AIR DATE:
April 16, 2026
LENGTH:
37:44 minutes
Orlando Bravo:
You used to tell me, "You can go ahead and make mistakes, just don't make the same ones again."
Carl Thoma:
When you've made mistakes and you've learned, you've got to capitalize on that. And I think that's just true of a lot of things in life. Mistakes are meant to be stepping stones to success, not stepping stones to ultimate failure.
Orlando Bravo:
Hello and welcome to another episode of Thoma Bravo's Behind the Deal. I'm Orlando Bravo, founder and managing partner at Thoma Bravo.
Today, we're rerunning one of my favorite episodes. Back in 2024, I sat down with my co-founder, Carl Thoma, to discuss how we built Thoma Bravo into the world's largest software-focused investment firm. Every time I revisit this conversation, I take something new away from it. So we thought we'd share it again.
Carl has been in this industry for nearly 50 years. He's a true master, the real GOAT. Together, we built a firm with a real investment philosophy, real values, and the discipline to stick to both across market cycles. If you want to understand what Thoma Bravo is really built on, not just the strategy, but the mindset behind it, this is the episode to listen to. I hope you get as much out of it as I do. Enjoy.
Carl, your speakers are cooler than mine, so is your background. There it is as always.
Carl Thoma:
Not really.
Orlando Bravo:
Well, you know.
Carl Thoma:
I got a window shade and you got a piece of art.
Orlando Bravo:
And Carl, I have to tell you something, we've worked together now for over 25 years, and I still learn something new every time we talk. And out of warning as well, I remember every single word you've ever told me, so I'm going to be bringing some of those up in our conversation, but thanks so much for taking your time to share your thoughts with our listeners.
Carl Thoma:
You're welcome. Honored to do it.
Orlando Bravo:
I'm going to start off going way back in the past. You're one of the first in private equity, and you invented industry consolidation or buy-and-build. How did you come up with it? What happened?
Carl Thoma:
I've always thought of buy-and-build or industry consolidations is really an investment process that started when I first got in the industry, was how can we deliver superior returns? And much as in sports, you try to perfect as many aspects of your game as you can.
And we know in the economy that companies start out growing really rapid, and then they start to slow their growth. And then what follows next is consolidations. And so we step back and say, "How do we take advantage of that?" Because early accelerating growth is probably venture capital, and we've learned over the years we were not great venture capitalists, but we thought we could be great investors. And then what do you do after you've got industries that are going to go through some consolidation?
Then the second part of that process is work with superior management so that you can get superior returns because they're going to know better how to consolidate and create value.
And also something else that we always focused on, which what's great, all of these still applied today under your leadership, is we want to invest for free cash flow because that allows you to finance internal growth and to pay down debts.
Orlando Bravo:
As you were reminding me of that history, I thought of so many parallels with the software industry, not only when we started in it, but today. And we'll get into that.
Now, we met in 1997 when you were nice enough to interview me, and I flew from Stanford to Chicago. Do you remember what you spoke to me about then?
Carl Thoma:
You talked about that when you joined private equity in the late-'90s, as an industry consolidation, I might say it had its golden era, which was the 1990s. When people would consolidate companies in mundane industries and create a lot of growth, but it was all inorganic growth, and yet the stock market seemed to be treating that as internal growth. And so you might say in the late-'90s, it was a pretty "hot sector." And then unfortunately, as the economy cooled and people realized that this was inorganic growth, and multiples plummeted as we went into 2000.
Orlando Bravo:
I remember that like yesterday too. And these valuations of industry consolidators have never been treated since that time as internal growers. That has never come back.
Carl Thoma:
No.
Orlando Bravo:
To me, it was the coolest meeting because I was trying to get a job in the industry, and I couldn't believe that most of our talk, you asked me some insightful questions, but at 45 minutes of the hour, you spend your time teaching me about this stuff. And I was like, "I got to work for that guy. How can I get a job?"
So I want to fast-forward to that. Maybe it was like six months later or so, we had dinner, Bill Liebeck brought me to that dinner with you, and you gave me an offer. Do you remember what happened after you gave me an offer?
