Episode 22: Software AI, Negotiation, and Work-Life Balance with Co-Founder/President of Union Square Advisors Ted Smith

[MUSIC] Hello, everyone, and welcome to the Financeee Podcasts. In this episode, I am joined by one of the top technology investment bankers on Wall Street, Ted Smith. Ted is the co-founder and president of Union Square Advisors, a little background about Ted. After graduating with a bachelor's degree from Notre Dame University, Ted began his career at Morgan Stanley, where he was an early member of the firm's Technology Investment Banking Group. Prior to co-founding Union Square Advisors, he was a managing director at Credit Suisse, where he headed the Global Software Investment Banking Practice. He also served as a corporate executive at Novel, as vice president of corporate development and business development. I'm very excited to have him on the show. So, Ted, welcome, and thank you for joining the podcast. Logan, thanks for having me. I'm excited to be here. Of course, and I want to dive deeper into the early career for you, Ted. So, upon graduating from Notre Dame, you joined Morgan Stanley as an analyst. As an engineering major in college, you had a kind of a non-traditional finance background. You might dive in deep into just kind of why you decided to pursue investment banking at a college. Sure. So, I got both a bachelor's animators degree in engineering and was really trying to figure out at that point what I wanted to do. Did I want to keep going and get a PhD and become a professor or go into peer research or go, you know, get a job at a big tech company. I interviewed at places like Intel and Microsoft, but none of it really spoke to me. And a friend of mine who had joined Morgan Stanley out of undergrad said you should come and join our firm's technology practice. And I thought and told him that I thought that was one of the stupidest ideas I'd ever heard. And he said, well, it's actually not because the group was founded by and is still run by a fellow by the name of Carter McClelland, who himself was an engineer. He was an aerospace engineer at Stanford. And then he went back to Stanford and got an MBA. And he had built the technology group from scratch at Morgan Stanley, following Morgan Stanley's having been the lead underwriter on Apple's IPO. And so Carter's idea was we should get a couple of folks into the technology groups that actually have technical backgrounds. That'll help us understand what our clients do better. We'll help us speak their language better and ultimately help us to be better at serving their needs. So it was a little different idea, but it was a good one for me because even though I knew nothing about investment banking, unlike I'm sure many of your viewers and listeners, there are a whole load of folks out there who know about investment banking from their undergraduate. And before days, they're excited about the sector. They want to be in investment banking. And they work toward that goal very diligently. And I was at the other end of the spectrum. I knew nothing about it. But when I interviewed for the position and spoke to the other people in the technology group, I could see how I would be good at the job eventually if I learned the finance and accounting piece of it. And as an engineer, I wasn't at least I wasn't scared of the math. So I thought it would be sort of doing it for two years, and then I might even go back to academia. And that's been almost 35 years ago. So I haven't gone back to finish my PhD. And at this point, I probably am not going to do that. There you go. And so just to talk a little bit more about Morgan Stanley, you were an early member of Morgan Stanley's tech team becoming now one of the most dominant tech groups in the world. Was this during kind of the internet bubble, the internet craze in the 90s? And what was kind of your experience doing that during that time? I heard it was a bit crazy with many startups, startups, IPOs. Yeah. And so when I first joined because I'm old, it was pre-internet craze. So this is, you know, 1990 was my first year at Morgan Stanley. Then there certainly were software companies, but most of the software companies were, you know, for software that ran on big mainframes or mini computers. The personal software, you know, the PC software business was really just getting started. Yes, there was Microsoft. Yes, there was Apple. But then it wasn't the proliferation of personal and PC software companies that we have now beyond kind of the PC and the Mac. There certainly weren't no, you know, there weren't tablets. There weren't other form factors. There weren't smartphones. So it was a, it was a narrow enterprise software business relative to what we have today. And of course, none of it was cloud-based at that point. This was all on-premise software with a license and maintenance model. But some really large companies still had grown out of that industry. And so those were the folks, the kinds of firms that I initially work with, names that have in many cases been consigned to history books at this point, goal systems and legent and computer associates are a few that come to mind that we're all very large than and interesting companies and have since been consolidated into into much bigger companies. I think all of them at this point are part of what's now broad-com. But that evolution from that version of the technology landscape to the internet landscape really did occur over the mid to late 90s. So during that part of my career, I took a couple years away from investment banking. You mentioned it in the intro. I went to work at another software company called Novel. It was a networking software giant. They bought a company called WordPerfect, which some of your older listeners and viewers may know of. But for the most part, nobody really remembers that that millennial at this point. But it was a word processing software company that had grown quite large and competed with Microsoft Word. But eventually, Novel bought that. I stuck around to be the head of corporate development and business development for a couple of years. But I really found that I missed investment banking. That's when I knew it was the career that I wanted to have was when I left it, I missed it. And so I went back and joined a number of my former colleagues, including the former formerly mentioned, Harder McPlaylbel and two at that time, had all moved over to Deutsche Bank, or many had moved over to Deutsche Bank from Morgan Stanley. And then that group, the most part, actually did after a couple of years, kind of a giant cut and paste of about 150 people, two Morgans, sorry, two credit suites. Carter went off and became the chairman of Bank America's Securities, where he was for seven plus years. And I was at Credit Suisse for almost 10 years. And it was really during that period of the late 90s and early 2000s when I was at Credit Suisse, that the internet bubble really happened and blew up. And it certainly was crazy. With all these new online businesses, the very beginning of cloud-based delivery, as opposed to disk-based or tape-based delivery of software was a real game changer. And we got to work with a much broader palette of companies at that time, who were basically pioneering all those new delivery models and what you could really do with what was the early version of cloud-based software. Now, I'm curious, Ted. It seems like you had a pretty good gig at Credit Suisse. You were leading the software team. I guess, you know, what was kind of the vision in starting Union Square leaving Credit Suisse as, you know, now you're focusing strictly on the technology sector at Union Square. And what do you think kind of led to the high level of success at USA? Yeah, I think, so the first part of the question is why I believe is a fair question. For sure, I think that the reality of it is is that every organization of scale has a lot, has typically many great things