Orlando Bravo的私募股权打法：如何打造顶级机构

With one of the best track records in private equity >> Thoma Bravo manages $179 billion in assets. >> Thoma Bravo has grown at a blistering pace. Last year the firm returned over $13 billion to investors. In 2019 Orlando became the first Puerto Rico-born billionaire. Private equity firms the good ones definitely beat the public markets. We are in the business of turning great innovators into great businesses. Ladies and gentlemen, please welcome Thoma Bravo's Orlando Bravo.

Thanks for coming. How are you, David? Good to see you.

For those who don't know, let me just do a couple of data points, and then we'll jump into the story, because Orlando has an incredibly inspiring story. Let me set the backdrop of what Thoma Bravo is. Thoma Bravo started in 2008, so that's 17 years now, and now has just a little under $200 billion, which is incredible.

But here are the 2 stats that stunned me. In June, you raised $34.4 billion in basically a set of fund vehicles, which is—I want to understand how that is even possible. And you basically have now owned over 500 companies, many of them big software companies that we probably interact with and have to deal with.

But before we get into all those details, I think what's inspiring is that you are a child of Puerto Rico, from a small town in Puerto Rico. I texted you this before, but I just wanted you to tell everybody: How does a guy—and I'm saying this in a nice way—from literally the middle of nowhere get here? How does that happen? Your parents, your family—how does that happen?

Wait, Chamath, are we seriously going to ignore whatever virtue signaling Jason is doing over here? What's this virtue signal you got going on right now?

This isn't a virtue signal. This is my bestie Tulsi. She gave me an official scarf from her office for my wife, and I stole it from my wife. So I'm wearing it.

Orlando, you may not have seen it yesterday, but Jason was run over by the director of national intelligence, Tulsi Gabbard, yesterday. He was so tilted while she was walking through the Russia hoax. He had his phone Googling and Grokking, trying to get something, and all he could come up with—literally in this tone—was, "What about Paul Manafort?" Nobody knew what that meant.

Yeah, nobody knows who he is, including her.

Okay, Chamath, amore, why do you have to beat up on Jason so much? You should be nicer to him. He is your bestie. Sorry. Continue.

Well, by the way, thanks so much for having me. I'm not sure how we're supposed to talk about serious stuff and private equity when we have this, but I don't know. You persevere. I got this.

Look, that touches my heart that you asked that question. Because when Hurricane Maria hit Puerto Rico, everything stopped for me. My best friends are there, my family's there, my cousins—my whole upbringing. I got there on a plane the day after.

Where were you at the time?

I was in San Francisco. We had gotten a message from Puerto Rico saying there were some shelters, particularly one that was really close to my hometown of Mayagüez, that had only a 2-day supply of food and water. There were all these kids and everything else, and the government of Puerto Rico had trouble serving these towns.

So we said, "We'll go from San Francisco and bring a bunch of food and water, and we'll be there tomorrow." And they actually showed up. When I landed, 3 of my friends whom I hadn't seen in a while—my best high school friends—one of them asked me, "Oh, now you're doing all this business stuff. How did that happen?"

And I said, "Well, the odds are one of us had to get lucky."

Out of everybody here, 1?

I mean, there are some odds to that.

Was that something your parents gave you, where they were like, "You have to go. You have to do something"?

Yes. At every turn, I can tell you exactly how I got here. I've never created anything new, but I always had my mom, who was a Cuban immigrant. For her, just me staying there didn't feel right. She was always putting me in positions where I would have to travel to San Juan to play tennis.

Tennis is an individual sport. If I did well, I remember I played my first tournament when I was 10 years old in Caracas, Venezuela, and I saw wealth back then. Caracas, Venezuela, in 1982 was quite a place, and you played in this fancy club. If I did really well, I got to play in Florida. So she was always giving me a roadmap for that.

I was lucky that I wasn't good enough to go pro, so I went into business. But then the same thing happened at work. I had the 2 best mentors, and the only thing I give myself credit for is that, at a young age, I really listened. I had discipline, and I would take it all in.

You were also the beneficiary of an incredible mentor. There are these great stories. Yesterday, we heard that Vlad tried to get a job at Climate Corporation, couldn't, and started Robinhood. Famously, my HR lead at Facebook introduced me to her then-boyfriend, Ben Silverman. We interviewed Ben, ended up not hiring him, and he immediately started Pinterest.

When you graduated from Stanford, you only got 1 job offer from basically a 3-person firm. Do you want to tell us about that story?

