap corporation.

So, other than your random Citadel-esque quant nanosecond trading strategy and the occasional insider with the capacity to act, we’re confident we’re the only ones here actually making moves.

Playing The Short-Term Game

The move is pretty simple: we are buying out-of-the-money options that should be mispriced, betting on both the quality of earnings of our existing holding and the underlying volatility.

Ideally, we buy low volatility and sell high volatility. Again… Ideally.

Which is typically what happens around earnings, though that’s yet to be fully tested here. Because of the size of our companies, we should expect higher volatility overall, and that should play heavily in our favor given how options are priced.

Our aim is not to exercise these but rather to buy them before earnings and squeeze out a small profit by selling them within a week once their filing is released.

Sizing

We will limit bets every quarter, making it a bit odd on a per-bet level, but very congruent across a full test sample.

The limit is 0.5% of the portfolio per quarter, which roughly equates to €6,000 at the moment. So in any given year, we can only lose 2% of the portfolio… roughly equating right now to €25,000.

It may sound like a lot, but trust me, it really isn’t. The most likely scenario here is that we break even.

Just like in poker, where the size of the pot alters your bets, the size of the portfolio here acts as a constraint based on:

• How much we’re willing to lose if everything goes to zero,

• The potential upside, and

• Frankly, capacity constraints on how much of these giga-illiquid contracts we can even buy.

Pricing. Black-Scholes in Plain English

Note: Move on to the next section if you fully understand how options are priced. This section is to bring everyone up to speed. In a sense, to make sure everyone reading speaks the same language.

If you want to buy an option, you’re buying the right (not the obligation) to buy or sell a stock at a specific price before a specific date.

Strip away the Greek letters and scary differential equations, and the Black-Scholes model is basically an insurance pricing calculator for stocks, and what we’re playing around.

It figures that out by crunching 5 key ingredients:

1. Current Stock Price vs. Strike Price: How far does the stock need to move for your bet to make money?

2. Time to Expiration: How much time is left on the clock? More time = more chances for crazy stock moves = a more expensive option.

   

3. Volatility (sigma): This is the single most important variable for our strategy. It measures how wildly the stock normally swings. High volatility means a higher chance the stock hits an extreme price, which makes the option way more valuable.

4. Risk-Free Rate: The opportunity cost of holding the option versus sticking that money in risk-free government bonds.

Takeaway for Our Strategy

Black-Scholes assumes volatility is constant and stock prices follow a predictable bell curve. But in micro-caps, that assumption breaks down more than you think.

Because nobody is watching these tiny companies, market makers often price options based on historical volatility. When an earnings report is released and reveals a massive data discrepancy, volatility should (in theory) explode, and that means the option’s value should jump up even faster than Black-Scholes predicts.

That mispricing is our edge, at least in theory.

Why This Should Work

This whole setup is contingent on a few things going our way:

• Illiquidity works in our favor. Because we’re taking small positions, illiquidity and information asymmetry actually help us.

• Playing the averages. Regardless of whether earnings turn out good or bad, by distributing these bets across our highest chance holdings (we’re not betting on all of them), we expect to play a game of averages. On average, getting the direction right gives us a nice extra boost.

• Strict size limits. We are heavily limiting the bet size, which works in our favor. This is definitely not core to our long-term compounding philosophy; it’s simply a smart way of recycling the quality data and information we’ve already spent the time collecting.

Live Example

At the end of last week, we went ahead and purchased some options for the upcoming earnings of CareCloud (CCLD).

Note: CareCloud is one of our portfolio companies, of which we currently own about 85% of a full position (~7%). We’d obviously like to make this a full position, but that’s exclusively a function of price at this point. We aren’t in a rush nor do we have a hasty personality… in fact, we’re probably some of the most patient players out there.

So, back to the strategy. We spent $850 (plus fees) buying up 45 contracts of CCLD 21 Aug 2026 $2.5 Calls at an average price of a little under $0.20 (35 x $0.20 + 10 x $0.15 + $29.51 in fees).

This means our breakeven price is a bit under $2.70 (including fees) if we decide to exercise the options, giving us the right to purchase 4,500 shares (45 contracts x 100 shares per contract) at $2.50, representing an underlying value of $11,250.

Carecloud is scheduled to release earnings tomorrow. So we’ll see how this plays out throughout the next few days.

Next Steps

Please note that this one (CCLD) play represents a very small test position for us.

It could very well lead to a loss, but my brother’s theory is that with our standing informational advantage, over the course of a few earnings cycles, we should turn a steady profit.

We don’t necessarily reject the premise, but we’re keeping our guard up via sizing.

Again, how we’ll proceed with all of these is simple:

• We will hold for a maximum of 1 week post-earnings, which should capture the bulk of the move.

• We don’t actually plan to exercise these options. We’re purely playing the expansion in option price driven by the expected volatility boom… plus, hopefully, a rise in the underlying stock price.

So yeah… we’re testing it out. Serial optimizers at work, as always. We’ll be testing with at least 2 more of our companies in the next few weeks.

Since you’re probably used to muuuuch longer, heavy-duty texts from us, we’ll spare your attention span today and finish up a meme in Spanish for your enjoyment:

If you found value in this analysis, please hit the ❤️ button and share your thoughts in the comments. It helps us bring institutional-grade research to a wider audience.

And if you liked this post, we’re confident you’ll love this:

Note that we would only pick the last company in this list with the information we have, and that’ll be reflected in the table below (for future posts).

As we now do every week for transparency and to provide full value, here is our list of Pick of the Week posts and their returns since publishing:

• All picks (equally weighted): +18.72%

• Our picks (executed): +30.82%

Pick of the Week. A curated series of high-conviction research on companies currently under our microscope. We screen for specific dislocations where the market has mispriced the balance sheet or earnings power.

None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.

⛏️ Golconda Gold ($GG)

⭐ Overall Grade: 7.5 / 10

Golconda operates as a low-cost micro-cap gold producer. Unlike traditional gold miners that build expensive on-site processing facilities (like CIL or BIOX circuits) to turn gold into bullion bars, Golconda circumvents massive capex through the following concentrate model.

This is how it works:

1. Extraction & Underground Mining. They mine ore underground from their flagship Galaxy Gold Mine along the Barberton Greenstone Belt in South Africa.

2. (On-Site) Processing. The raw ore goes through an existing 50,000-tonne-per-month Crusher, Milling, and Flotation (CMF) plant to extract gold into a concentrated slurry.

3. Monetization: Instead of processing gold to 99.9% purity on-site using high-capex chemical processing (like Bio-Oxidation), they produce a heavy concentrate. This concentrate is sold directly to Ocean Partners under a multi-year off-take agreement, which ships it globally to smelters.

Unit Economics & Operational Breakdown

Golconda’s unit economics show pretty decent cash flow conversion, mainly driven by high gold prices. Whether this is temporary or a permanent feature is up to you to decide.

Key Production Metrics (Galaxy Mine, South Africa)

• Throughput is ramping up from 15,000 to ~40,000-45,000 tonnes per month.

• Their Grade averages 2.8 to 3.5 g/t Au across the core underground ore bodies (Galaxy, Princeton, Giles, and Woodbine).

• Their output is made up of ~20,000-25,000 payable oz/year near-term, expected to ramp up toward ~40,000-45,000 oz/year at steady state.

Cost Structure & Margins (Q1 2026 Financial Results)

• Realized Gold Price: ~$3,869 per contained oz ($5,025 per payable oz).

• Operating Cash Cost: ~$1,819 per payable oz (excluding royalties).

Operating cash flows shift heavily to bottom-line net income at prevailing gold prices. In Q1 2026 alone, Golconda generated $13.85m in revenue and $5.53m in net earnings.

As of Q1 2026, Golconda paid off its remaining term loan, leaving the company 100% debt-free with $5.89m in cash.

Competitive Advantages & Moats

Low Capex / High Capital Efficiency

By electing to produce and ship a high-grade flotation concentrate rather than building an on-site refractory bio-leaching plant (BIOX®), Golconda bypassed $40m–$60m in upfront capital expenditure.

They upgraded their entire Galaxy processing plant capacity to 50,000 tonnes/month for a total investment of ~$4m.

High Insider Ownership & Alignment

Management and insiders own over 42% of the (basic) share float (with total related-party control >45%).

CEO Ravi Sood and the executive team treat dilution as a cardinal sin, opting to fund all plant expansions, underground development, and US asset restarts out of organic cash flow rather than dilutive equity raises.

Fully Permitted Infrastructure Moat (Summit Mine, USA)

Building a brand-new underground mine and processing mill in the United States requires 7–10 years of environmental reviews and permitting battles.

Golconda’s Summit Mine and Banner Mill in New Mexico are already 100% permitted with past-producer infrastructure in place. This drastically cuts time-to-market and capital cost for their US expansion.

Strategic Geopolitical & Jurisdictional Diversification

By operating the Galaxy Mine in South Africa and restarting the Summit Mine in New Mexico, the business shifts from a single-jurisdiction emerging market player to a multi-asset producer with North American precious metals exposure (adding both gold and silver stream revenues).

🎯 Catalysts: Why Now?

Summit Mine Commercial Restart

Mining contractor High Desert Mining LLC mobilized to the Summit Mine in New Mexico, delivering first underground ore to surface. Wet commissioning of the fully permitted Banner Mill and initial concentrate production are anticipated.

This event transitions Golconda from a single-asset operator into a multi-jurisdictional producer, adding a Tier-1 US asset alongside a precious metals stream that includes significant silver exposure (~6.5m oz Ag resource base).

Galaxy Fleet Enhancement and Production Ramp-Up

Golconda took delivery of a standardized underground mining fleet, including a new drill rig, loaders, and dump trucks, to accelerate development and waste movement across the Galaxy and Princeton ore bodies.

This fleet upgrade, combined with new access at the Galaxy 26 Level, allows the company to ramp up ore throughput to utilize the remaining capacity of its 50,000 tonne-per-month ball mill circuit with minimal additional processing capital expenditure.