going for it. And I loved my time at Credit Suisse and the people with whom I worked there. And I learned a lot and made great relationships that are still dear to me to this day. But by the same token, because it's a large organization, it has things like politics and bureaucracy. And the moment that you start to feel like that's your job, particularly as you get more senior, then that's when you may start to feel like maybe you haven't, you know, you're not at the place for you. And I started to feel that. As successful as we'd been at Credit Suisse and as good as my, you know, rising the organization had been there, I started to feel like I was doing more management and more, again, your accretization was taking over more of my role than the fun of actually working with clients and helping them with transactions. And so I left not really sure what I wanted to do. So it's, I think there's an important sort of point to be made here was I didn't leave Credit Suisse to start Union Square Advisors. I left Credit Suisse because I wasn't really sure what I wanted to do. And that turns out to be one of the best things I could have done because I took almost a year off. And during that time off, what I came to realize, not unlike my time at Novel was, I really missed the work. I missed the investment banking work. So I had to separate in my own mind, well, if you like the work, but you don't want to go back to a big, you know, global bank with the bureaucratic kind of environment, what do you do about that? And the natural conclusion was, well, I either have to join a much smaller organization or have to start a smaller organization. I chose the latter. And I reached out to the aforementioned Carter McClell and yet again, who had stayed as a friend and a mentor the entire time since those first, you know, those first days as an analyst for me at Morgan Stanley. And I told him what I wanted to do. And in one of the greatest benefits to me from my whole career, Carter's response to that was, that sounds really fun. I'd like to do it with you. And that's how Union Square Advisors was more. And, you know, I'm sure building Union Square Advisors from the ground up, no easy task. I saw the five cornerstones of the company's culture. Curious, how did you decide on these cornerstones to differentiate your bank? And how do you hire the right team of bankers to execute the cornerstones, especially as you said, in the very competitive space of technology investment banking? Yeah, we took a page out of the original Morgan Stanley book and what Carter had built when he started the group there. And many ways we tried to emulate that in the sense of finding great people, giving them the space to do their work, but make sure that they knew that they weren't lone wolves. They're part of a team. And that culture really matters. Peter Drucker, the famous philosopher and businessman, said that culture eats strategy for breakfast, and I believe that. So we started with the idea that we wanted to have a great culture and that we wanted to codify that culture through our five cornerstones and our mission and our vision and our values. So if you think through the cornerstones, you know, we start with the superior team, people who have a lot of experience doing this, who have deep domain knowledge, who have insight, which is the second cornerstone. They understand the markets, they understand the companies that serve those markets, and that are clients. We know when we walk into a border room, we're into meeting with the management team. We're not going to know that particular business better than the team or the board. It's unwise to have the arrogance to assume that, but we want to walk into that room and know that business, that market, that opportunity set for that company better than any other banker. So we have to have experience and we have to have deep domain expertise. We're very focused, right? So we're a full-fledged broker dealer. We're completely regulated by FINRA and the SEC, just like all those large banks we've been talking about here. But we stripped out of our business, all the parts of the business of an investment bank that can either create conflicts, in many cases, or typically require a lot of capital to run, or a lot of people, or both. So we don't do research, we don't do sales and trading, we don't do wealth management, or asset management. We purely focus on the advisory component of investment banking, which allows us to operate as a smaller firm, with smaller teams, not capital intensive, since we are completely owner-funded and operated. That's helpful. And then we've totally committed to that model and to the technology sector as part of what we do. And so that commitment and focus has made a huge difference in the success of the firm. We will, sorry, go ahead, Logan. No, I was just kind of curious. It seems like when you hear about starting an investment bank, I'm more curious on how do you go about starting an investment bank? Obviously your company is in LLC, certain filings of unlearning this in my class now, but I was just kind of curious, how do you go about starting an investment bank? Well, you get a good lawyer to start with, and you write a business plan. So the business plan for Union Square Advisors, I was the primary author for and I did it at my kitchen table. And a good little bit of trivia is as a firm, we still have that kitchen table as part of our San Francisco office, because it reminds me and everybody around that we came from, you know, humble beginnings that we started literally as a dream writing that business plan in my kitchen and it fostered a business that's now almost 18 years old and continues to go strong. But you start with a securities lawyer after you have the business plan and talk about the various ways you can form the business, how to capitalize it, how to organize it, and ultimately you have to go through a process of getting fully registered, which can take six months or more. And because all the folks who operate in this industry under the arrangement and ultimately the fee generating structure that we have and virtually every other well-known investment bank has, it requires you to be registered. You can't simply operate outside of the FINRA and SEC guidelines. And so we knew that that was going to take us some time and it allowed us while we were waiting for all that paperwork to get finished and our formation documents to be completed, it allowed us to begin to think about what's the strategy we're going to employ? How are we going to reach out to clients? What are we going to talk about as our differentiating approach? You did touch on something that is absolutely right. It's hard to start anything from scratch, Logan, right? I am constantly in awe of entrepreneurs who are able to take the leap and create something where nothing existed before. And certainly part of the reason why I ended up wanting to do this was because I had known so many of those great entrepreneurs during my times working at the large banks and I was curious to see if I could be one of them. And so when you do that, the first for us, as I like to say, we opened our doors in the fall of 2007. And for the first nine months or so we felt really smart. We had a great team. We had a great approach to the business. We were beginning to attract clients. The business was starting to build and then the financial crisis of 2008 hit and we didn't feel so smart for about a year while everybody was trying to figure out if we were going to drive the global economy off a cliff. But the thing that I think allowed us to persevere at that time was the fact that we stayed true to those cornerstones. We believed that there was the need for an advisory business that focused exclusively on M&A and capital raising that focused exclusively on tech and that delivered service of a quality of the best large firms, but with the attention to detail and client service