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LENGTH:
49 minutes
Orlando Bravo:
We haven’t changed that much. We still have to get the money, win the deal, and improve the deal.
Orlando Bravo:
Season 4 of Behind the Deal premieres on January 15th. You’ll hear some amazing conversations. We’re kicking things off with Seth Boro’s chat with Proofpoint CEO Sumit Dhawan and it's just fascinating. But I'm getting ahead of myself. Today, in anticipation of launch, we're dropping a conversation I had last fall when I returned to my alma mater, Stanford GSB, for a student-led interview for the series View from the Top. There, I spoke about my journey, starting from a small town in Puerto Rico, and ultimately building Thoma Bravo into a global firm managing nearly $200 billion. Stanford really does have amazing students. They asked me questions that I've never been asked before and had a chance to share some of my top learnings throughout my career. I hope you enjoy this conversation. I know I did.
Gintare Zukauskaite:
Orlando, welcome back to GSB.
Orlando Bravo:
Let’s go. Let’s go. Man, look at all you guys out. This is great. It reminds me of many, many years ago when I was having so much fun here, made my best friends. Just incredible to see all of you, really. It feels just like coming back home.
Gintare Zukauskaite:
And we’re so lucky to have you here, who’s been in our shoes, to come and join us here for the first View From The Top of the year. We wanted to start by bringing some of the memories back from the time you were student here back in ‘97.
Orlando Bravo:
JJ, what did you do? Charlotte?
Gintare Zukauskaite:
Who knew this guy would go and build one of the most successful private equity firms in the world?
Orlando Bravo:
Yeah, this is funny. That guy right there, Mason, my best friend from business school, one time we were in Vegas, and I do believe that my class started that Vegas tradition that has become now super fancy. We would go in a small group. He was brushing his teeth in the morning and goes, “Do you think any of us would ever start a company or do something?” And he told me the other day that we were one of them. So that’s good. I’ll take it.
Gintare Zukauskaite:
I’ll take it. Well, I think a lot of students here today are going to relate to your story, maybe even in ways they don’t expect. Here’s something I relate to. At 15, I moved to the U.S. as an international student. At 15, you moved to Florida from a small coastal town in Puerto Rico. What was that like for you?
Orlando Bravo:
Well, you’re from Lithuania. We relate to that.
Gintare Zukauskaite:
Yeah.
Orlando Bravo:
It was scary. I’m not only from Puerto Rico, but I’m from a small town on the west coast of Puerto Rico. So if you wanted to play tennis, look for a better life, you have to drive four hours just across the island to get to San Juan, and then that’s a city and you get that opportunity. But it was scary. My family, we were all very, very close, but it also was really special. I thought I was being handed an opportunity of a lifetime. I was just 15 playing tennis, but it was very meaningful for me.
Gintare Zukauskaite:
And in Florida, you went to Nick Bollettieri’s Tennis Academy. It’s known to be one of the most prestigious tennis academies in the world. What did tennis teach you about life?
Orlando Bravo:
Humility. You talk about that tennis academy and I found out pretty quickly that I wasn’t that good. But I did private equity, so that’s okay, I’ll take it. That’s really an important part of who I am, how I think about business and how I lead. For example, in tennis, when you get on the court with somebody, it doesn’t matter what your ranking is, you could be ranked higher, you could be ranked lower, the other player may have more coaching, this or that, but you have to try to figure out how to win that match.
And I had some of the most amazing experiences when I was a little kid being paid to go to Venezuela to play an international tournament in Latin America. And you notice that you’re as equally nervous as your opponent. You notice that you may have the same style that you kind of play in the same way. And that equalizer is so, so important.
Today we’re pretty big in tech, but we still need to win that deal even if we’re much bigger, even if we’ve had good returns in the past, even if we have a great team. And that other competitor is equal to us and that’s great. And also I mentioned it’s really humbling because there’s always somebody better than you and it’s okay not to always be the best at everything and the best. You just try your hardest and you do your own thing. And those two things have really stuck with me.
Gintare Zukauskaite:
You love the tennis court and joined investment banking in the early ’90s. What surprised you the most about your first few years on Wall Street?
Orlando Bravo:
The opportunity. I was blown away, and I think many of you have done investment banking, you’re going into entrepreneurship or private equity, but I was going to go to Stanford Law School. I was lucky to have gotten in because I really didn’t know what I wanted to do after undergrad. And Morgan Stanley gave me a job and Stanford was the only school that deferred me, which was just incredible. I remember calling Harvard because at the time, that was my first choice to go to law school and they said, “Ah, you got to apply next year. You have to compare to the next class,” and all this serious stuff. And Stanford, when I called just admissions, thank you, they said, you’re welcome to come here anytime you want. I was like, “Wow, West Coast.” That’s so true, right? So chill. And I was like, “That’s where I want to go.”
