A.J. Rohde: Living in the (Software) Limelight [Joys of Compounding, Ep. 38]

Alright friends, today's episode is brought to you by Portrait, the AI research platform built by fundamental investors, four fundamental investors. For founding Portrait, David Plan spent a decade as a by-side analyst at some of the world's leading investment firms, including our friends at SlatePath Capital and the BALPOST Group. Now even as some of the best resource firms in the world, David kept bumping into a reality that may resonate with many of you, never having enough time to research all the compelling ideas across his desk. This tension inspired him to build Portrait. The research platform that delivers the equivalent of an army of capable analysts, ready to help you focus on the most actionable ideas with unprecedented speed and depth. Portrait isn't about replacing judgment, it's about giving you back time for the work you actually love, developing novel ideas and building conviction through deep, creative value added research. 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Hello and welcome to the joys of compounding. We're still on the same mission to study greatness in order to help you find and compound your life's work as fast as possible for as long as possible. I'm Paul Buzer and I'm Rick Berman. We're your hosts. In each session, our teachers will be some of the world's most compelling people from across the vast range of human achievement. This show is brought to you by Pine Grove Studios in collaboration with Colossus. The hosts of the show, Rick Berman and Paul Buzer are the co-founders and co-CEOs of Sated Grove Holdings and co-CEOs of Sated Grove Management Company. All opinions expressed by any of Rick, Paul or their podcast guests are solely their own and do not reflect the opinion of either Sated Grove Holdings or Sated Grove Management Company. This podcast is intended for informational purposes only and should not be relied upon as the basis for investment decisions. Sated Grove Holdings or clients of Sated Grove Management Company may maintain positions and securities discussed in this podcast. One of the central questions Paul and I love to explore is how to talented individuals and teams sustain greatness for unusually long periods of time. Our teacher today is AJ Rody, senior partner at Toma Bravo, the world's largest software investor and one of the leading private equity firms of our time. A firm with such a fascinating history, its origin reaching back nearly 50 years and a culture and track record that exemplifies what Buffett wants to refer to as the joys of compounding. AJ is head of Toma Bravo's middle market bio platform Discover and also oversees its European operations. But before we get into all that, we begin where all the best conversations begin and that's what tennis, in fact, after about 10 minutes into the conversation, I started wondering to myself if we would ever actually get around talking about software. And whether the real story here is that this elite investment firm may all be just a cover for some kind of stacked underground tennis club. And as if that tangent wasn't enough, which by the way I take full responsibility for, we then jumped down the rabbit hole of one of AJ's other lifelong passions, music, discussing how drumming became another outlet for his never-ending energy as a kid. The ways he was shaped by the post-Nirvana era of late 90s rock that the three of us all came of age in. Eventually, Paul mutes my microphone and gets us back on track to mine AJ's career and Toma Bravo's history for lessons we can all benefit from. As we've studied the great compounders, we find that the truly exceptional organizations are often the result of some kind of alchemy of people and attributes that aren't usually found together. It usually emerges from some kind of earned secret they stumble on and decide to embrace. And as AJ tells the history of Toma Bravo, a story emerges about an uncommon mix of qualities that may be their greatest competitive advantage. A heritage rooted in the influence of Carl Toma, a value investor who helped pioneer the buy and build strategy going back to the early 80s. And his young mentee Orlando Bravo, who in the early 2000s discovers the inherently attractive characteristics of software companies, and begins to apply the firm's value creation and playbook, oriented around profitable growth to the industry that with time would become the firm's true north. We also explore the current and evolving narrative around software and AI. And why far from a SaaS apocalypse, it is generally becoming a tailwind and opportunity for those software companies that are both mission critical and customer obsessed. With that, I hope you enjoy this rangel conversation living in the software limelight with the wonderful AJ roadie. I want to begin with an aspect of Toma Bravo that I don't think most people really appreciate. I think it's a source of great advantage for the firm, and I'm talking about talent. Not the investing software kind, although maybe we'll get to that. I'm talking about tennis. From what I hear, you guys are stacked with more tennis talent than probably any other firm of any kind in the country. I personally, at least, have been curious to understand better how that all took shape. I assume it started with Orlando, but if you don't mind just sharing with us a little bit about the history of tennis in the culture of Toma Bravo. I love talking about tennis, and there's a common theme or thread among tennis players, as you know, always a little bit screw loose, but pretty resilient. Orlando was the first to the bunch, he grew up in Puerto Rico, spent his years in an academy in Florida. Most people know that, and was Tau 40 in the country in juniors, ended up playing a brown, had a successful college career at Brown. Everyone who knows him or watches his public persona, he's just wired a certain way. And so when you're wired that way, you tend to want to be around other people who are equally as crazy and wired the same way. And so then that manifested years later when we had an actual business with him hiring my partner Holden, Holden spate, and Holden played a Dartmouth group in Baton Rouge, got recruited, went to Hanover, played college tennis, phenomenal player, also Tau 40 in the country. Those were like the two cornerstones. And then I show up in interview, and he finds out I played a Villanova, and I was a good junior player. We're talking like two crazy tennis players, when the interview is like, wow, maybe there's a little more of this to go around, so then they hire me. And then as the years go by, I think of some of it was circumstantial, like we would meet people that had a tennis background, and you just click, and I'll tell a funny story about that later as it relates to finance cup, and my wife's observation of tennis players. But I think after a while, like anything, we started to realize there were like patterns in some of this. There were systematic patterns, and there were really good investment results that were coming from people that had that background, especially with the, the next ball, play the next ball. You got smacked on that point, you got hit with an overhead like next ball. And there was a very much resilience to the investment business that comes from that. We ended up then being a little bit more methodical about it. And that's when I met Jeff Appell, who runs a finance couple, talk about Jeff later, who then started sending me a pipeline of these incredible tennis players. Top of their class, EVA, top of their class, it's Stanford, top 20 in the country in NCLA. And I started interviewing a bunch of them, and of course, a few of them clicked, and now we have a lot of them on our team and a big pipeline of more. I was hoping to get Arthur Ferry, by the way, but it looks like this professional career ambition. It's taken a different turn. It may have been derailed for a while, which is totally great. But I think that we've actually had a track record now of successful people that are tennis players at our firm. And so we're going to continue to do that. And there's been some evolutions of the sport over time. And the players are getting better and better and better and better. And frankly, the top 100 guys in division one, college tenants are basically professional athletes. What they want to do after college may change a little bit. So we have to evolve there. It's the same on the women's that we have a number of female tennis players at our firm too. So it's just a common like psycho trait of your DNA. I think that seems to work well in our business. Let's not leave the audience with such a cliffhanger. Let's get into this finance cup because I had a chance to spend time with Jeff a few weeks ago. It was coming off of this year's finance cup, which I know you participated in. A bunch of my friends, one of my former teammates, Javier Toborga, Miloš Rownic, who has just retired from tennis, former world number three, amazing dude. and Guy, most people cannot appreciate this, but he's literally in the midst of starting a second career in finance and investing. He's at Goldman Sachs right now. Tell us a little bit about this finance cup. I know there's a mentorship component to it as well, but I think people will be pretty blown away by just kind of the breadth of like participation and maybe you can just give us a sense for how you got involved in the format and some of the usual suspects. And this may exist in other sports too. And if it doesn't, it should. I knew about it for a while. I spent years not playing tennis, which is sort of ironic. I was just grinding at work. I three kids, they started getting anyway at a young age. I said, you know, maybe this is a chance for me to like get back into it and play with them. And then that's been a journey back to something. But the finance cup started 2015, I believe, Jeff Appell, who is, I call him like the godfather of New York. And to some degree, the patriarch of helping to place all these great kids, great superstar players into great jobs, connecting those people with people that like to hire those people. That's a hard thing to do. And I give him immense credit for being a mentor, being a connector, being a helper for all these kids to end up with great careers after tennis because you spend so much time obsessing about your sports career. Sometimes you don't spend enough time thinking about the next step. And Jeff's been a really helpful person to connect people to be fatherly figures to those men and women as they kind of come up. So 2015 finance cup Bill Ackerman, who most people know, a very famous investor of Persian Square, Bill and Jeff hatched the idea to start to connect some of the younger folks in the New York tennis scene to some of the private equity hedge fund, investment banking leaders in New York City. It was mostly New York City. Over time, as these things happen, they just organically evolve. He set up a format where there's a European team as well, run or kind of created by a guy named Christopher Gardal, who was also a hedge fund manager in London. So they would start to connect and say, well, why don't we have our guys play against your guys? So kind of a little bit like a Davis Cup or a labor cup format. They started doing this. And what it originally