model that only a really small firm can do. And we tried to be both of those things in the same package. And I think the fact that we're still here today means that we've had some success at doing that. Definitely. And I kind of want an option just to be more into like the deal making side of the negotiating diving deep into kind of the union square. Just firstly, you know, 2021, great year for a lot of investment banks, a lot of deals closed. Union Square closed 17 deals that year, which is the most the firm has done in a year. Just I guess I'm more curious what led to the high deal flow. Was there some challenges with closing so many deals and such a short span of time? And what did you learn from kind of the challenges, the successes and what was your favorite deal? Yeah, well, let's let's take a half step back before we get to 2021 and talk about 2020 because that's as everybody remembers was the year the pandemic really hit. And we like the rest of the world spent the first couple of quarters of 2020 trying to figure out, you know, which end is up? How long is this pandemic going to last? And can we really do our jobs if we're all quarantined in our homes? And that was not a foregone conclusion. But thanks to tools like Zoom and Teams and other online platforms that allow people to collaborate even, you know, from great distances, we learned that we could do the job. And we really spent 2020, we meaning the industry, not just union square advisors, we spent the rest of that year kind of figuring it out, figuring out how to stay connected to clients, recognizing they still had needs. They still wanted to think about how to capitalize themselves, how to raise money, how to engage in strategic transactions. So once we got through kind of the first couple of quarters of 2020 and into the back half of the year, that's when the pickup in the business really started that led to such a great year in 2021. So 2020 was pretty good to that. And as you may remember, you know, the market after taking a big dip off the cliff and at the early part of 2020 when the pandemic hit came roaring back. Capital remained very inexpensive. We were in effectively a zero interest rate environment at that time that it was plentiful. So anytime you have something that's cheap and important and widely available, you're going to fuel a lot of potential growth and ultimately a lot of potential transactions. That is certainly, you know, that perfect positive storm is what we saw and others saw in 2021. So a lot of venture capital and growth capital, a lot of private equity availability. We also were at the early stages of what we've continued to see, which is this massive growth in the private credit market, to if not totally replace at least to come in alongside and ultimately supplant a good portion of the syndicated debt market. So there was just this huge level of capital availability, a desire to consume capital. At that time, a looser view on the part of investors about what they were willing to allow in terms of profitability versus growth, which tended to mean that if you were a growth year company, you were more highly valued than if you were a profitable company. Obviously there are some companies that are both, but the market really valued growth over profitability and so that allowed for massive capital consumption that drove further growth and further valuations and ultimately led to, as you pointed out, a great deal-making environment. With respect to our firm, yeah, it was certainly a great year for us. There's all in any year where you do more than you've ever done before. There are always going to be some strains in the system. So we definitely were working late nights and early mornings throughout that year to get all of our deals done as others in our industry where we were not alone. But again, I think one of the benefits to having a strong culture and a strong team is when you're faced with that kind of challenge, people rise to it. And so we were able to deliver a terrific year in 2021, as many others were. Amazing. Talking more about deal-making, you've had the chance to execute small deals and millions, large deals, and the billions, of course, sale prices, oftentimes a big factor, and the whole deal-making process. But there's always this back and forth between the seller and the buyer on the synergies of the deal. Do you ever try to psychologically get in the shoes of the acquirer and try to understand their incentives and motivations behind the deal? Sure. I mean, that's an important part of what we do, how we go about our work at union square advisors. And I think the best folks in the business do that. It has to be a situation where you do exactly what you just described. Understand not just what the motivation is, right? What's the strategic imperative that the buyer is trying to address? But really, how to help the buyer think about what the financial return can be if they make a particular acquisition? For every large buyer, there's typically either a person or a team who runs corporate development, or M&A or both, which often are the same or similar jobs. And that head of corporate development, if he or she has any meaningful experience, is going to start a conversation about a possible acquisition by saying, "Well, what are the right multiples to pay for a business that looks like the potential acquirer, right? What's the multiple of revenue? What's the multiple of EBITDA? How has growth influenced those?" And they're going to try to get to questions of, "If I map all these other deals that have gotten done, and I see their multiples, what does that mean for the value that I ought to be willing to pay for this potential company acquisition that I'm looking at?" And that's a fair place for anybody to start. Our job is to get them to move off simply thinking about what's the right multiple and move them to, "How do I think about what kind of return I'm going to generate for the investment I'm going to make in buying this company?" And you touched on synergies and synergies, that's the difference, right? How do I think about what additional benefits to the buyer, financial benefits, economic benefits to the buyer are going to accrue if they do the transaction? And if you get the buyer to a point where they'll talk about how they think about the integration, how they think about how the combined business will operate once the transaction is closed, we're going to have this many salespeople and this many engineers, and this is how we're going to go to market and all the details, or as many of the details as you can get behind the operations of the business, post-transaction, you can build a financial model that starts with each of the independent companies, acquire or acquire or acquire or build all those synergies in there. Well, if we give more product to this larger sales force, they ought to be able to sell this much more. And if you make that credible, that all that math credible about what the combination looks like, very often you can go back to the potential acquireer and say, "Look, you may have to pay more for this business than you thought or then you might even like, but I can show you the math as to why that's still a great deal for you because the returns are going to be high even if you do pay a higher price," which is basically what you're doing, is saying, "Let's split some of those synergies. You're going to get the benefit of those and you're going to probably even get the bulk of those, but we should be paid something for that too because we're bringing some of those to the table through the combination as well. And if you can get that shift to happen from what's the right multiple to what's the value creation model look like, that's when you win an M&A negotiation. And in regards to now transitioning and focusing more on the sell side, and I know this can be a tough question to answer due to every business being different. But in