But I wanted this opportunity. I get to work in Wall Street, it was unbelievable. Really early on I noticed, and it was 1992, so it was really early for private equity that they put me on a deal. There was this group trying to buy this company that didn’t own a company that didn’t have a big company in the space. They didn’t have anything. They just had money. I was incredibly impressed about the American opportunity that without anything people will trust you, give you money, and with that you can buy a multinational corporation. I thought that was just the most ridiculous opportunity there was. And they seemed to have a lot of money, too. So I said, “Ah, maybe I’ll try that.”
Gintare Zukauskaite:
You come to Stanford after two years at Morgan Stanley, but not only to do JD, also MBA. Can you share more about what were your biggest takeaways from the time you spent on this campus?
Orlando Bravo:
Well, I was the luckiest. I met Gabrielle and she and I had Charlotte who is here, sorry to embarrass you. My oldest, Charlotte’s 23. She’s a senior at Stanford. So proud of you Charlotte. And without me being at Stanford, I wouldn’t have met Gabrielle. So we had Charlotte and Zander and now have other wonderful kids. Met her, met my best friends, had time to really explore what I enjoyed and what I was really like, was inspired by my classmates, was really loved by my classmates. You saw the pictures, those are my best friends still today. We’ve kind of traveled life together, kids, challenges, work, you name it. That’s kind of my support group. I don’t know - it was really what gave me the true opportunity to do what I do and explore the world in the way I do it now.
Gintare Zukauskaite:
And your journey in private equity also started here. You landed a summer internship at a private equity firm nearby here in Menlo Park. And for many of us here, when we go on our summer internships after the first year, we hope that two things will happen. First, we’ll love the job, and second that we’ll get the return offer to come back after graduation. What was that experience like for you?
Orlando Bravo:
Wow, nobody has asked me about that summer job and not getting the return offer. I thought you were going to jump to the G.O.A.T. of private equity, Carl Thoma, but we’ll talk about that in a second. But that was a GSB alum, Alex Seaver, actually a very, very good tennis player, and an incredible investor. He was affiliated with TPG at the time. He lived here in Palo Alto, now he lives in Connecticut. We kept in touch with him, and I didn’t get a return offer. I don’t know what I did.
Gintare Zukauskaite:
When you realize that-
Orlando Bravo:
But you know what the truth is, is that then when Carl Thoma gave me an offer, he gave me an offer.
Gintare Zukauskaite:
Oh.
Orlando Bravo:
And I didn’t take it.
Gintare Zukauskaite:
But that time when you realized that the offer wasn’t coming, what got you to the mindset to keep going, to not give up on private equity? And what would you say to someone in this room who might be facing that kind of rejection right now?
Orlando Bravo:
You got to do your thing. I sent out 500 random resumes, and at the time, not a lot of people used the internet, so you had to mail some of them because they weren’t up to speed on this stuff. But I would send in to random firms. I would cold call. And I think the lesson is you don’t need many offers. You just need one. And it has to be the right one. And it wasn’t until the end, I think I had two weeks left in graduation that Carl Thoma decided to open up an office in San Francisco. He was splitting from GTCR, the firm he founded, and he interviewed a few people and I got that job. I just would say, keep going. Absolutely stay the course. It will come. It may not come at this time, it’ll come a little later, but it will absolutely be there.
Gintare Zukauskaite:
So let’s go to that persistence and you going to Chicago meeting Carl and the team and the job is almost there. But then come San Francisco dinner that almost cost you that job offer, what happened?
Orlando Bravo:
How do you know this is? No wonder you’re GSB, all the studious. Nobody has asked me that. So Carl, does anybody here know Carl Thoma? Right, of course. My colleague, my partner at Thoma Bravo, you know Carl. He kind of did the same thing to me that he did to you when he was interviewing you. But Carl is GSB, one of the greatest investors of all time, has the highest ethical principles, these old school values of who you partner with, who you work with in management. The best thing that happened to me is I was lucky that I had him as a mentor, and I never created anything new. I just listened well. I give my credit for listening. That’s the key.
