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I think if we had tried to conform SailPoint at that early stage of its life to a more EBITDA-heavy model, we wouldn't have had the outcome we had. (laughs).
Mark, I think we should tell everybody was EBITDA is.
Earnings before income, taxes, depreciation, and amortization. Is that right, Seth?
It's pretty close, yes. Earnings before interest, taxes-
Interest. I said income, sorry.
You wanna do it again, Mark?
No, I'd actually rather be wrong and let them poke-
Actually, you should poke fun at me, that would even be better.
I mean, you pretty much got it.
Welcome to Thoma Bravo's Behind the Deal. I'm Thoma Bravo founder and managing partner, Orlando Bravo, and that was Mark McClain, cofounder and CEO of SailPoint, a leading provider of identity management for enterprises across the Fortune 100 and 500, in conversation with Seth Boro, one of our managing partners at Thoma Bravo. And in today's episode, you'll get to hear how Mark and Seth have forged a relationship, which led to our first-ever IPO as an investment form, to eventually acquiring SailPoint again in 2022.
For me, SailPoint is a case study of when you really see eye-to-eye with the management team of the company you're gonna invest in or acquire. And in the case of SailPoint, seeing things in a similar way happened very quickly with Mark, the founder of SailPoint, and his team.
We met SailPoint, and at the time we met him, we were actually rather late in the deal process, and they were talking to some investment firms about doing either a minority investment or a majority recapitalization, and they were this unbelievably great identity management software company growing really quickly with an excellent culture, very well put together, just like they are now. And I remember talking to Seth and saying, "We- we have to do this deal. We- we have to figure out a way to come together with the company."
So we had a meeting with Mark and his team, and in that meeting, we said it like it was. Our approach is to help these great innovators like you also become great businesses, and to do that, we'd really love to be involved in the operational dialogue. We're very detail-oriented on execution, about doing things right, in sales efficiency and sales investment, on product efficiency and product investment, of really running each area of the business best in class.
And it was really interesting, because you had other great investment firms pitching all the good stuff, growth and investments, and- and we were very real with Mark and the team. After our meeting, Mark and his cofounder called us back, and they wanted to learn more about what we were about, and they wanted our references, and they wanted to start talking to other CEOs that we had partnered with in the past.
And it is such a good sign when you see leaders doing that, because think about it, you're gonna partner with an investment firm for many years going forward, you'd better make sure that that partner is exactly what you're looking for, and that there is not only a cultural fit but there's a track record behind your value add and what you're discussing.
I remember the deal started going well from that perspective. And I took a vacation to Europe for a week, I remember it was that summer of 2013, and when I was on vacation Mark called me, and he was talking to Seth, and he wanted more references and he wanted to learn more. And instead of me being on vacation, I was so fired up that I just kept talking to management. I said, "Wow, do we see things the same way."
So at the end, we did have to compete as well on price, and we won both. I thought we won the management relationship because we were the right partner at the right time for the company, and management saw it that way, and we delivered as well the right value, 'cause we had enough conviction from them to be able then to- to deliver that value.
So we had great run with them as a private company, then the company went public and we had a great run together with them as a public company. And after a while of them being a great public company, Mark, with this incredible relationship with Seth, thought about the next stage for them and what the next stage would take. And he thought that in order to accomplish the best as they could, in their journey with employees and customers and their ecosystem, that the best step for them was to go private, and who better to do it with than his close partner Seth. We had worked together for so long that we were able to pull another great deal together with them.
I'm going to turn it over to Mark and Seth now to tell you a bit more about how SailPoint works, followed by their conversation behind the deal of Thoma Bravo purchasing SailPoint not once, but twice.
My name is Seth Boro. I'm a managing partner at Thoma Bravo, and I have worked here for 17 and a quarter years.
My name is Mark McClain, I'm privileged to serve as the CEO and one of the cofounders of SailPoint Technologies here in Austin, Texas. SailPoint's a little over a 17-year-old company, which is actually mind boggling for me to say. If you had asked me at the beginning of SailPoint whether I thought I would be here 17 years- years later (laughing), the answer would have been an emphatic, "No way." Um, I just wasn't expecting that journey.