Carl Thoma:
True to this day, Orlando, you're a very aggressive, and I say that in a positive way, leadership, and that's why our firm has been so successful. It's much in my sports analogy of the hurry-up offenses that when you're not playing, you're not scoring. And so you in your aggressive style wanted to come in as a partner, and they told you you had to earn it, and you luckily didn't call the question on us and joined us. So thank you.
Orlando Bravo:
Carl, I didn't want to join as a partner, I just wanted a little bit of carry, and you weren't going to give it to me.
I got some terrible advice from my classmates at Stanford: "Oh, you deserve a little bit of carry in this fund." And I remember asking for it, and Bill Liebeck scared me saying that you were going to pull the offer. And I spent about a week being so scared that I lost my offer. So when I saw you the next time, I'm like, "I'll take it. I'm in." So thanks for not ever rescinding an offer. I appreciate that.
Carl Thoma:
No, thank you for joining us. To this day, I keep looking back and saying, "What did Orlando see in us?" With your credentials and summer experience, it was like, "Wow, we got to get this person." So glad you didn't know how bad we wanted you.
Orlando Bravo:
I feel so humbled by it because you were the only one that saw that, and here we are.
Carl Thoma:
Kind of hard to believe.
Orlando Bravo:
You also remember this so well when I started with you, it was never easy. I made a ton of mistakes, and I was really touched that at your birthday party when you turned 70, and I surprised you by showing up, you had just a great event, you spoke about that when you thanked everyone. I want to get into that a little bit.
We were at a meeting in Denver when we had a Denver office at Thoma Cressey then. And one of my peers, who was awesome, at the time was trying to do a deal that looked a bit like venture capital, and you didn't like the deal, so we weren't going to do it. And he said, "But Carl, if you want returns, you have to take risk." And your answer was, "Not that kind of risk." Can you talk for our listeners a little bit about that?
Carl Thoma:
I almost call this an investment pet peeve, but it seems like that when somebody wants to make an investment and they're getting some pushback from their peers, they seem to forget about the risk because sometimes what can make a great investment is just controlling your risk and not spending all your time bragging about the upside, because I do feel that consistent with the day is you just cannot afford to lose money anymore with valuations higher. And I just get a little frustrated that people, when they want to do something, they tend to ignore the risk. They ought to amplify the risk and tell me how they're going to manage them instead of just trying to ignore them.
Orlando Bravo:
That was a big moment for me because I was making mistakes on what I was doing in IT services at the time. And it meant is what risk is right for you from your knowledge base and from your values and your core competencies, and how can then you assume risk that is small based on what you know really well to make a return? I thought that was one of the greatest quotes of all time. I remember it like yesterday.
And in that same meeting, my colleague got all fired up, and we were looking at another deal that he wanted to do, and he said, "Well, Carl, you get what you pay for." And you told him back, "No, you get what you negotiate for." Talk a little bit about deal-making because you taught me how to talk to people and actually do a deal.
Carl Thoma:
I would probably say that the best way to start deal-making is to establish a constructive and mutual respect with each other or the party you're dealing with because I think it really starts there. And then you've just got to remind people that if you...
Carl Thoma:
... starts there and then you've just got to remind people that if you force us to pay too much, we all suffer going forward. So, our job is to come up with our experience of what's a fair price and work from there.
Orlando Bravo:
You taught me how to do deals in a way that, you would always say when I had an issue, you would always tell me, "Well, get on the phone and ask him. Be really open."
And whenever I was stuck, you would always come back to the point, you can always work things out. As you're negotiating and numbers are changing and financing is changing and public valuations are changing, it's okay to adjust things, but you can work it out with openness.
And that thing of, we're not market takers in terms of price, these are companies we're buying and the seller's negotiating. We are as well to get to a mutually beneficial outcome. I think that also was one of the best quotes that I remember from you.
Now, as things are going poorly, I'm going to get into the depths here. I thought you were going to fire me in 2000. Is that true? Were you actually thinking about it?
Carl Thoma:
No. The answer to that is, and I can't take the original credit for this quote, but I'd already lost $50 million on Orlando. I can't afford to fire him.
Orlando Bravo:
I was going to say, is it because you had nobody else?
Carl Thoma:
No, I sunk $50 million of experience into you, so therefore you're a star now. You got a lot of good, expensive training.
Orlando Bravo:
Fair enough. That is well said.
