Feb 6, 2023 · 1h 1m · news
Orlando Bravo: Raising Kids as a Billionaire; VC vs PE; Is Warren Buffet Wrong? | 20VC #974 · 20VC with Harry Stebbings
0:00 / 0:00
▶ Watch on YouTube →
gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this comprehensive interview, Thoma Bravo co-founder Orlando Bravo shares the operational secrets, financial disciplines, and strategic methodologies that built his firm into a software private equity powerhouse. He also reflects deeply on his career journey, offering personal insights into maintaining mental resilience, parenting within wealthy households, and managing professional pressure.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 20.8% of the talking time here. How this is scored →
Harry as informed peer 3.1 Guest teaching 2.9 Guest disagreement 1.0 Harry pushing back 2.2
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 29:44 Dismissing Outside Valuation Critics
Orlando forcefully pushes back against market commentary regarding Thoma Bravo's deal prices, pointing out that external critics have no visibility into their internal operating plans or cash flow projections.
Hardest push from Harry ▶ 29:12 Challenging High Acquisition PricesHarry explicitly puts Orlando on the spot by naming high-profile acquisitions like Coupa and Anaplan and stating that industry peers believe Thoma Bravo overpaid.
Biggest teaching moment ▶ 52:28 Reframing Delegation and ControlOrlando educates Harry on executive management, explaining how stepping back from daily micromanagement and delegating responsibility significantly improved business performance while enabling personal balance.
Harry holds his own ▶ 29:12 Citing Specific Deal ExamplesHarry demonstrates sharp market awareness by citing specific multi-billion dollar buyout deals from Thoma Bravo's portfolio to pressure the guest on valuation discipline.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| The Founding and Evolution of Thoma Bravo | 3 | 3 | 1 | 2 | Harry asks Orlando to recount the founding of Thoma Bravo and interrupts to contrast venture capital perspectives on value investing against private equity metrics. Orlando explains that every business is ultimately valued on future cash flows rather than pure revenue multiples. | |
| Operational Turnarounds and the Marcel Bernard Philosophy | 2 | 3 | 0 | 1 | Orlando shares operational principles learned from mentor Marcel Bernard regarding turning software innovators into high cash-flow companies. Harry prompts Orlando to detail the exact mechanics of working with management teams to achieve 40% free cash flow margins. | |
| Overcoming Early Career Stagnation and Failure | 2 | 1 | 0 | 1 | Harry asks personal questions regarding Orlando's underlying motivations and career low points. Orlando opens up about his fear of stagnation and feeling like a complete failure during the 1999 tech bust. | |
| Mindset in Sports, Investing, and the Definition of Success | 2 | 1 | 0 | 1 | Harry draws parallels between competitive tennis and investing mindsets, asking how Orlando speaks to himself when trailing in a deal. Orlando explains that he views success as incremental art created collaboratively across small deal milestones. | |
| Post-Boom Market Outlook and Consistent Valuation Metrics | 4 | 4 | 1 | 3 | Harry pushes Orlando on whether current market valuations represent a new normal or a correction from central bank money printing. Orlando outlines software valuation benchmarks, detailing how unprofitable software multiples plummeted from 17x forward revenue down to 3.5x. | |
| Turnaround Mechanics, Operational Efficiencies, and the Twitter Case Study | 4 | 3 | 2 | 4 | Harry asks whether Elon Musk's aggressive headcount reductions at Twitter signal a broader playbook for tech efficiency. Orlando politely reframes the question, clarifying that Twitter is a consumer internet business while Thoma Bravo focuses strictly on enterprise B2B software. | |
| Price Sensitivity and Risk Management in Private Equity vs VC | 4 | 3 | 1 | 3 | Harry highlights the contrast between VC price indifference and buyout price sensitivity. Orlando explains that writing ten billion dollar equity checks leaves zero room for fatal portfolio losses. | |
