Key Takeaways

  • Focus your energy on businesses with obvious "reinvestment runways" – where profits can be consistently plowed back into high-return internal projects, dodging the trickier problem of external capital allocation. Pat Dorsey calls this making the capital allocation conundrum "moot."
  • Start vetting ideas by asking if the industry itself is structurally attractive. Some fields are inherently tough and not conducive to creating durable moats, making them areas Dorsey Asset Management largely ignores.
  • While global opportunities exist, US-listed companies often come with two distinct advantages: the oversight of the SEC and, on balance, superior management teams better at capital allocation than those found outside the US.
  • Don't just look for a moat; look at its vector. Is that competitive advantage widening or shrinking? This critical nuance dictates a business's long-term durability.
  • Dorsey Asset Management's Idea Generation & Research Funnel provides a rigorous, multi-stage process for deeply validating a business's competitive advantage and growth potential.

The Dorsey Asset Management's Idea Generation & Research Funnel

Type: method

Name: Dorsey Asset Management's Idea Generation & Research Funnel

Components:

  • Step 1: Quick Idea: It could be a few sentences, it could be a page, just sort of what's interesting about this business, what does it look like the moat is, and what could the opportunity be?
  • Step 2: First Pass Memo: (About a week's worth of work, for about a third of quick ideas) Look at the moat, critically the vector of the moat (is the competitive advantage getting widening or shrinking?), what are the key debates, what are the areas where we might have a variant perception on this business, what's the runway for growth, and any red flags on management, and then kind of a scratch valuation. This stage also includes extensive offline Q&A to make subsequent meetings more robust and discursive.
  • Step 3: Determine Research Vectors: If the first pass memo is promising, figure out what the correct research vectors are. Is it talking to farmers? Is it interrogating clients? Is it understanding their supplier base? It's different for every company, and you have to not approach every company with a template, but rather understand what is likely to be important for the thesis and how to answer the key questions.

When This Works (and When It Doesn't)

This funnel, as Dorsey explains, excels at enabling in-depth qualitative work. It's for talking to customers, former employees, and attending trade shows—crucial for building high confidence in the non-obvious moats within a concentrated portfolio of 12-15 stocks. It’s for identifying those B2B businesses where, as Pat Dorsey puts it, “the company has the ability to reinvest back into the moat that we find most interesting.” This process is built for deep conviction in a few, high-quality assets.

For a founder, this method is less about rapid iteration for early product-market fit and more about validating the long-term defensibility and growth of a mature idea, a new business unit, or an acquisition. It won't give you quick answers for a pivot, nor is it designed for highly speculative ventures without clear, existing competitive advantages. It's a heavy hammer for a durable nail, not a lightweight tool for early experimentation.