general, how do you help a founder think through, now is the right time to sell, as you want to maximize value for your client, that's the whole idea of fiduciary duty. And there's of course the emotional side of kind of selling your babies. So I was just kind of curious what goes through your head. Yeah, I think, look, you touched on a couple of things. One, every business is different, every founder or founding team is different. And then you add the added complication of if you've taken an investment capital from institutional investors or even just from friends and family, they'll have an expectation of return. You talked about being, you know, fiduciary for your investors. And if you have those institutional investors say, for example, on your board of directors, and they're talking about when they need or want or demand liquidity for the investment, depending on how long they've been invested in the company, all of those can be factors. And at various times, competing factors as a founder or founding team might think about this. I think the first thing I want to talk about with the founder in a situation like that is, what do you think you're ready to do, right? Do you have the energy to keep going for another year, three years or five years? Are you excited about it? Are you as passionate today as when you first wrote your business plan or you know, started it in the proverbial garage and grew it into a company? Some are and some aren't. Some are just as ready to keep going, you know, that day as they were on day one. And some, and if they're honest with themselves that would say, look, it's been a good run, but now it's time to find a partner. So there's an emotional and even a physical aspect too, you know, do you want to keep going or do you want to find a home for this? And that's a really important kind of first question to get on tape. The second one is to put some math behind it. Well, let's look at what would happen if you went to get liquidity today in some fashion. Let's go with the sell side as the option here. What do we think we could sell the business for? And again, then that goes back to let's start with what are the multiples that could be paid for a business like this? Then maybe we can factor some synergy upside into that. But here's what that would mean to you as a as a founder or as a founding team. And here's what it would mean to your investors today. Is that enough for you to want to be able to ultimately sell your baby or do you want to keep going now because you've got an economic incentive to continue to grow the business and build it such that if you sold it a year from now, three years from now, five years from now, whenever down the road, the return would be greater for you. And obviously you have to adjust that return not only for the time value of money, but for the risk, right? There's no guarantee that your three to five year business plan is going to play out the way you think and your your attendant financial plan. So what's the risk that you don't get to those levels that you're nicely constructed business and financial plan tell you you should be able to do? And how do you discount that back to today? So we try to put both a qualitative and a quantitative analysis around this when we're talking to founders and teams and boards of directors so that we give them a reasonably meticulously crafted view that does include some of that quantitative analysis. And sometimes what it'll say is you should sell this business now because there's almost no scenario that's going to play out over the next three to five years, for example, where you're going to do better by waiting. And sometimes the exact opposite is true, which is look, if you keep building the business and you take a conservative view as to where you think you can deliver this business in three to five years, there's and the markets remain reasonably open to exit opportunities, then you can make a lot more on a discounted basis if you wait some period of time than doing it now. And there's a whole spectrum of in between and sometimes those things are kind of a wash with one another. And that's where the qualitative analysis is or are you ready to do this or not can meet up with the quantitative analysis to try to get to a point to help make a decision about whether now is the right time. And just to follow up when you close a deal, I don't think this topic has enough attention, but is there what are the biggest differences when you see between a deal worth 200 million to two billion is the business model more complex for that certain business you're selling does the larger deal require more work or is it kind of all the same? Well, let's break it into two pieces. So I think the work required to get a deal done is actually remarkably similar almost without regard to the size of the deal. Now that's an oversimplification, but there are certain things that have to be done in NAM and A transaction, whether it's 10 million, 200 million, 2 billion, right? And the same amount of work goes into the in many cases or at least elements of it or the small deals as for the large deals. But the piece of it that is different significantly different and ultimately is where the successor failure of the deal is going to largely reside is how well does the acquired company or sorry the acquiring company plan for and execute on an integration strategy. So what's going to happen on day one? What's going to happen on day 30? What's going to happen on day 90? What are the metrics by which we're measuring the success of this combination? Which people are we keeping? Which people are we letting go? Are we pivoting from a strategic perspective? How do we think about our go-to-market? Like the more work that the acquiring company puts into, here's how we're going to operate the combined organization. And frankly, the more experienced the team who's doing the integration alongside of the team that's doing the deal making, the more experienced that integration team has far more likely that they're going to be successful making that deal happen. And I've seen an entire spectrum in my career of everything from okay well the deals close I guess we better start to plan for the integration that's a bad sign all the way to integration planning being a key part of the actual deal negotiation constantly reinforcing each other and ultimately knowing on the day that the deal closes exactly what that go-forward plan is going to look like. It doesn't mean that it's always a hundred percent right. It just means there's been a lot more thought that's gone into that after closing set of exercises that the acquiring company needs and what they're going to need from the acquiring company that's where I think you see the biggest difference amongst various acquiring companies and ultimately the biggest differences in some of the successes that they have or don't have as buyers. And what I mean you obviously have to after you close the deal you are still kind of connected to your client making sure that you know obviously you would like it the deal to be successful you mentioned the integration part what do you what kind of leads a deal to fail or not be as successful as you hoped it to be. Now I think I think the factors really are again around how well planned the combination and ultimately the integration was that say it again which I've is that I've seen a wide array of failure and success on that and it really does matter how much effort the acquiring company puts into that. I also think you know part of it is goes back to that that qualitative question and you know what do you want to accomplish? One of the great things about people in the technology industry is they're inventing and productizing the future. It's one of the reasons I'm so passionate about my job is that I get to have a front row seat on people who are you know doing that how they're how they're literally creating not just creating companies