The World Underwrites in Black and White

Businesses today are priced in greyscale. The elemental aspects of the business are abstract and unidimensional: revenue, EBITDA, multiples, and margins. The work of thirty years is reduced to a few numbers on a spreadsheet between the shades of grey. But everything that actually makes a business durable exists in color: the customer who has renewed for nineteen years but never asked for a discount, the GM who could run the plant blindfolded, the reputation of a company that means you still get the contract even after the other guys underbid you 20%. None of that appears in the data room, yet all of it resides in the business itself. Chroma exists because the instruments of modern finance are colorblind, and the firms that rely on them are leaving the most valuable information in the market on the table. None of us spent twenty years learning to see businesses in greyscale. We come from building companies, not merely trading them, and we still see the world in color. We are building our firm Chroma the same way we underwrite: for judgment, not typical pattern-matching.

The days of traditional private equity deal making — and with it, the analyst — are in our eyes, over. Gone are the days where a few tweaks to the model and dinner with the right banker yields wild returns. Auctions reward the seller with the best banker, not the best business. Hundred-item diligence checklists confirm what a company has, rarely what it actually is. There is no deal room on earth that can capture the gestalt of a business, and so most firms don't even try. Models built on comparable transactions can only value a company by its resemblance to other companies, which means the more singular or unique a business is, the more certainly the model will misprice it. This machinery works beautifully for assets that photograph well in greyscale. It fails, reliably and at scale, for the small monopolies in and around our lives: the testing lab, the niche manufacturer, the specialty distributor that after decades became irreplaceable but never even considered becoming noticeable. These are businesses, as we like to describe, with moats without castles. The ancient Greek scholar Archimedes once said: “Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.” These businesses are critical, enduring, they have every structural advantage they need, but have never quite pressed on the lever.

If you own or run one of these businesses, this next part is for you.

You've likely already taken a few calls. Some buyers ask about your add-backs before they've asked what you all make a year. There might be a random associate who called your life's work “a platform” (it's six 20-year veterans in a machine shop). The offer that valued everything except the part that took thirty years. We started Chroma because we believe the way a company is bought reveals what the buyer actually sees, and most buyers, looking at your company, see a column of numbers.

We, on the other hand, would rather spend a day on your shop floor than a week in your data room. The numbers will confirm what we learn on the floor, not the other way around.

Radical transparency is core to who we are, and at this moment it is rarer than capital. With that in mind, here is what happens after we buy. Some things will change. Sometimes the leadership, when the next decade demands different hands than the last three. Occasionally even the name on the door, when the path forward for the business to shine demands it. We do not preserve out of sentiment, but we do protect whatever earned your customers' trust. That means that we change whatever limits it, lean in hard on what bolsters it, and we will tell you which is which before we sign on the dotted line.

The moat we've been describing is, at the end of the day, yours. It is what stays even when everything else might have changed, and it is the fundamental motivation behind Chroma. Our work is to build the castle your business always deserved: the product thinking, design, talent, systems, and data that you wished you had from the start. While you might have dreamed of it, more often there might have been guesswork and luck in a few places. We call our approach to the complete business making a business ‘legible’. Not only making it better, but making it obviously better to the outside world — your competitors, your customers, your vendors, and beyond. Closing the very gap with you is what we mean by partnership rather than purchase, and why we will ask you to keep equity in what comes next. If we are right that your company was worth more than the market could see, no one deserves a share of that difference and a second bite of the apple, more than the person who built it while it was invisible.

We are investors, not permanent owners, and we say so plainly: we will one day sell every company we buy. But that is not a caveat to our thesis, it is the proof of it. Our entire model is to buy businesses the market reads in greyscale and return them to the market in full color, stronger, more legible, and priced at last for what they actually are. If you stay in on the ride with us, you can enjoy it for as long as we do, or even longer.

So we make these commitments instead: we will probably not win auctions, because auctions are won by whoever is willing to bet the most that they can “figure it out.” Nearly always, this comes at your (and your legacy's) expense. We will not buy a company we wouldn't be proud to describe to its founder ten years later. We will do fewer deals than we could, because we believe judgment takes time, and it doesn't scale quickly. We won't pretend it does. We'd rather be smart than feel smart — sometimes this requires realizing we aren't as smart as we thought, and acting accordingly. We invest in one company at a time, alongside partners who choose each business with us, we will never ask anyone to underwrite a blind pool of our promises, because conviction, like trust, should be earned in the specifics and through experience. And every business we sell will be easier to see, understand, and appreciate from every angle than the version we bought. That is the trade we offer the market: we do the seeing, and we get paid for the difference.