Robert F. Smith Discusses Today’s Tech Market and Generative AI on Bain’s Dry Powder Podcast

What is the outlook for the tech sector? How do you balance growth and profitability in today’s market? How can software companies win with generative AI? During a recent interview with Hugh MacArthur, host of Bain’s Dry Powder: The Private Equity Podcast, Vista’s Founder, Chairman and CEO, Robert F. Smith, answered these questions and more.

Across two episodes, Robert shared how Vista has continued to get deals done in the down market. Robert also shared new perspectives on generative AI and how Vista will continue to capitalize on the opportunity in enterprise software.

The responses below have been adapted from the full conversation. You can listen to episode one and episode two on the Bain website and all major podcast platforms.

The Outlook for Today’s Tech Market

Hugh: Has the music finally stopped for tech or will we continue to see a big run in this sector as part of the private equity industry?

Robert: Tech as a broad sector is going to continue to drive a massive amount of innovation and improvements across multiple parts of the global economy. Despite some of the choppiness in the financial markets over the last year or so, we continue to expect enterprise software to remain a fast-growing sector. The average ROI of the products that our companies sell to their customers is about 640%. From our perspective, there’s just very few investments that have that type of ROI.

Enterprise software continues to be the enabler for almost every industry. It underpins all the core banking systems. It enables all the digital sales and e-commerce. It supports logistics and supply chain management and segments like healthcare. As we have distributed more computing capacity globally, we’re going to need software to leverage that capacity.

Achieving Profitable Growth

Hugh: What margins do you expect to see in the enterprise software space?

Robert: While there was a tremendous amount of capital and ambition flowing into the markets during the monetary expansion period, people were going after growth at all costs. Now that we are in a tightening mode, you must ask, “Okay, who knows how to run these businesses profitably and still manage and maintain growth?”

It’s not as simple as cutting costs; it is building a sustainable infrastructure in the core pillars of the business. How do you manage your contract administration processes? How do you manage your human capital? Do you utilize centers of excellence? Those who do these things well can accelerate company growth and profitability at the same time.

That’s really how we think about approaching the market and ensuring that the fundamental underpinnings ultimately give you the ability to scale and to pivot, without breaking the business. There’s an art to it and the good news is, we now have 23 years of managing that process and have been fairly successful at it.

Defying the Down Market

Hugh: People are anxious about exits in the marketplace. What are you doing to find opportunities to exit and put some money back in LP pockets?

Robert: Since the downturn in November of 2021, we’ve completed or signed 18 monetization events and generated just under $18 billion in total value. The biggest one recently was Apptio which we sold to IBM for $4.6 billion and Cvent was also $4.6 billion.

If you are building companies that have solid underpinnings, they become attractive to public markets, private markets and strategics. When buyers do their diligence, they see we haven’t glossed over the important elements of maturing the corporate infrastructure. These businesses now have sustainable capacity, which is what buyers really want.

Who Will Win With Generative AI

Hugh: Generative AI has generated this tremendous wave of enthusiasm among tech investors. That said, are we seeing the backside of the wave now? Do you think this is still the next big thing?

Robert: It is the next big thing. At a high level, there’s going to be three waves. First, the value will go to the benefit of the hardware providers. The second wave, the value will endure to the benefit of the super scalers. Then, the third wave will ultimately be to those who are utilizing generative AI capacity effectively in the markets where they sell their products.

This is going to play out over many years, but I think whoever gets there first will have a massive short-term advantage, with an equalization over time.

Forging Ahead in Enterprise Software

Hugh: What are some of the challenges that you see going forward – whether in Vista or investing in the enterprise software space?

Robert: Things that keep me up at night include are we investing enough in our people’s development, so they understand the impact of generative AI and other factors? Understanding the implication of this new technology will hopefully keep us on the leading edge of being the best investors in this space.

So, it’s investing in people to ensure that you’re building their capabilities. Part of investing in people is making room for them to expand and grow in the organization. That’s part of the process that will keep us thriving as an organization decades beyond this conversation today.

Listen to episode one and episode two now.

This blog does not constitute an offer to sell or a solicitation of an offer to buy any interests in any security. Past performance is not indicative of future results. Private investments entail a high degree of risk and are not suitable for all investors. Statements contained in this blog (including those relating to current and future market conditions and trends in respect thereof) that are not historical facts are based on current expectations, estimates, projections, targets, opinions and/or beliefs of Vista. Specific investments presented herein are for informational purposes only and are intended to illustrate Vista’s sourcing experience, thematic investment approach and the profile and types of investments previously pursued by Vista. It should not be assumed that investments made in the future will be comparable in quality or performance to the investments described herein. Please see Vista’s website for a complete list of current and past investments.