Welcome to Sunday’s Idea Brunch, your interview series with great off-the-beaten-path investors. We are excited to interview David Polansky and Tim Delaney.
David and Tim are the founding partners of Immersion Investments, a Boston-based fund management company they co-founded in June 2021. Immersion focuses on opportunities in publicly traded micro- and small-cap securities. Before launching Immersion, Tim and David worked together at Lowell, Blake & Associates, a well-regarded Boston-based investment manager, where Tim served as Managing Director of Investment Strategy and David as Senior Research Analyst. In the years since going out on their own, they have earned a reputation among micro- and small-cap investors for deep, source document research and hands-on engagement with the management teams they back.
Editor’s Note: Looking for more great stock ideas? Check out Bullpen.News our new site curating high-quality stock pitches from across the web. Sign up for the free daily recap to discover ideas you might otherwise miss.
David and Tim, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background, how you divide responsibilities within your fund, and why you decided to launch Immersion Investments?
Thank you for having us. Our partnership never would have survived this long if we did not share some common traits. We both love investments and are naturally curious people. Probably annoyingly curious. We aren’t sure if other people would talk to us about what we love to chat about. We are constantly dissecting business models wherever we go, the vet, daycares, the local grocer…and then we tell each other about it. We can’t help it. We wake up every day excited to see what is happening in the markets and with the companies Immersion owns. We both love puzzles, piecing together a mosaic from a hundred different sources, and it is the most interesting puzzle there is, since unlike most puzzles, every piece is eventually quantifiable. We are both sort of pains in the butt when it comes to investing, but in complementary ways.
As far as splitting up responsibilities, after ten years of working together we mostly just fall into some of our long standing routines. We split the administrative work between us, and when it comes to research and new ideas we tend to work independently before coming together. If David likes a stock, he will take the first pass and loop Tim in once he thinks it is worth a second look. Tim will dig in on his end and then we compare notes. After this long together, we agree on the conclusion most of the time. On the rare occasion we disagree, we will keep watching the name rather than force it into the portfolio.
We launched Immersion because we saw an underserved corner of the market where we felt we had a real edge. We only invest in companies under five billion dollars in market cap, and when we launched, investors could not have cared less about micro and small cap stocks. Quant funds and large technology funds were where all the attention was going, which left a lot of good businesses trading for less than their larger peers, and in some cases less than what a private buyer would pay for the same asset. Those same dynamics still hold today.
What we learned over the years is that it always comes back to the people running the business. We would find talented management teams who were simply not very good at shareholder communication, mostly because that was never really their job. Those teams signed up to grow sales, improve margins and fix operations, not to think about capital markets. With Immersion, we finally had the time to practice what we call light activism, which just means helping management keep shareholders in mind as they run the business. We do not push for board seats or try to run day-to-day operations, but we will remind a management team of its obligations to shareholders, and we try to offer useful perspective on capital allocation and the kind of communication investors actually want. A CEO will often want to talk about revenue growth when investors are really trying to understand free cash flow or margins.
We also hold a core belief we arrived at through our years together, micro and small cap equities represent a structural opportunity for patient, discerning investors willing to do the legwork. There are thousands of businesses that are too small, too illiquid, too unusual or simply too much work for most institutional investors to bother with. We wanted the freedom to spend what we would call an unreasonable amount of time researching those companies, own a small number of them when we believed the odds were heavily in our favor, and then give each thesis enough time to work.
Alignment matters just as much to us. We launched Immersion with most of our own liquid net worth invested alongside our partners, and that has not changed. Today, there is a lot of intentional overlap in our roles. We are both generalists, we both research companies, and neither of us can add a position without the other agreeing. As fifty-fifty partners, we are each accountable for every holding, and no one owns an idea individually.
Can you tell us more about your investment strategy, including your Ideal Immersion Setups, or IIS?
As we mentioned, we invest in companies with market capitalizations under five billion dollars and usually much smaller. We believe there are a small number of really good companies, so we build a concentrated portfolio with a multi-year time horizon. We care most about business and management quality, balance sheet strength and valuation, in that order.