was was the really young players playing with some of the older players that were more established in business. So just coming out of a career, connecting with people who had done well and kind of helping them connect that. That evolved and continued to evolve. And you added new players every time, both in the European team and the American team. Then it became really a much bigger deal three day event. Every year, alternates continents. So one year will be in Europe. It's always some incredibly bougie, lovely location, same in the US. And then it alternates. And it doubles. That group has grown. And it's fact it grew so much that we realized that there was actually a big enough group to have a 40 age 40 to age 55 cohort. And then a 55 plus cohort. And then the young guys, they would come and actually help set up all the infrastructure. Be the team managers, be our hitting partners. So there's a whole group of young guys now that come and help facilitate all this. And then they get really involved through that mechanism. Over time, my guess is it continues to just keep expanding logistically. It's challenging to pull this together. It's spouses come. I mean, it's a big three day event, the other dinners, bunch of social activities. But I've been at it for several years now. And honestly, guys, it's been one of the joys of my personal and professional life. And the funny story is, we were in Newport, Rhode Island last summer. So summer 2025, that was where it was. My wife comes is the first time Melissa got to come because we live in San Francisco. And oftentimes, it's in Europe and somewhere far away. And she came and she swatches me interact for two days with 70 other guys who were just like me, just totally nuts. I met my wife right after college, right when I stopped playing. And we've been together married 20 years together, 23. So she, like, doesn't really know me as like that tennis guy, although I have the wiring. And she watches it for two days. And she's that we're at dinner at marble house that I was a big black tied dinner. She's like, OK, I finally get you now, man. It took that for her to observe what it's like because everyone's kind of cut from the same intensity claw. That's amazing. This kind of community that's being fashioned and the reciprocity, the way in which, of course, everybody's having fun doing the things that you mutually love. But where there is kind of purpose beyond that, and you hear that when you talk to Jeff, you hear that everybody's out there thinking about on the margin, how do they contribute and pay it forward to these younger players? It's a really cool tradition. I hope it continues. And if you're looking for more facilitators down the stretch, I'm not a young guy anymore, but I can facilitate with the best of them. I think you're in finance too. What's funny is it's like a total outsider to this. I probably should say something other before you guys go for 20 more minutes on tennis. Rick had the same thing. He stopped playing tennis for a very long time for various reasons, yeah, kids and work. And then we moved to Florida here on the West Coast of Florida when we built our holding company, Cedar Grove. And I literally handed backhand and did all this. I live a half mile from the original courts, the original monetary courts where Orlando likely was traded full circle. This whole area is filled with the ghosts of tennis past, but sorry, Paul, you're about to say something. I'm sure very eloquent. It's just funny. I mean, we go to get Rick plugged in there if he'd add some value, but I think Rick's contribution professionally is finance. So why don't we just put him on the roster? Yeah. I want to hear if you guys ever played each other back in the old Big East. No, no, no, no. No, I played one of his old teammates once in juniors. We would always go deep in the conference run. We would usually lose to Miami. And then Miami would play Notre Dame in the finals of the Big East every single year. Rick's used to play Miami. This was the Big East days. I mean, younger folks, we're going to start forgetting about this Big East conference. It's from a bygone era, but it was a ton of fun in those late 90s, early 2000s. Miami has always been a huge rival for Notre Dame across football and other sports. They were a big rival of ours. In tennis, I know we have mutual friends who played for that team, including Rudy Rake and Rudy, Michael Russell, Michael Russell, of course, who's coaching Taylor Fritz right now. Also a Michigan guy, Michael Russell. I knew there was something about him grew up right near me. I know short, underappreciated Michigan guy. Well, let's talk a little bit about Michigan. I mean, and maybe as a segue, just how you got into tennis, you grew up in Gross Point. Tell us just that story and we'll open it up to more from the early days. Yeah, I'm a Midwesterner fifth generation Detroiter on both sides of my family. Same town that the family I lived in for 100 years. My mom's brother was a college house player who left to move to Texas right after he graduated and actually right when John Newcombe, a very famous Australian tennis player, John Newcombe, multiple-time grand slam winner, had lived in Texas after he retired and started a tennis academy, a ranch called the Newcombe Ranch, which is still very active today. Still going, yeah. I spent a ton of time there as a youth. My kids now go there every summer. It's like the highlight of their summer. They go grind in the San Antonio heat for two weeks in June. But my uncle Phil left Michigan, went to Newcombe and became the director of the Newcombe Ranch in the 80s at a pretty young age, like in his 20s. And when it was just getting started, as a multiple sport athlete, I played every sport you can imagine as a kid. I played junior hockey, junior soccer, I played soccer in high school, I played basketball in high school. So I was just constantly moving. It's like a shark. If you stop moving, you die. I still do have this fidgety rhythm. I played a bunch of things, but I always had this connection to Phil because of his prodigious tennis background. So I started going there and playing and I really fell in love with it. I'm probably a lot like Uric. I like to do things solos sometimes, like to be hard on myself. Tennis is not for everybody, but it was good for my personality type. So I started playing a lot, getting good at that. I would go down to the ranch and come back. We had a really good cluster of guys in my town or in related towns during that era. I always find these ecosystems feed on each other. Look at that Taylor Fritz, Riley O'Pelka, Tommy Paul, Francis Tiafo. Look at that cohort. They're all like selling because they came up and competed with each other simultaneously. There are other examples that like the private equity business too. That fed on itself. So I think we all made each other better. So for me, it was just the family connection that then I probably just found the right activity for my personality type. So sports was big in your life from an early age. Rumor is you're also quite a musician. We're looking at Rush behind you. Maybe say a little bit about that and maybe let's frame it. If you had to build a soundtrack to your life, what are some of the songs, bands that would populate it? As a drummer, most of what I listen to is very percussive. It's very intense. It's very like rhythmic. My daily soundtrack for what I'm moving, Limelight by Rush. I also think that song, the lyrics are great. It sort of espouses the virtue of being anonymous a little bit. I know I'm on a podcast with hundreds of thousands of users, but I think in general I kind of like to be under the radar a little bit as a maybe Midwestern type person. So Rush Limelight, the national has a song called Apartment Story, which I love, which reminds me of what it's like to live in a crappy old apartment in your 20s and just kind of get through life and grind through, but just like enjoy those moments and know that that's a formative time in your life. So that's another one for me that kind of brings it back to my 20s, which was a very happy time. Anytime you want to go back to like Midwest dark winters, I feel like national is a good place to go. 100%. Gloomy as it can be. very good drummer too. My favorite rock song of all time is she sells sanctuary by the cult, just because it has the most incredible opening riff, Billy Duffy. So that song's almost every day for me, like in some capacity usually when I'm pushing it. And then another song is unsatisfied by the replacements because I think it does sum up a little bit what it feels like to be an investor sometimes, like you're always a little bit unsatisfied. You're very happy with, I put the work in, I went to sleep that night and I did what I could do, but you're always like a little bit unsatisfied that there's work left to be done. And I think that song resonates a little bit with me. So for me, they're all those intense driving rock songs with a lot of melodies and like soaring guitars. That would be like the soundtrack to like my limbic system or nervous system. One of the things that's interesting to me kind of right out out of the gates is, and some of this is just my own personal family upbringing. My older brother became a musician literally to this day, moved Austin, his head several rock bands. And when you decide to embrace music like that, it usually consumes you. And you're not out there playing five, six sports and vice versa, like if you're playing sports more the direction that I went, I look back if I had a list regrets of my youth that like still I might dream about every once in a while, it would be that I didn't maintain pursuing being a musician or just, not necessarily to make it as a musician, but more just for the joy that music gives me and how important it feels, how central it feels like to sort of the human experience. But it's fascinating that generally these are things that are kind of all consuming tennis specifically as a sport I think is one of those sports that people just generally are laser focused on. But say more about how you embraced that kind of range early on and still managed to, you know, excel in a way where I mean, playing number one for Villanova in college is pretty impressive. They're all kind of related. They all kind of drive each other. I was just looking for ways to fill my ADHD. Drumming, especially the way I drum, I drum like Keith Moon, I'm not as good as Keith Moon, but there's a lot of spastic limb movements and there's a very intense element to it, just like the same way I play tennis. Everything I do is just another level of intensity. Drumming was a great outlet for me to do that because it was just another way to discharge some of that energy. And I give a lot of credit, the public school system and Michigan back then was very pushy for getting kids to play instruments. And like many public school systems, it would encourage a lot of kids to be in the orchestra, the band. No one's gonna keep playing the sax, very few people keep playing the saxophone after sixth grade or seventh grade. What I think the world's evolved to a lot, and it's especially true in California and really true where we live in Marin County, is there is a hard push for rock band. Rock band is a class rock band as a curriculum track. My daughter in