So Carl comes to San Francisco to close my offer. We’re having this dinner and I said, “You know what? I’m going to ask him for carry. This offer just includes salary and bonus. I need some carried interest. Isn’t that what private equity is about? Isn’t there any carry here?” So I asked him, “Hey, how about a point of carry, half a point of carry?” And he kind of listened. He didn’t say much and he called his colleague and said, “Withdraw that offer. I don’t think this is a good fit. You got to earn your way through it.” I said, “No, no, I’ll take it.” And I had three sleepless nights and he did not withdraw the offer. So that’s what happened.
Gintare Zukauskaite:
Luckily, you started in their San Francisco office right after graduation, but in the middle of a dot-com boom. Can you share more about how did that go?
Orlando Bravo:
Not well, and there may be parallels now. You never know, maybe 50/50 at best. But Carl gave me a lot of responsibility and authority early. That’s the way he leads and that’s the way he taught me how to lead. We do that with our colleagues now. We love an associate to call, meet a company and try to see if she or he can buy it and learn the business or mentor by doing the business and learning the business.
And I started investing in IT service companies that were providing services to a lot of dot-com firms. That was the hot thing at the time and I was in San Francisco. I did three deals and when the dot-com bubble burst, two out of the three went to zero, we couldn’t recover any money. And one, we got like 50% of the money back. So it was an absolute disaster.
And I thought I had to work so hard. You started when I was 15 in tennis, even before, little by little trying to do everything perfect in this school and the thing, just like all of you have done. And I’m like, “Now that I made it into private equity, I’m going to get fired.” And he, in his 70th birthday, Carl said, because I was there, it was a great event some years ago, and he said, “Remember I was about to fire you.” And I go, “I know. I could sense it. I knew that something like that was coming.”
And what allowed me to relax a little bit is I had just had Charlotte. I spoke about that at commencement and I was like, “In the grand scheme of things, nothing else matters. So relax. Let’s see what happens.” And Carl gave me another chance. He sat me down and said, “I’m going to give you one more chance. Just don’t take those types of risks. Those are not the type of risks that a firm, as a private equity firm, as a buy-out firm takes. And you can make mistakes but don’t make similar mistakes.” He gave me a lot of rope to try again. And I knew that was going to be my last chance with him, but at least there was one.
Gintare Zukauskaite:
Well, most people who survived that afterwards and that feedback would have kept it safe, would not go and pitch something new. Instead, you go back to Carl and present him a new idea at that time, software buy-outs. You were 30 years old. How did you have guts to do that?
Orlando Bravo:
I had nothing else to do. No, I mean, nothing had worked. I had to try something. It was a super entrepreneurial firm and I always for some reason wanted to always do something a little different. One of the things about New York, it’s my favorite city in the world. I love New York City, but one of the things about that job is leaving the job, I felt that I was walking with a hundred thousand other people that were doing the same thing day to day. Still now, I walk into a lot of those offices because we do business with many other groups, and I’d see these huge places with everybody dressed the same way and doing the same thing.
So I always wanted to do something a little different. I wasn’t creative enough to be like 180 degree different, but I thought, look software at the time, our viewpoint was to Carl, you can buy it super cheap. He liked that, a value investor. You could buy recurring revenue in software less expensively than every other category GTCR had done and was successful at: outdoor advertising, radio media, a number of them.
The challenge was that no company at the time really was making money in software. Similar to now, there’s been no improvement in the operating capability of those businesses. I’m here with all the GSB, with the best of the best in leadership and management, and in almost 30 years in the software space, now a $1.3 trillion economy, in revenue, the average publicly traded software company loses money just like it did when we started in software.
So we were very open with Carl that we have no expertise in running one of these companies. We’ve never even done a deal. But he allowed us to take the risk to do the first one and try to see if we could restructure the business to make it a profitable buyout business. And he said, “Go do it.” And it was only a $50 million deal, so you got to start really small. It’s not like we were trying to take the whole risk right there.
And then I met my second mentor, operationally, Marcel Bernard, who’s the best operator I’ll ever meet in my whole life. He ran Motorola, different divisions of Motorola in the ’70s, that was an incredible school of management. And then he taught us what to do when we followed him at it. If that first deal wouldn’t have worked, that would’ve been over. So a first deal allowed us to do a second and a third and a fourth and so on.
Gintare Zukauskaite:
You mentioned those two mentors, Carl and Marcel having a big influence on how the story played out. For the people in the room who also want to attract that kind of mentorship, getting people to invest the time and energy in them and their success or to make people want to bet on their ideas, what do you think they should be doing?