Yeah, I would. In 1997, there wasn't much private equity, and in the venture business, you didn't hire a lot of people. It was also small.

I want to add this to the story. I got 1 interview with 1 of the largest private equity firms at the time. The head of the firm spent time with me—a very nice guy—but you know what he said? And this is what he said: "There's not much opportunity in our industry anymore. The industry is taken."

Now our firm is multiples bigger than they are, and the same thing will happen in the future. For the few of you who may be interested in private equity, you'll come by and create a firm. The American spirit and entrepreneurialism, and being at the right place at the right time—because we started doing software, and it's hard not to do well if you started doing software back then and had all this wind behind your back.

So I couldn't get a job. There weren't many, and then Carl Thoma hired me. At the end of the process, there were a few private equity firms that opened up a position for me to do Latin American private equity. And I'm like, "No, I've spent too much time in the South. The money's in the North. I want to do U.S. buyouts and tech." That's what I wanted to do.

Carl was great. He said, "If you want to do tech, that's not something we do, but start looking at it, and we'll help you."

So just tell us about how you've made the decisions to build this business. How many people do you have? How do you run $200 billion effectively? How do you raise $34 billion? What do you tell people to raise $34 billion? I don't even comprehend that.

I think you do. Come on. You guys have done pretty well.

I appreciate that, but—

Okay, so we are very focused on keeping the team very small. We have about 230 people at Thoma Bravo within the organization. The reason is, if you have too big of a team, you become internally focused and start dreaming about conversations internally.

As I always say, the deal's not in the office, the company's not in the office, and the buyer of your company is not in the office. You always have to be outward-facing.

The second thing is, I got the benefit—and so did my senior partners—of incredible mentorship. I can tell you so many stories about Carl Thoma spending time with me in 1998 on a deal we were going to lose. I'd be like, "Why did you spend all that time with the CEO and me at his kitchen table?"

He wanted to teach me how to sell. He wanted to teach me how to do a deal. That was just incredible. If we have too many of those, we can't touch the next-generation leadership. That is part of our philosophy.

Now, how do we raise that money? It's always been 1 step at a time. Our first deal was $50 million. The second deal was a $100 million enterprise value. The third was Data Teller, $250 million. We didn't buy a company in Silicon Valley until 2010. That was SonicWall, which we paid $550 million for in a take-private. That was our first foray into real cybersecurity and higher-growth businesses.

So, 1 little step at a time. There was a time when we couldn't raise $1 billion, but now we have enough of a following that people trust us.

What's the role of private equity in the U.S. economy? What do you think?

I think it's a great change agent. It's a business in a way similar to venture, where what matters is the returns that you put up. You have incredible alignment with the sources of capital. They give you the money, and if you make the return, you can stay in business. If they give you the money and you don't make the return, no matter how big we may be, we slowly lose that, and we're out of business.

That alignment is so important because you're such a big change agent to companies. These software companies are not meant to be owned by the same group for 30 or 40 years. Management gets tired. It's exhausting to run. It's exhausting to be a CRO.

The more they trade hands, you have somebody with maybe a new idea, maybe a perspective, and maybe a perspective that was right for the company at that time. That buyer, like private equity, can take over and be super entrepreneurial and try to do something special.

So, Orlando, just building on that, it clearly has alignment with the investors, but maybe you could talk a little bit about the broader alignment with society—jobs. The reputation of PE is sometimes a bit too cutthroat. If you hear, "Oh, a PE firm bought my favorite brand," or "Our startup got bought by a PE firm," it's like, "Okay, they're going to cut half the people, and there's going to be layoffs."

Or maybe this brand is going to get saddled with debt and absolutely gutted for parts. So what's fair or unfair about that sort of PR crisis? Maybe there is a PR crisis with PE.

That is 100% fair in the 1980s, 1990s, and maybe early 2000s. Private equity has nothing to do with that now. About 50% of private-equity deal volume is in technology. We do that; we're very narrow—we only do software.

If you look at any software deal we've done in the last 12 or 13 years, after SAS became irreversible in 05, you're paying 7 to 8 times revenue, and the financing on 7 to 8 times revenue is maybe 2 times revenue. So you're putting in 5 to 6 times equity in the company: 30% debt, 70% equity. If you're not building and growing that business, especially if it's big, nobody's going to buy it from you.

It used to be that for those old-school deals, if you look at the return, two-thirds of the return would come from the cash flow of the business—from your yield—and a little bit from the terminal value. It's flipped. About two-thirds or more is terminal-value appreciation, and you make very little on your yield.