Summit Standalone US Spin-Out

Golconda plans to execute a corporate spin-out of the fully permitted Summit Gold & Silver Mine into an independent, publicly listed US entity.

Unbundling the North American operations creates a pure-play US precious metals vehicle, allowing the market to value the asset at higher North American valuation multiples while returning equity directly to existing shareholders.

Free Cash Flow Allocation and Capital Returns

Following the complete repayment of its corporate term loan facility, Golconda is operating debt-free with expanding operating cash flows.

As capital expenditures for the Summit restart stabilize, management’s stated capital allocation strategy focuses on deploying excess organic free cash flow toward direct shareholder returns through share buybacks or dividends.

💰 What’s It Worth?

Bear Case [C$3.37]

The Bear Case models a stressed operational environment where key assumptions go against the company, serving as an ideological safety net. Under this setup, spot gold prices pull back significantly to $2,200/oz, and the company experiences minor underground operational bottlenecks in South Africa that limit production rates.

Furthermore, the restart of the Summit mine in the US faces delays or higher operating costs, preventing it from contributing significant cash flow in the short term.

To reflect these added operational and geopolitical risks, a harsher 11.5% discount rate and a 20% risk haircut are applied to the business, assuming zero long-term growth beyond its current mine life.

Base Case [C$7.51] (+243% Upside)

The Base Case assumes that Golconda Gold executes its business plan smoothly without any major operational or macroeconomic hiccups. In this environment, gold prices remain strong (averaging around $2,700–$2,800/oz), allowing the company to generate predictable, high-margin cash flow.

Operationally, the South African Galaxy mine steadily expands its output, while the fully permitted Summit mine in New Mexico re-opens on schedule in late 2026, transforming Golconda into a multi-mine producer with added silver revenues.

Because the business carries zero debt and generates reliable organic cash flow, management can eventually distribute cash back to investors through share buybacks or dividends.

Taking all expected future cash flows over the next 10 years, discounting them back to today's dollars at an 8.5% rate, and accounting for a mild 15% country risk discount, the company’s underlying business is worth C$7.51 per share

At a long-term gold price of $4,000/oz and silver price of $75/oz, the corporate Net Asset Value Per Share (NAVPS) is listed as C$8.71.

🛍️ EMERGE Commerce ($ECOM)

⭐ Overall Grade: 6.5 / 10

EMERGE Commerce operates as a consolidated acquirer and operator of profitable, niche e-commerce brands and B2B software assets across North America.

Following a multi-year restructuring (moving from “ECOM 1.0” aggressive leverage to “ECOM 3.0” lean, profitable ops), EMERGE abandoned the generic Amazon aggregator model to focus deeply on three core verticals:

D2C Grocery & Food Tech

EMERGE Commerce anchors its direct-to-consumer grocery vertical around truLOCAL.ca, Canada’s market leader in direct-to-consumer local meat and seafood subscriptions.

The segment operates as a predictable revenue engine powered by monthly subscription fees paid by loyal members for curated, locally sourced food boxes delivered straight to their doorstep.

Golf Products, Experiences & Omni-Channel Retail

The company's North American golf vertical combines three distinct assets: UnderPar.com (a leading marketplace for discounted golf tee-time experiences), JustGolfStuff.ca (a high-growth discount golf apparel and equipment e-commerce platform), and Tee 2 Green (T2G) (a 38-year-old golf retailer operating physical stores, roadshow events, and digital storefronts).

Together, these brands generate pretty diversified income through direct retail sales of golf apparel and equipment, marketplace commissions on golf course vouchers, and physical retail and pop-up roadshow events across key golf regions.

B2B Software / E-Commerce Enablement

EMERGE expanded its ecosystem into B2B e-commerce enablement through its acquisition of Viral Loops in March 2026 for approximately C$2.3m at an attractive ~2.9x EBITDA multiple.

This business unit monetizes through high-margin (~86% gross margin) recurring SaaS subscriptions sold to global B2B clients who utilize the platform to run viral referral marketing, contest campaigns, and brand waitlists.

Unit Economics

We have to look at EMERGE’s unit economics as understanding customer retention metrics and profitable acquisition is a must:

truLOCAL (Grocery Engine) Unit Economics

• Customer Lifetime Value (CLTV): ~$2,027 per subscriber.

• Customer Acquisition Cost (CAC): ~$100–$150 per new customer.

• CLTV-to-CAC Ratio: Outstanding ~13x to 20x ratio (anything above 3x is considered strong in e-commerce).

• Breakeven Horizon: Replaces acquisition costs in ~2 subscription boxes.

• Retention: ~90% of revenue comes from returning subscription customers.

• Average Order Value (AOV): ~$250 per box.

Competitive Advantages & Moats

Deep Vertical Integration & Shared Audience Synergies

Rather than owning disconnected niche sites, EMERGE aggregates complementary assets within specific niches. For instance, their golf portfolio commands a combined database of over 400,000 active golfers.

When they acquired Tee 2 Green (T2G), they cross-promoted roadshows and products across their 400k-member golf ecosystem, accelerating T2G’s revenue growth rate from 3% to over 30% YoY.

Proprietary In-House B2B Software Engine

By acquiring Viral Loops, EMERGE integrated a B2B referral marketing engine directly into its consumer brands.

They run customer referral programs and contest campaigns across truLOCAL and JustGolfStuff without paying third-party SaaS fees, simultaneously lowering overall CAC across the entire portfolio.

Hyper-Disciplined “Boring is Brilliant” Acquisition M&A

Following the collapse of high-leverage e-commerce aggregators, EMERGE enforces strict M&A underwriting hurdles:

• Target acquisitions must be bought at 1.0x to 3.0x EBITDA (e.g., T2G bought at ~2.2x EBITDA; Viral Loops at ~2.9x EBITDA).

• Structure deals with multi-year earnouts and extended vendor inventory payment plans, allowing acquisitions to pay for themselves out of operating cash flows within 90–120 days.

Macro Tailwinds (”Buy Local” + Value-Seeking Consumers)

• truLOCAL benefits from structural shifts toward Canadian-sourced, local food supply chains (”Buy Canadian” movement).

• UnderPar and JustGolfStuff operate discount marketplaces, making them counter-cyclical benefactors when economic belt-tightening pushes consumers toward deal-hunting.

🎯 Catalysts: Why Now?

Senior Debt Refinancing and Interest Expense Reduction

EMERGE extended the maturity of its senior credit facility to October 2027 while bringing total debt down from $25m originally to $5.85m.

However, the facility carries a variable interest rate of 11% (TD Prime + 6.55%). Operating on a TTM of over $2m in adj EBITDA and growing cash balances ($4.8m as of Q2 2026), management is actively engaging Canadian financial institutions to refinance the facility at lower rates.

Securing a standard commercial rate (targeted savings of 3% to 5%) would immediately drop between C$180k and C$300k directly to free cash flow.

Full Year Integration of High-Margin B2B SaaS (Viral Loops)

The acquisition of Viral Loops for C$2.3m introduced EMERGE’s first recurring B2B technology vertical. Viral Loops brings approximately $1.3m in annual revenue, 86% gross margins, and $800k in adj EBITDA with near-zero capital expenditure requirements.

The inclusion of a full 12 months of Viral Loops results through late 2026 and 2027 will obviously expand EMERGE’s gross margins, reduce quarterly revenue seasonality across the broader portfolio, and accelerate (organic) customer acquisition across its core direct-to-consumer grocery and golf brands.

Organic Scaling and Cross-Selling Across the Golf Ecosystem

Following the acquisition of Tee 2 Green (T2G), EMERGE expanded its golf portfolio across UnderPar, JustGolfStuff, and T2G, establishing an audience network of over 400k active North American golfers.

By leveraging its digital marketing playbook and cross-promoting T2G’s physical retail roadshows across its digital subscriber base, EMERGE accelerated T2G’s organic growth rate from 3% to over 30% in its first year.

Continued operational optimization, expansion of pop-up retail events, and shipping cost reductions across the combined golf portfolio provide a high-margin organic growth runway through the 2026 and 2027 peak golf seasons.

Disciplined M&A Deployment in the ECOM 3.0 Pipeline

Under its updated M&A underwriting strategy, EMERGE targets small, cash-flow-positive consumer and tech assets priced between 1.0x and 3.0x EBITDA, using seller earn-outs and inventory payment plans to minimize upfront cash outlays.

Management maintains an active deal pipeline of targets generating between $700k and $2m in individual EBITDA.

Executing one or two bolt-on acquisitions in adjacent food-tech, golf, or B2B SaaS verticals over the next 12 to 24 months (funded organically) will compound overall portfolio EBITDA while lowering leverage multiples.

💰 What’s It Worth?

Bear Case [C$0.07]

Under the Bear Case, organic growth flatlines across the D2C portfolio as consumers pull back on discretionary golf spending and local meat subscriptions. While the company remains operating cash flow positive thanks to cost cuts made during its restructuring, it fails to execute additional accretive M&A deals.

Because market conditions remain tight, EMERGE is forced to keep its high-interest debt facility in place for longer, eating up cash that would otherwise go to shareholders or new acquisitions.

The stock remains largely trapped in its current penny-stock trading range, valued strictly as a slow-growth micro-cap.

Base Case [C$0.25] (+194% Upside)

Under the Base Case, EMERGE’s "ECOM 3.0" playbook works exactly as designed. The company generates steady, highly cash-generative revenues from truLOCAL subscriptions and discount golf sales, while using the software acquired via Viral Loops to keep customer acquisition costs low.

Crucially, as the company proves its financial health by delivering $3m–$4m in annual operating cash flows, Canadian banks agree to refinance its expensive debt, cutting interest payments significantly.

The market stops viewing EMERGE as an over-leveraged micro-cap startup and re-rates it as a durable, profitable compounder trading at a reasonable 8x–10x cash flow multiple.