But our company's in a space called enterprise identity management, and to give ourselves credit but not undue credit, I- I think we picked a- a good, attractive market space to go into. There were some real needs that we understood at that time in the market. But, uh, the part I try to stay humble about is I don't think any of us foresaw how attractive this market would become over the next decade plus.
Identity management as an industry has been around for a long time. If you think about large organizations, every employee will have an identity, so you join a company, you get onboarded, your identity needs to be managed. It turns out a lot of breaches that take place at companies come on the back of employees who no longer work there but their identities are still active, they have access to systems that they shouldn't.
One of the examples that was very jarring for the industry, I won't say it right because it's a French bank, so Société Générale, it's this very large French bank, and a very famous story emerged where they lost (laughing) seven billion dollars because of a rogue trader. Well, what the story ended up being was that guy, that human, had been a part of the IT organization, had over time moved to being on the training desk, but no one had ever cleaned up his access privileges that he had when he was in IT.
So as he got into trading and took bigger and bigger risks, he realized he was in a bad position, so he used his former IT access privileges to go in and, oh, delete records of transactions. He also stole some of the access privileges of some of his neighbors using the proverbial yellow sticky note on their computer so he could log in as them (laughing) and d- do other transactions to cover his tracks.
So when all this thing came out, it wasn't just that they had a trader who people didn't know what he was doing and had lost the bank a lot of money (laughing), um, with positions, he had actually gotten away with that for so long with his IT access that he never had revoked, which he should have had revoked, he could cover a whole lot of bad behavior.
And interestingly enough, that story happened in about 2007, I think, it might have been 2008. We had launched the company effectively at the beginning of '06, so we were just kind of coming out of stealth mode as they say, just kind of unveiling our product value proposition to the market. And effectively (laughing), we used that story to say, "If they had had our type of technology, this wouldn't have happened."
By the way, interesting little sub note, later on they became a customer. (laughs). We- we weren't there in time to fix that, but we hopefully have helped prevent that from ever happening again. So that story and our ability to articulate what had gone wrong and why a product like ours would have helped prevent that definitely kind of started to- to raise the visibility of that problem.
We got really excited back in 2013 and 2014 about what they were doing in identity, which was an area of security that we hadn't invested in yet, and our security team had really done a deep dive into this whole area of identity being a really interesting, fast-growing space within the overall security market, and- and identified SailPoint as a company that we would really wanna buy if we ever could.
When- when people asked us about the clients we serve, one of the challenging things is when you're in security in general (laughing), a lot of your best clients aren't willing to tell people that you are their client, or they are your client. And so, wh- what we usually say is, "If you get a list of the- of the Fortune 100s or the Fortune 500s, if you were to pick about every fourth or fifth name, that's- that's a pretty good representation of our customers."
So we stayed very close to it, we got to know Mark and Kevin very well, and the more we learned, the more excited, you know, we got, not only about the company but about the team and the culture.
And about 20, uh, 13, we had gotten enough m- momentum and notoriety as a business, so we had a couple of interested what they call strategics, big tech companies that were kind of interested in talking to us. And without naming who, let's just say we went way down the path, um, in- in- in one of those time metaphors it was 11:58 on the clock, and we thought we were about to get something done and it didn't happen.
And so, the board and the management team said, "Hey, okay, fine, that's not gonna happen right now, let's keep going," and we decided to go out and raise what was generally referred to as a growth equity rebound, like we're not interested in selling the business, we just want to grow the business and take a significant infusion of capital.
So the- the- the banking firm that had helped us work on that deal that never got done (laughing) said, "Hey, you know, w- we could help you guys with that- with that process," and we said, "Great." So they started, you know, putting together a pitch, talking to people, and then they said, "Okay, we've got a shortlist of people we'd like you to talk to," that was maybe 20 firms, and then that narrowed quickly to about five or six firms. But what was surprising to us was that half of those firms, maybe two thirds, were private equity firms, and we were like, "Wait a minute, I didn't think this was where the private equity firms played."
We- we were raising growth money, we were still a very high-growth startup north of 60% annually at that time, but barely making money (laughing), to be blunt. And so, we were like, "Oh, we didn't think that fit the model." But anyways, we began to engage Thoma Bravo, and it ended up being not only one of the finalists but the winner of- of the deal, as it were. And so, unexpectedly, by the way, we thought rather than just bringing in a new significant investor, all of our old venture capital investors left and Thoma Bravo was the sole owner of the business at that point in 2014.