| Defending Premium Prices and Optimizing Strategic Exits | 5 | 4 | 3 | 5 | Harry directly challenges Orlando over market criticism that Thoma Bravo overpaid for acquisitions like Coupa and Anaplan. Orlando defends the pricing by noting that external observers lack insight into Thoma Bravo's operational plan and future cash flow restructuring. | |
| Scaling Fund Sizes, Concentrated Portfolios, and Diligence Failures | 5 | 3 | 2 | 4 | Harry challenges the idea that expanding fund sizes maintains top-tier performance and references Warren Buffett's view that diversification is overrated. Orlando agrees on portfolio concentration and candidly recounts a past diligence oversight where product decline was underestimated. | |
| Minimizing Information Gaps and Thoma Bravo's Consensus Model | 3 | 2 | 1 | 2 | Harry asks about investment committee dynamics and whether dissent leads to better choices than consensus. Orlando explains why Thoma Bravo relies on 100% consensus, given their shared focus on a single asset class with an identical operational playbook. | |
| Staying the Course and Avoiding Falling Knives in Down Markets | 3 | 2 | 1 | 2 | Harry asks how to guide investment teams to deploy capital in declining markets without catching falling knives. Orlando notes that deep diligence on revenue trajectory and customer retention prevents buying into collapsing top lines. | |
| Career Pressure, Relationships, and the Business Benefits of Letting Go | 1 | 5 | 0 | 0 | Harry shares deep personal anxieties regarding work-life balance, relationships, and feeling like he is constantly failing. Orlando adopts a mentoring role, advising Harry on how letting go of micromanaging at work actually enhanced business performance and personal well-being. | |
| Quick-Fire Insights: Presence, Philanthropy, and Future Horizons | 2 | 3 | 1 | 1 | In a quick-fire round, Orlando recommends 'The Power of Now' and discusses the difficulty of measuring impact in non-profit philanthropy compared to corporate P&L statements. |
Statements from this episode (22)
Bravo: High-margin, unprofitable software companies make prime buyout targets
“The more we studied these companies, the more we realized the recurring revenues are really strong, but none of them were making money. So we developed an approach that said, no, with 90, 80% gross margins, like today, these companies can be buyout candidates …”
Bravo: Every company is worth only its future cash flows
“Look, we believe every company in the world, Is worth its future cash flows. We just come from that world. We don't believe in multiples of revenue. We don't believe in, ah, a technology may be worth a trillion dollars or a billion dollars because it might do …”
Bravo: Turnarounds require breaking problems down, measuring, and delegating
“What we would do, and what he would always tell us to do, is measure. Take a big problem and divide it into many component parts. Prioritize which parts are more important And then within those parts, measure where you are and begin the journey towards improvi…”
Bravo: Most software companies fail to segment costs for profitable growth
“We see even today the world of software, which are much better innovators today than they were 10 years ago, than they were 20 years ago, but these businesses mainly have a big bucket of revenue and a big bucket of cost, and they don't really separate their ac…”
Orlando Bravo was almost fired from his PE firm in 1999
“I felt that my career was a failure in 1999. I had come out of Stanford Business School and Law School. With what I thought was this like blue chip, pristine, right? Education and resume. And I had very high expectations of myself and a timeline for which I ne…”
Bravo: Competitive deals are never over even if trailing on price
“I tell myself when working on a competitive investment situation in which there is another suitor for the company or many, the deal isn't over. You could be losing. You could be behind on price. You could be losing something. Maybe your operating plan is not y…”
Bravo: Profitable software trades at 25x forward P/E versus S&P's 16.5x
“If you look at the public market as a benchmark for the world, and you take an index of the profitable software companies, those companies that have margins in excess of 20%, and you put them all together, on average, They trade for around a 25 forward PE, whi…”
Bravo: Unprofitable software forward revenue multiples dropped from 17x to 3.5x
“The revenue multiples on those have gone from an average of 17 times forward to 3.5 today.”