where nothing exists but creating products and opportunities in new ways of doing things that didn't exist a year ago or before that. It's just fascinating to watch that alchemy happen. So a lot of times in technology one of the things that a founder or founding team really wants is we really want to see our product or our technology that we built we want to see it proliferate. We want to see it not just be constrained by what we can do but see what happens when you put the power and the resources of the much larger acquiring company behind you know put that extra wood behind our or and watch it take off. And I think when you see that happen it's separate from you know what's the financial return to the people who make that happen. It's it's an intellectual return it's a return on vision to see that you know that technology is gains much more wide adoption becomes a standard becomes something that that people talk about and use in their everyday lives from from most entrepreneurs and technologists that's one thing they really crave and if I get to see that happen after a deal I'm super excited for those people and it's another way to stay connected with them. The reverse that is also true if if that becomes you know if that ultimate outcome doesn't come to fruition if if the technology sort of gets stuck inside the new organization and it's not well cared for or the business around it isn't nurtured properly and it turns out to be just sort of a so-so or or worse acquisition and the people are disappointed because they thought they'd found the right partner and didn't end up having the right partner they still have the money for the most part but they may not have the satisfaction and ultimately the way you know anybody in this business creates repeat customer for repeat clients that you get to work with and who are happy to work with you over and over as you want them to be satisfied in the deals that they do and obviously we we talked a lot about that with them as part of the process and and try to help nurture that as much as we can. Definitely and we you know what's interesting just listening to podcasts watching YouTube videos a lot of bankers they say relationship management that is one of the key factors in like starting and starting the deal process but getting it done you know I've learned about that as I learn more about banking I was kind of curious how have you developed and maintain your relationships with founders executive financial buyers strategic buyers over the span of your 30 plus careers in tech investment banking. Yeah well I certainly agree with that I mean it is a relationship oriented business you know people want to work with people that they like Woody Allen said 90% of life is just showing up and a former boss of mine also said the next somewhere the next 9 to 10% is people need to like you I'm not sure the proportions are exactly right but they're directionally correct right you have to be there you have to be present you have to invest in relationships and then hopefully you're likable on top of that but you a big part of the relationship building is is showing that you can add value before there's an economic reason to do so. So one of the things that we developed early on at Union Square Advisors was an approach that we were going to get to know companies a lot earlier than virtually all of our competitors either were willing to do or could do by virtue of their business model. Now we started doing that out of necessity because when we were trying to get our first clients in the door we needed to meet with some earlier stage companies hoping that they would grow into the size it would be interesting for us to work with but it really did become part of our DNA that we would do that. So if I meet with a CEO CFO management team board of a company that isn't going to transact they know for a fact that they're not going to transact for you know another year or more. There are a lot of bankers who would say that's fine call me in a year right call me when you're ready to do a deal. We take the opposite approach we want to know those companies early in the hopes that not only that they will grow into the business that they think they can and we think they can and hope they can but that there is a period of time where we're not going to get paid a dime but we can do things that can be helpful to that company. We can make introductions to potential strategic partners. We can help review the capitalization of the company and talk about different forms and quanta of capital that could be available to them when they might next need to raise capital. We can review their corporate presentations. We can talk about a lot of different strategic alternatives that could be available to them. What are the other players in their space doing and how might they design toward or away from something that would be good or bad for them. There are lots of ways to add value in that re-transaction period and the more we're able to do that the more of a relationship we're building with the company with its principles the management team the board of directors etc. You do that not only exclusively at least to be altruistic but because the inevitable element of the human relationship when you get to the time of making a decision about which advisory firm you want to work with if you're the CEO board of this company you're going to analyze who's been helpful to me along the way and yes it's a very competitive industry and yes there are some very well-known brands with whom we compete every day for the right to and the honor of being able to work with these companies but I promise you that if I've been the one or our firm has been the one to spend the time that puts us in a much better competitive position to actually earn that business because people again they want to work with people they like but they also want to work with people who've shown that they're willing to invest in the relationship so again for us that means the earlier we get to know companies before there is an actual transaction that it would make sense for us to advise on the more likely we are to get hired and the better the relationships we're going to build with the folks who are going to make those decisions. Yeah no it seems like you really believe in value creation and Ted I want to now transition and talk a little bit more about kind of the M&A market the P.E. market and software trends always very found always been very found to software so just to start off you mentioned that your 2024 outlook report P firms have been pressured to return capital to their investors in today's high-paced environment with high cost of capital makes valuations how do you kind of see private equity firms approaching this new normal as they look for new technology companies to add to their portfolios over the next few years. So there's still a lot of capital on the sidelines for sure um but there is this tension for almost every private equity firm let's just use that asset class between wanting to deploy additional capital because at the end of the day you get paid to deploy capital and you generate returns once you deploy capital right you're you're you're very unlikely to generate private equity level returns just sitting on a pile of cash you've got to go make it work for you by buying and building the companies that are part of your portfolio um so that need to deploy capital remains very real there is a very significant amount of it on the sidelines and private equity firms and their and their partners are very anxious in many cases to to deploy it but as you point it out at the same time the they get that money from limited partners right they get that money from big pension funds and and endowments um who are themselves seeking to take advantage of the returns that the private equity firm can generate if they're good investors um and and there they've been a little bit schizophrenic and what I