Business and management quality are tied together. Every industry has certain truths that do not change, but management teams and their incentives determine how a business actually performs against those truths. On the balance sheet, we are skeptical of debt and what it can do to management behavior. Debt does not just reduce the earnings available to equity holders; it can also stop a company from investing in a turnaround, funding growth, or simply maintaining the business through a rough patch. We take pride in owning companies with cash-heavy balance sheets, generally much stronger than the typical Russell 2000 constituent.
Valuation is the final filter, and our sense of value can look different from the market’s. If we get the direction of earnings right, a stock that looks expensive today can look cheap three to five years from now. We are not value investors who need a stock trading below some arbitrary multiple, and we are not growth investors who think a high growth rate makes valuation irrelevant. Every investment comes down to the same handful of questions. What will this business earn several years out? What is a fair value for those earnings? How likely are we to be right? And how much could we permanently lose if we are wrong? We say internally that direction matters more than the current state of affairs. The past helps frame the present, but it is not the whole story.
Over time, we noticed our best ideas tend to fall into one of five recurring setups, which we call our Ideal Immersion Setups, or IIS.
The Underdog
Overlooked and underappreciated, usually for surface-level reasons that are temporary but still keep investors away, such as being too small for an index like the Russell 2000 or too small for most institutions to consider. That tends to correct itself through growth, better liquidity or more analyst coverage.
The Babushka Doll
Has a hidden asset inside it that is worth far more than the market is giving it credit for. It usually looks like a large, slow-growing business on the outside with a small, fast-growing subsidiary buried on the inside. These get overlooked because they do not screen well on the surface, but a management team willing to unlock that hidden value can create a lot of upside.
The Social Pariah
Seen as toxic, whether the reasons are fair or not. Sometimes the label is deserved, but a change in perception, from better results, new leadership or simply passing time, can move the stock a great deal.
The Ugly Duckling
A genuinely good business that does not look like one yet because heavy investment in people and capital is masking its true profitability. It is usually early in its life and growing quickly. As it matures, investors eventually come around and pay more per dollar of earnings. Eventually, the duckling turns into the swan.
The Doubted Champion
The simplest of the five. A business growing quickly with strong margins and returns on capital, but the market does not believe that performance will hold up. When we can identify a real Doubted Champion, we get paid well once the market realizes the growth has more room to run than everyone assumed.
Our research process itself is fairly old fashioned. We read filings, earnings calls, proxy statements and competitor materials from the source rather than relying on aggregators or sell-side research. We talk to management, former employees, customers, competitors and other shareholders when it makes sense. We are also increasingly using AI and other tools to build our own datasets when we think there is useful information sitting in plain sight before it ever shows up in reported financials.
In late 2024, you invested in Mama’s Creations (NASDAQ: MAMA), a deli and prepared-food manufacturer, citing a CEO so outlandishly passionate about their job and the brand they represent that you could not help but take notice. What made you excited about the leadership of Mama’s Creations? Why has the stock done so well, and where do you think the business goes from here?
We first met CEO Adam Michaels at an investor conference more than a year before we invested. He walked in wearing mulberry shoes and a mulberry sport coat, the company’s brand color, and told us he was going to turn a subscale meatball manufacturer out of suburban New Jersey into one of the largest prepared-food and deli brands in the world. Our first reaction was that this guy could not possibly be for real. It is a fine line between self-promotion and pumping a bad business, and at first Adam seemed to be walking right up to that line.
Then we dug into the company and liked what we saw in the business and the numbers, so we kept meeting with him, including a visit to the facility where we found his car wrapped in that same mulberry color. He was not putting on an act. This is a guy who sleeps and breathes MAMA, and, more importantly, he has the operating skill to back it up. Michaels spent nearly a decade at Mondelez across data analytics and M&A, and before that worked closely with PepsiCo as a consultant at Booz & Company. He also built out a leadership team that punches above its weight, including a chief marketing officer from Tate’s Bake Shop, a chief operating officer from Gordon Food Service, and a chief commercial officer from Boar’s Head. Passion only gets you so far. You still must execute, and this team executes.