Orlando Bravo:
Mentors are all around you and people that have had success, it’s because somebody else taught them something. Marcel Bernard had this great quote, “Everybody needs somebody else to learn from.” That’s why our model in private equity was to work with existing management, restructure the company, change the way it’s being operated, but actually do it with the existing people of the business. So anybody that’s self-aware knows that the reason they’ve had luck is because somebody brought them there. Somebody took them to a place they didn’t know they could find or they could see.
Now you have to get that at the job day to day. I sometimes get calls from talented young adults and say, “Oh, can you mentor me on something?” So of course I will, but it’s ad hoc. Once a month I get a call, I don’t have enough context of what that individual really wants to do and the challenges day to day. You have them all at work, at your workplaces, unless you’re starting a company from scratch. Maybe a board member can be extremely helpful engaging day to day. But those people are all over. The key is also finding somebody that shares your values. I always thought that among everybody in private equity, no, I want to listen to that guy. I looked up to Carl so much that it allowed me to absorb more what he was saying.
Gintare Zukauskaite:
And in 2005, at the age of 35, you became a named partner. That’s not just a title, it’s Carl saying, “I trust you enough to share my name.” What did that mean to you?
Orlando Bravo:
Oh, it was incredible, a five-year turnaround from getting fired to getting okay, now they cannot fire me. That was the key. That was really incredible. I don’t think too much about the name of our firm. It was just the legacy of how it was. GTCR, they named it like that. They named Thoma Cressey like that. They added me, et cetera. But really, we as partners, I have many equal partners in the firm and we run the business as a partnership and as a private partnership. And I don’t think anybody’s too worried about that now, but for me, it was great when it happened.
Gintare Zukauskaite:
And a few years later, the firm’s name changed again and became what it is today, Thoma Bravo. At that time you had around 1 billion in assets under management, and today it’s closer to 200 billion. That’s 200X. through that period of such extraordinary growth, through those 17 years, what changed the most for you personally?
Orlando Bravo:
Not much. That example that I gave you one deal at a time: our first deal was 50. Our second, we bought VECTORsgi, that was 75 million. Our third deal, we bought Datatel for 250 million, a bit of a jump. That was a great deal. We made 5X on that deal. Then we bought SonicWall for 550 million, our first cybersecurity buy and a company here in Silicon Valley, which we hadn’t done before. So we were really afraid of turnover when we made these changes, and then that was a wonderful experience. Then we moved to buying companies for a billion. We bought three in a row, two of them here in Silicon Valley, and those worked. Then we bought Compuware for 2.2. So it was this trajectory.
We haven’t changed that much. We still have to get the money, win the deal, and improve the deal. Just the numbers have gotten bigger and since we’ve done okay, we have a bigger following of people that now allows us to buy the jewel. See, now we’re in a place we’ve never been before. We can buy the number one software company in so many different areas. And the opportunity for that for the next generation of Thoma Bravo is ridiculous because before we had to buy a niche player and try to make work of it. Now we can maybe drive these companies, we’re close to it, to 50% margin and 20% growth and maybe create the next 50, 75 billion dollar market caps.
It’s just amazing, but the tactics and the philosophy around it have remained the same, and we have remained with our feet on the ground, not levitating. I am extremely hands-on like I was before. You talk about mentorship, I love to get a call from an associate to talk about something or a deal, and I reach out to them. They’re probably going, “Why’s this guy calling me all the time? Does he not have confidence?” All the people doing models at work, I kind of creep behind them like a super, you could see, and I’m legitimately interested in what they’re looking at and how they’re thinking about the business.
Gintare Zukauskaite:
Well without a doubt you reached the peak business wise quite early in your career but personally, everything changed for you in September 2017, when you got a call from Puerto Rico. What happened?
Orlando Bravo:
So I was traveling with Jennifer James. Remember JJ? She’s our chief operating officer. We were coming back from Tokyo and Hurricane Maria had hit Puerto Rico when we were leaving Tokyo. When we land, I tried to call family and friends and I could reach no one, and it’s like, “This must be pretty bad.” And my brother, who’s very close to different communities in the island, a reporter called him and said, “Hey, there’s a shelter next to my hometown with 35 people that have two day supply of food and water.” It’s like, “This is unbelievable.”