🛢️ PHX Energy Services ($PHX)

⭐ Overall Grade: 8.0 / 10

Longtime readers will recognize this name… we’ve highlighted them before

PHX Energy Services is North America’s largest independent provider of horizontal and directional drilling services and downhole technologies. Rather than owning or operating heavy surface drilling rigs, PHX operates a high-margin, equipment-light ‘picks and shovels’ rental model.

When oil and gas producers (E&Ps) drill modern horizontal wells, they require precise guidance systems and downhole power to steer the drill bit miles underground and horizontally along targeted rock formations.

PHX engineers, manufactures, and rents specialized downhole technology packages to E&Ps across major North American basins… most notably the Permian Basin (which accounts for ~85% of its US revenue) as well as the Montney, Duvernay, and Bakken.

Primary Revenue Streams

1. Directional Drilling Services. Represents the vast majority (~93%) of consolidated revenue. E&Ps pay PHX a daily operational rate (Revenue Per Operating Day) for downhole tools paired with technical field personnel on site.

2. Motor Rentals. Renting proprietary Atlas™ high-performance drilling motors to third parties without requiring full PHX field personnel.

3. Equipment Sales & Lost-in-Hole Recoveries. Selling motor parts and receiving contractual replacement cost payments from operators when tools are damaged or permanently lost downhole.

Competitive Advantages & Moats

Tier 1 Technology Barrier to Entry

Modern horizontal drilling requires extreme speed and precision. PHX owns a fleet of 962 Atlas™ High-Performance Motors, 127 Velocity™ Real-Time MWD Systems, and 110 Rotary Steerable Systems (RSS).

The massive capital required to build or license this level of technology creates a major barrier to entry for smaller Tier 2 competitors.

Efficiency & Time-to-Depth Advantage

PHX’s proprietary RSS and motor setups enable operators to drill 10,000+ foot lateral wells in ~3.8 days compared to 8.7 days using conventional technology.

Saving E&Ps 5 drilling days per well provides immense pricing power because rig day-rates are expensive.

Vertically Integrated In-House R&D

PHX designs and manufactures its own proprietary downhole tools, allowing them to iterate fast, maintain tight quality control, and protect operating margins against third-party equipment suppliers.

Independent Scale & Customer Base

PHX works for 18 of the top 20 energy producers in North America. Being the largest independent provider allows them to capture ~22% market share in Canada and ~10% in the US without being tied to a single rig operator.

Shareholder-Obsessed ROCS Framework

Under its Return of Capital Strategy (ROCS), PHX targets returning up to 70% of annual excess cash flow directly to investors via base dividends, special dividends, and aggressive share buybacks (retiring ~28% of total share float since 2017).

🎯 Catalysts: Why Now?

Premium RSS Fleet Expansion and Permian Adoption

PHX Energy continues to aggressively expand its Rotary Steerable Systems (RSS) fleet, including the rollout of its 7⅞-inch RSS tools targeted directly at the high-volume Permian Basin.

Operating as the largest independent RSS provider in North America, PHX is seeing high-margin RSS jobs represent an increasing percentage of its overall consolidated activity.

As North American operators drill longer, multi-mile lateral wells, the increased adoption of PHX’s high-spec RSS and proprietary Real-Time RSS Communications technology commands higher daily service rates, driving margin expansion even in a flat rig-count environment.

Atlas Motor Rental Market Share Gains

The expansion of PHX’s standalone Atlas high-performance motor rental division provides a high-margin, capital-light growth runway that scales independently of traditional full-service directional drilling contracts.

By expanding its client base across both US and Canadian basins, PHX is capturing additional market share from producers who manage their own directional operations but require premium downhole power.

Capex dedicated to expanding the Atlas motor fleet generates immediate rental cash flows that stabilize direct operating margins against broader drilling industry volatility.

Aggressive Capital Returns Under the ROCS Framework

Under its Return of Capital Strategy (ROCS), PHX is committed to returning up to 70 percent of annual excess cash flow directly to shareholders.

With capex front-loaded into the first half of the year, net capital spending is projected to taper off, accelerating excess cash flow generation in subsequent quarters.

This structural cash generation provides management with the flexibility to maintain its regular quarterly dividend, distribute opportunistic special dividends, and execute share buybacks under its renewed Normal Course Issuer Bid (NCIB), compounding per-share intrinsic value across a shrinking share count.

💰 What’s It Worth?

Bear Case [C$7.25]

Under the Bear Case, a broader energy downturn forces oil and gas producers to trim drilling budgets, causing rig counts across Texas and Western Canada to fall. Lower daily operating days hit PHX's top line, while persistent inflation on specialized equipment replacement parts erodes profit margins.

While the company's low leverage keeps it fully solvent and operating cash flow positive, excess cash flow dries up enough to force a reduction in special dividends and buybacks.

The market penalizes the stock for its commodity sensitivity, re-rating PHX down to traditional trough oilfield service multiples.

Base Case [C$18.24] (+38% Upside)

Under the Base Case, PHX proves that it isn't just a commodity oilfield service provider tied to overall rig counts, but a technology-driven market share gainer.

As E&P operators push for longer lateral wells in the Permian and Montney, they are forced to hire Tier 1 directional drillers with premium RSS and high-torque motor fleets. Because PHX commands superior daily rates and collects cash reimbursements whenever equipment is damaged downhole, cash flow conversion remains exceptionally high.

Management uses this cash to pay its ~6% dividend, fund growth Capex internally, and buy back its own cheap stock, steadily driving up per-share intrinsic value.

These are some of the most interesting businesses from a previous Vegas edition of the event we attended.

• Kingsway Financial Services ($KFS)

• NameSilo ($URL)

• Nova Leap Health Corp ($NLH)

• Red Violet ($RDVT)

• Sanuwave ($SNWV)

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Index

• Major News

• On Hermit Ventures

• Portfolio Overview (both Public and Private)

• July Review

Briefing

This 26th edition is, by far, the one where I’m the most liberated. I’m going to talk about the dark side of the money management industry, how the system pushes down young, ambitious entrepreneurs, show you the road ahead with complete transparency, lay out the portfolio details, and update you on our next steps both for the public and private portfolios.

After months of wrestling with compliance hurdles, institutional friction, and open-ended overhead, I’ve made the call to reset.

While building out this setup meant eating significant personal costs behind the scenes, my clients’ capital was returned entirely intact and profitable.

Moving forward, I’m trading in comfortable spreadsheet abstraction for an owner-operator model. I want to step back from corporate BS to actively direct business operations.

As for our public strategy, we are doubling down on an even more disciplined blueprint, anchored by cash preservation and a tailored All-Weather setup, while keeping our eyes focused on high-conviction micro-cap plays that we’re so good at identifying.

For info on the All-Weather framework:

You won’t see complex accounting gymnastics here, just total, aggregated transparency into our holdings and transactions as they unfold. This update is about closing one noisy chapter to open a much simpler, sharper one.

One built exclusively for long-term partners who value patience, operational integrity, and getting back to fundamentals investing.

For context: Unlike other letters where I write using ‘we’ to represent an organization, this one feels far more personal… so expect a lot of ‘me, myself, and I’.

Staying Honest in a Dishonest Game

As a money manager, you actually have three jobs: research, fundraising, and dealing with paperwork.

We all deal with admin, but over the last few months, health issues and mischievous actors piled up to the point of no return.

Ever since selling our cybersecurity company in July 2023, I’ve been building towards what I thought was my dream:

Along the way, I’ve made unbelievable mistakes. Most of these spin out of good faith and trying to offer the best setup for clients and shareholders.

Here’s a short list (non-exhaustive):

• Setting AUM fees near 0%: Great in theory but zero margin for overhead, legal friction, or market downturns.

• Trusting banks implicitly: Assuming custodians move on your timeline; compliance delays and institutional inertia/incompetence can stall you for months.

• Over-complicating legal structures early: Designing complex entity setups before reaching scale adds massive regulatory friction and fixed cost.

• Underestimating audit and compliance costs: Legal fees, tax filings, and reporting almost always cost twice the initial estimates.

• Assuming performance speaks for itself: Relying solely on stock selection while ignoring distribution and storytelling.

• Not capping service provider budgets: Letting external lawyers and advisors bill open-ended hourly rates without explicit cost caps.

• Taking service providers at face value: Skimping on due diligence for administrators and colleagues.

• Prioritizing tax efficiency over simplicity: Over-optimizing tax structures when a simpler setup saves tenfold in administrative sanity.

• Expecting regulatory best-case timelines: Planning around strict launch calendars instead of building massive time buffers.

• Handling non-investment work solo: Delaying delegation, leading to operational bottlenecks and burnout. And publishing/editing this work.

• Letting admin noise eat up research time: Allowing legal/compliance fires to steal 80% of your daily focus away from core fundamental research. Sometimes even being unable to sleep thanks to these guys.

The Price of Integrity

With all of this in mind, the only consistent thing I’ve done is lose money for myself. Not a single one of my clients can complain about the same fact, though.

Everyone who has participated with me has made money. EVERYONE.

But people don’t see what happens as ChatGPT would put it “under the hood”. Here is where I’ve lost money, so you can start to see what it actually feels like:

That’s about -€135,000 in ~2 years. For what exactly? I don’t know.

Some of my own money is still stuck in the fund and won’t be released until the end of the year. The same thing happened during setup: €1m was locked up as a guarantee, and I couldn’t even put it into a money market fund until the first client came in (~1 year of senseless lock-up).

Note: Out of that locked-up capital, the bank was actually deducting fees during this entire process.

As you can probably imagine, this all heavily dragged on my 2025 returns.

Going All the Way

As you can tell, I don’t exactly half-ass what I do. Vitally (for my conscience), I cover everyone else’s ass by eating these costs personally and passing minimal dues to the people involved.

Fortunately, even though most of this goes unnoticed, I still receive a ton of praise from the people I work with. For that, I thank you.

Though, from time to time, I get some tough love. One of my investors told me last month:

“My child… you are stupid (he used a harsher word). You are very, very stupid. What a terrible salesman you are. Don’t get me wrong, you’re f***ing amazing at the investing part… but you totally suck at sales.”

