Thread by @nsheth12

The Investment Group of Santa Barbara (IGSB) has one of the best long-term investing track records out there, and was the training ground of Dragoneer founder Marc Stad. But since they don’t manage external $ and are super low-profile, few have heard of them. Let’s change that 👇

1/ IGSB describe themselves as “business builders” - they started out in public equities way back in the late 70s, but increasingly have shifted towards incubating & building businesses themselves with a team of <20 people.

2/ Their most well-known incubated biz is AppFolio, which IGSB had been involved w/ for 7 years and owned 1/3rd of at the time of their 2015 IPO...

3/ But there are other more recent examples like @TegusHQ, where IGSB operating partner @BobCasey is CFO.

It’s no surprise that one of the endorsements on Tegus’ website is from current IGSB MD Alex Wolf.

4/ IGSB is also concentrated - unlike most early-stage investors, they make a few bets and roll their sleeves up to build the companies.

All early stage investors say they’re involved - but if you’re spreading your capital among so many bets, how involved can you really be?

5/ IGSB are strategically involved, and put their money where their mouth is by concentrating.

This is very unique, and really only possible because IGSB are principal investors - the level of risk and time horizon required would make it a tough sell to external money.

6/ But first, let’s go back to the beginning. IGSB was born in the 70s, when Reece Duca seeded Tim Bliss, a Stanford GSB grad and student of legendary late Stanford investing prof. Jack McDonald with $500k.

IGSB has been around for a long time.

7/ Bliss was an avid student of Buffett's, and started out in public equities. His early bets included FedEx, Williams-Sonoma, and Commodore Computers, as well as buying Toys R Us out of its first bankruptcy. He put up the following returns in the early years

8/ Over time, IGSB grew to include other partners like Bill Rauth (also on Appfolio board), Luise Phelps, and Michael Cooney, and also moved towards the incubation model they’re known for today (although they still make public investments)

9/ Early successes with the incubation model included Advent Software and The Learning Company, both of which became public companies. Reece Duca was Chairman of the Board at both.

10/ In more recent years, IGSB has staffed its partner ranks largely with Stanford GSB grads.

The most famous alum is Marc Stad, who joined IGSB after b-school and was PM and partner in charge of the HK office before founding Dragoneer.

11/ In fact, IGSB participated in Roblox’s Series H this Jan, which Dragoneer co-led, suggesting that Marc continues to collaborate with the IGSB team.

12/ A big investment theme for IGSB in recent times has been vertical SaaS. Appfolio is obviously vertical in real estate and they recently led venture rounds in BuildOps and Briza, which are also vertical.

13/ Partner Michael Yang is also working on a vertical SaaS startup backed by IGSB, according to his LinkedIn.

Obviously, vertical SaaS has now been proven out in public markets w/ Veeva, Procore, etc. but IGSB was early to this trend, getting involved w/ Appfolio 15+ years ago.

14/ Another interesting point: a LinkedIn search turns up only 16 current employees, including back office - very lean.

But most interesting is that there are no “analysts” - every hire comes in at the principal level w/ lots of experience.

15/ I can't think of another fund that operates like this. I would imagine it would bandwidth-constrain the investment team to have no analysts, but it doesn't seem to have.

Very lean but high performing seems to be their model.

16/ More broadly, IGSB has succeeded with:
- a focus on strategic involvement
- concentrated strategy
- lean, high quality team
- permanent capital

17/ Clearly, their low-profile has not hurt them in attracting investment talent or high quality operators, and given the team they’ve assembled, I can’t imagine why they’d slow down in the future.

I’m very curious to learn more about them & see what the future holds for IGSB!