So you're a growth investor.

On your yield. We really are. We had to transition to that because, look, the lucky thing we had was that after I personally made a lot of mistakes from 1997 to the internet bubble bursting, Carl Thoma was going to fire me. This is also true: he talked about it at his 70th birthday, and he gave me another chance.

I said, “Okay, I'm not good at what we were doing then. I'm going to go for existing management, really established companies, and software.” In 2000, you could buy recurring revenue in software cheaper than in all the other categories that private equity liked. Think about radio, cable, outdoor advertising—anything. So the partnership said, “Sure, let's try it with something small.”

At that time, you could buy cheap. But what happened is, in 2010, after the financial crisis, most of our competitors who were doing those deals—and it was heavily competitive then for these smaller transactions—left the business because software had become super expensive. But then we said, “Instead of complaining that we cannot do what we were doing before, because everything changes, now we have the wherewithal to buy the best and the number one. So let's go for the number-one player that can grow.”

So you started doing a lot of these SaaS deals in 2010. When you sit there with your partners, is there a risk of SaaS being cannibalized from within by AI, or that it can just be rebuilt in different ways? How do you underwrite it today, which is different from how you may have underwritten it in 2010?

Our investors don't love to hear this because our investors, especially the large institutions—that's kind of our market; those are our people that have backed us for a long time—besides good returns, they need consistency and predictability. They would rather have us do what we were doing in 2002 in these deals.

I'm wondering, why can't you just keep doing the same thing?

It all changes. One is that there is a big risk of AI in this business—in a big, big way. There are so many verticals that are going to get disrupted, and there are so many areas that are very confusing and that you don't want to touch, so it limits the space significantly.

Even if you believe what we believe, which is that in the enterprise it's going to take a while, we always say technology is evolutionary, not revolutionary, because our customers are buying this stuff for cost. They want the ROI, and you need to see the plan and everything else. There is a big disruption, and that's another reason we don't get into all these areas.

We have to keep learning and updating ourselves, and that's a lot of work that the young people in the firm will have to do as well. But we have another equally big, or even bigger, challenge.

If you look at our trajectory, it's not like one day we woke up and said, “Oh, we can do a $10 billion deal.” No, we started small. On that trajectory, in 2010 we did $3 billion deals in a row. We bought Blue Coat, we took Deltek private, and we bought Digital Insight from Intuit. When those worked, then we did a $2.5 billion deal that became Dynatrace. That was Compuware.

When that worked, we did a $5.5 billion deal that became Adenza. Dina was here yesterday. That was the business we sold to Nasdaq, and that worked. But now we're doing $10 billion deals. We have to sell those for $25 billion to make money.

Wow.

Our alternative here—what we have to underwrite—is an IPO at a big discount to the comps, when we paid a 30% premium to the comps to buy that company in the first place. So we kind of start 50% in the hole.

What?

I wanted to ask you this question because I asked a friend of mine about you, and he was competing with you to get the Boeing business. You bought the Boeing avionics business recently for $10.5 billion, which I think all of us care about because hopefully it'll improve flight safety and all that other stuff. But he said Orlando's incredibly difficult to compete with because he's so ready to buy the thing he wants to buy, and he doesn't really nickel-and-dime at the edges. It's like, “Let's find a fair price, and we'll just transact,” and it makes it very hard for everybody else to compete with.

When you get that conviction, are you just willing to put that much money on the line and say, “We're going to figure this out”?

We are.

That's sort of Warren Buffett's mentality, isn't it? He already knows all the companies. He knows which ones he wants to buy, and when they come up, he doesn't nickel-and-dime; he just quickly works out a deal. Is that a mentality that you have?

100%. It all fits together with having a small team. We also have a small portfolio, so in every fund we'll buy 10 to 12 companies.

We strive for the 2 core competencies that we try to have. One is to buy the best and operate the best and just focus on that. In a 3-to-4-year timeframe for investing our funds, we cannot say with a straight face that there are 30 of the greatest companies that were available to be bought at that time.

And, 2, we cannot say with a straight face that we can try to influence management with everything we learned from an incredible mentor if we had a portfolio of 30. That's as much as we can handle, so we have to go for it.

I do want to add that what I love about the private-equity business is that those deals—the decisions that you make with your partners an hour before the bid—are really, really important. They're really telling.

Well, can you take us behind the tick-tock of this Boeing asset? It touches all of us, even if most of us don't understand that it even existed, actually.

