Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Good morning, John, Thank you so much. And that is
Speaker 2: exactly part of the mood here at super Return. What
Speaker 2: does this industry do with AI? Do they care about AI?
Speaker 2: We have the perfect man for that, as you say,
Speaker 2: it's Orlando Bravo of Toma.
Speaker 1: Bravo, Orlando, thank you so much for joining this morning, Daddy,
Speaker 1: great to see you.
Speaker 2: So if you look at these public markets, it used
Speaker 2: to be a frenzy over all of AI. If you
Speaker 2: mentioned AI and earnings call, your stock goes to the moon.
Speaker 1: Lately, something has changed. It's now in.
Speaker 2: Videos the winner and we're more skeptical about other companies'
Speaker 2: abilities to monetize AI. So did we get over our
Speaker 2: skis in the promise of AI right here and right now?
Speaker 3: Well, Daddy, I can give you the enterprise view of
Speaker 3: AI right the business view, not the consumer view. Now,
Speaker 3: if you look at the software landscape, cent trillion dollars
Speaker 3: of marketcap in software publicly traded companies today, about one
Speaker 3: thousand companies. Some of those software companies of the providing
Speaker 3: AI solutions to their customers for decades. In fact, some
Speaker 3: of those companies are pure AI companies now let's differentiate
Speaker 3: that when you talk about genai, right, the new form
Speaker 3: of technology in ai.
Speaker 1: This is what's going on today.
Speaker 3: Many software companies have produced and delivered and introduced genai
Speaker 3: solutions to their customers, but they're not charging for them.
Speaker 1: They're including that in the bundle of their products. Is
Speaker 1: that a problem?
Speaker 2: We saw that in salesforce that stock sold off because
Speaker 2: margins on that essentially zero to companies need to get
Speaker 2: better about finding a way to monetize this.
Speaker 3: Yes, they do, but at the same time, the software
Speaker 3: business has become you have to continuously add value to
Speaker 3: your product, not only to fend off competition, but to
Speaker 3: upsell your customers.
Speaker 1: So this is a good development. Overall.
Speaker 3: Today we have twenty five billion dollars of revenue coming
Speaker 3: from our software companies, and seventy five percent of those
Speaker 3: companies have released GENI solutions to those enterprise customers.
Speaker 2: Are talking about it's not necessarily extra profit because they're
Speaker 2: not charging for it. So that promise of huge outsized profit.
Speaker 2: Is that a little bit misguided because it sounds like
Speaker 2: you're saying it's just a continuation of value offering, but
Speaker 2: you should be able to monetize it later.
Speaker 3: The key is if you if you really run an
Speaker 3: efficient operation, you take all your engineering talents and your
Speaker 3: product management vision for that engineering talent, you do have
Speaker 3: to move resources around.
Speaker 1: How patient should we be for that?
Speaker 2: Because these public markets aren't being patient? What should be
Speaker 2: the timeline we give companies to figure this out?
Speaker 3: The investors and we, as a big investor in software,
Speaker 3: are a private investor in software. We always look at
Speaker 3: the P and L and is the company achieving the
Speaker 3: level of earnings that we set out to achieve? And
Speaker 3: if we are within that, the company can create and
Speaker 3: innovate and move around resources to fit what they need.
Speaker 2: Okay, and software in general, Orlando I mentioned salesforce having
Speaker 2: a bit of a tough time, not just the issues
Speaker 2: with AI, but some concerns there that maybe sales weren't
Speaker 2: as good workday had something similar in the private markets.
Speaker 2: You see Visa taking a huge down three and a
Speaker 2: half billion dollars on of their online learning platforms. It's
Speaker 2: these pockets of software stress. What's going on?
Speaker 3: What happened was you know when this happened Q two
Speaker 3: of twenty twenty two, that's when we first saw a
Speaker 3: big drop in new business generation by these companies a
Speaker 3: drop in bookings. Now, always, as an owner, you think
Speaker 3: about what can you do about it? What we do
Speaker 3: about it is we protect the P and L. We
Speaker 3: have to come in and cut cost again to protect
Speaker 3: the level of earnings that we set out to achieve.
Speaker 1: In these companies.
Speaker 3: Now, those pockets of weakness are also related to the
Speaker 3: business model of these companies. You look at JENNYI, and
Speaker 3: you look at a technological shift in the enterprise software world,
Speaker 3: but also a business model transition. And people don't talk
Speaker 3: enough about that. Companies that charge by the user are
Speaker 3: going to be more challenged that companies that use other
Speaker 3: forms of price.
Speaker 1: Are you still in cost cutting mode?
Speaker 2: Now?
Speaker 1: We always are protecting the P and L. Not right now.
Speaker 3: We have to do that again in twenty twenty two one.
Speaker 3: It's much better to be early so you don't have
Speaker 3: to chase your earnings. That way, if the environment improves,
Speaker 3: you can come back and invest and in them.
Speaker 1: If the environment stays the same.
Speaker 3: You can basically run your business profitably.
Speaker 2: I have to be honest, Orlando. When I've talked to
Speaker 2: a lot of folks here about AI, A lot of
Speaker 2: people have said it's not as big of a topic
Speaker 2: this year, maybe it was last year. We're not really.