her high school, it's extremely advocated where I live, almost most of the people I know were in some sort of a dad or mom band when they were younger. And I watch now the kids of my friends who are now in college, and you know what's cool again? Rock band at the fraternity party or at the whatever party is straight up back. Every good party now has a band, they're plugged in, it's a traditional four piece or five piece, they're playing a way sister playing Pearl Jam, they call that dad rock that's stuff that we all get up on. It's straight up back where I think the world was going to electronic music for so long, which can also be great, but doesn't have that same soul. And I think the fact that rock band again is pervasive, that means everybody's got a role in a band if they want it to be, I think that is such a gift for anybody. Access is a part of your brain, you just don't get to access. - The point you just made, I was talking with, I think our mutual friend Chris Begg, who I think you've taught in Chris's class at Columbia, but a few weeks ago we were bantering about just even taking it to the next level, the resurgence of vinyl and listening to music and a more physical, original format, specifically my brother had given me what he says is one of his favorite, if not his favorite records of all time, which is Dusty in Memphis, Dusty Springfield. - So good. - And I listened to it through both sides and had shared it and then Chris did the same and like Chris does send me like three pages of just beautiful reflections about. Analysis. - Where we are in the moment in this digital age and AI and things that we should be worried about, getting rid of that hiss from a record, for example. If we're too obsessed with efficiencies and too obsessed with purifying everything to some ultimate state, we lose some of those aspects of humanity that actually bring us joy. It's that sort of other part that unfinished part or how did music show up in your life? Was that through a family influence as well? - Again, public school system pushing you into it, me being like what instrument should I play? Okay, I need to play drums. I need to get this energy out somehow. And then coming of age at age 12, 13, 14 during the post-nervani years or their nirvana years, it'd be like becoming of age in 1966, the same kind of thing. And so we were all so lucky that music defined you as a person in middle school and high school. As you guys know, where you were deadhead, where you were fished, where you were wise for panic person, where you class a grog person, where you were an email person, and I don't think that defines kids anymore. Good and bad, but I think that was so important that music was just in your face. And then we had Columbia House, which is another Indiana company. As you guys remember, you go order a CDs for a penny and then they would lock you into committing to buy like a hundred more CDs at like 40 bucks a CD. I would order these CDs, I would sort of get in these bands. I would have never otherwise gotten into mud, honey, or sound garden or whatever else. I just think it was the combination of like that time period in life. The fact that I played drums and really liked it. So then I started a band with some friends. We had a series of high school bands that we played. We played a bunch of shows. We recorded at my house because that's what you do when the drummer's house can't move from it. My parents were like, this is a lot to take. They were very gracious about letting us jam there. But it was another thing that was just different. It was creative in a way that everything else I was doing at the time was much more structured. It was a cool bonding moment amongst the guys in my band and they were different kind of guys. 'Cause I was used to playing sports and other things. Also, I got exposed to like a little bit more alternative, emo, even some skateboard types. You know, we were playing some punk rock music. So it's the stuff that being for Michigan playing tennis, like you're not gonna get exposed to. So another great thing I can talk about now later in life and it makes me more relatable to people that aren't just in finance or aren't just in this. I think it's a wonderful thing to have when you're trying to bond with people to do deals or just to be empathetic to different kinds of people in the way they think. - And you still jam, right? - Still jam. Similar to tennis, though I get out of college, I just absolutely grind it for a long time. Get a little bit older. My wife has a 40th birthday party. This is like some time ago. We had a jam session at the end of the party and there were a bunch of guitars in the walls. People were brought guitars when we were doing a sing-along. There's no drums there. So I get out of pillow and I'm drumming and my buddies are like, you know how to play on my gout? Been in bands my whole life. That had to the idea to get a dad band together. So we crashed course to dad band in. We played at our club that turned into playing where I'm lucky where I live. There are professional musicians everywhere. It's like a much smaller version in Nashville or Austin. And so we started playing incorporating some of those guys who were also our buddies into the band. So now we have two bands, concentric circles of friends playing, we play shows all the time at local music venues. We have following of like 200 of our friends that will come to most shows. We play the hits, we play covers. We might start to record a little bit original. We just built the studio in my house. That takes a lot of time that I don't have much anymore. So I have to be very thoughtful about the preparation and how much we play and all that. But man, another like finance cup drumming again, tennis like the joys of things that formed me as a kid to be able to come back full circle and do those things. Not everyone's so lucky. Not everyone gets to live out those things. They did in high school because those activities don't exist for them in their 40s. But I'm lucky where they do. - So cool to hear. One little aside, our rising senior in high school or oldest daughter, I think she was babysitting Rick's kids as we speak now. While she's not doing that, she's been doing a ton of DJing. And this has become a new thing. I know it's electronic still, but like these kids are all wanting like a free form way to take these songs and make it their own. - Incredible. - Versus passively listening. So I had no clue she was into this, but it's become a big thing. - And the software's so good now. - So good. - So intuitive, yeah. - There it is. There's the plug for software. I knew it was coming. - There you go. All right, there we go, all right, here we go. Speaking of software, I used a little thing called AI to research a little bit about a time that was kind of prolific in Villanova. That time did not overlap with your time there. I know you like cohorts of great people. Jay Wright overlapped with one year with you. - Senior year. - He kind of missed out. According to AI, Men's basketball had a 56% winning percentage while you were an undergrad. After you left, the next 20 years, a couple of national championships, it was closer to 75, which is just unbelievable. We're gonna get an AI later. And I think we're all of some shared mind on the beauty of it, but also maybe some of the holes in terms of what it actually brings to business. Tell us about those Villanova years. Maybe you can even take us to the Chicago booth too, but just education-wise, outside of music, tennis, what happened to Villanova that brought you into this world? - Let's pretend that things outside of tennis and music actually matter and talk about those things. - I don't have much to talk about then. Nova was great because it got me to the East Coast, which I feel like for any kid, not every kid has the same ambition, but for me. I've shuffled the world so much. This was the beginning for me to move out of the Midwest and do that. Vilna at the time was mostly kids from the Tri-State area from New York, Connecticut, New Jersey, totally different Pennsylvania, totally different kind of kids than Michigan kids, and that was good too. Different personality types. They talked faster. There was a little more braggadocho, things that I was like, "No, people talk that way, okay, wow." And so I like the spirit of Philadelphia. It's a blue collar city, anyone who knows, Philly Sports. There's a lot of proclamations made about how great their teams are. There's an intensity against Antidek Philly Sports. So I like the soul of Philly. So that to me was really important. It's just like Notre Dame. There's a theological component to it. So we were required to take several theology courses. I thought that was great. I'm not an overly religious person. I wasn't back down. I'm not today, but I just think it's nice to have a little bit of that in your life. I don't get much of that in California or kids don't, but just having a little bit of that was nice. It was a good-sized school. It wasn't too big. It wasn't too small. 1800 kids per class. So for me, it was just like a logical next level of like intensity, scale, blue collar city. Like lots to do around Philly, but not much to do. That kind of thing. I loved it. I wouldn't have traded it for anything. And I was lucky. My teammates were amazing. My coach was amazing. Most people, Rick, as you know, don't back then didn't have great college tennis coaching or cultures. I was super lucky that we did. Coach Bob Batman was a mentor and a hero of mine. And he's great. And that was another great mentor in my life. And I stuck in potential. All my teammates still today. And we're still involved with the program as you know. One of your teammates is the coach, right? Eric Rodel. Bradman for a long time. Yeah. Brad Adams, one of my doubles partners. Another Michigan guy, actually, believe it or not. Oh, wow. We helped recruit him out of Naval Academy. We got Adams out. He was my teammate and my partner. He was our coach for a very long time. Wonderful guy. That was nice to have him involved. And actually the athletic director, Eric Rodel, now who I'm super close with was another villain of a tennis guy. And his son now plays, he's coming up EJ next year and playing a villain of it. It's nice to like have those connections still to the university. What about academically? I mean, we didn't really talk about that. But like, what were you interested in? And maybe that's the answer is not much at the time, but kind of bridge the gap of your education into a career in business and investing. I from a young age was always fascinated by stories, story telling and the stories of the swashbuckling deal guys in the 1980s. All these stories of RJ Arnebisco and the corporate raiders and even Delaware law and how these things happen. I always found that very fascinating. The personalities behind the deals and my mom was the behavioral psychologist. I always got a lot of doses of that at a home and I was very keenly aware of different people's motivations. So for me, combining all this energy I had with that psychological piece with these interesting personality types of the 80s and the storytelling is sort of woven into a cocktail of like deals back then I was thinking about as an investment banking. So how can I go be Bruce Wasserstein, older listeners