Two Six Capital – Transforming Investing Through Data Science

Overview

Transforming Investing Through Data Science

$32+ Billion

Enterprise value of investments closed

$139+ Billion

Transaction level revenue data analyzed

25 Years

IP and research in data science

Two Six Capital pioneered Data Science for Private Equity in 2013. Backed by 25 years of research from Wharton, the firm was founded on two observations:

There has been no technological innovation in the Private Equity industry since the Excel spreadsheet
Polls, surveys, and “top-down” research can mask the underlying drivers of a company’s financial and operating performance

Using proprietary technology, we combine large-scale Engineering, Statistics, and Machine learning with one primary objective: Understand and Project Revenue.

Like an horologist who fixes watches, we carefully unpack the minute complications of the revenue drivers of a business. Imagine billions of granular transaction data points moving in different directions from the “bottom up”- by individual customer, product SKU, channel, and segment.

“What Two Six Capital has done is recognize that whether you have 100 customers or 10 million customers, you make profits one customer at a time. In today’s data-rich and fast-computing world, this philosophy is monetizable, and Two Six Capital is using state-of-the-art methods to accomplish it”

– Professor Eric Bradlow, Wharton

This is a moment in time for the private equity industry, similar to when hedge fund quants revolutionized investing in public markets. High performance computing can augment human judgment, giving investors human-machine-like, or “cyborg-like” sophistication. Leveraging the explosion of data and technology, private equity investors can unmask the intrinsic performance of a company. These advanced analytics applications are relevant across the entire deal lifecycle – due diligence, post-investment value creation, and vendor due diligence.

Two Six Capital has advised and co-invested globally with some of the world’s leading private equity firms. These marquee deals include take-private situations, IPOs, corporate carve-outs, secondary market sales, and vendor due diligence.

Applications

Two Six Capital’s technology platform has been purpose-built for the private equity industry. We start by identifying commercial hypotheses around growth, quality of customers, products, and channels. Relevant industries include Consumer, Retail, TMT, Business Services, Financial Services, and Industrials to name a few; in short, any company with a large dataset beyond the capabilities of Excel.

Two Six works closely with investment deal teams, boards, management teams, and operating partners. Our outputs are used by investment committees, lenders, ratings agencies, and LPs. We also work with deal teams to help construct their financial model, providing a differentiated view on top-line and gross margin build.

DUE DILIGENCE

During due diligence, our data science approach can help de-risk investments by ensuring companies make their short-term numbers. Companies that miss their numbers after a deal closes can sap private equity investors’ attention to make up for the deficit needed to hit IRR thresholds.

VALUE CREATION

Post-investment, our data driven value creation approach can quantify upside between best and worst customers, SKUs, and channel segments. These white space opportunities can be benchmarked across different metrics and industries using our systematized data comps.

VENDOR DUE DILIGENCE

As portfolio companies are primed for sale, we can help sellers in a vendor due diligence process. Using data, we can identify optimal time for exit and untapped upside for prospective buyers.

Technology

The Two Six Technology Platform requires zero on-premise software installation or systems integration. Two Six products harness the power of large scale Engineering and Statistics/Machine Learning libraries built on academic research and internal R&D. These products have four capabilities

Ingest

Remotely ingest billions of data points with minimal delay. Compatible with variety of ERP, CRM, BI, BoS, DW, and DB enterprise systems. Detect and fix transaction data quality issues to minimize “garbage in garbage out” situations.

Manipulate

Wrangle data using a giant pivot table in the cloud, unbounded by column or row limitations. Slice and dice data by any combination of cohorts and business drivers. Pinpoint key segments contributing to volatility in company performance.

Model

Project growth, repeat, and spend across key segments. Quantify TAM (addressable market), market saturation, and headroom for growth. Depict “what if” scenarios based on changes in macro or micro conditions (e.g., recession, marketing spend).

Benchmark

Gauge performance using proprietary comps curated from $136 billion of “digital receipts” data. Over 140 metrics analyzed across 5 industries worldwide. Mean, median, and mode value creation or untapped upside benchmarked across metrics and industries.

Team

Our roots are firmly grounded in academic research from Wharton. We collaborate on IP development with leading PhDs and professors who have pioneered the emerging field of Analytics. Two Six Capital is proud to serve on the Advisory Board for Wharton Customer Analytics (WCA). WCA and Two Six are promoting a new generation of business leaders⁠—smart millennials who combine business critical thinking with a love for statistics and writing code.

Our firm culture is a hybrid of “Silicon Valley” and “Wall Street”. Our team comprises PE investors, consultants, data scientists, and software engineers. We strive to build a tightly knit team that is supportive, collegial, and professional. When we are not working on live deals or R&D initiatives, we like to enjoy the best of life in San Francisco on “Mandatory Fun Days”.

The firm invests time for people development through executive coaching, business school-style case study workshops, technology meetups, and knowledge management. We have a “Summer of Code” tradition at the firm where college interns work on specific R&D initiatives to drive technology platform improvements.