And that was really, you know, step one of now what's become a really unique situation for us where we've bought a company twice. Stick around for my conversation with Mark McClain, Thoma Bravo's Behind the Deal will be right back.
Welcome back to Thoma Bravo's Behind the Deal. Here's my conversation with Mark McClain, cofounder and founder of SailPoint.
Hey, Seth, you look marvelous, to quote Billy Crystal.
Sorry I'm, uh, I'm late, I totally lost track of time.
Well, we just wanted you to say sorry to remind us of your Canadian heritage, so I feel better now.
Th- throw words out there and I'll-
... put them all in Canadian for you.
Hey, Seth, I was trying to think, when did we actually first meet in this process?
Wasn't it at a steakhouse in Austin that we had dinner?
I think it was. Kevin, my cofounder and Cam, our CFO at the time. Yeah, I think that sounds right, Seth.
And I think my first impression was maybe being inside your head-
... and kinda wondering what you were doing at the dinner with a bunch of guys in private equity.
(laughs). I- I- I-
... did give a little of that backdrop, uh, it was surprising to us that private equity firms were interested in our company because we didn't think we were the kind of company that private equity firms would want to play with. Um, because-
... it didn't represent what we thought, what, from our perspective, what we thought was typical.
Historically, and especially in- in tech, private equity was not buying companies that were considered innovators or high growth, so it was a departure from what you would see in a typical private equity investment at the time. It's become our business today, and SailPoint was really, for us, the first investment that looked that way. And, you know, as a result of that, we took a risk, you know, in- in making the investment, it was a huge decision for us at the time, and the fact that it worked and worked so well really propelled us into a new realm of technology investing. So even today, you don't see the industry, for the most part, making investments in the sorts of innovative companies that we do, and it all started for us with SailPoint.
That point was why it was surprising to us. We, PE as an industry wasn't known for coming into the innovation part of a life cycle of a business.
Yeah, so I think I probably spent most of the dinner trying to be cool enough to be interesting to a super high-growth, very exciting innovator in identity security. But that, my impression was like there was a little bit of like sort of feeling each other out, it was-
... like the beginning of a boxing match.
Little- little jabs.
But nice jabs.
Nice jabs. But it felt like we were sort of there to prove ourselves a little bit that we- we could be a good partner, you know, to you and the team, given all the amazing things that you had done. And I remember there was this strategic deal that fell apart-
Yeah, in late- in late May of 2013, as we were getting close to the end of a potential large strategic deal, uh, our company had 90 or 100 people and th- they brought over 100 people to Austin to do due diligence on the company, which, to put it mildly, was very distracting, caused us to have a hiccup in Q2. So that kind of blew up the deal. We went into a fundraising mode, and- and the banking firm that was kinda helping us with the deal kinda went out to check the market. And Seth, as you said, we actually just weren't expecting a- a PE firm to show up in the dialogue. We were like, "Oh," we just didn't expect that.
So at that time, Chip... Well, Chip and Andrew are both now partners, and they're my partners in our cybersecurity side of the business, we've worked together, I've worked with Chip since 2008 and Andrew since 2012. At the time, Andrew would have been brand new as an associate, and Chip would have been a vice president. Um-
And it was- it was a really busy investment summer, there was all sorts of stuff going on that summer, and I remember especially Andrew was really, you know, kept reminding us, "Don't forget about SailPoint."
(laughs). And I- I'm obviously very happy that he did.
Well, and I- I have another recollection of that first meeting, Seth, you're right, there was a bit of feeling each other out. But I'm, what we all talked about, you all went off and had your private conversation (laughing) after dinner, our private conversation after dinner was, "Wow, these guys really get security." Like that was our big takeaway. We walked away going, "Okay, I wasn't expecting to talk to a PE firm, but man, these guys know the market, like they've done a lot of work, they really understand what's happening."
And I think what really impressed us, and I guess to give 'em credit, it was kind of Chip and Andrew at the time had really dug in to understand that identity, while it was a pretty new space, had some different nuances to it, hardly anyone understood that at that time, and they got that we were different than a couple of the other identity plays that were already getting some high visibility in the market. And I think we went, "Oh, these guys could be a really good partner, 'cause they get it." (laughs).