think they've said to the private equity firms um those LPs they've said on the one hand we want you to deploy capital particularly if and if valuations are down because this ought to be the environment in which you can get bargains and you ought to be able to buy some really good companies and ultimately get a great return for those so get busy with that and on the other hand they're saying clearly somewhat contrarily um we'd really like to get some of our money back we'd like some um we'd like some uh direct uh capital back to us as a as a as we've been used to over the years right we get a little of our money back and then we're more comfortable that what's left of it and you're fun you're gonna invest well so we we want some cash on cash return here um and obviously those are in many cases are in odds but where they're converging is that there are opportunities in the current market environment for private equity firms to begin to sell things out of their portfolios in a handful of cases they may get their liquidity by virtue of taking companies public their companies public um going through an IPO process but the vast majority of them are going to get liquidity on the investments that they've made i.e they the private equity firms by selling either to a strategic buyer or to another private equity buyer and that's how they'll convert their ownership in these businesses into cash and ultimately be able to deliver some of that cash back to their LPs and that's the ways that we're starting to see now is is private equity firms and by the way it's the same is true for growth equity firms venture firms right they look at their portfolios and are trying to decide which of these am i willing to part with now um maybe i'm not going to maximize my return but i still can get a decent return and in so doing i'll be able to give some of my LPs my investors some of their money back which they're angling for and i will set myself up well for my next fundraising which could be six months or a year for now because i'll be able to show to my current and potential new future LPs hey i'm a good steward of your money i went out i made some really good investments and then i was able to give you that money back and more and therefore you ought to be willing to interest you know more capital with me as part of my my next fund and that's really the activity that we're seeing right now amongst the various private equity firms is they go going and and again another venture and growth equity too going through their portfolios working to figure out which of their companies can truly get to a liquidity event again in most cases by by an m&a transaction and then trying to figure out what's the right timing to go pursue that and i think we're going to see more and more of that throughout the rest of this year and well into you know the the the next few years quite frankly as portfolios get thinned out and then regrown with new investments well of course i feel like private equity firms as you mentioned but they kind of don't want to miss out on this this this AI craze that we've been seeing with the tech market i want to ask you know we see an AI dramatically accelerate technology innovation globally you have Nvidia and you have other big technology companies what what world do you see AI playing in more of the software space in the future and are there any trends in software that catch your attention and what industries do you think need to start incorporating AI more i think well i i think one of the things i think about AI is that it's being treated right now as if it's an other but what it really is ultimately going to be is it's going to be an effort and what i mean when i say it that way is i'll give you an analogy 10 plus years ago there was a wave of companies and a wave of thinking that was described as big data right these access to these massive data sets that if you applied the right analytics to those data sets you could get new and differentiated insights that would help you manage your business more effectively and in some ways the analytics that went into big data were precursor to some the analytics that AI is doing for us now because they could ultimately be viewed as preliminary training models but nevertheless the point is there there was a raft of companies who talked about i'm a big data company i'm an analytics company i'm the you know they used a lot of very similar terms it was hard to differentiate almost nobody says that today i'm a big data company or i'm exclusively an analytics company everybody is a big data company or every enterprise software company is a is a big data company and an analytics company and so what once seemed like a label that would allow for significant differentiation quickly became something that everybody was doing and therefore it wasn't differentiable now there are clearly people who did it better than others and companies who did it better than others but it became necessary if you were going to survive as an enterprise software company to have that capability inside of what you do and what your products are that you offer to your customers and AI is eventually going to be exactly like that everybody's going to have to either build something of their own so that their mode is part of what they've built as part of their own unique AI engine or they're going to have to adopt somebody else's engine and put their own bells and whistles on it that leads to a different type of differentiation but it is still available AI is going to infuse every aspect of enterprise software and basically what software vendors are going to have to go to their enterprise clients and customers and say is with my product now infused by this super special AI I can either help you drive your top line more effectively i.e. I can help you deliver more revenues or I can help you cut your costs by doing x and y and z so I'm going to improve your margins or I can help your employees or partners or others in your ecosystem be more efficient and therefore with that increased efficiency comes greater leverage in your business greater ability to ultimately be more profitable if enterprise software vendors can't do one or more of those things using AI as a turbo charging mechanism they will eventually go the way of the dinosaur but every enterprise software company is going to have to do that it's not going to be just AI companies over here and non AI companies over there it's just not going to work that way so that's one of the reasons I'm super excited about AI is that it is going to turbo charge enterprise software and it is going to make this a really interesting time to watch how software evolves from here what it can do and what it can mean as it becomes even further infused into enterprise customers you know it's funny and said it seems like it seems like every company is a non AI company and I guess when we're talking a little bit more about like AI models that are being developed by these technology companies they require a lot of energy power for training these models and oftentimes the models dissipate heat which can lead to overheating in these data centers a new market of liquid cooling and cooling technologies has kind of been you know important for AI models can we see kind of a market for that in regards to cooling technologies and might there be a pickup and M&A activity with these big technology companies aiming for you know cooling technology companies yeah I think that's one aspect for sure I mean I think they're we're going to see different types of data center we're going to see different ways to think about energy usage and to your point right on the nose loving we these things throw off a lot of heat so cooling technologies are going to be increasingly important until we figure out how to make semiconductors that don't throw off as much heat so there will be a whole raft of sort of secondary and tertiary effects from from this AI wave whether