Carl Thoma:
Seriously, I think what you went through absolutely gave you a sense of caution, balanced with your aggressiveness, that's led to phenomenal success. I mean, I'm not sure you could have been as successful without stumbling a little bit early on, but you had enough pride and drive that it didn't put you in a stumper and leave the industry. So, I think it was a one and one equals about 10.
Orlando Bravo:
You're so right about that. Even when we were mid-through, doing our software investments, I would ask Scott Crabill, who wasn't with us at the time, but with us really early, "Does this look like that deal? I think it may look like that bad deal. Let's not do it." And he would look at me and say, "This has nothing to do with that company." But I still have that fear of the big lessons learned on the tough ones.
Carl Thoma:
If you focus on the upside and also asking that question, I mean, how can we lose money on this investment? I'll tell you, it helps you. And that's kind of back to, you don't even like to use the word risk, but you got to think of the upside and the downside. And then, hopefully the upside way outweighs the downside.
I want to follow up on your first statement. But one thing that I'm proud of, and I know it continues today, under your leadership is you can resolve so many issues if you just communicate. And I remember one of the first deals I did and I got in the business, got on a plane, flew somewhere in the middle of West Virginia to meet with the CEO. You didn't even have your suitcase with you, but if you go meet and talk to people, things get worked out.
And then the second part of that is that in fairness to everybody, if you overpay for an investment, there are no winners. The employees don't win at the company. The previous shareholders really don't win because nobody likes to sell a company that later doesn't perform well. And so, you just got to have communications in a sense of what works for everybody.
The second part of your question, I guess we all go back to our mentor is that Stan Golder used to feel, and I think I felt the same way and that's the reason we're here today, that people learn from their mistakes. But as Reid Dennis, who's one of the icons the venture field once said that mistakes early on can make great investors, but you got to make sure they haven't made so many mistakes that they have lost their confidence. And fortunately, while we were all frustrated with the mistakes we made in that fund, I did not feel you'd lost your confidence.
But more importantly, what you had learned, when you and Scott and I were talking about it, I think in 2004 or something about that, when you've made mistakes and you've learned, you've got to capitalize on that. And I think that's just true of a lot of things in life. Mistakes are meant to be stepping stones to success, not stepping stones to the ultimate failure.
Orlando Bravo:
You used to tell me, "You can go ahead and make mistakes, just don't make the same ones again." And one of the changes that we did, which is exactly what you're saying, I was making mistakes doing project-based businesses with new management, earlier stage. And I switched everything to 180 degree different. Let me take really established companies with recurring revenues and existing management that's working.
So, it's interesting. I tell that to young people now. If you're making mistakes, don't keep doing the same thing because valuations are a little lower or because you're finding companies that are a little better. That's just at the margin. You're going to fall into the same trap. I think that is very impactful.
And going back to another point of working things out with people, because deal-making is such a people business, it's not like screens. You cannot sell the stock if you don't like it, you're stuck with your partners. It was really inspiring for me one day after you had taught me this when I was taking a red eye to Boston to meet a CEO on something we were working on. And that night I called you and you said, "That's the difference between a great venture capitalist and an average venture capitalist." And I was like, "Wow, I think I'm doing something special. All this wear and tear, it makes sense and it's for something."
Now, just to talk a little bit about the values and an example of how fair and direct you were with me is we had a bad deal, one of our worst deals that was mine, and I came back to San Francisco and you were in the San Francisco office that day or night because we were there till about 8:00 PM. And I went up to you and I go, "Carl, this company, we're going to need another $10 million." I was so scared to ask you that. And you said, "No, then we put it up personally and you do your pro rata share." And I said, "But Carl, I'm an associate. I don't have any money." And you said, "I'll lend it to you."
Can you talk a little bit about how you thought about money and you thought about protecting investors and letting me have those values?
Carl Thoma:
What we must remember is that people in private equity, even venture capital, we're managing other people's savings, pensions, endowments, and we cannot lose sight of that. So, to me, when it really gets tough, then you got to ask, would I put my own money behind this situation? And sometimes it kind of forces one to step back and say, "Maybe the risks are so high that it might not be where I want to spend my last dollar." And we just have to have that sense of duty to our investors. Our integrity is our whole key to success. We got to just take care of our financial partners.