Sorry, I get super emotional because I said, “If we don’t do anything about it,” that was the feeling, “nobody’s going to do anything about it.” So we said, “Hey, we’ll go there and we’ll work it out. We’ll see you in a day. I told him, we will leave and we’ll see you in a day. We’ll land at this airport really close to the place and we will help you out.” We landed and the people were there. They had brought all these trucks, they got the food, the water, whatever they needed to hold them over for four or five more days until we figured things out and that worked out. And then other communities would come and we would do the same. And then we started developing all these distribution systems in Fort Lauderdale, Florida, because it was manageable to do it from there. It was much closer than coming from San Francisco with a bunch of supplies. And we started this huge relief operation all over the island, and FEMA didn’t get there till like two months till after we were there. It was incredible.
And I always thank the GSB for that risk-taking and get out there and do something different. I didn’t know anything about disaster relief or hurricane relief or anything like that. We just did it and it works. The nice thing is, I did have a background in entrepreneurship. You can be entrepreneurial, let’s solve the problem, let’s get it done. And I think in the process we were able to hold together some communities that otherwise would’ve been in trouble.
Gintare Zukauskaite:
But you didn’t stop just at relief-
Orlando Bravo:
And Charlotte went with me on that first trip. You remember that? That was crazy. Okay.
Gintare Zukauskaite:
You didn’t stop just at the relief and help, you kept going. What was the intention behind the Bravo Family Foundation and to create the opportunity in the island for the long run?
Orlando Bravo:
I was going to the island every weekend, every four or five days, whatever, working there with communities and I met so many good people. It reminded me of the side of Puerto Rico that is incredible. People that were educated, talented salespeople, a lot of salespeople that couldn’t work for months because they didn’t have any electricity. You can’t call customers and they’re all commission based, 100%. So they didn’t have any other income. And I said, “That’s isolating. That’s totally unfair.”
So we started six years ago, the permanent programs that we have in Puerto Rico. And the center of it is entrepreneurship, is our Rising Entrepreneurs Program. We now have launched over 100 companies in Puerto Rico. We have a bunch of people from Thoma Bravo involved in those companies in one-on-one mentorship. CEOs from our companies go there. We give them free capital, free education. We’ve taken all the playbook from our firm and applied it to how you build a business because there they can’t raise any outside money. So you got to get profitable very quickly and do the kind of things that we try to do with bigger companies, leadership.
And that program, I really, really believe it’s setting up an ecosystem in Puerto Rico that will entirely change the outcome for so many young adults. We have paired up with a high school program that we have where we have now two thirds of the municipalities in Puerto Rico. Those kids from public schools participate in those programs. And the hope that I see and the kind of way that we take those kids off the street off of just playing video games, now true opportunity. They think about solving problems of today, problems of their communities. It’s incredibly uplifting.
And coming back, it’s so tied to what we do at Thoma Bravo. We try to help a really big company that’s super innovative and not making any money become also a great business by doing it with the existing people. When you see, when you try to help these entrepreneurs that have very little resources, if you can do that, you can certainly do it at a billion dollar company in Silicon Valley. This stuff is easy. So it gives you also a lot of hope for your business.
Gintare Zukauskaite:
Well, it’s undeniable the impact you had on people in Puerto Rico multiplied because of that long-term mindset. And I want to talk more about that, but in the context of private equity. I hear a lot of my classmates here at GSB say that, today, private equity’s to crowded, that the golden era is over, and that it’s almost impossible to build to the next Thoma Bravo or become the next Orlando Bravo. Where do you think the critics are right? What’s generally harder today?
Orlando Bravo:
This is much easier today. I believe some of you in this room that will choose that industry as a career, you stay with it, you will build a firm much bigger than Thoma Bravo and better. The next generation’s always better and some generations below me, but it’s always better than the prior. It’s not even close. The industry’s tiny. We feel ourselves that we’re just getting started. I feel that I’ve been training with my team of partners for 30 years to now get the opportunity that I just spoke about. This is new. It is tiny versus the public market and other forms of ownership.
When I was interviewing for a job, one of those many 500 jobs that I did not get, I met the head of a private equity firm very large at the time, and that person in that interview told me private equity’s taken. And I’ve mentioned that before and some other conversations, private equity’s taken, there’s not much for young people to do in the business. That was 1997. Come on.
Now our firm is much bigger than that firm. I kind of look at that. It makes me feel pretty good when I’m down and we have a lot of portfolio problems. But it’s going to be the same thing. There is no substitute for somebody being able to buy a corporation, having full control of it, partnering with great leaders, solving problems. As Marcel Bernard would say, “Every business problem can be solved, health is another matter, and creating an entity that people thought was impossible to create.” That opportunity for creativity, value creation only exists when you can buy the whole company, not a piece of paper, not pieces of that company, not credit in that company, not public stocks, absolutely nothing else.