No, totally, and I remember, the whole idea to invest and buy SailPoint came out of that industry work that we did, so we knew that it was the business that we wanted to buy, which is pretty typical for us in our process, and that's why we were so well-informed when we met the first time. So it's- it's, you know, despite the fact that that's a decade ago, the, our process has remained pretty consistent, and that's a really good testament to how we try to show up in these sorts of opportunities.
But we had that dinner, we did our work, everything checked out. We were super excited. And then for us, I remember the meeting that kinda sealed it as something we definitely wanted to do was in the basement of the W Hotel. I probably, two months later or three months later, I don't remember the exact timeline, and, uh, Orlando and I were there, I think you were, you, Kevin, and Cam were there.
Me, Cam, and Kevin. Yep.
And, um, that was the sort of handshake, let's make this thing work. Now, we still had to give the best price. (laughs).
(laughs). There was a bit of that.
Which, you know, which is always the base, which we did. But that, for us, I remember sealed it as something that we weren't gonna lose, that was a, you know-
... an investment we absolutely wanted to make. And, uh, I just remember a lot of institutional inertia on our side after that meeting.
So we were- we were really fired up to get it done.
It was a competitive bidding process, there were other firms in there, and- and what was interesting is it felt as though Thoma Bravo was leaning back a little, they didn't seem as engaged as some of the others.
I think we were busy. (laughs).
I think that's the, closer to the truth. We had a-
Closer to the truth.
I remember, that was, again, we had so much going on all at once, and maybe it was after that meeting we had at the W, maybe it was a couple of weeks before, but we just got to the point where we were like, "Look, we just can't, we have to- we have to do this, like I don't care how busy we are, I don't care how big a leap this feels, we've gotta own this company, and we have to partner with this team."
But we also described it as the hockey stick, like in the last couple of weeks of the process, TB came on incredibly strong, and it was like all day every talking to somebody from Thoma Bravo, and like all of a sudden they were the lead runner. Clearly, they expressed really strong conviction in the business. And again, we already liked the team and knew they got the business, so it was- it was a very... I'd never been through that competitive bidding process before on this side, so it was- it was a learning process for us too (laughing).
Remember the other discussion we had, Mark, that was really important for us is we did decide or agree that if things really did slow down at some point, we would change our view on what we were trying to do together from a profitability perspective-
And not only did that not happen, it accelerated the other way.
So the growth in the business ended up being so much faster I think than anybody thought, because all of a sudden you started riding this incredible curve of opportunity. And I think of the great things about the early days in the partnership is I think we were really helpful in working, especially in the go-to-market area, to make sure that that function-
... scaled, was predictable, and was able to-
... kind of go after that opportunity. So from my perspective, those first couple of years were, you know, just a really incredible partnership of, you know, of- of both of our firms. And, um, obviously you (laughing), you guys were doing all the work-
... but I feel like we were there, you know, sort of helping the company look forward a little bit in terms of what really needed-
... to get done to, you know, to kind of go after this massive opportunity that- that presented itself in a- in a way that I think, um, you know, we weren't ready for and was ahead of anything y- I think that even you thought at the time.
Oh, yeah. No, I- I think at the time of the deal, none of us really saw an IPO as a looming likely outcome, not- not that any of us were dead set against it at all, just like that's probably not the path. We're gonna grow and, um, I think we always had a pretty strong conviction around growth, but I think yeah, you're right, Seth, we had talked about look, you know, kind of the old rule of math, right, if the growth doesn't stay at hot, then we'll need the profitability to come up, right? And- and the growth stayed hot, so we didn't focus on profit. Now, what was great was over time profit joined (laughing) and it became a very good overall picture for the market. Yeah, and it- and it- it just had a- had an unexpected but very positive outcome.
And I think there were some things about scaling that you guys understood that we didn't. I think we knew an awful lot about our space and the technology and the market, and there were some things about efficiency and scaling that you guys understood that were super important at various critical junctures. Um, it kind of just reinforced the-the power of the partnership.