Orlando Bravo:
That's a great segue to our first deal because you're so consistent in your philosophy about our investors and managing other people's money. The first software deal we looked at was a software company based in Sacramento. And I'll talk about why we didn't do it, I'll come back to that. But you decided to spend a lot of time with me flying back to the Bay Area and then driving to Sacramento to have spaghetti dinner with a CEO in his kitchen in his house, to do all this. What led you to spend all that time on that deal with me?
Carl Thoma:
I'd say first is, you seemed pretty passionate about it. And two, we'd made the decision, I think us talking about it, that we wanted to build on our mistakes or let's say experience in some of our consolidations in the IT space and Y2K and felt it was worthwhile to test our theory. Because one of the things that always scared me a little bit when we wanted to start focusing more on software is, could we actually get traction to build our firm around it? So, in that sense, it's a little bit like if you're going to take up golf, you probably ought to do a few practice rounds before you go out there. And I thought probably you could ultimately persuade the fellow to do a deal with us.
Orlando Bravo:
And you did. That was the problem. Because then, I don't know why I did this so late, I brought up the fact that the company didn't have audited financials but the quality of earnings looked really good. And that was the point you told me clearly, "Orlando, we represent pensioners' money. We cannot do that and we don't have time to go through a whole audit." So-
Orlando Bravo:
And we don't have time to go through a whole audit, so we dropped that deal. And then you spend the same amount of time with me on the first software deal we did back in 2000, Prophet 21. We go to one of our final diligence meetings, and we're sitting there with the CEO and the head of sales, Doug Levin, a great guy, the head of sales, Chuck Boyle, the CEO. And it's a good company, but it was a scary time, and they were always missing their bookings.
And, Carl, you remember you and I are there with some of our LPs, and we asked the head of sales, "You missed your numbers this year. How'd you do last year?" and he said, "Ah, I missed that too." We looked at each other, and then I look at you and I go, "How about the year before? I was just looking for a single year." He goes, "Nah. No, we didn't make our numbers that year either." And I think you asked him, "Have you ever made your number?" There was a moment of silence pause, very uncomfortable. And he was looking back over this history. I said, "Nah, we've never made them." I was so deflated. That was a defeat. And you told me, when we broke out of that meeting, you said, "Yeah, this is not good, but it's not fatal." What were you thinking at the time?
Carl Thoma:
It was in a maturing part of IT and software, which we liked that, is a reasonable price, but as I recall, and you've got the perfect memory, is I may have said to you, or maybe we jointly agreed, is that we need to get some help to work with this company to make sure they make their numbers going forward. And I'll probably let you finish the story as that kind of a miracle happened when Marcel agreed to work with you.
Orlando Bravo:
I like that you said that it was a miracle because that's my second-luckiest moment ever. You told me to get somebody that really knew operations to help out. We introduced about five people to Chuck Boyle, the CEO of Prophet 21, and he rejected all of them. We were coming to Yardley, Pennsylvania where this company was, and he was saying, "Nah, I don't want to work with that person," and we met Marcel, and he said, "That's who I want to work with." And with the same exact management team, since the company had been run for 10 years, remember, they never missed. They went from no profits to these great margins, [inaudible 00:22:29] acquisitions, and they hit their numbers. And that really was a stepping stone in starting our whole buy and build for the software industry with him. That's really incredible. We also quote Marcel all the time today.
So we were doing these deals in software as part of Thoma Cressey, but in the process, we were quickly becoming a software private equity firm. Then we decide, "Okay, there's going to be a group that does healthcare, and we're going to go forward and do software only." We tried to raise one and a half billion for that fund. That was our first software fund, Thoma Bravo IX. And we weren't getting any traction. I remember calling you on a Sunday afternoon before a fundraising trip with all these comments about, "I don't think we're pitching the firm right. Maybe people are not getting what we're about," and you stopped me and you said, "But, Orlando, private equity is all about the numbers." Tell me how you think about performance and the truths about that in our industry.
Carl Thoma:
We have to remember that private equity is an investment class that our financial partners look at, and they at the end of the day have to look at returns, and so therefore we have to make sure that we focus on returns. I don't know how much more I can add to that, but while we like to build great companies, it's ultimately the score of how we do that we get evaluated by our investors.