that leads to sort of massive M&A events I think it's a little early to tell it's certainly possible but we don't yet at least not as far as I know we don't yet have you know whole market associated with AI driven cooling technologies you know where you know large requires or trying to pick amongst the various players to decide who's going to be the winner because they want to own you know that technology we could get there and we could get there fast given how rapidly AI is evolving at this point in time but I I don't think it's exclusively about cooling technologies I think there's a whole lot of things about how we build and deliver and operate AI from the semiconductor level all the way up that will foster changes in the hardware and software ecosystem that in some ways we can only imagine at this point and some new companies that are just you know just now being thought of and being drawn out on the back of some cocktail napkin are going to soar to some amazing heights you know they'll be the the next version of NVIDIA and there are going to be some companies that are out there today that enjoy large market caps and large levels of growth and profitability that are probably going to be severely constrained by the fact that some of these new upstarts are going to overtake them and then there'll be this classic company that seems to constantly be able to reinvent itself from generation to generations you know that's the the Microsofts the Amazon's the Apples and others and it's going to be fascinating to watch what they do to maintain their position you know at the top of the food chain as some of these upstarts come up so it's going to be a wild ride I think on a really fun one over the next three to seven years as as AI really infuses everything that we do perfect Ted you know we've talked about deal making we've talked about technology and I think now I love to talk a little bit more about just the general investment banking industry you know Ted as I learn more about investment banking pursued investment banking you know internships and just talking upper classmen you hear investment banking it's known for its intense long work culture you know Ted what do you think about work life balance how have you kind of been able to create some balance between your work your personal life family friends considering you know you're just a text message away from work interrupting your life yeah look I think I think it's it certainly can be one of the downsides of that of enjoying that ringside seat to the invention of the future that I've talked about before I always first of all let's not kid ourselves right the it's it changes over time as you're as once per career progresses right though the work life balance of a first-year analyst is different than the work life balance of a you know multi-year MD that doesn't mean they both don't work hard it just means they they have different work and ultimately different things that are required of them and so it's hard to kind of put a one-size-fits-all element to this what I can tell you from my personal view is that when I started particularly as we talked about early on I didn't know anything about investment banking I or at least very little about it and so the combination of massive intellectual curiosity about about the work and how to get good at doing it plus similarly massive fear of failure drove me to to want to work hard and to ultimately figure out how to be good at the work and the thing that I always felt you know I never felt cheated I'm meaning that I worked really hard but I also always felt that I got something in return both in terms of relationships built experience gained not knowledge-gleaned in those early years Morgan Stanley and beyond it just felt like it was a fair trade so yes it's not a nine to five job it's it you know you work you know earlier morning hours or later evening hours and into the night and on weekends at times but it is transactional and almost everybody whether you're part of a big business cycle right that happens over the course of years so there are ups and downs so you're more busy less busy or even just within a firm where transactions them you know within your firm ebb and flow a little bit there are times to that one can can get a little bit of downtime and we push hard on that with our analysts and associates right they work very hard don't get me wrong but we also try to work with them to make sure that they get time on and that they're able to go and get away from it on a weekly basis on a you know more of a PTO a week or more at a time kind of basis we monitor that really closely because we don't want burnout we don't want people you know feeling like they've they've they've just been you know brought into a sweatshop it's hard work don't get me wrong and and you are going to work long hours but we want to make the trade off that you know you get real knowledge and experience for that and ultimately that can help really elevate and accelerate one's career if done properly and that's what we try to offer to our team as you move up into you know more of an officer type role where you've got real client responsibilities and transaction execution responsibilities that are much more client-facing again it's hard to leave to go on a vacation in the middle of a deal but if you know if you're managing multiple deals at any one time one that just kicked off a week ago and one that's two weeks away from closing and that cycle just keeps going and going going it's almost impossible to find a time when you're not working on any live transactions so you just have to develop an ability to prepare your client and your team for the fact that says look I'm going to be gone for this period of time I'll be a little bit less accessible or maybe not accessible at all but here's how we're going to manage that this person is going to take over this part of my responsibilities and that person is going to take over that part of the responsibilities and if you really need me you can reach me in Antarctica by you know special satellite phone but we'll we can do this right and once you get through that a couple of times and realize that yes you're important to the deal but the world didn't stop spinning just because you weren't on every zoom conference or didn't return every email you get a little bit more comfortable that it's possible and I think that continues on into the more senior folks so I want our folks to have some level of balance outside of work right people who it's it's the rare person who can literally work all the time and not ultimately get burned out so we want our people to be able to do that and frankly back to the relationship building that we talked about earlier if all we have are people who only do deals and they don't have outside interests if they're not interested in sports or politics or or wine or pick any number of other hobbies and applications then in a very real sense they're less interesting and therefore it's tougher to develop relationships with with other people and because this is a business about developing those relationships and ultimately friendships over time we don't want people who are so exclusively focused on investment banking that they're not interesting to be around we have a culture and a belief that we that we want to hire people and we want to nurture people who are actually interesting human beings in addition to being very good at the work that we're asking them to do and if we get that right as part of our culture then we'll develop those relationships with our clients that are truly lasting and so we've got to give them the time to nurture those things outside of their investment banking life to to to to to become and maintain those interesting human beings that are ultimately really good at building relationships and there's just one point that I really want to touch base back on which was just the junior banker culture really