Speaker 1: Bloomberg Audio Studios, podcasts, radio news, private market deal maker
Speaker 1: is Gantherine.
Speaker 2: At the annual Super Return conference over in Germany, Danny
Speaker 2: Berger focused on many of these issues.
Speaker 1: She joined us now from Berlin.
Speaker 2: Hey Danny, Hey, John, that's correct. And there's one issue
Speaker 2: I want to focus in on particular, and it is
Speaker 2: the state of software and private equity. And we have
Speaker 2: the leading voice to talk about that. It is Orlando Bravo,
Speaker 2: the co founder of Toma. Bravo, Orlando. Always a pleasure
Speaker 2: to see you here.
Speaker 1: Danny, So good to see you. This is our yearly tradition.
Speaker 2: It is our yearly I would be gutted if we
Speaker 2: didn't meet, same place, same time.
Speaker 1: Every one of the reasons I come here to do this.
Speaker 2: Okay, hopefully among the top. And I know this year
Speaker 2: you have a particular message. I remember earlier this year
Speaker 2: you were talking at Soon and saying the SaaS apocalypse,
Speaker 2: the worst is over. Does it go further in your
Speaker 2: mind just the worst being over?
Speaker 1: But is this thing over? Orlando? Where are we in
Speaker 1: the world of the SaaS pocalyptse?
Speaker 3: Danny saspocalypse for whatever term, and that's a terrible term,
Speaker 3: by the way, I really don't like that term. It
Speaker 3: is finished no more, and it's pretty simple. You know,
Speaker 3: people are realizing that these are unbelievable companies, and you
Speaker 3: look at the numbers coming out even after the first quarter.
Speaker 3: And secondly, and more importantly, people are realizing that SaaS
Speaker 3: companies just don't stay still.
Speaker 1: They're not static.
Speaker 3: They evolve with infrastructure, they evolve with opportunity. And SaaS
Speaker 3: and agentic are going to merge very very very quickly.
Speaker 3: And these companies are the future of agents in the enterprise.
Speaker 3: And the market is realizing that as well.
Speaker 1: So the freak out is over.
Speaker 2: Essentially, is that what you're saying in private markets is
Speaker 2: this stuff's starting to be realized your portfolio, maybe some
Speaker 2: of your peers at the valuations that you think they
Speaker 2: should have. Where is there still some frozen assets, some
Speaker 2: stickiness that has yet to come unglued.
Speaker 3: In private equity, the environment is pretty stuck right now now.
Speaker 3: I do think that private equity is the voice of
Speaker 3: raising in a lot of this because it makes sense
Speaker 3: that the electivity is a lot slower, because if you're
Speaker 3: going to buy a technology company or a software company,
Speaker 3: a solution provider to the enterprise, now you really want
Speaker 3: to see that they're making a lot of progress around
Speaker 3: their AI offerings. Enough time has passed that you should
Speaker 3: see that in the business because.
Speaker 1: That's where the whole world is going to evolve to.
Speaker 3: So why not wait a little longer before you pull
Speaker 3: the trigger and have a little bit more clarity?
Speaker 1: Doesn't that make sense to me?
Speaker 2: It doesn't sound like the worst is overall Lando. It
Speaker 2: seems like there's still things that need to be tested
Speaker 2: and figured out.
Speaker 1: So what is the aspect.
Speaker 2: Is it just where you're saying our companies are healthy
Speaker 2: or is there something else that the worst of the
Speaker 2: freakout is truly over?
Speaker 1: Well, the freakout really happened in the public.
Speaker 3: Markets, true, right, and you've seen since April software stocks
Speaker 3: have rebounded really really strongly. But the other thing that
Speaker 3: you notice, and this is really about public investors sentiment,
Speaker 3: is that whenever there's an announcement about one of the
Speaker 3: great llm's coming out with an amazing model like today,
Speaker 3: the whole software industry doesn't collapse or react to it.
Speaker 3: A big place where you saw the freak out, as
Speaker 3: you call them, be completely over is where we invest
Speaker 3: fifty percent of our dollars in cyber. This is a
Speaker 3: huge tailwind to cyber and that's one of the sectors
Speaker 3: that has rebounded really strongly over the past month.
Speaker 2: What about in lending, what are conversations with your lenders
Speaker 2: like is I remember we had out of conversation saying
Speaker 2: the constant capital has gone a little bit higher because
Speaker 2: the concerns. Has that come back down or are there
Speaker 2: still difficult conversations to be had.