So I’m a firm believer. It just requires people to stay humble, keep their feet on the ground, be practical and focus on the business, not on anything else. We would not have gotten into software if we were listening to the word at the time. Venture capitalists would say, “These companies that you’re addressing are too old and new VC companies will put them out of business for sure.” That was a scary comment from people that have done really well in VC, really good VCs that I highly respect.
The big buyout firms at the time were saying, “You’re crazy to get into tech and software because that is too risky.” Both of those were extremely general comments. When we would go into a company and look at all their files one by one, customer one, customer two, customer three, when we would sit there in their support center listening to all the calls that were going, all their salespeople that were working on the system, we’d say, “This is an incredible business. What am I missing? What are they talking about?”
Now, when you look at today with AI, some people are doubting software. Of course, you can read an article that says, “Well, maybe the stock will do this and that,” theoretically that makes sense. But when you go to a corporate environment and know how people work, clearly it is a huge tailwind, but you just have to do the work. You can’t be scared of it. You can’t fall with whatever else everybody’s saying. It’s a place where you could do your own thing. That’s the key.
Gintare Zukauskaite:
That’s the key. Looking ahead, when you think about the next generation of investors, entrepreneurs, builders, who are with us here today in this room, what’s the one lesson you hope they take away from your journey?
Orlando Bravo:
Can I give you two?
Gintare Zukauskaite:
Go ahead.
Orlando Bravo:
Do your thing. Do your own thing. There’s a lot of pressure, and we even face it now. We have all this capital, why don’t we just go off and build all these AI data centers? People are making money on that stuff or do this, do that. There’s a lot of pressure to do things where others that you highly respect say, “Yeah, you’re doing the right thing,” or the great job to get, or the type of company to form now. Do the work, focus on your business, focus on you, and do your thing. That will pay huge, huge dividends, will make everything very, very clear.
And the second piece is, and you spoke about it with challenges of today, look, it won’t be linear. We just walked through my good luck and how it wasn’t linear. It was terrible in some places. It won’t be linear, but you have to stay positive because all of you, if you apply to it and if you want to do it, you will build things that were much bigger and better than what anybody else had done before. Just don’t be intimidated by it. If you look at the end result, you might not want to focus on it. Just focus on step-by-step and stay super positive in your journey.
Gintare Zukauskaite:
Orlando, we have a few students who submitted a couple of questions. Let’s turn to them.
Abdullah Almutlaq:
Orlando, thank you for being with us here today. My name is Abdullah Almutlaq, and I’m an MBA 2. You are actually one of the reasons why I chose to come to the GSB, and you even made an appearance in my “Why Stanford” essay based on a meeting we had in ‘21.
My question is about fundraising. Despite a pretty challenging LP fundraising environment, Thoma Bravo has consistently exceeded its fundraise targets. In a world where every GP claims top-quartile performance and mark-to-market figures are difficult to trust, I’m curious if there are any lessons or qualities you took away from your time at the GSB that you bring to your LP conversations that help differentiate Thoma Bravo further?
Orlando Bravo:
So Carl Thoma, when we were starting Thoma Bravo 1, which we called Thoma Bravo 9 because we tried to promote as much as we could that we have been around for a while, I was doing all these presentations, one PowerPoint after the other, we’re going to position ourselves as this and this and that and that. And he said, “Orlando, stop.” He said, “In private equity, the only thing that matters is returns. Investors have incredible choices of where to put their money.” And I go, “Okay.” And we were getting turned down a lot by LPs at the time, and they were giving us all kinds of different excuses.
One, I was walking down the street in New York and I called him and said, “Hey, when are you coming into the fund?” I said, “We’re not going to be doing the fund.” I said, “How come?” He goes, “Because your numbers are not good enough.” Wow. Okay, note to self, my numbers have to be good to get some money. And I promise you that that’s why we’re step by step and deal by deal right now. So we have had good enough numbers to have our base of customers stay with us and stay the course. So you have to have a certain level of performance, and there are other great performers out there.
But then the second thing, and this is what Jennifer James does so well, is we really attend to the customer. We know in our partner what they like, what they don’t like, how their family is, who makes the decision, how does that organization make the decision? You go to try to sell something, at least one person that decides, two people, is this a group decision? Who do we need to talk to here? And we know which customer, do they buy from the top? Does private equity buy here? And I see my peers making a bunch of mistakes. Some people go straight to the top because they have that access, and then the person asks the head of private equity, “What do you think of these guys?” And they go, “Nah, I have somebody else,” and that’s us.