We also have seen so many... A, you know, a lot of our business over time, and especially at that point, was companies like SailPoint that had amazing products, grew like crazy, but didn't put the right other functions in place, so that they got to a point of m- missing numbers, not being predictable, not scaling, not taking care of their customers the right way. So we also, I think, had some foresight in working with the team, which was always excellent. I mean, the, you know, the talent in the company was always incredible. But working with the team to kind of get some of that process in place so that when the company was going after these huge growth targets, um, it was able to do so in a way that didn't break the business.
Yeah, I think that, you know, look, we did see the growth opportunity whatever it was, Seth, I guess 2016, the banker's friend started talking to you all and us, sometimes jointly, sometimes independently (laughing), about whether this might be an IPO candidate, and we all came to the conclusion it was worth looking at, and we- we were willing to do it. And it hadn't been a goal, frankly, but we thought, "Well, it looks like it could be a great outcome," and we- we ran down that path and- and got the company out publicly in- in 2017, late '17.
And then, you know, I guess Thoma Bravo hadn't done a lot of IPOs-
We had done n-
At that point in software, we had done zero.
Zero, right, and I think way back in the- in the predecessor Thoma Cressey firm there'd been one or something like that, I remember hearing.
But at that point, I think we weren't even sure, maybe you guys already knew but we didn't (laughing), like how- how this was gonna play out now that we're public. And what happened was a pretty rapid decline of investment interest by Thoma Bravo, frankly for a good reason 'cause the- the stock was performing really well and they were able to take some real good returns off the table, but it did escalate faster I think than both of us thought how quickly Thoma Bravo was no longer a part of our team.
Right, it took-
Right? It went from-
... about a year, which is not-
You never, we certainly... 'Cause we owned an overwhelming majority of the business, it was not something that we expected, but the stock did so well.
K- kinda, there was sort of constant opportunity actually to provide liquidity to investors, which we did. Um-
So I think within a year, really-
Yeah, and I think literally in about a year-
... you were out (laughing). Yeah, and I think we had all thought it might take a two to three year window. We- we knew there'd be a- a process of gr- gradually capitalizing on- on the opportunity to capture the investment, but I don't think any of us saw that when we went public in late '17 that by basically the end of '18, really early '19, our friends at Thoma Bravo no longer owned any of the company. Uh, so that happened quite rapidly.
So there was a lot of adjustment quickly. Frankly, I was a little sad. I- I- I wasn't in a rush for the Thoma Bravo team to disappear, that- that was a, that was a, kind of sad thing obviously. But- but it happened, so off we went, you know, ran off to be a good public company. And I- I always felt like our friends at Thoma Bravo were cheering us a bit from the sidelines (laughing), "Hey, you guys keep going, good job."
And then what, Seth, I guess late '21, uh-
... a- a number of years after you guys were fully out, a good three and a half, almost four years, I think, we'd obviously seen each other at events and conferences and such things and stayed in touch, and we reached out to have a quick conversation about some of what we were seeing in the market, 'cause we almost, uh, you- you guys are like consultants, you're smart, you understand the industry, what do you see happening, and sort of just thought, "Hey, let's pick your brain and, you know, see what happens." (laughs). And then, I guess what happened next was sort of like, "Hey, what if we perhaps did something together again?"
So it was not really what we expected to come out of that conversation.
We- we... I mean, we followed the company incredibly closely, and, you know, the business obviously performed really well. And, I mean, Mark, you are in a unique situation where you've taken a business to, our value was $7 billion, I think our initial, right, when we bought the business?
The first time (laughing).
You obviously founded the company, y- you had just an unbelievable story. You know, it's also amazing that your team, a lot of your team has been there with you throughout the whole journey as well. So you've been an- an amazing leader, and you- you've been able to transition from founder, you know, running this, you know, 10-person company to how many people do we have today?
It's, I mean, it's unbelievable.
Like 2,500 (laughing).
Yeah. And continue to innovate too, which is not easy to do. So, you know, the- the, one of the big impetus for the round two of our investment, and I hope you feel the same way about us at the end of this one as you did after the first one (laughing).
I don't know if there'll be a round three.
We're planning on it.