working hard but in specific for Union Square many of your past analysts Ted have gone on to do some amazing things with their career after Union Square one of them being the CFO of Figma and a few others at the top private equity companies in the world I mean Ted asked me it has to be a really great feeling for you to see them succeed what type of culture do you strive to establish at Union Square and how do you mentor your analyst and what advice do you give to your junior bankers at Union Square yeah there's a lot in there um well if you start by what the the best thing that can happen for me selfishly is that we find a great analyst who becomes a great associate who becomes a great vice president so on and so on until he or she becomes a partner like they walk the entire path and they're homegrown the whole way they're infused with our culture their their carriers of that culture and and they we do that for them and then they do that for the generations that come out for them but we're not capable of growing to a lover that every analyst becomes a managing director or partner right that's not what we strive to do in no investment bank has has that career progression for every analyst getting to that level of seniority so you know that at some point either because they're they want to go to do something else um or it's just gotten to the point in their career progression where it's time for them to go do something else the second best thing that can happen to me and ultimately to Union Square advisors is that they land as you pointed out at a place where we still can work together um we still can be part of the same ecosystem i it's incredibly cliche but we talk about the Union Square advisors family right and that family includes all the people who work there today and the people that have worked there and have gone on to do other things and have shown success as you pointed out across a great many companies venture capital firms private equity firms or have left the industry you know in in some cases entirely but have landed you know at great other places if we can continue to build a culture where people know they can learn and grow inside Union Square advisors and that when they leave when they decide to leave if they go on and do something else that they're there's we still want to be connected to them and and frankly we want to help them in their ongoing career path it's not just like you know once you leave you're out of the full never darken our doorstep again but it's more like how can I help you how can I help you get that next job how can I help you think about what you're striving to do in your career then not only will we be doing the right thing culturally but we'll also attract the best people who want to be part of that culture and again we set up many times in our conversation having the right people who buy into that culture or who buy into the five cornerstone to who really want to be part of what we're doing if we can get the best people to do that then that ultimately fuels the success that we want to have and Ted just before we wrap up you know I often hear the quote the advice do what you love and love what you do and Ted you obviously love what you do and for our younger audience that are junior bankers what advice would you give to them in regards to considering a long-term career and investment banking versus moving over to the buy side you know how does one know if it's worth staying in the business is it really you know you got to do what you love and what you're passionate for yeah it's hard to know because even though there are lots of opportunities to try out different things it's difficult to try out everything and then make a final decision I think what I try to talk to our early bankers are our our youngest folks even as they're coming in the door is what let's talk about what the work is going to look like here let's talk about the kinds of companies clients and counterparts to which you're going to be exposed and beyond the lookout for what they do how they do it the people that are there could it be interesting to you right they're definitely as a subset of that group who join investment banking because they want to get great training and then they want to go off and and go to the they want to go to the buy side and want some you know shape or form and that's totally understandable that's really exciting to be able to invest in companies and nurture them and grow them and ultimately get a return on that investment through some some exit out of that that's that's a that's an exciting path ours is a little different I tell people the reason I love my job since you ask is I get to be a little bit apart a little bit of a part of a lot of companies and again it's back to that front row seat on investing and building the future I get to watch and each one of them is different and I get to watch how they're different what they do well what they don't do well how they change and pivot and adapt over time because I think of myself as an intellectually curious curious person which I think is an incredibly important thing to have in this industry the fact that every day is different that every client is different every transaction is different every person involved is obviously different that really gets me jazz to gets me excited to get up in the morning and and keep doing this after you know almost 35 years that may or may not be what gets you know one of our junior bankers jazz for a 35-year career or more in investment banking something else may so you really set it pay attention to your passion pay attention to the things that really do excite you and try to break it down into you know small components right not just sort of the big do you like investment banking versus private equity but what about investment banking do you like or not like the quantitative the qualitative aspects the client management the transaction execution how is that and and develop a network of people that you can ask the questions of how is that different than how you see a transaction from the perspective of a private equity partner or a venture capital partner or an associate in one of those firms or or what's it like to be in corporate development at one of the or business development of one of the larger firms or midsize firm that work too is different than some of these others that we've been talking about I firmly believe that if you start with investment banking you get the best possible exposure to all those things that allows one to figure out the right at least the right next step it's not the ultimate long-term you know full career path and that's really again a key part of our cultural approach is we want our analysts and associates to get as much exposure to as many different things as possible so that they they have a view as to is this the career path at union square advisors that they want to be on and if it's not how do we help them get to where they're now more excited about ultimately being perfect Ted that kind of wraps up my conversation my my questions first of thanks so much for joining the show how to blast and you know best of luck with the union square in the next few years as you know AI and technology continues to take over great Logan I really appreciate it you had great questions really enjoyed the conversation and I'm excited to see what you do with your career as well I'm looking forward to be a big cheerleader for that thanks so much Ted thank you guys so much for tuning in with my talk with Ted means a lot I'm extremely grateful for all of your support if you like this episode please drop a five star review on apple and Spotify podcasts and subscribe you can follow me for more updates on instagram at vfinancey podcasts I hope you'll enjoy the podcast and please leave a comment with any topics you want me to hit on next remember to continue growing and never stop learning thank you so much guys and have a great day you