Getting the money, that one third, I say in private equity, get the money, prove the deal, and sell the deal. But getting the money is a really, really important skill of attention. Right after this, I’m headed out to Hong Kong, seeing some of our customers there being very, very close because there are other ways that you can add value to them, co-invest. When they have an issue with AI, how quickly do you have their back in front of their boards? So many things. It’s kind of a day-to-day thing.
And finally, Burt, I have to give you a lot of credit and please take his class if you haven’t done it, communication. At first, as we were getting a little bigger, I was imitating the goats of private equity from the ’70s and ’80s, oh, this is the way you talk and that’s the way I have to seem and this is what I have to pretend to be. And Burt said, “You’re funny. You’re Puerto Rican. You don’t take yourself seriously. Be yourself.” And I think that allows me to connect pretty decently, and Jennifer James, with other people. One of the best heads of sales that we’ve had at one of our companies at Dynatrace, he said, “Remember, people don’t want to buy your product. People want to buy from you.” And that was very consistent with what Burt was trying to have me understand. Thank you.
Owen:
Hi, my name is Owen, Class of 2027. Thank you for coming here. My question is, you guys have built Thoma Bravo on the thesis that enterprise software has durable moats. But my question is, as generative AI decreases the cost of software creation and some say commoditizes it, how is that impacting your investment thesis moving forward?
Orlando Bravo:
Yeah, the software having a great, that’s a phenomenal question that we’re deep in now and we’ve always been. The fact that software has a moat in general is not really true, never been true, especially in dynamic spaces like cyber. That’s a third of our investment, infrastructure software that’s almost another third, and all these horizontals, you face constant changes, competition. And if you’re not growing bookings, even if you had a moat around your customer base, if you’re not growing new bookings, nobody’s going to buy your company and you cannot take it public. It might seem like a decent financial investment if you got lucky on the price or something else prior. So it’s always been a fast-evolving space.
Now, when we were doing our early deals in software where you’re buying what seemed to be some old software companies with legacy code, legacy architecture, that’s where venture capitalists would say new companies are going to put you out of business. A great engineer at Stanford could have built a much better product, faster, better code with newer architecture than many of the companies that we have bought in the past, no offense to those development teams. But those companies are about understanding the customer’s process and about servicing that customer.
The developing of code is a very, very small subset of what that company does to deliver value to that customer, to give them that 5 to 1 ROI over a year or that payback period of nine months. You have to really understand the function or the vertical or the process or all of it and be able to provide a custom solution. Not custom code, but you take this code that you have and how do you figure out the problem that the customer has, let them know that they have a big problem, allow them to re-engineer their organization to absorb this better way of doing things?
You take Salesforce now, 41 billion in revenues, and there’s thought that, oh, they can get commoditized. Not at all. There’s no way. Because if you’re a salesperson, the way you get trained and the way you work is in stage one, there’s an account. Stage two, they have money. Stage three, they have a champion. Stage four, I met with them. And that is the process of getting somebody to close.
Now, if we get to a world where there’s no longer process, where there’s no longer organizational structures in a company, oh, maybe. Maybe, maybe way back in the future, if somebody invents a new way that we all organize ourselves in a totally different way, that could be a risk, but not if we remain organized the way we are. And I don’t see that in the next 10 years. I really don’t.
I don’t even know how you train a new salesperson to do their job. Oh, right, AI can give you more context on what accounts to go sell than Salesforce can because it gets all this unstructured data. It reads all the emails, it looks at the customer buying activity, it looks at their speed, it looks at much more rich information and can give you a better sense of where to go. And Salesforce then just becomes one of those pieces of information in the system.
But how do you train that person of where to go and what to do and how to move that account alone? I don’t think so. I think it’s still going to be okay. Same thing happened with SaaS, um, 10 years ago. Of course, every change is different. This could be more transformative, but I think we’ll be okay. At least I hope so.
Daisuke:
Thank you. I’m Daisuke, Class of 2027, and I’m originally from the Japan private equity. My question is about global expansion and challenge. I think you’ve built a strong franchise in terms of the U.S. software investment with a repeatable playbook. But as you see in the global expansion next, beyond to Europe, where do you think is a good place to apply your playbook and why? And also, I would like to ask what kind of leadership capability is essential or required to achieve those success in that challenge?