I’m still unsure about whether I should take that as a compliment or an insult.

Flippin’ the Switch

By the end of the month, something happened that completely flipped my mind. I was already in a delicate place with patience, but this was, as they say, the straw that broke the camel’s back.

Using a very trusted bank, they suddenly decided to go full compliance on me.

Even though I had uploaded all subscription agreements and source-of-wealth data (2025 tax returns) for every shareholder, they decided to close everything out for non-UK/Common Wealth people.

Note that I had this exact conversation in May while negotiating with two other banks, and Wise assured me this would not happen.

They even guaranteed it and assigned me a dedicated agent named Mo from the large transfers department… with whom I’ve had a couple of pleasant conversations.

And yet, without any real warning, they froze all of my accounts (two business and one personal) with zero explanation. I did nothing sketchy, nothing illegal, and nothing even in the grey zone. Everything was legit, and everything had been thoroughly vetted and discussed beforehand.

To give you an idea: I have exchanged exactly 181 emails with them. 10 with Mo, and the rest split across 51 different support and large-account agents. I’m not sure why I need to restart the conversation from scratch every time I talk to support, but... sure. Great. Fantastic customer service.

At the time of the event:

• 28 people had signed the share subscription agreement, sent over their ID, and source-of-wealth documentation.

• 16 people had already completed their transfer, totaling £1.6m in the account.

• 5 transfers were paused on Thursday when this hit, and promptly cancelled on Friday… leaving only 7 people left to finalize their transfers.

The total expected raise ranged from £2.2m–£2.5m.

I was even putting up a lower personal amount than expected just to avoid diluting returns and to boost per-share gains (another one of those things that would have gone unnoticed).

By the time you read this, everyone who sent funds should have received their money back, minus a small fee that went directly toward paying the lawyer and accountant retainers.

Important: If you haven’t received yours yet, please send me an email. It was all sent out, so at worst, it’s currently on its way.

So… What Now?

Over the weekend, I collected my thoughts. I’ve clearly not been happy with how all of these processes have played out.

That’s a wake-up call for me, so I’m taking some time to think things through.

Doing this for other people has completely unscaled me and destroyed the laser focus I had back in 2021–2023.

Frankly, I’m fed up with it.

Here is Where I'm Doing About It

I’m sharing with you my latest 2025 tax filing below so you can see I’m not bullshitting you like so many other Substack publications.

Keep in mind that I’m 30 years old and still have a long way to go with this.

I’ll break down my exact asset allocation, and you’ll see that the vast majority remains in public markets.

I’ll also explain why I need to spend some time playing “easy mode” as an owner-operator. I’m putting €100k of my own money into a private business to secure a major stake.

I originally intended to do this through Hermit Ventures, but given developments plus how good the deal is, I simply can’t pass it up. I expect a full payback within a year.

Aside from that single private investment, you’ll see how everything else develops over time. And I’ll keep this transparency going for as long as I’m alive.

This publication is confidential and intended solely for the use of the person or entity to whom it is given or sent. It may not be reproduced, distributed, or transmitted without the author’s prior written consent.

By accepting to receive the full post as a 🧙‍♂️ Inner Circle member, the recipient agrees to be bound by the foregoing limitations.

None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.

📊 Portfolio Overview

Returns (Asset-Weighted)

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This is not one of those times, as this isn’t an idea we “found”, even though it has come up in a few screeners over the years. However, to be perfectly honest, we’re attempting to collab with a few Substack and newsletter creators, and in the process, you sometimes find one or two gems.

This one comes from the brilliant mind of fellow Substack writer .

Okay… happy now with the merit attribution, this is our write-up. So enough cheering on other people hahahaha!

We’re talking massively aligned incentives, with revenues perfectly tied to those of their clients, 75%+ of revenues being recurring, and predictable YoY growth.

20% ROIC, sensible capital allocation, buying back shares and providing dividends as they see fit. Trading at less than 5x FCF. Very little and purpose-driven debt. ~6x revenues since 2018.

It’s down 80%+ since its top in 2021, but with a business that keeps expanding FCF margins and its moat through an extraordinarily sticky software suite.

This looks like an extensive triple-digit upside play to us. We don’t usually disclose this, but this one is quite extraordinary, and we’re looking at a projected per-share bump of +238% according to our DCF.

Let’s break it down.

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As we now do every week for transparency and to provide full value, here is our list of Pick of the Week posts and their returns since publishing:

• Equally weighted picks: +17.54%

• Fund-allocated picks: +34.58%

Pick of the Week. A curated series of high-conviction research on companies currently under our microscope. We screen for specific dislocations where the market has mispriced the balance sheet or earnings power.

None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.

🩺 CareCloud Inc. ($CCLD)

⭐ Overall Grade: 9.5 / 10

Please indulge us as we’re trying out a new format. Please let us know if you like/dislike this in the comments

Here’s an AI-generated one-page summary of our case for CareCloud:

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Funnily enough, I’ve gone down this torturous path three times already.

• In 2020, before AI was a thing, I started with LinkedIn…

  

  

• I did it with Tinder a few years later. (I keep telling my friends I should do a live presentation on this, but I only ever get pushback. I wonder why?)

  • I won’t be showing that one as getting banned isn’t high on my priority list. But suffice to say, I averaged (receiving) two DMs a day for three months straight once it was fully optimized.

• And, as you probably know, I’ve been constantly tweaking Substack since 2023/24.

About a month ago, I decided it was time to tackle Twitter / X.

So, if you want to follow along, here’s what I’ve learned so far and how it’s going.

I’m going to break down the algorithm and what I’ve been testing. Don’t expect an overnight “zero to hero” transformation; I’m committing to at least a 6-month test to see if X is actually a viable discovery engine.

The theory behind this is vetted, but real testing takes time. If you want to see where things stand right now, scroll to the bottom; you’ll find a one-page summary of all of my metrics.

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So let’s start with some borrowed knowledge and the basics. I won’t bore you with how it was started in 2006 by a group of smart individuals (Jack Dorsey, Noah Glass, Biz Stone, and Evan Williams) or how it was controversially taken over by none other than Elon Musk a few years ago.

I think we should skip the blah blah and jump right into...

How the Recommendation Pipeline Flows

Every time you pull down to refresh, X takes a pile of ~500m daily posts and shrinks it down to a custom batch (around 1,500), and then ranks them and slaps them on your screen (browser/app) in under 200ms.

The system running the show for this “For You” page is the Phoenix engine.

While it streamlined a lot of the old multi-step pipeline, the core journey hasn’t changed much and is now integrated into Grok (X’s AI).

Here’s how it actually works:

• Where does your feed come from? Half of what you see comes from accounts you follow. The other half comes from total strangers across global Twitter.

• How does it pick the strangers? Phoenix takes your past activity, turns it into a digital profile, and uses some very smart math (vector matching) to find random posts that match your taste(s).

• The main engine. Phoenix doesn’t just guess if a post is “good” or “bad” for you. It calculates the exact probability of 19 different actions at once in the process predicting whether you’ll like, reply, repost, bookmark, or ignore it.

• Evaluating posts in a vacuum. To keep things fair, the algorithm rates each post strictly between you and that specific post. That way, a viral, super-mega-spicy tweet won’t completely drag down a mediocre post sitting next to it in the pipeline.

• In-Network distribution. In addition to Phoenix, the system has memory in the form of the Thunder algorithm, which stores 48h of interactions and prioritizes what in-network posts your followers receive.

Exactly How Content is Weighted

Once Phoenix predicts the probability of how you will interact with a post, a Weighted Scorer combines those probabilities into a final number.

Notice the massive gap between passive and active engagement.

A post with 100 passive likes (+50 total score) is actually worth less to the algorithm than a post with just two replies where you engage back in a real conversation (2 x +75 = +150 score).

Naturally, every action has a ripple effect. A repost, for example, triggers the algorithm all over again, pushing the post to that person’s followers. But for now, let’s stick to the core scoring system.

Golden Rules of the Algo

If you are trying to maximize reach, the open-source code reveals four strict boundaries you must navigate.

Velocity

When you post, X doesn’t show your tweet to all your followers. It drops it into a test pool, a slice of your audience plus a tiny handful of strangers. The subset of followers varies, but the figure can reach up to 10%-ish.

Then, the algorithm watches what happens next like a hawk.

The first 15 to 30 minutes are the golden window. The algorithm re-scores your post in real time based on speed and reaction:

• High engagement predictions —> X pushes your post to a broader audience.

• Low engagement predictions —> The post gets deprioritized immediately.

The Amplification Threshold (~10 Engagements)

You have to know that reach doesn’t scale linearly. There is a bit of compounding based on velocity:

• ~3 quick engagements (first 10 mins): Proves that what you’re posting is not spam. This pushes the post to 2–3x more of your existing followers.

• ~10+ engagements: Crosses the threshold to push your post out-of-network into non-followers’ “For You” feeds.

• 50+ engagements: This would be the viral loop trigger, which means broader distribution.

But as you know, not all engagement is created equal.

Quality beats quantity.

Like we pointed out before, two real replies carry way more weight than dozens of passive likes. Even better, your own replies as the creator count heavily. Replying to early comments is essentially free algorithmic fuel.

What Happens if a Post Flops (<3 Engagements)?

If a post gets zero traction early on, it stays trapped in the test pool. It will still sit in the chronological “Following” tab for people who actively scroll past it, but it’s dead in the water for discovery.

It doesn’t matter if you get a ton of engagement 2h after you post; organic distribution will not be triggered.

Most of what I’ve done sits in this no distribution pool, and it’s frustrating as hell.

External Link Suppression

The platform aggressively discourages you from sending users elsewhere.

Why Links Tank Your Reach

X’s ranking engine wants one thing, and that’s to keep people scrolling on the app. All of these social networks heavily rely on ads, and those are a product of eyeballs.

For you, external links cause users to leave, which tanks your post’s dwell time. The algorithm notices people clicking away and immediately stops showing your tweet to new audiences.