Orlando Bravo:
That was really powerful because after that Sunday, I was walking in the street of New York the following week, and finally this potential LP called me back that would never talk to us and he said, "Orlando, we're not going to do that fund." And I asked him why, you know what he said? "Because your numbers are not good enough." So what you said was so validated. And once again, when you get that plain, direct, and very powerful piece of feedback... So I said, "I guess Carl was right. We got to go get better numbers." And we did.
It's so important for today because the firm that Thoma Bravo is today, we're private, we're not public, we don't have any outside investors, because if you do, you have to focus on all these other things that have nothing to do with investment performance, which is the reason why people give us their capital. So that focus that you've always had on performance and LPs, it's just ingrained in our culture and how we do things today.
Carl Thoma:
One thing that came out of that, and I give you credit for this, is that we had to tighten up how we were calculating our returns because one of the ways to have a good fund return is you got to have individual investment returns. So you tightened up the time period to make money, how quick we had to make money, and I think that really was just kind of part of the investment processes maturing is that there's a lot of little things you can do to drive performance, and giving somebody three times their money in four years is a higher ROI than giving somebody three times their money in six years. And that was a pretty big shift that I think's been one of our cornerstones is you got to create value quickly, and you get all the credit for sitting around, saying, "How are we going to get higher numbers to keep our investors happy?"
Orlando Bravo:
You told me early on when we were doing this in Fund IX, you looked at me and you said, "The velocity of capital is really, really going to benefit us," and that is so true. People now talk about DPIs and they need more DPIs, but the velocity was a huge factor in establishing who we are today. No question about it. And you were always talking about, "If you think you need six months to do something, can you do it in three," because time is ticking against you. And this is the type of business we're in. It's a tough business, super competitive, and there's only one way to stay ahead. This is performance.
Carl Thoma:
Agree.
Orlando Bravo:
Now, in this incredibly competitive, intense industry, you have been very steady and stayed in the business for a very long time. I remember we were having a staff meeting in Chicago and I was working on a deal. I think it was a spinoff at a Pitney Bowes, a software company spinoff. And we were working with another group on it, actually. And I stepped out of the meeting. I had a call with the CEO of the company, the divisional head of the business, then the banker, and it was just a really tough deal to pull together. And I come into the conference room and I vented. I just said, "Carl, how have you stayed in this business for so long? This is killing me." And you said, "You know what? I just don't worry about the little stuff." Tell me when you got to the point where you prioritize, where you just focus on the big things and that gives you so much staying power.
Carl Thoma:
That's probably the advantage of you and I being a number of years apart in agent experience is that when you first get in this industry, you worry about all the little things and you somehow think you can micromanage a company to success. And then when you discover that doesn't work, you show a little maturity and finally start to say, "I've got to focus on the bigger issues and keep that strong relationship with the CEO of the company on the bigger pictures." And then also part of our secret sauce, at some point you got to start to delegate a little bit because you just can't do it all. Because private equity is a tough business, and you cannot get yourself too stressed out or too bogged down because at a little higher level is where we play the best role.
Orlando Bravo:
As I hear you now, it reminds me that you and Marcel Bernard would say the same thing independently, even though you had separate careers. One was in private equity and investing, the other one is running different divisions of Motorola. Marcel would say it the following way. He would say, "Just remember, every business problem can be solved. Health is another matter." And what you're saying about, "Hey, if the leadership is good, and the CEO is good, and that person has good direct reports, and you're on the same page, you can work together to figure things out just like you can in a deal," versus what maybe younger people and I was trying to do at the time is get into every detail. And at the end of the day, you're not running the company. If you want to, go at it, but you need partners to accomplish your goals.
Carl Thoma:
Agree.
Orlando Bravo:
That leads me a bit into partnership. Even on this conversation, you quoted Stan Golder, and you used to quote him a lot. And one of the quotes-
Orlando Bravo:
.... owed him a lot. And one of the quotes from him that you used to tell me is, "Remember, private equity is the only industry that you can decide who to work with." Talk to us about how you think about what CEOs you like to partner with, et cetera.
Carl Thoma:
As you said, when you're trying to bring change to an organization, and when you can't sell your stock at the end of the day, like public securities, you really have to focus on that personal relationship with people and the team around them, because much like in sports, the great teams are all collaborative. They work together as your coach there in the Bay Area would say, "You got to pass the ball around at least five times before somebody can take a shot." And I think a lot of those same things apply to what makes a successful private equity firm is we have to work together and we're in this together with the management companies to our peers.