Orlando Bravo:
Thank you. Where could our playbook be applied globally? What are the best places for that? Everywhere. Thank you. Look, it’s more than a playbook, right? Of course, we have buy, sales, support, customer success, professional services, product. We have an entire playbook that we’ve built over buying 600 companies. So we add to it from people what we learn and Marcel Bernard and everything else. We can tell you the number of reps per manager and why and how many underperforming reps can you have on quota and territory. We have all that, all those metrics on some of the best ways.
Now, how do you apply so much to a company? They cannot absorb all that. You don’t have time to do all that. As Marcel would say, “If you try to do it all, you’ll get to none.” Come up with the three biggest areas that will completely change that business that are also the easiest to do and give you the most money, that kind of combination of all. That’s tough to do. Then align yourselves with management so that they lead them, so that they truly believe that this can be done, and so the CEO of that company can manage and lead her or his direct reports to go into that. That is about 80% of it, and that leadership place is the most difficult.
Now, there are country differences, regional differences, and whatever differences around. But people are people, and if you have leaders that want to make money that care about numbers and that are open-minded enough, this works. This is ‘Business 101’ by far.
Now, we diligence that because we usually start the deal by cost reduction. Before people didn’t like that in Silicon Valley. Now Elon Musk has made that super popular, so now we hear a bunch of people go, yeah, I cut cost and everything else, but we start the deal because they’re usually not very profitable companies by cutting 15%, maybe 20%. Marcel would say if you try to cut more than 20, you’re going to have to change the way that company works. That’s too risky no matter how unprofitable it is.
But no matter how profitable you are, you can always cut 10%, and now the time to do that is when you close the deal because people are expecting that change. Don’t go bother all these great workers and employees and colleagues and executives two years into the mission because a board member decided that you could be more profitable. Do it now, and then the CEO as a leader can stand up and say, “This won’t happen again, but we needed to do it once. From here, we’re going to grow and do acquisitions.”
All that stuff, and all that model of turning a great innovator into a great business applies everywhere. You just have to adjust yourselves to the local culture and the local laws. In Europe, you can’t do that immediately. You have to go through labor council and a long process. And I’m glad that you’re from private equity from Japan. I’m headed there after Hong Kong and Japan is an unbelievable market, just an unbelievable private equity market right now. That’s another thing of opportunity. That’s an obvious one. In software though, it’s a bit small for us, so that may be a place we get to in three years. Thank you.
Gintare Zukauskaite:
Thank you to the students and Orlando. Before we wrap it up, we have to do our View From The Top tradition, a few rapid fire questions.
Orlando Bravo:
What is this?
Gintare Zukauskaite:
Just don’t think too much. Say the first thing that comes to your mind.
Orlando Bravo:
Okay, really? Okay, now cut it.
Gintare Zukauskaite:
Are you ready?
Orlando Bravo:
Yes.
Gintare Zukauskaite:
Okay, let’s go. San Francisco or Miami?
Orlando Bravo:
Miami. I have to have the backs of my team. Half of them moved there. I’m not going to tell them I’m moving back.
Gintare Zukauskaite:
Don’t worry. I’m moving to Miami after GSB as well.
Orlando Bravo:
Okay. Lithuania to Miami. I like it.
Gintare Zukauskaite:
V-neck or crew neck.
Orlando Bravo:
What?
Gintare Zukauskaite:
V-neck-
Orlando Bravo:
Oh, V. Yeah, V. Oh, not too deep, but V. It’s like a Saturday Night Live skit. I should come back like that.
Gintare Zukauskaite:
Most overused word in private equity?
Orlando Bravo:
Escape velocity. Gosh, I really don’t like that word. Yeah, anyway.
Gintare Zukauskaite:
Wimbledon or US Open?
Orlando Bravo:
Wimbledon.
Gintare Zukauskaite:
And finally, the best business advice you’ve ever received?
Orlando Bravo:
That’s not a rapid-fire question.
Gintare Zukauskaite:
That’s why it’s the final one.
Orlando Bravo:
That’s a really, really deep question.
I was in a meeting once with Carl Thoma in Denver, and there was this partner that was arguing with him about a deal. And he said, “Well, if you want to make money, you have to take risk.” And Carl said, “Yes, but not that kind.” It’s what fits you. We take big risk in turning around these companies and what we buy. Sometimes we put these equity checks that represent almost 20% of the fund. We have to syndicate. Those are huge risks that others would perceive as enormous; for us, it’s something that we can do. So find the ones that are meant for you to take, but not others.
Gintare Zukauskaite:
Orlando, with that, thank you very much.
Orlando Bravo:
Thank you.