will know that reference or Blair Efron. How's that, you know, who runs the interview now? How can I be like one of those types where you become a whisperer for corporate America to bring these interesting transformational mergers together? I was thought I'd be very good at that. That was the track I was on. So then I was like, okay, how do I do that undergraduate business? Do finance eventually get a job in investment banking and then just figure it out, work your way up. That was basically my path. It sounds sort of lame, but like I used to watch the movie Wall Street all the time when I was a kid and Michael Douglas was not a hero, but it was just interesting that people would like talk that way and think that way. And there was this whole ecosystem of people and being a super competitive guy. I always remember being like, I have a lot of energy. I've reasonably good way of putting it all together. Like I could do that but be a better person. On this point, we've heard you say before that if you weren't an investor, you'd like to be a coach. We've also heard about you from others that you're an amazing mentor internally there and you like to build teams. That doesn't always fit with being Gordon Gecko or kind of a lone ranger or even a tennis player. Sometimes it's great as a team player, but oftentimes you're also kind of on your own, thinking about yourself. Where did that come from and how did that start to show up in this early investment career? I think I have enough self-awareness and I give Orlando and Carl a lot of credit. You know, this is very much a team sport still as much as the world likes to honor the single investor type. I think the best investors are very quick to acknowledge there is a whole interdependent infrastructure that makes them successful and I am unbelievably willing and excited to admit that because there are so many things that can't happen unless you have great people believing in the mission around you that also share your level of energy and frankly can round out your deficiencies or your edges. Then we have a great partnership. Now we have seven of us that run the Investment Committee and I would say if you looked at it, everybody complements someone else's blind spot and that was not by design. Of course, it just happens and then good people find each other. They compliment each other out and they stay together for a long time, especially if you can check egos at the door. This industry tends to be very humbling. Some people get overly arrogant and they eventually get wiped out or sometimes you're too humble and you don't take enough risk. So I think we have a good balance of that, but I've just watched my partners be so reliant upon each other. You know, Orlando gets a lot of public accolades for what he's built and he should, but Orlando is also very quick to admit that without the partners, this does not work and I always heard that from the guys. I would see it. I would observe it. I always felt the way about myself. So as we were building teams, I just wanted to emulate that. Today, you'll hear me a lot, say, for example, the podcast that we do, I make sure that the principals or junior partners are on every single one with me. I ask our team sometimes, like, can I just not do it and let them do it? Because I just think it's important that you give young people a lot of agency to make those decisions as long as you're there with them and the trenches and you support them to take a little bit of risk. How do you think the origin story feeds into that? Maybe give the abbreviated version of how this whole thing came together and then why? I think it was around 2010. You joined as first analyst or one of the first team members, VPs. Yeah, VPs. And what the vision was at that point, take us to that grounding of how this culture came about and then why you joined. And if you don't mind, go, I mean, I think one of the things that is less appreciated is the chapters prior to Toma Bravo being Toma Bravo in the ways in which that kind of still manifests in how things are done there. Venture Capital and private equity was a cottage, not even a cottage industry, it was a nothing industry in the 70s. Inside of first Chicago bank or a couple rogue bankers who wanted to start doing venture investing, one of them is a guy named Stan Golder and Stan Golder's mentee was Carl Toma. So Carl was just a young employee at the bank, Stanford MBA, grew up in the Panhandle of Oklahoma, classic Ben Graham Warren Buffett disciple. You know, don't lose money. Number one, number two, don't lose money. You know, it's like that kind of mindset which is tough in the venture basis. So Carl and Stan spun out created their own firm in 1980 called Golder Toma. That firm in 1982 was credited at the time for being the originator of the buy and build strategy and private equity. We all call those roll ups today, but the idea at the time was there was a lot of value to be made by consolidating industries. So it was Stan's experience, it was Carl's energy, build those money investment, heuristic, and those two started rolling up all these disparate markets at the time. How did that differ just as an aside here? Because you mentioned RJR, famous book, our parents at the gate, we do a lot of things with Mitch Rails and he's been an incredible mentor and influence on what we're building. When you get the guy telling those stories in their early 80s, their first company, they borrowed five million, it was a six million purchase price, and then they borrowed another million to pay the rest. Oh, essentially, the whole thing was on debt. You hear those stories. There's not as much history on this buying build. What was the cap structure like or how did it differ from some of the folks really pushing the numbers and LBOs? They would raise a structured fund, those dedicated fund, they would find an industry theme that they like some fragmented market. That was really the sourcing strategy. Then they would find an executive that they felt comfortable prosecuting that strategy and not contrast that to where we have evolved today, which is the opposite. We back existing management and teach them how to be better operators, but they found an industry executive and a massive fragmented market. They would give them just enough capital to go buy enough assets to aggregate up and bootstrap it from there. Then they would push them hard on financial excellence, operational excellence, but it wasn't that rigorous in that regard at the time. They were just really good about picking fragmented markets, picking the right person and then just go, go, go, go. Because Karl had come from a value investing DNA, even though it was venture business, everything was rooted in good unit economics. There was always that discipline or adherence, like this is the right roll up because once we get to scale, we know there's negative churn, their great gross margins, there's capital efficiency, all those things. Those became the best deals. The best one of all of them was they rolled up when the spectrum was deregulated in 1984, Carl and his wife and partners, they would go to courthouses all around the country and they would apply for licenses for pieces of air. And that formulated the basis of a company called PageNet, which they then, I think Carl may yell at me for getting this wrong. I think their capital invested was six million, or seven million, to buy Spectrum, start a company, and a defense return was $985 million, something like that. We should all be still lucky. But that was the ultimate example of regulation changing in industry, nobody was doing it, going and building it yourself, like literally by hand, finding someone to run it, and then being super aggressive about it. But you could buy most continue to have aggregate spectrum financed by the banks at that time, so they could do that with very little equity, and then they sold it at the perfect time before cellular became more pervasive and cell phones became more pervasive. And that launched a strategy, or that was the cornerstone of a strategy that then was applied to lots of different industries, some good, some bad golf courses, newspapers, funeral homes. That was our firm for 20 years. That's when Orlando joined in the late '90s. We could talk about that next, but that's when really the basis for what became Toma Bravo was then started. Maybe just keep going a little further, why an inflection point would lead to a split or Toma Bravo need to be in its own thing. So, Gold or Toma added a third partner eventually called Cressy, and then a fourth called Rounder. That's GTCR, so that's GTCR to everybody. Most people in the GTCR are great firm. We have a lot of friends over there. We have this common DNA. Eventually, the T and the C, Toma and Cressy spun out, created their own firm. I think it was probably just a little bit a difference of opinion on investment strategy at the time, and nothing substantially more salacious than that. I think it was more like that. Toma and Cressy started their own mental market firm, prosecuting the same strategy. Out of Chicago, we had an office in San Francisco, was more of an outpost. There was a partner here. That partner hired Scott Crable, who is my partner now in Orlando. All the capital that was invested at that time in tech was all IT services. It was all Y2K readiness companies, which sounds hilarious. Those investors, many of them went to zero. So, the beginning of Orlando's investment career came from very humble beginnings, and he's so talented, but it was the wrong time, with the wrong businesses. I don't think they learned enough yet about IT services to do that, and many firms. That dot-com bubble took down many great private equity firms. You guys know, Orlando was sitting there, late 20s. Like, man, my investment career is not very good. Not what I thought it would be. What do I do next? He discovered, through just a little bit of industry work, he got introduced to an executive, Marcel Bernard, who ended up becoming sort of the godfather of some of our operational metrics and playbook. Those two linked up through introductions. Marcel had come from Motorola, and he ran a number of software companies in Canada. So, he had taken these lean manufacturing, six Sigma operating principles, and started to apply them to building, and shipping, and distributing software. Incredibly revolutionary idea. And Orlando saw it, and Marcel was one of these guys. He just loved to stay in that zone, tinker there. All he wanted was to advise management and be helpful. He was one of those wonderful human beings. You've ever met who just obsessed about their craft, and just wants to do their craft. So, Orlando said he had this guy that can help, and I, maybe this week, and apply this to application software, which at the time, by the way, was trading at one and a half times revenue, two and a half times maintenance. I mean, it was amazing the values you look back and hindsight for vertical market application companies. They were all selling licenses in maintenance back then. There was no ASP, there was no SaaS, and there were no financing market for it. So, the banks were not in the intellectual property lending business, they were in the hard asset business. Orlando finds a company, Yardley P.A., small public company, called Profit 21, Chuck Boyle's a