Orlando Bravo:
You bring up so much of this unbelievable relationship, deal making, focus on fundamentals and values. And it is just so important today with so much capital and so many firms out there, just the basics of this very, very tough, but very rewarding business. And on the rewarding side and giving back, I want to get a little personal on your interests. What the listeners may not know about you is you're the coolest guy, okay. You have done it all. You are an amazing art collector of different periods. You have the coolest art. You have this winery. You used to have another one.
You've done it all. And I still learn about something new. I think it was a couple of years ago. We were at a Thoma Bravo event and one of our associates, his dad was really into cars. And I asked you about it and you said, "Oh yeah, I used to do that too." So I just love it how you know so much about these things and living life to the fullest. But one thing is philanthropy. I have followed that very closely. You're an amazing philanthropist. I remember when I was starting at Thoma Cressey, you invited me to a Stanford event where you were doing some wonderful things for the university and professors. You gave this talk, you spoke about your mom, homework, putting good values. And then a second time, much later, you invited me as well to another event where you were doing some major giving for professorships. And there you spoke about giving back to people, not buildings, but people, because it was you work in a people business. Talk to us about your philosophy on philanthropy.
Carl Thoma:
My feeling is that I've been very fortunate in my career and the opportunities I've been given, and I really do feel that I'm a strong believer in capitalism. And I feel the greatest way for capitalism to grow in society to better themselves is you have to have people kind of feel like they have to earn it. And so pretty much when most of my wealth is ultimately going to be given away, because I feel that gives others a chance. And I've always focused on people because people's what makes a difference. I don't care how many billions you spend on your football stadium. If you don't have a good coach and players, it doesn't matter. It's people is what makes success, not buildings. And I think as I told you recently, if we were really into buildings, I guess I'd have gone into real estate.
Orlando Bravo:
Well, you've also been a mentor to me and a lot of us at Thoma Bravo on that. And there is that tie between the business and giving back to people as well. And there's an exciting element about that in a really big way. And I want to end with a bit of a conversation on partnership. You've been in this industry 50 years. Firms change, firms evolve, partners leave, there's spinouts, people start new firms. And at Thoma Bravo, we've been at this together now for over 25 years. Nothing has changed. We're still here doing the same thing. And frankly, as we say it all the time, I feel we're only getting started. What in all your experience, what has been different about our partnership in Thoma Bravo that has created this longevity and the future for us?
Carl Thoma:
Maybe I'll back up and give you a little longer answer to that question, but the advantage of having been in private equity for many years as I have, when private equity originally started, it was a little bit like a federation. Four or five people would get together. They would go raise some money. Each person would focus a different sector of the economy. And then as the industry started to mature, it just started dawning on me that to be successful, you really have to build an organization with culture. And when you and I teamed up, I said to you is, "I want one person to lead the firm to set the culture. We're not going to be a loose federation." And you've just done a brilliant job of stepping into that and accomplishing just what it takes to create an enduring company, which you have to have a leader that kind of sets the culture in the investment policies and everybody wins, whereas ...
It's the same in sports. You just cannot have five individual players that are brilliant that aren't performing as a team. And we got away with that for the first 25, 30 years of private equity, but it's now gotten too competitive. We got to function as a team.
Orlando Bravo:
You taught me a lot about that. And I feel we have done a combination of having that consistency of culture, consistency of process that you spoke about, consistency of mission, of purpose, while letting our leaders be their own artists and pursue their own strengths, but altogether, all going coordinated after the same thing. And we're all really, really close friends and we enjoy each other. I love getting a call at night from you, Seth, Holden, Scott, and working something out and thinking about winning or doing something really special. Well, Carl, thank you so much for sharing your incredible insights. You are an amazing leader, investor, deal maker, and you are an even better person. And I think the listeners now will really understand why you are the greatest of all time. Thanks so much.
Carl Thoma:
Thank you.
Orlando Bravo:
Listen to Thoma Bravo's Behind the Deal Season four on Spotify, Apple Podcasts, YouTube, or wherever you get your podcasts.