Note that recent changes make it so that even if you click links, you don’t leave the app itself… but you’re still penalized

Does Premium help? Paying for Premium gives you a baseline reach boost that cushions the hit. Our take is to stick to X posts. These will outperform link posts every time.

Workaround (A Classic)

So say you really want to funnel people towards your latest and greatest post on Reddit. How would you go about it?

1. Post pure native content first (text, images, or a short thread). Let the main post gain momentum and engagement on its own.

2. Put your external link in the very first reply.

Pro tip: don’t post your comment immediately, wait 3-5 mins as it will count towards improving engagement more.

This lets your main post get full algo distribution while still giving interested readers a direct link right below it.

Btw, despite periodic claims that X has “fixed” how links are treated, our testing and that of people we know proves the link penalty is still very real. And it’s especially true if you aren’t paying for Premium (it turns into a double whammy).

So treat any external link in your main post as a reach killer, and always stick to the reply thread strategy.

Text and Native Video over Threads

Going beyond the obvious, X’s ranking system takes into account dwell time (how long people pause on your post), conversation depth, and keeping users inside the app.

If you can hold someone’s attention, X will reward you.

Naturally, that’s changed how we format posts.

I haven’t really found any great guides on short-form formatting, but this document has a bunch of proven, formula-style templates that usually work:

Twitter Growth Blueprint

12.2MB ∙ PDF file

Download

Download

What I will say though is that…

So, in the old Twitter, multi-post threads were king. Splitting a story into 10 tweets gave you multiple chances to hit the feed and pull readers through a chain.

However, with new changes, single long-form posts (up to 25k characters for X Premium) now routinely outperform equivalent threads for broad reach.

• Unified Engagement. Instead of 50 likes scattered across 10 separate tweets, every like, reply, bookmark, and share hits one single post. That concentrated signal tells the algorithm…

“This post is hot and you should totally show it to more people.”

• Dwell Time Bonus. Opening a long post and reading for 60-120 seconds gives X a massive dwell time signal.

• Zero Drop-Off: Readers don’t have to scroll through 12 nested replies to get the full story, eliminating thread fatigue. But do note that (as to the prvious point) time counts, so expanding long form with replies is always encouraged.

My question is…

Are threads dead?

Well, it seems like the answer is… No?… Not entirely at least.

They still work great for specific posts like step-by-step tutorials or interactive Q&As. But if you want maximum reach for a story or essay, it’s way better to stick to a single long-form post.

Native Video Rewards High Completion Rates A Ton

I’ve yet to get this one right, but I’ve seen this story play out multiple times. X is pushing video hard to compete with TikTok and YT Shorts, and all that good dopamineic 💩.

However, in the case of X, completion rate matters way more than view count.

Here’s my testing so far:

• Watch time drives distribution: A 45-second video where 60% of people watch to the end gets boosted far more than a 3-min video where everyone swipes away after 5 seconds. Note that I still need to test with more lengths between 30 secs and 2 mins before I can conclude what the ideal length is.

• Always upload natively: Never post a YouTube link. Upload the raw video directly to X so it plays inline. These perform way better

Pro tip: If you want to embed someone else’s video on X (instead of just sharing a plain link), long-press the video and tap Post Video.

Alternatively, you can add /video/1 to the end of the post’s URL to get the same result.

Example… combine [x.com] + [/YelaHRMT/status/2078858399132106920] + [/video/1]

• Hook them in FAST (3 secs): As with any other short form stuff, you must use bold visuals, add captions (most people scroll on mute), and cut out zero-value intros if you want to get rewarded.

TweepCred

Note: This is probably the most important section of the entire text. Read it carefully.

X calculates a daily PageRank-style score (from 0 to 100) for every user, called TweepCred. If your score falls below 65, the algorithm caps you.

Specifically, only 3 of your posts will even be considered for out-of-network distribution per cycle, effectively locking you out of the “For You” feed.

Let’s break this down slowly, but before we do… I know what you’re thinking: what the hell is a cycle?

Well, before we dive into TweepCred, here’s a bit of context for you.

TweepCred Update Cycle = 24 Hours

The batch job on X’s servers (historically called the UpdatePageRank job in the Scala code) runs once every 24 hours.

The User Session Cycle = Instantaneous (<200ms)

When the code says “accounts with a TweepCred below 65 have only 3 tweets considered for distribution per cycle,” it refers to a User Feed Refresh Cycle.

Every single time a user pulls down to refresh their “For You” feed, the pipeline spins up.

If your TweepCred is under 65, the algorithm will pull a maximum of 3 of your posts into the candidate selection pool for that specific user’s refresh session.

The rest of your posts are completely locked out of that generation cycle.

The Post Lifespan or Decay Cycle = 6 to 24 Hours

X applies an aggressive time-decay multiplier to posts.

• 6-Hour Half-Life: A post loses roughly half of its score weight every 6 hours. By score, I mean the sum of all effective engagement for distribution.

• 24-Hour Death: After 24 hours, a post’s algorithmic score drops to effectively zero. No matter how viral it went on day one, it will stop appearing in the “For You” feeds of out-of-network users.

Estimate Your TweepCred (Max 100 Points)

You can grade your account across the six vectors X’s code uses to build your reputation score.

Again, the target is 65 or higher to escape the algorithmic throttle; however, note that this is algorithmic, so the higher the rank, the exponentially better the distribution.

Follower-to-Following Ratio (Max 30 Pts)

X wants to see that people find your content valuable enough to follow you back.

If you follow more people than follow you, you get penalized. If your “following” list is over 500 and your following-to-follower ratio is greater than 0.6, the code triggers an exponential penalty.

From our testing:

• High ratio (1.5 or 2.0 to be safe) = 25-30 pts.

• Flat/negative ratio = 0-10 pts.

Example

• Followers: 10,000

• Following: 600

• Is Following > 500? Yes (600)

• Is Ratio > 0.6? No (600 / 10,000 = 0.06, which is safely below 0.6)

Maximum points (25-30 points). X would trust this account because they have high authority but keep a highly curated timeline.

Engagement Quality (Max 25 Pts)

This is your average interaction rate per post (likes, replies, bookmarks, etc.).

If your followers passively ignore your posts, X assumes you are a low-quality or broadcast-only account.

Platform-wide averages are typically lower (around 0.1–1.7%, varying by account size and calculation method), but large creators can still see solid algorithmic distribution at 0.5-1% with consistent quality signals.

We’ve seen good distribution with 0.2% to 0.6% visual engagement (which only accounts for the public engagement metrics).

Our findings include:

• Consistently getting replies and bookmarks relative to your follower size = strong positive signal (20-25 pts).

• High follower count but dead silence on posts = weak signal (5-10 pts).

Example

For every 1,000 impressions, you need 10 total engagements of any kind (clicks, likes, replies, bookmarks, or reposts).

What the post actually looks like:

• 6 Likes [1x]

• 2 Profile clicks (people clicking your name to see who you are) [2x]

• 1 Reply [8-13x]

• 1 Bookmark [8-10x]

• Total Engagements: 10 (1% rate)

• Total Weighted Score: ~29

This is a baseline, acceptable post. It’s not viral, but it’s not spam. The algo will see this and think:

“We will keep distributing this creator’s content normally.”

If we made this 50 engagement on those same 1,000 visualizations, we would see the out-of-network distribution get triggered.

Again, note that engagements are not created equal; we want to encourage behaviors like dwell time and replies to max out the weighted score.

Account Age (Max 15 Pts)

Trust is built over time to prevent spam bots.

Brand-new accounts are heavily penalized. The full age trust benefit kicks in once your account crosses ~30 days old.

We’re not entirely sure whether reactivating a dormant account has the same effect, but from our baseline calculation is should not. This seems like a pretty straightforward if/then command.

Score works pretty simply:

• >30 days old = 15 pts.

• New account = 0–5 pts.

Pay-to-win Premium Subscription (Max 16 Pts)

A direct, artificial boost to bypass the cold-start problem.

It works out the following way:

• Premium+ = +16 pts

• Premium = +10 pts

• Basic = +4 pts

• Free Account = 0 pts

What this essentially means is pay-to-win is active now. Arguably, having it creates normal conditions, but not having it creates a major debuff to distribution.

Activity & Consistency (Max 10 Pts)

X rewards active daily participants.

Posting at least 1 to 3 times a day and actively replying to other accounts in your niche boosts this score. You can easily max this out, but it usually takes about 2 weeks of daily posting.

We would recommend 2/3 posts and 8+ replies per day.

Here’s the math for the TweepCred score:

• Daily activity = 10 pts.

• Posting once a week or ghosting the platform = 2–4 pts.

Pro tip: You should not spam as all of these are also filtered through the engagement metric.

App Usage (Max 4 Pts)

As a last side note, X’s code gives a tiny trust bump if you use the official mobile app.

• If you post and scroll from the iOS/Android app = 4 pts.

• If you only use scheduling tools or third-party APIs = 0 pts.

1 or 2 sessions a day will do the trick. A session is classified as 2-5 mins of active engagement (scrolling feed, liking posts, replying to commments, etc.).

My TweepCred Score Explained

Well, by the time I started tracking this figure, I’d already gone through several rounds of optimization, including pruning followers, deleting low-engagement posts and replies, and grabbing Premium.

My best guess is I was sitting around 20 when I took over the account.

Also, fair warning: I get ridiculously obsessive with this stuff. And yes, it was 3 a.m. when I took this screenshot. Stop judging my sleep schedule, close this tab, and go optimize your own profile.

My latest score as of the posting of this on July 22nd is:

Here is my estimate, though it may not be perfectly accurate.

My Follower-to-Following Ratio (Max 30 Pts)

Probably very high with a 0.3 ratio, plus about 20% of them are verified. However, given the low count, it’s probably penalized, so +20.

My Engagement Quality (Max 25 Pts)

Even though the number is not updated after the pruning, 0.8% is okay, the low absolute numbers do work against me, so +7.