CEO. He's still a friend of ours today. They take your private, and the thing Marcel taught was in a head count business, you could take out 10% of the head count costs of a company up front, without disturbing the operations one bit, and you could go up to 20, up front, if you're thoughtful about it, and we'll get into why and how and all that. What ended up happening is Chuck, there were a lot of skunkworks projects, a lot of science projects at the company. So, we shelved those, then we started using that extra capacity to borrow from a bank's a little bit, and fund, I think we made six acquisitions in P21, and the bell goes off at that point. It's like, wow, obviously they're great business models, but there is a process we could run, where if we back existing management, focus on product P&Ls. What are we building and what's the return on that? Focus on breaking the company into a manufacturing center, which is R&D, and a sales center, which is your distributor, and thinking about the metrics that way, we could bootstrap the companies, they can self-sustained and self-grow, they can grow faster, they could finance growth through M&A, and that's a good model, and that's when we started to do it one at a time, and then it was Vector SGI, and then it was attachment. We were together, Cressy, Toma, and Bravo was not on the door, and the name was not on the door yet. We had the idea, Cressy was doing a lot of healthcare, which they still do today very well, pharmaceutical development, a different business than enterprise software. So we agreed to split, so Toma Bravo was created as the software team inside Toma Cressy, that was 2008. We called that fun nine, 'cause we traced the lineage back to day one, but that's really our first dedicated fun for that. I joined about a year and a half after that, and I just helped continue. At that point, I give Orlando another enormous amount of credit, we just kept getting a little better at our craft every year. We never deviated from that model ever, and we still have it today, 20 plus years later. And that, I think, is some of the secret to the success is now we run the portfolio, the good company is at almost a 50% margin, growing 20%. Back then, we would high five at 25, and we would high five at 10% growth. Now it's 20% growth, 50% margin. We've just continually gotten a little bit better at helping teams prosecute this idea over time, and that's maintained our alpha generation, our competitive edge. People's willingness to work with us, because we back existing management, teach them how to do this, a wonderful thing. I think it's one of the gifts of my life, is being able to help and work with people to be a lot better than they were before, at least operationally. So that's kind of how the firm then took another leap forward, and then we could talk about what that looked like, but that's kind of the history. One of the things that Paul and I have done in our more distant past was begin to try to study firms that were able to perpetuate success, call it at least a few decades. There's not that many. I mean, to think that some iteration of this firm has been coming up on 50 years. One of the things that just strikes me is the willingness to adapt, to evolve, to learn new things, to pay attention when something is working. By the way, there's also spin-offs, and you kind of let the steam out or let new skunk works that are becoming reality take off. Just massive adaptation. I'm curious sort of what else would you say is sort of the constants? What else is the first principles that don't change, that help to kind of enable this continued growth and cultivation of an edge? It is highly, highly abnormal. I think the simple version would be that this firm was sort of built with a heavy dose of luck. It stumbled into software. Software has been this incredible place for a few decades and end of story, but that couldn't be further from the truth when you really unpack it. And even if it's just kind of taking the 15, 16 years that you've been there, what are the things that you all hold most dear in terms of guiding values, principles, et cetera? One of the reasons the partnerships fracture is, 'cause people get a little bit tired of the job sometimes and what the job requires. I think the extra curricular start to creep in for a lot of private equity partners. You guys know this, you go start to creep in. We've had none of that. Guy start playing tennis too much. Exactly, exactly. Exactly. Yeah, you have the treat that is additive, not dilutive. If you watch this, we are very much the same wolf pack that we were before. And all we care about or together is investing, investing, investing, investing deals, deals, deals get a little better. It is a rabid curiosity about the job. And that I'm very, very proud. And I got to stumble into an operation that everybody's North Star is that to this day. And so that's number one. Number two, failures totally fine here. We have to be really smart about risk management and picking the right stocks and all that. But this is not a place where there is a shroud over your head or a cloud over your head to fail or take risk or do those things. A very, very supportive culture in that regard. Lastly, I think because we all grew up pretty humbly and all I think were raised pretty well by like good parents who taught us a lot about other people and emotional intelligence and all that. We are lucky that we all have a pretty good compass on backing really nice earnest. The best quote I ever heard is like an honest man's pillow is his peace of mind from John Melon Camp. That's how we live our firm. That's how the people we back are. That's why we have so many Midwestern companies. So I'm very grateful that we have this thing where we just find really, really well-intentioned capable creative people that we can give our capital to and then their open-minded to our expertise. So I think we pick stocks well, like most good investors, but I actually think we pick the people in charge of those enterprises really well. And that's because we run our firm with the same kind of principles. Yeah, I'm so fascinated by this idea of all the iterations that have happened amidst these consensies and thinking about you guys getting better over time. And yet, the opportunity said, you just wait for the same fat pitch over and over again where it's this Midwestern mentality owner. Two questions come out of that. One is, why does that persist? Why is this opportunity there that you guys have built your operational and financial playbook? And it's extremely useful still to all these people. And the private equity industry has grown massively. You think it's somehow that would get competed away. The second part is because you're so good at this, there's some great stories about you guys like winning the deal just because of who you are. The private equity model means you need to build this optimized and sell. If you guys thought about holding longer, going back to this mentality of if you're creating with current management, this sort of bond, what is it that creates the need or desire for everyone around the table to kind of optimize and then bring it to a new home, whether that's certain, a new IPO or strategic or somehow selling to another private equity? The first question, I think we appeal to the ambitious business builder type who wants to take their game up like three levels, not one level and like do it now and are open minded to doing that. And then once you get there, climb another big O, which is probably make a material acquisition. We win a lot or we endure a lot because that's how we built our firm. We tend to appeal to those people really well. Now that's not for everybody. I also think that the industry has become good and bad, very institutional. So there are investment committees that span across big asset managers and they're looking for risk management and they have a big LP that has a separately managed account that has, but this much in credit, this much in bio, this much in secondary, a lot of firms manage to these return objectives and don't rock the boat objectives. I would say our group is still very artisanal in how we do deals and how we make decisions and how we support an entrepreneur to do something big once we own the company. There is not any formal hierarchical decision making approval acceptance. There's a lot of data and a lot of good instinct on people in their ability to execute. People generally like to work with us who have that same way of earning their own company. The industry hasn't copied that. I think because most firms, DNA is not that or they're become organizationally confined to something else that makes that kind of like, no, we got this like, no, we're in a board meeting now. We're going to approve a 500 million dollar investment. We've been talking about it for two months like we're going to do it today. I don't need to go back to all of our partners and talk about this for four more months. That mindset, people generally really like it. I think it allows us just to move a lot faster. We try to appeal to people that would really value that. What about on the second piece of then when that goes really well because we think about the compounding equation a lot. It's like a lot of, can you hold the right tail just a little longer? Maybe you have to be interesting to see how you design that across funds but where that's gone well or maybe a buying build just feels like it has another five years and it after the cool end because you see a lot of targets and over the management is that good. Tiger by the tail. We've evolved this over time and historically, we used to hold for like three and a half years. That wasn't by design. It was like we would buy, we'd push hard, management would do a great job, we'd do these great acquisitions and then someone would come calling and want to buy it. So we sold them three years. Now we do the same thing, same urgency. We've had to pay a little more over time than we used to pay. So some of that arbitrage, quick arbitrage gets kind of armed away. Now because the companies are bigger, liquidity in the private markets is less. People are being more selective on the assets they buy, all those things. That notion that we do all that and someone just comes and says, I want to buy it now. That used to be 80% of the time. Now it might be 30% of the time. What are we then required to do as a market reality, hold longer, build more value, be more thoughtful about year 10 in the investment horizon, whether we own in year 10, someone who's going to buy for us is going to care about year 10, because they're going to buy for us in year seven. We've evolved over the last eight years to think more about year 10, year 15 with the same urgency that we would run for year three, like in the old way. That does require a little bit more screening of the leadership, the CEO and his or her team that they appreciate that they have a tiger by the tail, and they want to keep doing it altogether for 10 years. Just like if you gave Toma Bravo money at this age, you know we're all together in 10 warriors, because what the hell else are we going to do? This is all we love to do. It's all we ever do. So you have to find those people now, and that is becoming a more of a rare commodity, because the tech industry people change