Well, it basically runs the system. Maybe you cannot fly an airplane, you're right, without Jeppesen and its system. The way the deal started, we called the CEO of Boeing—actually, we sent him an email—saying, “Hey, we could buy this division, and we're paying these good prices.”

There was some interest, the process started, and there were about 15 private-equity groups, all excellent groups, involved in the deal.

But why would Boeing want to sell its avionics business? I guess we should start with that. It seems pretty core.

It's a good business, and I'm happy that they decided—

So you're saying that was a bad decision to sell the cockpit?

Okay, we'll take it.

Yeah, fair enough. I wanted to ask you a question about—can we get the answer to that, though? What is the strategic rationale for Boeing to want to sell its aviation business? Is the idea that other plane manufacturers can then use that avionics system?

I'll give my answer; maybe you can build on it. I think Boeing is in this incredibly difficult position where there were a lot of diffuse things happening inside the business, and they had to make a real rationalization: What are the few things we can be good at?

One of our friends, Brian Utgoe, was put in charge of new-plane development. I think you can guess what's going to happen there. That's a clear strategic bet. Getting the 737 MAX program back online—that was a clear bet.

But when you do that, you have all kinds of debt and stuff that you just need to clean out, and sometimes you have to sell. By the way, your instincts are right, because my friends who called me basically said this is the gem asset inside of Boeing. I mean, he's being very gracious by not saying so, but Jeppesen is the thing that everybody uses. United, Delta—everybody needs this information to fly accurately. It was Boeing's business, and now it's Orlando's business.

Okay, so it's our fund's business. I wish it was my business.

It's your fund's, Orlando. We don't buy stuff; we're generally year-zero, year-one, and year-two investors who help build things. But Sacks and I got to watch our friend Elon buy Twitter, and that was quite eye-opening. It was also the first thing that I think he ever bought in a major way like that.

What is the playbook for coming into one of these technology companies when you have, like you said, tired management? Maybe the people who are still staying at this company are the ones who couldn't find other work or maybe weren't as ambitious. What's it like on day zero, day 1, day 2, when you get in there? What's the playbook? What's the “1, 2, 3, we have to do these things in the first 30 days”?

It's almost always the same. We try to buy companies, and Jeppesen is a winner in that because their margins were about 25%, but we feel that business can be running like Adenza, which we sold to Nasdaq, at 50%-plus margins—running it like a software company and making the right investments.

The playbook is this: You meet with a company, usually a public company that trades for a revenue multiple because they're not that profitable.

And our mentality is we try to turn what we call a good innovator into a good business. We have all these meetings with management, and after we listen to them, we come back to them and put together a plan with them to cut costs. So, there is that element, because you have to get in the game with a certain level of fundamental earnings to be able to afford the deal.

What we're trying to do is turn a revenue multiple on day 1—say we buy it for 6 or 7 times—to an EBITDA multiple in day four. If that company grew 20% and you achieved a 50% margin, you've done that. Then you say, "What are the comps? What is this thing worth? Is it a 20 P/E, a 25 P/E?" A 20 P/E is about 15 times EBITDA. You could double your asset value without the benefit of that 30% leverage, which you paid down a bit, and that's how you create your return.

So, we talk to management very openly during the process. Even before we win the deal, even if they're not going to like us, we say, "Hey, can we put together a plan where you can make the right investment decisions, but can you cut 15% of the cost of the company?" At closing—the deal in private equity, talk about the change agent. If you don't do that at closing in private equity, why are you going to shock the employees afterward, in years 2, 3, and 4?

The deal, since everybody's thinking there's a new owner that's going to provide change, gives you the opportunity for immediate change. Now, as my mentor Marcel Bernard used to say—he was the greatest operator I've ever met, with 35 years at Motorola running different divisions, and that was an exceptional school of management—no matter how profitable you are, you can always cut 10%. No matter how unprofitable you are, it's difficult to cut more than 20%, because you have to change the way people make decisions, the way management interacts, and so on.

How do you evaluate the talent stack? That was something that actually David was exceptional at during the Twitter acquisition. We sat there in a room, and he said, "Well, who's exceptional at their job?" Then Elon said, "And who's absolutely critical for this business?" I walked up to the whiteboard and drew 4 quadrants: exceptional, essential, and then this sort of exceptional but not essential. We then had a playbook.

