Weaving Webs: Our Approach to Micro-Cap Idea Generation

The micro-cap universe is broad, fragmented and persistently underfollowed. With nearly 1,300¹ companies and 70%² having no analyst coverage, the question is not whether opportunities exist, but how do you consistently surface them?

In a recent post³ on X, Ian Cassell shared an analogy that resonated with us: we think about idea generation much like a spider building a web. A spider does not chase a single fly; instead, it methodically constructs a web and waits — the more extensive and well-positioned the web, the greater the probability of success. Our research process works the same way. Differentiated outcomes rarely begin with isolated insight; they begin with structure. Our web is intentionally designed, expansive and relies upon a few key advantages.

Boots on the ground

Traditional equity research — reviewing SEC filings, analyzing company presentations, building financial models — forms the foundation of our work, but this is merely the starting point. In the micro-cap space, where information asymmetry creates our competitive advantage, differentiated insights come from extending our efforts beyond the screen.

Our boots-on-the-ground approach is key. When we visit company headquarters, our objective is not simply to meet management, but to understand the culture, observe operations and assess the physical assets that might constitute competitive advantages. We tour manufacturing facilities to evaluate production capabilities, operational efficiency and the quality of capital investments. These site visits often reveal insights that never appear in a 10-K: the condition of equipment, employee engagement, the sophistication of processes, the strength of customer relationships. Boots on the ground can uncover nuance that others may overlook, and this in-person connection and observation cannot be replaced by an AI assistant.

The power of primary research

Micro-cap companies do not operate in isolation; rather, they exist within ecosystems of customers, competitors and suppliers. Truly understanding those ecosystems requires deliberate engagement.

We network within industries to develop an understanding of competitive dynamics, which can include conversations with customers, suppliers, competitors or industry experts and consultants who can provide context that management teams may not share or may not recognize themselves. We attend not only investor but also industry conferences, trade shows as well as technical gatherings where we can observe companies in their natural habitat, interacting with customers and showcasing innovations.

Our relationship building extends to board members, who often provide valuable perspective on management quality and strategic direction. We listen to earnings calls, yes, but also industry podcasts, trade publication interviews and technical presentations. We comb through trade journals and specialized publications that cover our companies' end markets. Every data point, every conversation, every observation becomes another strand in our web.

A shared web is a stronger web

Investing down the market cap spectrum requires significant digging and collaboration. While the majority of the roughly 50,000 known spider species are solitary creatures, there are 26 that are considered “permanently social,” living in a shared web. This arrangement allows them to tackle challenges that solitary spiders cannot.

Similarly, we believe our collaborative, three-person portfolio management team, with decades of combined experience, allows us to build a more extensive web than any individual could. We bring different networks, different industry expertise and different perspectives to every investment decision. What one of us might overlook, another catches. This collaborative approach means our web is broader, stronger and more strategically positioned to identify opportunities across the entire micro-cap landscape.

From web building to value creation

Not only does our comprehensive approach generate differentiated insights, but it is also consistent with our long-term ownership mentality. We're not looking for trading catalysts or quarterly earnings beats. We're building the ability to identify situations where price meaningfully underappreciates the long-term fundamentals and competitive positioning of a business, where moats and quality are not yet recognized, and where management teams are executing well in businesses the market has overlooked. This fundamental understanding is essential to holding companies through inevitable periods of volatility and market misunderstanding. When we know a business well — its competitive position, management capabilities, industry dynamics and intrinsic value drivers — we can maintain conviction when others panic.

In our view, differentiated returns are ultimately the result of differentiated portfolios, and for us, that is underpinned by developing insights others simply don't have — the understanding gained from facility tours that reveal operational excellence, the competitive intelligence gathered from industry events or the management assessment developed through repeated personal interactions.

Our research process enables us to build a portfolio of roughly 30 high-conviction positions based on genuine insight advantages. We're not diversifying away uncertainty; we're concentrating in opportunities where our research has aimed to reduce uncertainty. We believe this focus on quality over quantity, combined with our willingness to hold positions through short-term volatility, allows our best ideas to contribute meaningfully to long-term results. These are companies we understand, hold with conviction and own for the long term.

Like the spider's web, our research process requires patience and diligence. We must diligently construct our network of relationships, information sources and industry knowledge, and when opportunities present themselves, we're positioned to recognize them and act with conviction. That's how webs catch flies, and that's how disciplined research can generate alpha.