jobs. I would say the filter of investment ideas for us is super wide. The funnel narrowing for pining people that want to do that have delivered through COVID, through the introduction of TPT3, all these complicated industry things we've been through over the last six years, that's a smaller group. We don't have to buy that many companies. We have to buy three a year in each fund, that's it. But we have to be more and more and more judicious about finding those people and supporting those people over time. Such an interesting nuance on like that fire, like you're finding these unique leaders that in the past, yeah, three or four years, they can run really hard. You all know that you're aiming at something that's a much different ballgame when you're looking at seven to 10 years in terms of the energy level and the ambition. What other metrics that you look for have evolved, say from 2010-ish to now, and it could be around grocery tension or end markets or the ability to change margins or gain a growth rates. Anything else come to mind? NPS, the support and the customers for the product, I think years ago, when the customer made a capital investment to buy perpetual license and built a bunch of infrastructure around that, they were stuck. Captive, yeah. They were captive. It's like Oracle or SAP. You can never get off. That was true in vertical markets, software for years as well. I think when the world went to SaaS, the switching costs went down. Now that the world is an agent's plus deterministic SaaS systems, that could be another step function for people to consider. Of course it is to consider what their architectures look like and, frankly, evaluating their own business processes. So we call 100 customers and actually talk to the business buyer, what they care about, that customer connectivity is of paramount importance. That always used to be important now, it's number one, two, and three. And that's a combination revenue and EBITDA growth, it's that simple. And it usually manifests itself in like one number every year. That number becomes written in Sanskrit on the walls of the company. And every strategic decision, business plan, building cushions to that, buffer goes against that. People when they're doing these like transformational operational approaches, it's really nice to give a simple target. The management team's excitement about those targets, but you know, no, I can hit those, I can beat those and here's how that's an enormous screening tool for us as well. It's got to have the same tenants to the investment uses that every other PE firm is going to have. We have a bunch of weird nuanced ones around retention that we could get in today if you want, that are really germane to SaaS and AI. But I would say in general, it's this customer feedback meets the team's excitement about a plan that we put in front of them that usually involves some level of transformation around more growth and way more margin. You set up these incentives not predicated on the outcome, but it just kind of reminds me of the mongerism, you know, show me incentives and I'll show you the outcome. It's like if you achieve a four year plan with operational excellence, it puts you in a great position to be able to do a lot of things. And if you don't, then those options aren't there. But it gets to the essence of the thing you're actually trying to do, which is to perpetuate what we already believe to be a great business. Like you said, take it a couple of notches up. On one of our recent podcasts, we had Neil Mganenteer and on who runs Beacon Software now, which is buying a bunch of small software companies all over North America. He used to run Instacart and his former chief lieutenant who's now CEO of Instacart. We spoke with him just in preparation, like thinking about AI and Neil has a highly technical team that's trying to go in these small businesses and bring AI to them and we'll get AI in a minute. I guess some questions, but when I asked him about what the threat is for saying Instacart who has an installed base of customers, and obviously there, there's the end consumers. But really, it's these retailers that they have to worry about. He said risk is only measured in terms of whether your clients are happy with AI and now they actually can have all the features they want. You can build it for them. So if you get it right, they should be happier and stickier clients than ever. - It just reminds me of. It's like in this world, there's a lot of threats, but if you get this right, it actually can be a tailwind. If you use this to your advantage, but you can't rest on your laurels. Software companies for years, I think took advantage of the fact that the business model was so good to therefore lost connectivity with their customers. How their customers were using it in operations, how their customers were evolving their organizational structures, what was happening around their application with both in terms of the org design, but also the other pieces of tech that were touching it. There was a lost connectivity, if you go back to Amazon, that obsessive customer relationship is so much more, it was always important, it's so much more important now that everybody is getting inundated for the idea, do I rebuild these applications using an SLM or an LLM and some consulting company? Do I stick with the incumbent vendor and weave agents and an agentic resource discovery later in the middle into those applications? Everyone's evaluating their own org design and their own architecture, and if you're not talking to that customer multiple times a week and not selling to them and pushing them and trying to raise price, but you're actually obsessed about how you can help solve their problems. This is why we're so sanguine about the future is because the incumbents have this beautiful opportunity to leverage decreasingly low cost token. I mean, think about the price war that's happening now with inference and with open source models and how that's what that's gonna do to the models. So we can leverage that cost to good sold much better. We can start to point the right query at the right model, kind of like what base 10 does in some of these companies, and then we can maintain 5.9's execution and a system that touches every employee at a company whether they know it or not. Though companies have earned the right to do that, but that's not a birthright. If you lose sight of what your customers need and what they're doing, you will lose that absolutely, and if you maintain it, it'll be wonderful. And it's much more binary than it used to be. It used to be a bit of a sliding scale there. Now I think it's existential and how you treat the customers. - What would you say about the art of executing a great bolt on strategy, or even just acquisitions at large? How do you think about prosecuting that aspect of an investment that you make alongside the team? - If the companies know how to be smart about integration, that's really important. And when I say that, the smartness is not the fact that there's a singular process every time, which used to be the prevailing view. You'd buy, you'd integrate, you'd move the customers over in two years, forget it. Now it's having the emotional awareness to know, okay, I'm gonna make this acquisition. I have to keep these eight people. I have to keep this data scheme in place. I can move the other data schema over here. We're gonna keep the application layer going forever, but it's gonna talk to this. I'm gonna skin the UI the same way. We're gonna have a AI layer above it that handles both. The operational awareness and emotional awareness that you need to have as it's an executive team, and we have to help them identify and do around M&A is so much higher than it used to be. So no more playbooks, none of that stuff. And most teams, that's hard for them to do 'cause they wanna check list. They wanna, okay, I'm gonna do this. We're gonna migrate the platform over. The world is too disruptive and changing too fast to take for granted. You can buy a competitor, spend two years moving their customers onto your product, you're dead. So the thing that's changed, I think, is the awareness that's required for what level of integration is required. And sometimes it's very little. And that's okay. That's evolved a lot, I think in the last couple of years. - And the deal has to make sense irrespective of that lack of integration in some situations that sort of has to stand on its own. That is also more true than it used to be, meaning if we didn't fully integrate it and didn't use our distribution engine to augment that and didn't have our development teams reduce cycle times by two X, all those things. Can this business hold up on its own? Is this a good capital allocation decision? If our portfolio company was a private equity firm, like Beacon, would they wanna buy this company or not? And can that withstand that level of determination is way more than it used to be also? Because we just know what happens when you break something, or you overly integrate it, especially during a time like now. We made that mistake too several times, where we had a great asset that was running well on its own, we bought it through a portfolio company. We overly did it, fired the wrong people, made the wrong changes, or probably killed the company. It doesn't happen very often, but it's happened enough where we have a lot more sensitivity to not doing that. It's advising the teams on how to do that now. And that's kind of fun. Actually, I've really enjoyed the evolution of that mindset. I think the teams need to hear it from us as the owners and the partners, no, this is okay. You guys don't need to fully integrate this. Let this thing flourish for a little bit and see what happens. Here's a business plan, great. Now, what set of operational activities do we take, and how much risk do we take did that plan? Coming back to the Tomo Bravo DNA, and how you keep a bunch of really talented people together for a long time, keep them motivated, excited, feeling renewed, is some level of kind of entrepreneurialism. Whatever the opposite of bureaucracy or complacency is, maybe just as a chance to kind of get a few more aspects of your career on the table, maybe you can just talk about how you have evolved, your role as evolved in the firm. I know you think you were involved in getting the London operations going, discover funds, a whole kind of set of new funds, and maybe just give us a sense for kind of those aspects and what the firm kind of looks like today is a bit of a CJ and run. When I started, we had 800 million. I would say it looks no different than it used to. It's a tiny group. We can make decisions in 10 minutes together, four together, and we're prepared. There is a obsession, OCD about the business and driving a Ford that there always has been. Orlando has it, I have it. Holden has it, Seth Sky, everybody else. More time has gone by, so we've learned what not to do. Some regard, that's been really helpful. And we're at another leg of our careers now where we have to redo our own heuristics around some of them underwriting patterns, some of these integration patterns on M&A that we talked about, how do we think about AI risk? That's a whole new thing for investment judgment. The way the Wolfpack operates, no different, 2008, 2026. That's