I will note that the average engagement rate shown in the dashboard right now should sit between 2-3%, once updated (in 2 weeks-ish) this component will receive a massive boost (+20 expected)

My Account Age (Max 15 Pts)

Room for improvement but high, so +13.

My Premium Subscription (Max 16 Pts)

We added +10 with this category and reduced max TweepCred from 100 to 94.

My Activity & Consistency (Max 10 Pts)

Room for improvement but high, so +7.

My iOS App Usage (Max 4 Pts)

Room for improvement but high, so +3.

TweepCred Score Takeaways

There’s not much left unsaid here. Perhaps, to highlight two major things: using your phone for a few sessions can be the difference maker to get to 65, and you can tweak most of the score with some smart high-quality engagement.

However, the system is a bit "pay to win," especially given how the score acts as an exponential trampoline for your content.

Note that I do pay about 5 bucks per month at the moment (got an entry offer thingy), which makes me Premium, and Premium is a must if you want distribution.

I’ll likely upgrade to Premium+ eventually just to test it. Early on, the math really works in your favor.

Past 500k followers, it’s probably not worth the money, but for early growth, it makes total sense (on paper).

Distribution In and Out of Network

Beyond TweepCred (which, btw, is intrinsically connected to this metric), your scale is sadly a product of size, and there’s nothing you or I can do about it.

How you can play around this... well, individually you can do basically nothing. If you’re a small creator, you cannot overcome this gate directly.

What you can do, though, is ask larger creators to vouch for you in the form of reposts and engagement. Reposts will retrigger the distribution calculation, as the author’s followers will get notified and shown the post.

We won’t get into monetization, which requires 500 followers and 5M views in the last 90 days, but eventually, I’m sure I’ll get to test that out.

To be candid, it won’t be a priority for me at any point. Direct revenue isn’t my goal here; what matters to me is respect and the ability to execute on my main project: Hermit Ventures.

On this completely parallel topic… In my view, having resources is just like having more soldiers in your army; it helps with the mission.

In any case, as my former McKinsey boss used to say:

“We’ll cross that bridge when we get to it.”

I can literally hear him in my head, and it reminds me of how much I detested when he said that. 🤢

Shadowbanning Explained (w/ an example)

While X prefers polite corporate euphemisms like “visibility filtering” or “reach limitation” (under their motto “Freedom of Speech, Not Reach”), the reality is the same.

Your account looks fine to you, but X has quietly turned down the volume on your voice. Speech suppressioooooon activated!

What It Looks Like

So yes, I’ve tested this, of course I have. And it sucks, for the most part.

When X puts you in the penalty box, your content gets buried. You are actively hidden or deprioritized.

There are zero notifications associated with it.

Impressions and engagement just suddenly drop off a cliff, usually by 50% or more, and it becomes almost impossible for new people to discover you. So yeah, profile visits and new followers fall.

Common Ways X Chokes Your Reach

The Grok-powered algorithm scores you in real-time, looking for “safety signals.” If you trigger the algorithm, it usually results in one of these restrictions:

• Search Ban: Your posts don’t show in search results, and your @handle won’t autocomplete in the search bar. You can actually test for this, but it’s easier said than done. Since X rarely allows you to search without logging in, you’ll need a friend who’s logged in to check it for you.

• Reply Deboost: Your replies get hidden from non-followers. This is a reach killer for authors trying to network in comment threads. Testing this also requires another person’s account, as you can’t see comments without it.

• General Throttling: X simply demotes your content across the board, ensuring it reaches far fewer people. So out-of-network distribution effectively becomes zero.

How Did This Happen?

It’s almost always the algorithm flagging “bot-like” behavior, not a manual penalty. Big triggers include:

• Spammy habits: Blasting identical posts, repetitive replies, or mass follow/unfollow sprees.

• Link spam: Putting too many external links in main posts (stick to the reply-thread strategy!).

• Controversial topics: Content that gets frequently reported by other users. This includes faulty language.

• Low follower quality: If your audience looks like fake bots or you’re part of engagement groups.

How to Fix It / Recover

The good news is that most restrictions are temporary and will lift if you stop the bad habits:

• Go silent: Pause major posting and replying for 24 to 72 hours. Stubborn cases might need a week of inactivity.

• Delete and scrub: Get rid of recent spammy posts or link spam, but do it carefully and methodically (more on this later).

• Build better habits: Once you return, stick to consistent, high-quality content and zero external links in main posts (at least for a while).

• Engage authentically: Focus on conversational replies rather than rapid-fire “great post” comments.

Recovery time varies. It took ours 48h to recover, which probably means mild cases resolve in days, but repeated offenses take longer.

Not every drop in reach is a shadowban. Normal algorithm shifts or audience fatigue can also reduce visibility.

If you are experiencing this, I really don’t know what to tell you other than… quality wins with this algo.

On that note…

Don’t Delete Everything at Once

This is how I got shadowbanned. Pruning is good, but the algo considers you spam if you delete more than 50 posts/replies every 15 mins.

So don’t go ham. Just check every two to three days for stuff that didn’t perform past the 48h mark, and you’re good.

Each cycle (24h) is important, but the overall one- to two-week metric is really what determines your score, so if you keep that high, you’re golden.

If you want to go on a pruning session, I recommend you split it up into daily sessions and delete approx 5-10 posts every day just to keep the spam bot flag away. Maybe making it a habit is a better practice, but again, I’m still testing.

Just don’t delete 100 posts in about 2 hours. That’s what I did, and it’s definitely not a smart move.

Other Useful Stuff We’ve Learned So Far

Replies outpace posts, at first

Because your initial algorithmic distribution is going to be pretty rough, you really only have one option:

You’ll probably notice that all of these examples are from the last few days, and that’s no coincidence.

Like most things, as you iterate, you get better at it. I filtered these by impressions here, but ideally we’d filter by profile visits.

That’s the north star metric for understanding follower conversion.

Optimize your profile

On that note, when people visit your profile, they need a proper place to land… and that comes down entirely to you.

Using your real name is generally recommended since you want to build trust.

Your profile picture and header image should be curated for your specific audience (in my case, finance professionals and people interested in finance).

Same goes for your bio: it should establish authority quickly and, more importantly, clearly state what you write about so people can decide within 5 seconds if following you is worth their time.

Your pinned post matters a lot, too.

While many creators pin a post that went viral, I chose one that breaks down my main project in detail. This deepens engagement and gives readers instant confirmation of who I am and what I do.

Treat your profile as a top-down funnel (literally) where people skim from top to bottom for anything that catches their eye.

Note: Take my link, for example. It used to be hrmt.substack.com, but it’s moving to www.hermitresearch.com (by the time you read this, it probably already has).

This is a prime example of serial optimization. If I hadn’t pointed it out, you likely wouldn’t have noticed, and this single change isn’t a game-changer on its own. But as these tiny upgrades stack up over time, the overall jump in perceived quality becomes very obvious.

Reposting a successful post 24h later

Okay, so look at the first 48h of this post.

When you restack your own post after 24h, you get a little bit of that distribution boost again.

A self-repost mainly pushes the tweet back to the top of the feed for your existing followers and helps revive the decay mechanic that we discussed previously, but it doesn’t trigger fresh out-of-network distribution.

Deleting non-engaged works

Okay, so here’s what actually happens when you delete posts from the last 14 days.

On your frontend dashboard (the one you see on the analytics screen):

• Cumulative stats (Impressions, Likes, Replies, Reposts) will drop. X’s analytics is basically a simple calculator. So, when you delete a post, it subtracts those impressions and engagements from your 14-day total (there’s a delay).

• Engagement rate (like your 0.8%) will usually improve. You’re removing silent impressions. Denominator effect. The ratio goes up.

On the backend algorithm (the part that actually matters for future reach):

The algorithm cares only about density and consistency.

Every ignored post signals “low-interest content,” which debuffs your future reach. By removing them, you clean up your history and reset your profile so the algorithm starts seeing you as a higher-quality creator again.

Don’t stress if your total impressions or likes dip a bit after cleanup; overall, that’s just vanity metrics. You’re trading a little historical volume for better future distribution.

Expected timeline:

• Daily recalculation. X updates your reputation (TweepCred) roughly every 24 hours. The refresh occurs at 00:00 UTC plus a lag of up to 4h.

• Partial real-time effect. Some positive signals can show up quickly.

• Full recovery. Expect 3-7 days of consistent high-quality posting to really see the difference in reach.

What I’d do is delete the dead-weight posts methodically. Remember, slow and steady wins the race here.

Then spend the next few days feeding the algorithm fresh and engaging content. By next week, your baseline reach should start opening up nicely.

Views are just a vanity metric

To continue on the point above, like with most things, views are just a way to boost your ego. Losing views by eliminating low-engagement content is a massive net positive.

Views really only act against you via the denominator effect, so take that as a lesson.

Narcissism and all that good stuff.

Replies don’t count, but they count

So on the one hand, good or bad replies aren’t really reputation-damaging on their own, because most of how X classifies you has to do with quantity, frequency, and good faith.

However, there is one metric that gets affected… and that’s engagement. Remember, poor engagement does hurt your stats and therefore your TweepCred.

This is especially true with negative feedback loops meant to filter spam:

• Downvotes & Hiding: X uses downvotes on replies as a training signal. If your replies are consistently downvoted, hidden, or ignored, your account reputation takes a major hit.

• Mutes & Blocks: If you leave spammy, copy-paste, or overly aggressive replies that cause people to mute or block you, it triggers strong negative penalties that tank your TweepCred.

My best guess is anything with an engagement rate lower than 1% should be removed (though this is still a guess; I haven’t fully tested the exact threshold).

Engagement and time matter here, so aim for at least 1-2 Likes or 1 Reply from someone else within 48 hours. If you don’t get that, just prune it once the time has passed.

Blue checkmarks rule the tweetosphere. Period.

If your followers have high TweepCred, that’ll increase your visibility as well, especially by maintaining a strong verified follower ratio.