Speaker 1: Thinking about it that much.
Speaker 2: Is this industry behind and having an AI game plan?
Speaker 2: Do you think all of these various private equity companies
Speaker 2: with portfolio companies, do they need to have a plan
Speaker 2: for all of them?
Speaker 3: You need to have an AI game plan. In fact,
Speaker 3: in the SaaS era, which really got started in twenty ten,
Speaker 3: a bit before that, we used to say that every
Speaker 3: company needs to think about becoming a software company or
Speaker 3: their digital side of their business.
Speaker 1: Now we say that.
Speaker 3: Every company needs to become an intelligent software company. And
Speaker 3: if you look at the buyers of our companies, all
Speaker 3: the exits we've had over the last eighteen months, many
Speaker 3: of them are industry buyers that are looking to transform
Speaker 3: their companies through software.
Speaker 1: Isn't there some of it that's okay?
Speaker 2: Mack or Landa like I don't need my refrigerator, for example,
Speaker 2: to have AI?
Speaker 1: Do I?
Speaker 2: I mean, isn't some of this we're selling a dream
Speaker 2: that's not really there.
Speaker 1: Sometimes you are.
Speaker 3: That's where see, that's where there's so much value in
Speaker 3: the software incumbents.
Speaker 1: There are two reasons for that.
Speaker 3: The software incumbents are working with their customers thousands of them,
Speaker 3: sometimes the entire fortune five hundred customers on solving an
Speaker 3: important business problem today that they have in a given
Speaker 3: use case, in a given horizontal in cybersecurity, or in
Speaker 3: a vertical.
Speaker 1: Those are the companies.
Speaker 3: That are in the cole position as a trusted advisor
Speaker 3: to develop GENI solutions that actually have value to those customers.
Speaker 3: And secondly, and really important, something became very valuable in
Speaker 3: software enterprise, and that is data, proprietary data. Many of
Speaker 3: the companies you mentioned are sitting on proprietary data that
Speaker 3: they can use from their customers that can be used
Speaker 3: to develop GENEI solutions and train these models.
Speaker 2: Huge vast treasure troph of data.
Speaker 1: It's no secret.
Speaker 2: It's something that regulators have looked at with consolidation in
Speaker 2: this industry. An investigation is opening up now. We heard
Speaker 2: this today with Microsoft and open Ai.
Speaker 1: It's been a.
Speaker 2: Lot of concern about anti trust.
Speaker 1: How big of a headwind is it to you?
Speaker 3: Have?
Speaker 2: You had to approach investing differently given what's happening down.
Speaker 3: In DC, very differently, and we take a practical view
Speaker 3: towards antitrust and the regulatory environment. This is the thing,
Speaker 3: it's a fact based approach. If you're a center and
Speaker 3: you believe you can add a lot of value by
Speaker 3: setting that company on the right price, and if you're
Speaker 3: a buyer and you think you can add a lot
Speaker 3: of value by buying that company, you just have to
Speaker 3: appreciate that there is a public policy underpainning environment sowards
Speaker 3: this and you have to live with it.
Speaker 2: So are there deals you haven't done because of this?
Speaker 3: Most of the time, no, because if your facts are right,
Speaker 3: you have to go forward with and being willing to
Speaker 3: be creative collaborative with the regulators. And the regulators are
Speaker 3: smart and now they may look at your deal. It
Speaker 3: may take nine months to close the deal instead of
Speaker 3: three months. It may take a year to close the deal.
Speaker 3: But for something that adds value, you have to just
Speaker 3: look forward to that and put out the facts on
Speaker 3: Do you.
Speaker 2: Think this regulatory environment is a problem that is problematic,
Speaker 2: that it's gotten this much more scrutiny, this many more
Speaker 2: deals want.
Speaker 3: I don't think the regulatory environment in software is actually
Speaker 3: a problem because software is a highly highly competitive industry
Speaker 3: and the regulators are experience in doing deals. Is the
Speaker 3: regulators actually understand this industry really well. So in our
Speaker 3: field of enterprise software is not a problem. The problem
Speaker 3: is when buyers and centers want to completely shy away
Speaker 3: from doing the work that it takes to explain it
Speaker 3: so they can move forward to with their transactions. We
Speaker 3: know of a number of very large strategic buyers that
Speaker 3: from a management perspective, just don't want to deal.
Speaker 1: With that environment. You want to give us a nature land,
Speaker 1: I can't.
Speaker 3: You know, I can't because many of those are partners
Speaker 3: and buyers.
Speaker 1: Of our companies. But look, once again, we get paid to.
Speaker 3: Undergo these processes and to adapt to these processes, and
Speaker 3: it's really important that buyers and centers do that.
Speaker 2: Okay, Orlando, we're going to have to leave it there.
Speaker 2: Thank you so much for joining today. Really appreciate your time. John.
Speaker 1: That is Orlando.
Speaker 2: Bravo, the co founder of Tomo Bravo, talking about this
Speaker 2: regulatory environment. It's changed things, but he says those that
Speaker 2: are struggling are not doing the work.