Adam has a line he would not mind us sharing, which is that people drive results. That happens to be close to our own philosophy, with the caveat that we also care about what you are paying for those people. Since we invested, the stock has worked because the business has done almost exactly what management said it would do. The sales team keeps expanding its shelf space with retailers like BJ’s, Weis Markets, and Walmart, where Mama’s has gone from one item two years ago to seven today, plus a first placement at Kroger announced on the most recent call. The Crown I Enterprises acquisition, carved out of Sysco, mattered too, since it added revenue and a nearby production facility without Mama’s overpaying, and we think that facility alone can contribute more than ten million dollars of EBITDA within a year.
On whether it is too late to invest, which we get asked constantly, earlier this year the company spent money getting a factory ready to fill a large Walmart order. That created a short-term mismatch between spending and revenue right around a quarterly report, and the stock got hit hard even though Adam explained the whole situation clearly on the call. It still took the sell-side a couple of days to update their models before the stock recovered. That kind of gap between what is actually happening and what is reflected in the numbers is exactly the sort of opportunity the small-cap world serves up if you are willing to listen and analyze rather than just read the headline print.
Looking ahead, the playbook has not changed much. Sell more into existing customers, win new customers and channels, use scale to improve margins, and selectively roll up a fragmented industry. We think the company’s earnings power is meaningfully ahead of what current estimates reflect, so even though the stock can screen as expensive on trailing numbers, we think it is considerably cheaper than it looks.
In October 2024, you publicly urged Potbelly to consider a sale, repurchase shares more aggressively, and restrain technology and headcount spending. Less than a year later, Potbelly agreed to be acquired by RaceTrac at a meaningful premium. How often do you engage with your portfolio companies on strategy and when do you decide to take your ideas public? What did you learn from your experience with Potbelly?
We think of ourselves as “suggestivists” rather than activists. We have more than a hundred meetings a year with management teams, and most of that engagement is not adversarial at all. We might have views on capital allocation, communication or which parts of the business management should be emphasizing to public investors, and the great majority of the time we keep those conversations private.
We aired our concerns about Potbelly publicly because the gap between what we thought the business was worth and what the market was assigning to it got too wide to ignore. To be clear, we were not criticizing the operating turnaround. In the letter itself, we specifically credited management with putting the business on solid footing, improving shop-level economics and building a real franchise pipeline. Our frustration was that none of that progress was showing up in the stock. Someone described our letter as the “nicest meanest activist letter ever written,” and we will happily take that description.
Our ask was simple. Evaluate a sale of the company, repurchase shares much more aggressively at what we thought was a deeply discounted price, and slow down spending on technology and headcount unless management could show a real return on it. The letter was not the end of the conversation either. We kept meeting with management and the chairman afterward to keep making the case for buybacks, capital-efficient growth and better alignment between the board and shareholders.
RaceTrac ultimately agreed to buy the company for seventeen dollars and twelve cents a share, more than double the roughly eight-dollar stock price when we published the letter, and about twice what the public market had been assigning to the business just eleven months earlier. We would be careful about drawing too straight a line from writing a letter to getting bought out. The real lesson for us was that running a business well and allocating the value that business creates are two different jobs. We thought the Potbelly team did an excellent job on the first one. We just thought the board needed to move faster on the second, and the experience only reinforced our preference for working things out privately before ever going public with a view. That team has since moved on to Wendy’s, where they are working through some similar and some very different challenges, and we have a lot of respect for what they accomplished.
Are you currently invested in Wendy’s?
Yes.
Care to elaborate?
Not at this time.
What are some interesting ideas on your radar now?
One newer name is Strata Critical Medical (NASDAQ: SRTA — $472 million), which we started buying in September 2025 and first shared in our Q2 letter to investors in July. It is close to a textbook Babushka Doll.