awesome. Yeah, I get a little bit less hair now, like all that stuff, but generally, it's been great. My role, I think there was an article recently that called me like Mr. Fixit Guy. I'm not sure how I got that title. I'm 10 years younger than Orlando. Five and six younger than Holden and Seth. So I'm kind of like the little brother to them to use a family analogy. And what does little brothers do who want to have their own contribution to the family? They tend to do their own thing, but within the system, they add to it, they make it better, they push everybody else. That was sort of the discover fund. It was the baby sister fund of the main fund. I started that almost 12 years ago now. That spawned a baby sister to that. That spawned a European business. That spawned a growth fund at some point during there. So I think my contribution has been keep us middle market, keep us scrappy, keep us humble, keep us creative, keep us deep in the verticals. All of what we do in these funds is all vertical investing, deep vertical domain expertise, and really help maintain that five-year mentor, mentee connection to like the rats of the firm. So we have this big brother, little brother, kind of thing where like everyone's five years apart from the person they kind of work with mostly. And I've sort of been the connection point to a lot of that. I relish that role, I love it. I also like a little brother. I have very strong opinions with the rest of my partners like what if I disagree with something like a little brother would. You kind of very vocal about that. I hope that's an appreciated contribution to the whole system. So I always think about it like my job is to keep Tomobrovo the way Tomobrovo was in 2010. And if we ever started to evolve too much from that, I'm just going to be vocal about keeping us back in that zone because those were such seminal moments in herd development or 2003 even though that was before I was here. All right, so AJ, take us to what is the wolf pack and the family feel like in late 22 when the world changes a little bit in the chat GPT moment. And you know, this year, the last six months, it feels like we're finally out of some of the silliness around Saspocalypse, but those two moments, what do you do as a firm to maintain what you said? You keep the firm the same, but also learn and evolve. What is AI meant and how do you guys think about going forward? - Yeah, it's been interesting. I mean, every single person, I don't care what you do, has had their own emotional journey over the last few years about AI. Is it going to take my job away? Is it going to make me better? Is it going to ruin my kids life? Is it going to make them better? What happens to my business? Everybody. And I promise you, every person has gone through this, sign function of all those optimism, pessimism, doom and gloom. So we're a collection of individuals, so it's no different. So we've all had and intersected at our own points. This is great for our business, this is scary. The one guiding principle, which I think we do really good job of, is because we have so much good data and we help manage the company's week to week, let's just try to look at what's happening week to week. The pipeline, things coming in and out, the retention rate, what customers are saying. And if you maintain that level of rigor, you can make changes or adapt quickly and you don't have a lot of structure around that, you can be entrepreneurial by how you do that. That's been great. So while I've gone from different points of the intersection, every time I go a little bit standard deviated too much from that, I go back to like, what's happening day to day, week to week. That is the most clarifying. By the way, it's not always a positive answer. Sometimes, I don't know. You know, you can see an erosion or what like they need to make changes, but at least that to me keeps it all this nonsense This Silicon Valley hype machine, which is scared us and promised us the world at the same time to the enterprise reality that Alex Carp was on TV talking about two weeks ago very emotionally About this stuff is nonsense and nobody trusts it. That's not universally true But it's absolutely true in many cases. We go back to that I don't know if it brings us more comfort or less comfort, but it brings us a clear head about making those decisions and I'm very grateful that we have a group that manages the companies with a lot of information and It's creative enough to change if things are changing so every day that's gone by after mid-January or late in February I Think we've been more optimistic partially because the valuation environment is a little more normal for what we do in the public Markets we almost laughed it off, but at the same time everything we own is marked to that I mean the amount of daily calls we were getting was high and Going back to what the enterprises want when they want what we have to sell But that's not going to be true forever necessarily if we don't handle it well But we feel really good about that right now I hope that the macro capital flows Into buying private assets or embracing software IPOs. I hope that will improve I think some of a release of the AI capital level will flow back into application software should Beyond the various hype machines obviously I think any investor is going to have an interest in sort of Talking their book and that's understandable But beyond that these are incredibly smart people What do you think it was missed about the nature of these businesses by the folks who sort of declared all of software Being dead on account of this new technology is it certain relational components? Is it other operational aspects? Ultimately, I think this is where the risk resides and where it doesn't How underwriting needs to change is it looking for certain characteristics now in leadership? That maybe you didn't five years ago, but just talk a little bit about what you think folks kind of got wrong when Anticipating such a radical shift in not just software, but popularized by the SaaS apocalypse But it was really the sense that somehow most industries are ultimately going to be kind of upended disintermediated Picking on software first of all, it was all lumped together, which is ridiculous Cyber security with developer tools like come on and sticky applications then I don't think The market has ever really appreciated How much interdependency and an enterprise comes from How many people touch it whether they know it or not a complex software system that has been installed of that company? Anybody can rewrite an application away. I mean, we've seen it vibe code You can vibe people vibe code Salesforce and they boast about it. It's great Great for them. I don't think people realize the downstream Processes that people who don't have a Salesforce seat license do Because of the information that came out of that database and the tasks that then resulted as a result So there's this shadow economy in the customers that is a derivative effect of the system That is put in place most of the time. It's a great system. Sometimes there's shit software systems out there We'll all admit that but that system has been put in place for years And executes with deterministic outcome because otherwise it wouldn't be there And there are so many people that rely on the system that aren't paying for it But rely on its decisions As a workflow step to do that and so when people start talking about vibe coding They really just look at the specific Core process that that thing may do For example in Salesforce they would think about vibe coding as just a database of customer connections or customer touchpoints Okay, sure But you have no idea how much happens from there and therefore The notion of ripping the system out if you talk to a good CIO They'll be like I don't know what would happen if I do that now. So what they do is they'll try little pieces of it And if those pieces are materially better than what was happening before Maybe in customer support or contact center. Sure. That's a better frontline tier one tier two support because An identified customer support experience is better But I think what the market doesn't really get is the downstream effect And so I think what was happening Rick is I think there was a trade public markets trade That priced some of that forever price some of application software into perpetuity So there was like year 10 to year 20 in the model Take guide wire you put 12% growth for 20 years. You're good to go I think what happened this has apocalypse is people would start to put The growth rate of guide wire in year eight and you're nine you're ten year eleven down to four percent and two and zero and minus two And the impact of that on valuations and we've played with this this 30% that was this has apocalypse I think the duration trade went out I think Then it was easy to pick on some other bad behaviors That software had for years like giving out stock comp like candy the huge problem We don't do that are companies, but the public markets do the notion the public markets were running EBITDA margins of enterprise software at minus two percent are in covid plus three Why is the industry for 20 years run at zero margin? That's absurd Some of it was picking on bad behaviors that deserve to be picked on but we're overlooked Because of other Tailwinds Those were gone so I think the market went through this Wild spin of the duration trade the bad behaviors But I think even today the notion that software on a PE basis Trades are discounted to the SMP median for twice the growth rate and 80% gross margins Is so absurd that that has to revert itself over time there will be catalyst to that I'm sure which would just be continued good performance going through this But I think that's the piece that's still not Recognized and that has an impact on the private business too because it just scares people that have to hold companies Throughout that period of time with an uncertain exit. So that's kind of the world we believe in And does anything change with your underwriting? I mean Do you need more tech savvy founders? Obviously there's certain industries certain kinds of software They may there would be more or less vulnerable But maybe talk about it across the business side and the teams that you back We call it effortless, but we track this metric which is gross plus Consumption expansion that naturally happens in our customer base whether it's seeds or servers or payments or whatever Measure the business model plus a little bit of CPI inflation that is an inviolable Underwriting metric at Tom Bravo has was always will be That I think we then can create a separate distribution PNL. So That was always very important to our underwriting standard We're lucky that that hasn't changed when we look at what we can buy It has to have always has to have that that has protected the income and see a will for longer not forever, but for longer The thing that I think is jump to the front of the line beyond the customer connection which I talked about is We always back existing management, but now it's like has that team been together since the beginning of COVID And have they hit their numbers every quarter since that time because if you kept a wolf pack together and executed Throughout the spring buying COVID and then the hangover from