5% to 15% — Good general interest
Active creators in broader niches (e.g., general tech, fitness, lifestyle).

15% to 25% — High-Trust Expert (I’m at around 20%)
Highly specialized, professional niches (finance, micro-caps, investing, SaaS).

Note: All serious B2B accounts have check marks, so catering to these Premium and Premium+ massively boosts your authority within the network at the expense of probably having a lower follower count.

Reply Triggers, Bookmark-Bait formatting, and Dwell-Time optimizations

Direct replies are nice, but multiple back-and-forth exchanges are great as they compound time spent. If someone starts a session and comes back later, the clock doesn’t reset, so you can hit that valuable 2-minute mark much easier.

Example

Someone reads your post and replies (35 seconds). You reply, they come back and spend another 60 seconds. The algorithm sees 95 seconds of dwell time + bonus signals from the two replies (including your reply to their reply).

Smart self-replies are also powerful, but use them smartly to add context, follow-up thoughts, questions, polls, or links.

Do not just post a comment that will be ignored, as again replies don’t count… but they do.

Again, these increase both engagement and dwell time. Just be smart about it. Quality always matters.

Ad processing and placement is not very good

If you want to boost a post, use one that already performed well during the first 24h, but never sooner than that.

I haven’t tested this enough though to have a opinion on what do do to maximize it. However, I’m quickly learning about what not to do.

Overall, it doesn’t work out too well, especially for niche creators, because targeting just blasts your stuff to a broad audience. This often depresses your engagement metrics.

Also, ads are freaking expensive. I’ve spent about €200 testing. So far, they have not worked nearly as well as just asking a bunch of my buddies to engage with the posts… especially the high-TweepCred ones.

Closing Thoughts and Insights

Please note that after reading all of this, I hope you put it to practice and actually go down the trial-and-error rabbit hole.

Note that I am in no way an expert on this topic. I’ve still got a lot to learn. But after reading through the Phoenix engine procedures and now Grok’s smart positioning, I’d say I’m probably in the top 90%.

The question is… what has to happen to get to the top 99%?

Well, that’s simple. It’s just more iteration.

Expect a post in a few months where I show you results based on TweepCred improvement and overall distribution gains.

I’ll likely opt for the pay-to-win strategy and succumb to our lord and savior Elon Musk for that beautiful instant +6 point boost. We’ll see.

For now, my metrics look like this:

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That’s exactly why we’ve put together a thorough write-up on one of the industry's heavyweights.

In case you don’t know my collaborator yet, here is a quick introduction to a fantastic Spanish stock researcher and an all-around great guy.

If you are looking for a serious senior analyst who actually understands the operations of a tech company, look no further than Alejandro Guadalajara.

He is the founder and author of , a highly respected investment research platform followed by over 17,500 investors.

Before launching Quality Value, he spent eight years at LaLiga, where he led product development and steered their OTT streaming platforms (LaLiga+).

This was a hands-on live lesson on scaling digital infrastructure, optimizing user engagement, and managing complex subscription models.

Because of this experience, when Alejandro analyzes software and subscription-based companies today, he looks at them through the lens of a builder, and not just a modeler.

He understands user acquisition, churn, product-led growth, and tech stacks because he has actually designed and run them at scale.

We think, Alejandro is great at bridging tech operations and rigorous financial analysis. He’s extraordinary at breaking down complex enterprise businesses into digestible insights in layman’s terms.

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One-Pager — Visual Summary

The cover page with key metrics, valuation, and scenarios all in one image. Built for anyone who wants a quick look at the thesis fundamentals.

Executive Thesis

• The Bearish Consensus and Why It’s Wrong

• The Bullish Thesis (& Competitive Advantages)

• The Numbers Challenging The Narrative

• Three Scenarios for 2030 and Target Price

• Our Action Plan

Full Thesis (Downloadable PDF)

One-Pager

When the market punishes high-quality companies based on a narrative that the data contradicts, you get as an output a set of excellent opportunities for the coming decade.

Key Atlassian data points:

• The product continues to win enterprise deals at record levels

• The Teamwork Graph is a demonstrable AI differentiator with quantified ROI

• The capital allocation has already changed; buybacks exceed SBC in FY26

• The founder continues at the helm with 20% economic and 87% of the vote

• The culture has led to the adoption of hard but critical decisions (10% layoffs) to accelerate GAAP profitability

• The new CFO has elevated “durable profitable growth” to an explicit strategic priority

The 10 pillars that support the thesis:

What worries the market and what do we think about it:

Executive Thesis

• The Bearish Consensus and Why It’s Wrong

• The Bullish Thesis (& Competitive Advantages)

• The Numbers Challenging The Narrative

• Three Scenarios for 2030 and Target Price

• Our Action Plan

The Bearish Consensus and Why It’s Wrong

The bearish thesis the market holds today regarding Atlassian can be summarized in a single sentence:

This narrative has driven the stock down more than 60% from its highs of a year ago, as part of what has been dubbed the SaaS-pocalypse.

Mike Cannon-Brookes, CEO of Atlassian, listed this bearish thesis word for word at the Analyst Day on May 6:

His literal response:

The problem with the bearish thesis is that it stems from an empirically false premise.

Note: Less than 50% of Atlassian’s product users are developers.

And the data they provided at the Analyst Day is highly revealing:

• Confluence: 7 out of 10 users are non-developer knowledge workers (70%)

• Jira Service Management: more than 75% are non-developers

• Jira (the alleged “dev tool”): approximately 2 out of 3 users are non-developers (HR, finance, legal, marketing, operations, design)

Quality Value (QV): From personal experience using these tools in private companies developing software for millions of users, Atlassian’s products are the best in the market for collaboration. And that’s not just for developers, but for any role within an organization.

This market confusion is precisely what creates the opportunity we are going to look at in detail today.

The Bullish Thesis (& Competitive Advantages)

Core thesis: the software explosion demands more organization

We already shared this core thesis in our analysis of Nagarro and the IT sector, where practically identical dynamics and the same AI narrative apply as with Atlassian.

Our view is based on the prediction of British economist William Stanley Jevons.

The Industrial Revolution had dramatically improved the efficiency of steam engines: the amount of coal needed to produce a unit of work fell steadily for decades.

The “obvious” prediction was that total coal consumption in the UK would drop. The exact opposite happened: coal consumption skyrocketed. When a productive input becomes radically more efficient, its effective price drops, unlocking use cases that were previously unfeasible. Aggregate demand explodes.

The software footprint that the world needs to maintain, integrate, secure, and redesign is expanding faster than ever.

AI is dramatically lowering the barriers to creating software while simultaneously improving product quality.

Mr. Cannon-Brookes expressed this in provocative terms at the Investor Day: he argues that there will be more developers in the AI era, not fewer.

The current triad of Product Manager + Developer + Designer (and this is our opinion), will evolve into a single multidisciplinary profile, supported by AI, with a vision for product, business, and design. The engineer of the future orchestrates agents, validates outputs, and makes product decisions.

To support this view, look no further than the Bloomberg Software Labor Demand Index (INDDSFTW): it hit record highs in February 2026 (71.4 vs. 62.9 a year ago). This is sector-wide data, not company-specific. It is the best quantitative refutation available against the bearish software thesis.

Atlassian Will Reign in the Chaos

If software creation accelerates, the associated organizational chaos multiplies.

Every new feature generates tickets, decisions, dependencies, specifications, conversations, reviews, tests, deploys, incidents, and postmortems.

That work needs to be channeled and organized, and that is exactly the problem Atlassian has existed to solve since 2002.

The company is not a victim of AI disruption; it is critical infrastructure for the AI era.

Cisco’s testimony at the Analyst Day articulated this perfectly.

Cisco manages 25k-30k networking engineers on Atlassian’s platform. They saw a 5% productivity uplift just by adopting the System of Work, and a 40% reduction in the Total Cost of Ownership (TCO) of managing the platform itself.

The platform is not becoming less relevant; it is becoming mission-critical. And this, as we will explain later, is one of Atlassian’s key competitive advantages.

The Part Where We Talk About Quality

Pricing model: from pure per-seat to a mix of seats + consumption

The nuanced objection of the bear case is legitimate: if tickets previously handled by a developer are now done by an AI agent, the customer theoretically needs fewer human seats.

The most compelling data point from the Analyst Day:

Mr. Cannon-Brookes showed a chart of cloud seats excluding all migrations, aka pure organic demand. The curve continues to accelerate quarter over quarter.

It is the most direct visual proof against the narrative that “seats are going to evaporate.”

Our hypothesis is that the AI agent will end up being just another user, a virtual seat with its own recurring cost.

Atlassian is already building this hybrid future with four pricing models operating in parallel:

• Traditional per-seat remains the primary model because it is what most customers prefer, at least for now. This is especially true when they migrate to the cloud.

  

• Growing consumption-based Rovo (their chatbot) credits, CSM resolutions, Bitbucket Pipelines, Assets, Forge Compute, Forge SQL.

• Hybrid pricing w/ Teamwork Collection bundles credits with seats.

• Flex-based commitment model (new, presented at the Analyst Day) for customers with >$1M in commitment, allowing them to move between seats/applications/collections with usage certainty.

Ultimately, at the Analyst Day, Cannon-Brookes confirmed that this pricing flexibility is deliberate, not improvised. It allows them to adapt to whichever direction the AI market takes without having to reinvent the model.

Revealing metric: customers using MCP grow at 2x

A metric from the Analyst Day that deserves attention: customers using MCP server grow their ARR at 2x the rate of those who do not use it. This suggests that the “agentic + consumption” direction works economically. It is much more than just a theory, as it already has demonstrable data backing it up.

Note on MCP (Model Context Protocol): an open standard created by Anthropic in 2024 that acts as a "USB-C for AI agents", allowing any AI tool (Claude, Cursor, ChatGPT, etc.) to access Atlassian's Teamwork Graph in a standardized way. Every external agent that queries the Teamwork Graph via MCP reinforces the centrality of the graph in the customer's workflow.