Speaker 3: Lending is very difficult because, and I'm going to be
Speaker 3: completely upfront about this, there are many large asset managers
Speaker 3: that need to raise so much money monthly and from retail,
Speaker 3: and it's not the most popular thing right now to
Speaker 3: pile the money into software. So it is a much
Speaker 3: tighter environment now. On the buy side. Of course, that
Speaker 3: help hurts you with financing, but it means you pay
Speaker 3: a lot less.
Speaker 1: And funds like ours we do a.
Speaker 3: Lot better in down markets than markets because we're value investors.
Speaker 3: So we're really enjoying this opportunity. But once again, we're
Speaker 3: treading carefully because we want to buy companies that are
Speaker 3: part of the future now, companies that are stuck in
Speaker 3: the past.
Speaker 2: By the way, Tom Abravo more than most companies has
Speaker 2: been very successful with exits. You've also had some really
Speaker 2: successful IPOs too. We're going to get SpaceX. This week
Speaker 2: we learned that open ai is going to be coming
Speaker 2: to market. Anthropic also filed for an IPO.
Speaker 1: Is this good or bad for the.
Speaker 2: IPO environment and prospect of exits because for one thing,
Speaker 2: it starts the capital flowing. But there's also this question
Speaker 2: is at all just being funneled? Are these just black
Speaker 2: holes of capital if you're competing for the same institutional
Speaker 2: money exactly?
Speaker 3: Some both points are so true. I was talking to
Speaker 3: my partner, Seth Borro about this. He's in charge of
Speaker 3: a lot of companies along with Holden Space that looked
Speaker 3: like they're great IPO candidates in the twenty five billion
Speaker 3: thirty billion dollar valuation range based on about a billion
Speaker 3: dollars for free cash flow and their growth rates. And
Speaker 3: both of them told me last year, we won't be
Speaker 3: able to do anything this year because all the attention
Speaker 3: and all the time, let alone the dollars are going
Speaker 3: to be focused on these massive historic IPOs. So these
Speaker 3: smaller caps which we are now, I guess, are much
Speaker 3: more difficult to get the attention in the short term
Speaker 3: now medium term. I really hope they do well because
Speaker 3: are really important moments for capital markets and their depth,
Speaker 3: and if they do well, you'll get more confidence in
Speaker 3: the IPO market.
Speaker 1: Well, what is a typical period for that?
Speaker 2: I know SpaceX is you don't really have a historical
Speaker 2: corollary because it's just so large in size. But what
Speaker 2: would be your estimation of when you can enter back
Speaker 2: into the IPO market after these come.
Speaker 3: In hopefully nine months a year after Now that's a guess, right.
Speaker 3: So many things are up in the air. What happens
Speaker 3: with interest rates, what happens with valuations? Is there a
Speaker 3: slow down in the infrastructure build There's so many questions right,
Speaker 3: It's a wild investing environment. People are saying a lot
Speaker 3: of strange things in investing right now. And the toughest
Speaker 3: thing for people that have a core competency in something
Speaker 3: is to stay the course. And of course, once again
Speaker 3: you have to be part of the future, but you
Speaker 3: have to stick with what you.
Speaker 1: Know really well.
Speaker 2: Remember you and I last year and had this discussion
Speaker 2: that this industry had lost its way. Do you think
Speaker 2: people have had that come to Jesus moment? Have they
Speaker 2: kind of come around or are there's still lessons to
Speaker 2: be learned.
Speaker 1: You think they're having it now.
Speaker 3: Look if you see some of the software troubled credits,
Speaker 3: which there are, it's out there.
Speaker 1: It's not yet a product of.
Speaker 3: AI having impacted those companies or those companies failing to
Speaker 3: transition to the new platform, which, by the way, is
Speaker 3: the biggest.
Speaker 1: Opportunity in the software industry. It really, really, really is.
Speaker 3: It's an issue of how those companies were run. People
Speaker 3: thought ten years ago, after they saw all this money
Speaker 3: being made in private equiting software, that.
Speaker 1: It was really easy.
Speaker 3: I buy subscription revenue, ninety percent gross margin, I cut
Speaker 3: some cost, and I'm good to go. They forgot to innovate,
Speaker 3: and they forget to invest in R and D, and
Speaker 3: they forgot the domain much of existing management by replacing them.
Speaker 3: And that's coming back to create some flatness in the environment,
Speaker 3: which is very difficult for those businesses.
Speaker 2: By the way, any huge calls of how many people
Speaker 2: are going to be losing their.
Speaker 1: Jobs, look at this conference.
Speaker 3: As you know, I'm an optimist, but what we're seeing
Speaker 3: in development, the great use case for AI is we're
Speaker 3: hiring a lot more developers.
Speaker 2: Alander is so great to see you. Thank you so
Speaker 2: much for joining, always the pleasure