that and then GPT-3 Certainly geopolitics tariffs if you have executed not renewal bookings Through that period of time with consistency That is a really rare Attribute and so when I look at what we're buying it's got all the tenants and it's absolutely got to have that that autocracy Is so much more important That I used to be and I think everyone's trying to find that That's another probably inviolable thing at the moment So fascinating and one other AI related question coming off of Just got back from Germany from an annual meeting of our largest holding chapters group Which is um rolling up a bunch of software companies and other companies in Europe They've been AI Redpilt. They have a CTO who's a particle physicist from CERN. They're doing everything And yet when you look at it, it's become an offensive measure When you really talk to the platform heads and the MDs and operating companies There's been zero times that a customer Has left or even threatened to leave because of an AI native solution This is a little more SMB. It's a little smaller. I realize in much bigger enterprises that can have a little more How do you think about that just like almost like on the playing offense? How do you inject More tech talent into these companies? Maybe I just on the AI frontier, but also Have you had to play defense? How do you keep the radar up for AI native Players that work together all through COVID like you mentioned. They're kind of new But maybe it's cheaper. Maybe it looks better and they're coming at one of your verticals. How do you guys react to that? I think if you're on the edge of the system You're more exposed because I think people will play with those AI decisions On the edge of the system when you are the system or you anchor the system People are not willing to even do the work yet To explore rebuilding the system because they don't know when you pull the card out What's going to happen down stream as I mentioned before if you see the AI native successful applications They tend to be on the edge of the system by Harvey and legal. That's a great example and done really well but that has not really gone at the core system yet. They're trying to pick up piece of it, and eventually it probably will be successful, assuming execution wise, that team appreciates capital, efficiency and all those things 'cause a lot of these startup companies did just don't. They don't, and that was the downfall of a lot of SaaS companies in 2021. I would say that is the difference. We don't take the AI risk on the AI native apps for granted. We say we can offer the same thing. The year question was a really good one, is how do we do that with the talent base that we have? And I think that's where the teams, the ones that are really close to their R&D and product management org, we're starting to make these changes and adaptations in 2022, or even before that, actually, 'cause people have been talking about artificial intelligence in software for 10 years. And there are a lot of teams that will have, either for years ago, retrain some of their traditional engineers around the tools and they've stayed current or have hired AI overlays to do that, but like any business, it doesn't mean necessarily going to paying to some 24-year-old kid a $5 million guarantee because they know language models and coming over. But like anything, we've had to get smart about layering an AI talent and not reaching for a frontier that the customers don't need or want yet. It's doing it within a thoughtful bootstrap model. We don't have that perfect, nobody does, but we kind of keep that mindset going. And so the teams just kind of get scrappy and creative about how they get that talent. I'm more optimistic that there'll be labor deflation in that as that skill becomes more pervasive and more of a commodity and there'll be different tiers of that skill. We'll have the right tier of that skill will match the right salary amount, which will match exactly what the customer wants. So that efficiency is like still like this and it's going to hopefully ameliorate, come to a median over time. This is kind of one of the things I'll take away. You could argue it's business 101, but customers talk and we listen this customer obsession. And ultimately, these businesses that Toma Bravo has so successfully invested in over decades, they have this embedded distribution. They have this customer relationship. That's ultimately all we're kind of talking about, right? Business is going up or down. It's really customers wanting to do more with the company or less. This idea that AI offers this potential disruptive threat, but also this incredible opportunity to just get a little bit closer to your customers. And if the customers are looking for agentified solutions, then you're in a great place. I mean, I would imagine that most of your companies are in a great place to provide that layer, at least as a start. And I think that's one of the things that is sort of in the real highs and lows over the last few years around what are the implications of AI? I think there's just been a massive underestimation of the power of the relationship that incumbent teams have with their customers. And to the extent they've negated that or they've taken that for granted, they're probably more vulnerable. They're rightfully on their path to obsolescence, absolutely. And to the extent that they're doubling down on, keeping close to the customer and delivering on the things that the customer wants, it's just not how business works that you get a mass exodus to some new company just because there is this technological shift, particularly when you're in this great anchor position to provide this cutting edge set of tools, productivity, efficiency, new revenue opportunities, all of the above. You've been kind of hitting on this from the very beginning, this orientation to the customer, the hundred conversations that you have with customers before you make a single investment, that's going to get you the answers. The other thing too is we don't want to take away, we don't want to put them out of business. We want to help them be much better as a business. Let's not underestimate the populist sentiment against the notion that these models or the ambition of those companies is to learn how these companies do business and then make those companies irrelevant to some degree. Not every time, I'm not trying to fear longer. - AJ, don't get Rick started here. - Yeah, but like that's what's happening. Alex went off on that and I appreciate that because that is absolutely ambition. We have no ambition around that. Our only ambition is to help them be more efficient, quicker with decisions, more accurate in their compliance, submittals, whatever it might be. And there's an appreciation for the relevance in that relationship, whereas I think there is becoming an increasing concern that there's some companies that want to study their customers and they want to become their customers. That does not make people feel good. As we wrap up, just fanning out again, beyond just you as part of the Toma Bravo team, you and your wife are extremely philanthropic. We've talked about the commitment to a lot of causes particularly in the Midwest. So many of us who work in this industry know how all in you have to be to do the thing with excellence in perpetuity. From a distance, it seems like you have that same kind of range that you were developing in sports and music and other things as a child across the arc of your adult life. And how you get the most out of showing up, not just at work, but as a father, as a husband, in your community, still with a little time to play Padel even. My gosh, we haven't even spoken about your passion there. Fastest growing sport in the world apparently, yeah. It's not magic. I need to be busy. My wife and I grew up in fairly humble backgrounds. She's from a small farm town in Indiana, Peru. We never forgot where we grew up. The preponderance of our philanthropy is helping families, namely underprivileged families help break out of that cycle. That's incredibly important to us because we're just so grateful that we got to be in this position in life. Our kids, we try to teach them that as best we can. It's hard getting more where we live to do that. And they don't have the connection to the Midwest that the two of us do and did. But being involved in these other things like music, racket sports, I have a bunch of investments personally in our family office in sports now with philanthropy. It actually makes you a way better investor. You hone the skills you need in the day job. You need more empathy. You need more humility. You need to understand how different business models work. You need to understand what's broken about certain parts of the economy and what's working. All those things feed this giant decision tree that we all use to make our investment pattern recognition decisions. So I've actually thought, and Orlando has taught me this too in a good carl, do that stuff. It crowds out time for everything else. It's just like I'm working less. I'm just adding more time than I could be doing sitting around, I suppose. But it does inform the day job a lot better. And as long as it'll keep satisfying that for me, I'm going to keep doing it. I didn't expect that to be as helpful as it has been as we've gone down this journey. And it's also good sometimes to take yourself out of this grindy, intense industry that's filled with all these type A competitive people trying to beat each other. And going into a place where real people interact, people with real challenges interact, people who are appreciative of really small economic token gestures, but are massively important to them. Those sorts of things just get you out of this battle, which I think all of us in our own head sometimes, even the most competitive of us need a little bit of that. As I get into my middle age, there's only so much intensity you can sort of bear. So I think that's been really good too. The energy's infectious. Next time we got to do this in person, it sounds like that might be over some pedale and same eat nearby here. Maybe it's just north of Peru, Indiana. Our friends in rebuild are building Slate Auto, the newest EV in America, up in Warsaw. Marin County is not a bad place to visit either. So we can come out there. This is amazing. Thanks for sharing all the history for you personally, but also Tomo Bravo. And in this moment, it's just amazing to hear how you guys are thriving and navigating these times. Guys, I can't tell you how honored I am to be on with you guys. You guys have built an unbelievable business and access to so many people and just done it in such a normal, humble, fun, open way, in a way that totally jibes with how we are. So the fact that you asked me to be honest, it's been a real joy of mine. So I'd say thank you. And hopefully to start of a friendship, thanks again for doing what you do. Putting a human face to it, otherwise an industry that sort of labels people with certain things, I think is really important for anyone and any state of their life just to see that everybody's a normal person, trying to make normal decisions. And sometimes you just keep it simple. I appreciate a lot what you guys bring to the world. So thank you. Thanks, AJ. Been an honor and a privilege, man. Like rise.