Is this innovation that's continued in the business has obviously pushed the company into a transition to cloud, which is, you know, something that we have a ton of experience with now, it's happening all over software for companies that have been around for, you know, more than 10 years. And we got really excited about what we saw with the new product, where we saw the market going, the market's becoming increasingly interesting, it's an area of increasing investment.
And SailPoint's position and innovation in the market in many ways looks like it did when we first made our initial investment, but now it's a cloud-first company and, you know, that transition isn't easy. So, you know-
... taking a step back from the public markets at the time that the company did, we think is a great decision to accelerate this move to cloud and come out the other side as a, both as a high-growth and high-profit business, but a company that has, you know, essentially then become, you know, a- a full cloud hybrid business, you know, with incredible recurring revenue, um, great products, great cashflow. And that very well could be a public, uh, company again, which I think, you know, everyone, you know, has ambitions around if- if the performance is there.
So it's a really neat story, and it- it goes to show you, you know, how companies like SailPoint can definitely have many lives, and in the middle of some of these steps, you know, we think we can be a great partner to kinda help the company get to its- its next phase. And this for us feels like, you know, that- that timeframe. So, you know, that's where we sort of re-entered the scene and became really excited about this next opportunity.
Yeah, very much. I think we saw the- the opportunity for growth that was things we could do organically, right, kind of with our balance sheet and things that we might wanna have a financial partner, and I think knowing what Thoma Bravo had done by then with so many other companies on cloud transformation and- and just an even broader footprint across the security landscape. I think, you know, Seth, you probably know this stat, but I think if you were an independent security company with all your holdings, you'd be like the third or fourth or second, or some- some (laughing), very near the top of the list-
I think we're near the top of-
... I think you are.
I think we're at the top of the list now. But I'd have to-
Yes, yeah. So they are- they are-
That might be-
... the biggest security company in the world.
We might need to have a chat. We'll- we'll have to go, we'll have to go fact check that.
We'll have to go figure that out. But yeah, I think that was a lot of the opportunity, and again, yeah, it has been a blessing and a pleasure to kinda be here for this whole crazy journey. Again, I- I said at the outset, I, if you'd asked me at the beginning if I'd be here 17 years later, I would have looked at you like you had a third head.
But I think it's just p- partly been so fun, and Seth, you said it, it's like very phase has, in some ways, felt like a different company, right? There's just a whole different set of challenges, you know, zero to $50 million, say, or fifty to two fifty, and we kinda navigated the two-ish to five-ish in our public segment, and with- with fr- friends at Thoma Bravo, I think we're hoping that gets into a- a, some kind of multi-billion dollar number if we do our job right (laughing), and that is an exciting new phase of the journey that I certainly never anticipated being on.
But, uh, you know, I have one secret to leadership success, and that is bringing in smarter people than you that know what they're doing at all stage, and when you do that, it seems to work out (laughing) pretty well. And I just continue to be fortunate to have a great team around me to- to help us get this done, and we're very, very optimistic about the future of this market and our- our ability to capture the opportunity.
Well, Mark, thanks for talking with us today. It- it's been a lot of fun. Our partnership has been incredible over the years, we're so thrilled to be back together, and the really exciting is that I think this next phase is gonna be maybe even more remarkable than the first based on what we're seeing in the early days. So we're, couldn't be more excited and- and happy. So thanks so much for taking time to do this, we- we really appreciate it.
It was a pleasure, thanks for having me on.
Thanks for listening to my conversation with Mark McClain. If you wanna learn more about the work that he and SailPoint are doing to continually innovate on identity security at some of the world's largest companies, visit sailpoint.com. I'm Seth Boro, thanks again for listening.
Thoma Bravo's Behind the Deal is produced by Thoma Bravo in partnership with Pod People. Stay tuned for more stories behind the deal. I'm Orlando Bravo, thanks for listening.
Certain statements about Thoma Bravo made by portfolio company executives are intended to illustrate Thoma Bravo's business relationship with such persons rather than Thoma Bravo's capabilities or expertise with respect to investment advisory services. Portfolio company executives were not compensated in connection with their podcast participation, although they generally receive compensation and investment opportunities in connection with their portfolio company roles, and in certain cases are also owners of portfolio company securities and/or investors in Thoma Bravo funds. Such compensation and investments subject podcast participants to potential conflicts of interest.