Elon proved that you could cut 85% of Twitter and it would still work just fine. All the journalists were like, "Twitter's going to go down any day now." Every day they would write the same story: "Twitter went down." We'd be like, "Oh, no, you lost your internet connection on your phone." They'd be like, "No, it's not coming up." And we'd say, "Yeah, you need to put the Wi-Fi password in again." It never went down. It was pretty crazy.

But how do you assess talent when you're coming into one of these legacy businesses, 10 or 20 years into the business?

History tells you a lot of that. You're trying to identify that not everybody's good at everything, and it starts with a leader. If the leader is good, everything is good. If the leader's not good, nothing is good. You don't want to work around them to deal with sales and product and so on, because nothing is going on.

Now, what does a good leader mean? There are so many judgments that come in. Is the company hitting its bookings, or is it missing? Are they good at customer service? What's their retention? How do they make decisions?

What we look for overall, because nobody's perfect, is to back what they're good at. We love to do add-on acquisitions for our companies. The reason we like to take out the costs is that the rest is about bookings growth and add-ons. We don't want to revisit margin too much. We want profitable growth going forward. Let's be done with that, and then let's go forward.

The leader can stand up in front of the entire employee base and say, "We needed to do this. This deal probably gave us the courage to do what we needed to do. Let's go build the business." We look at a leader and say, if they're open-minded, if they care about numbers, and if they have the following of their employees and customers and really know the business, that is someone we really try to work with.

With all the changes we make, we've been pretty contrarian in the industry because we first try to make them with the existing people. Sometimes we make a mistake on that and they change their mind, but we try to do that.

Before you do a deal, what's the secret to figuring out how good the asset is? Do you go talk to customers, do backdoor references, or find the employees who quit and started companies and interview them? There have got to be some tricks to assess a company before you even let them know you're interested in them. What are those tricks?

All of that. We've usually owned a competitor or a partner to the company as well, and we've usually known them for a long time. We recently announced that we were doing the Dayforce deal for $12.5 billion. My partner Holden Spade met with the CEO of Dayforce in 2008, and we tracked that company for so long, watching it.

Patience. When does it miss? When does it hit its numbers and everything else?

You also, once you sign them up, or are in a process where the company's giving you all their raw data, have so much information to make those choices. For example, a company cannot say that it has a really good product if its gross margins on support are very low. We can bring technology people to assess that, and we have them on our team. They look at the architecture, the talent, and everything else, but then you go, "How come your support calls are so high?" It's a bad product.

It all fits together. If you have great retention and great margins on support—for example, take support—many people look to offshore support, but now maybe AI would get on that and there's no need for that. What we say is, eliminate the reason for the call altogether.

Is there something you can do in the product?

So, we're evaluating all that, and we love it. We geek out over it.

There's a handful of private equity firms that are now linchpins of the capital markets: Blackstone, Apollo, KKR, and Carlyle. They're public, multistrategy, and huge pillars. You've built an incredible business, and you have the credibility to do it. Is there an impetus to do it? Is there an impetus to grow beyond that technology focus? If not, how do you stay in your knitting? Where does the discipline come from?

Look, I think we are very pure to our investor base and our colleagues, the 2 of them at the same time. What matters to them is the return. So, what matters for us to grow the business is: get the money, get the deal, improve the deal. Going public does not help any of those things for us. That's number 1.

Number 2 is, I'm just so grateful for my mentors. I really, really am. Carl Thoma gave me and my partners the company, and he mentored us. So, we want to do the same thing for the next generation. We actually feel we'll make more money by investing behind the next generation when that time comes than by going public and having a great day and a great multiple—and then what?

So far, we're just going to stay where we are.

As we wrap, I just want to ask you a question about Puerto Rico again, where we started. You're the first Puerto Rican billionaire, I understand. It's just a number, obviously, but should Puerto Rico become the 51st state? We have Trump talking about Greenland, whatever. We have these ambitions. The people of Puerto Rico seem to want to have a deeper relationship with America. It seems profoundly unfair that they're in this sort of middle state.

It's such a divided place. The turnout in elections in Puerto Rico, when I was a kid, used to be like 90%. It's a whole festival on the island when elections happen between the party that wants the status quo and the party that wants statehood. Now, the party that wants statehood has grown quite a bit, and some of the tax incentives of being in this commonwealth status have gone away.

I'm going to say something I've never said before: I do believe it would be better for Puerto Rico to be a state, if the U.S. would allow that.

I'm for it. I'm here for it. Ladies and gentlemen, Orlando Bravo. Thanks, man.

Wow, thank you. Incredible, huh? I'll talk to you soon. Great job. Thank you.

Yeah, amazing.