Bravo: Lower tech market valuations represent the new normal for years
“So if I, if you really push me, I would say, yes, this is the new normal, because I don't see investors jumping in in mass To do the same thing that in the last 18 months lost them 80% of their money. At least not in the next few years.”
Bravo: Thoma Bravo requires target company inefficiency to drive excess returns
“Give us enough inefficiency so we can earn a differentiated return. If you have a perfectly run business, then it's going to sell for a retail value on that cash flow, and we may not have enough delta to create an additional return from our efforts and from ou…”
Bravo: Greater operational efficiency accelerates software business growth
“In our world, the more efficient you are, the faster you should grow.”
Bravo: PE firms cannot triage underperforming portfolio investments like VCs
“There's no such thing in buyouts and private equity as triaging your portfolio and deciding what you throw away and when you keep going, which in another way to put it is, is actually a big motivator to management teams to partner with you because you have no …”
Bravo: Critics claim Thoma Bravo overpaid on almost every deal
“And I almost cannot tell you of a deal where a peer or competitor or an outsider, I cannot almost say one single deal where they haven't criticized us for paying too much. It's truly, truly amazing. So Coupa Anaplan and whatever other investments are no except…”
Bravo: Thoma Bravo avoids IPOs because cash-generative companies avoid dilution
“I mean, in our history, we have mainly exited to strategics and other financial buyers. And there's a reason for that is the IPO for our companies doesn't give us that much in itself because our companies generate the cashflow that is needed to fund their inve…”
Bravo: The best-run tech companies with 40% cash flow margins win
“What we can control is having the best run company in that field. And when times get really bad, the best run company always wins. Because then you'll have 40% cash flow margins. You're very well put together. You're budgeting conservatively. You're not missin…”
Bravo: Increased fund size directly correlates with reduced investment performance
“The LP community is really, really smart. And there is a direct correlation between that, that we cannot argue with. And it is there.”
Bravo: Thoma Bravo targets 12 to 15 portfolio companies per fund
“Per fund, we'd like to have 12 companies, maybe 15.”
Bravo: Supporting 40 to 50 portfolio companies operationally is impossible
“If you have an investor, private equity or venture firm, that claims that they make a big difference in their companies, that they're there with those companies operationally, that they change them in a positive way. And you have 40 or 50, there is no way you …”
Bravo: Thoma Bravo holds four-hour monthly board meetings for all companies
“We meet with our companies monthly. Our board meetings are monthly from eight to noon on every one of these entities.”
Bravo: One-third of management committee works directly on each deal
“And we try, what we try to do is, actually what we do is we have at least a third of the management committee Be involved in that deal day to day. And therefore you have two leaders and two senior partners that can talk about it and are living that journey whi…”
Bravo: Thoma Bravo requires 100% unanimous consensus on all deals
“We don't do any controversial deals. We are. 100%. Everybody consents. If somebody really has a problem with that deal, there's something really wrong. Once again, we've worked together, all of us, for almost 20 years. We're looking at the same industry. We ha…”
Bravo: Philanthropy is hard because foundation budgets contain only costs
“When I go through the budget of a company, you see this hopefully wonderful earnings coming out from all the work, and you have revenue and cost, and you can measure that. When you do a budget for your foundation, you only have cost.”
Shorts cut from this episode
▶ Private Equity Billionaire: How to Get More Efficient? ⌛ · 2 (@24:16)
▶ What is This Billionaire Running From? 🏃♂️💨 · 20VC with H (@7:36)
▶ A Billionaire's View on Why You Should Only Be Yourself 🫵 · (@57:17)
▶ A Billionaire's Relationship to Money 🤝💰 · 20VC with Harry (@45:34)
▶ The Secret is to Delegate 🤫 #shorts · 20VC with Harry Stebb (@52:28)
▶ Why Your Late Twenties Are The Toughest 👊 #shorts · 20VC wi (@50:29)