Stating the bet
Before a firm commits real diligence time, it needs to be able to state its bet in one sentence, not "this seems like a good business," but something specific enough that it could later be proven wrong.
We can buy Meridian CRM below where similar software companies trade, improve its pricing and retention, grow EBITDA meaningfully, and sell it in five years at a similar multiple to where we bought it.
What a real thesis commits to
Notice what that sentence commits to: an entry price view, at least two specific levers (pricing, retention), an EBITDA growth expectation, and an exit assumption (multiple stays flat, the return comes from improving the business, not from hoping the market re-rates it, which is a more conservative and more common thesis type than betting on multiple expansion). Every lesson from here through Lesson 24 is really testing pieces of this one sentence.
| Commitment | Target |
|---|---|
| Entry multiple | ~8× EBITDA |
| Entry EBITDA | £20m |
| EBITDA growth target (5yr) | to ~£35-40m, via pricing and retention |
| Exit multiple assumption | Flat, ~8×, no re-rating bet |
| Target MOIC | ~2.3× |
| Target IRR | ~18% |
This is what "testable" looks like stated as numbers instead of adjectives, and it's the same table Lessons 20 and 21 come back to check against reality.
Checkpoint
- Investment thesis: a specific, falsifiable bet about why this company, at this price, with this plan, should generate a return.
- A real thesis: names an entry view, specific value-creation levers, and an exit assumption, not just "this looks good."
If anything here still feels unclear, ask before moving to Lesson 6.