The strategic paradox: by opening the Teamwork Graph via MCP, Atlassian increases its moat instead of reducing it. Every external agent that reads from the graph also writes back, creating classic network effects. The company positions itself as neutral infrastructure for the agentic era, not a walled-off garden.

The Data Validating Our Vision

The data published by the company points in a single direction: more AI usage on the platform leads to more consumption and higher revenue.

Here are some of the key data points validating this thesis:

• Customers adopting Rovo grow their ARR at 2x the rate of non-Rovo customers.

• AI credit usage is growing +20% month-over-month. That’s an exponential curve, still in a very early stage of adoption.

• 75% of the Fortune 500 already has Rovo activated (Analyst Day data).

• Teamwork Collection customers use 2x more AI credits and have 2x more agents.

• 1,000+ customers and 1M+ seats in the first 6 months of the Teamwork Collection.

• Service Collection crossed $1,000M ARR, growing +30% YoY, with enterprise growing +50% YoY.

• Service Collection customers using AI resolve incidents 13% faster and handle 20% more total incidents.

• Customers using MCP server grow ARR at 2x the rate of those who don’t, as previously mentioned.

The Real Impact of AI = Efficiency, Not Cannibalization

It would be naive to say that AI has no impact on Atlassian.

It does, but the vector is different from what the market perceives: it is an increase in internal efficiency, not a drop in external demand.

The 10% staff layoffs in March 2026 (1,600 employees, ~$224M in restructuring charges) are the proof: Atlassian itself is using AI to do more with less staff.

The rationale behind the latest acquisition: seeking efficiency

One of the most revealing recent acquisitions is DX (~$1,000M).

Management’s rationale was exactly this: how to measure whether investments in developer experience tools (including AI) produce real ROI.

DX becomes the tool that justifies spending on all other AI tools, including Rovo itself.

Every company investing millions in Copilot, Cursor, Rovo Dev, etc., wants to know if they are getting a return.

At the Analyst Day, Brian Duffy (CRO) shared a revealing data point: 75% of DX transactions are associated with AI and the ROI of agents specifically. It is the lever that every CFO is asking for.

Competitive Advantages: Product, Suite, Data, Switching Costs

QV: This is the most important part of the thesis.

As we have discussed in several articles, the 7 competitive advantages of intangible businesses against AI are the filter we apply before investing in any company potentially disruptible by AI.

Before investing in a business that could be disrupted by AI, we must see which of those 7 advantages it possesses. If it doesn’t meet at least one broadly or two complementary ones, we are looking at an uninvestable business today.

In our opinion, Atlassian checks 2 of these boxes broadly and another 4 to a lesser extent, but they all complement each other. Let’s break each of them down in detail, followed by our conclusion.

The Product is the King

The most important thing for any business is to have a great product. If you have a great product, everything else, at some point, becomes easier.

And Atlassian doesn’t just have one great product; it has several great products, multiple products that generate billion-dollar businesses.

In the Q3 FY26 shareholder letter, Cannon-Brookes summed it up with the most quoted line of the quarter:

Atlassian’s Individual Products · A Quick Guide

For anyone not familiar with the ecosystem: Atlassian structures its catalog into individual apps, which are then grouped into “collections” (optimized bundles with a discount and extra AI credits):

Collections (5 bundles with discounts + extra AI credits)

• Software Collection: Jira + Bitbucket + Compass. For engineering teams.

• Service Collection: JSM + Assets + Rovo. For IT, HR, and customer service.

• Teamwork Collection: Jira + Confluence + Loom + Rovo (10x more credits than stand-alone). The main AI monetization motion.

• Strategy Collection: Goals + Focus + JPD. For the C-suite.

• Product Collection: JPD + Feedback. For product managers.

And beneath everything runs the Teamwork Graph: the data layer that connects all information from all products into a single knowledge graph that feeds Rovo and external tools via MCP. It is the differentiating component… and we analyzed it for you in depth.

Interconnected suite and upselling lever

It’s not one product, but 10+ deeply interconnected ones. The individual scale of each one separately is very significant, as you can see from the following data:

Three billion-dollar+ businesses running on a single platform.

The data generated by each product enriches the others, opening up powerful upselling: the customer who entered with Jira for devs ends up buying the Service Collection for HR and IT, the Strategy Collection for the C-suite, and Compass for SRE.

Ultimately, as of today,

But also, at a very attractive price…

In the service management category, JSM charges ~$55-85/agent/month on its Enterprise tier (with Rovo AI included in Premium and Enterprise), compared to ServiceNow ITSM Pro+’s ~$160+/fulfiller/month plus its additional modules.

For the time being, in our opinion, Atlassian has the best collaboration product on the market at a dramatically lower price. It is a rare combination in enterprise software.

The Teamwork Graph · The AI Moat

Atlassian has valuable data, it’s just different in nature compared to other major enterprise vendors:

• Salesforce has the customer context.

• ServiceNow has the incident and CMDB context.

• Microsoft has the document context.

Atlassian has end-to-end work context. From the initial idea in Jira Product Discovery, through the sprint in Jira Software, the commits in Bitbucket, the documentation in Confluence, the incident in JSM, and the strategic decision in Goals.

The ROI Demo · The Most Compelling Part of the Analyst Day

At the Analyst Day, Atlassian showed a live demo of the Teamwork Graph’s ROI, which is the best proof of a moat they have ever presented.

Using the exact same complex engineering task and the exact same agentic harness (Claude Code):

• Without Teamwork Graph: $2.68 per task

• With Teamwork Graph: $1.32 per task

And the math becomes even more favorable the more complex the tasks are.

Mr. Cannon-Brookes tied this directly to their competitive moat with a categorical statement about the enterprise AI era: there won’t be 20 or 30 SaaS vendors capable of doing this.

But what is context and why is it valuable?

First, let’s explain what context actually means in this scenario:

Context: all the information an AI model needs to have in front of it to understand what you are asking and provide a good response.

An AI model on its own is like a newly hired expert: brilliant in general, but knows nothing specific about your company.

It doesn’t know your projects, your code, your past decisions, who did what, when, or why. “Context” is precisely that specific information passed to the model in each interaction so it can reason about your concrete situation.

A Practical Example….

Imagine asking Claude:

“Why is this deployment failing?”

The difference in the quality of the answer is radical, and it comes 100% from the context, not the model itself.

Why Atlassian Talks So Much About “Context”

Cannon-Brookes put it this way at the Analyst Day:

Large language models (Claude, GPT, Gemini) are converging in capabilities; they are all getting smarter, and the gap between them is narrowing. But they all suffer from the exact same problem: they don’t know anything specific about your company.

Whoever provides the best context for your work wins, because it multiplies the model’s general intelligence by highly relevant, specific information.

Raw intelligence is a commodity; context is scarce.

Atlassian’s Strategic Argument

Atlassian claims to hold a unique advantage in context because it covers the entire work lifecycle:

Other vendors have vertical context: Salesforce has customer context, ServiceNow has incident/CMDB context, and Microsoft has document context.

Growth via Enterprise Clients

Atlassian’s enterprise engine relies on a different sales model than ServiceNow or Salesforce.

Traditionally, Atlassian was the poster child for Product-Led Growth (PLG): the product sells itself, without a sales team, via self-service.

Even today, 55% of new customer acquisitions still come through self-service.

On top of that PLG foundation, they have layered:

1. A global network of certified channel partners for mid-market clients.

2. Enterprise direct sales (”enterprise advocates”) for complex deals.

In short, they are going after larger clients, bigger deals, and larger budgets because they see a massive market opportunity to capture.

The Analyst Day added an important piece: for the first time in Atlassian’s history, they have signed partnerships with Global Systems Integrators (GSIs)… Accenture, Deloitte, and PwC.

Brian Duffy explained that these GSIs are opening doors to the C-suite on an unprecedented scale.

• Mercedes-Benz (a customer that took the stage yesterday) came to Atlassian via Deloitte.

• Infosys launched a dedicated Center of Excellence specifically for Atlassian.

• Accenture is generating a material and trackable pipeline.

Mr. Duffy also detailed the sales team’s transformation: 4 years ago, Atlassian had 117 quota-carrying reps. Today, it has 400.

Sales rep productivity is “best-in-class” according to management; the next lever is scaling sales headcount while maintaining this high productivity.

Q3 FY26 numbers quantify this progress:

• Deals >$3M: +79% YoY

• Deals >$5M: +54% YoY

• ASP (Average Selling Price): +22%

• Small deals: +32%

They aren’t sacrificing any segment, at least for now.

Growth via Cloud

The migration from Data Center to Cloud is the most undervalued growth driver by the market. This is where Atlassian is playing a brilliant strategic game, making decisions that might hurt short-term investor perception but are highly beneficial in the long run.

Why is Cloud the structural direction for the long term?

All recent innovations like Rovo, Teamwork Graph, MCP server, all collections, and AI integrations run exclusively on Cloud.

Data Center still works, but its features are essentially frozen. This means any customer wanting to leverage AI, graph context, or new pricing models has to be in the Cloud; there is no real alternative.

Atlassian offers deployment flexibility within Cloud for complex enterprise cases, as they highlighted at the Analyst Day:

• Standard Commercial Cloud on AWS (for most customers).

• Isolated Cloud for regulated clients requiring complete tenant isolation.

• Government Cloud on Google Cloud, certified FedRAMP Moderate.

All of these run on the same codebase. Any update from Atlassian is deployed to everyone simultaneously.

This is why they are winning customers in banking, defense, government, and healthcare. All of these are sectors that traditionally couldn’t adopt standard SaaS due to strict compliance rules.

The Cloud flywheel doesn’t stop after migration

Mr. Cannon-Brookes emphasized this:

“Cloud is a flywheel, not a one-off project.”

A customer gets onboarded, discovers Rovo, activates the Teamwork Collection, sees the ROI, adds DX, connects their graph, integrates MCP, and within 3 years, they are spending 2x more than they did on migration day.