The Exchanges

Q Why don't you take me all the way back to your upbringing?

A Well, I was actually born in a suburb of Toronto, Canada. My parents actually were not high school graduates. I'm one of three boys, and my father started life as a butcher and worked his way up and became a regional vice president for A&P Supermarkets, which no longer exists, but was a big supermarket chain back in the day. Then in 1980, he was asked to take a job transfer, and we ultimately ended up Moving to Detroit. So that's how I ended up in the United States. I went to high school in Detroit, graduated high school young. I was 16 when I went away to college, which was a little unusual, but I started pursuing a business degree and my father got me my first job, which was in food sales over the course of the summer. And then at the end of my third year, the company that I was working for offered me a full-time job. So I started to work full-time in food sales. Pursued my degree at night at Eastern Michigan while I was becoming a food salesperson. That went on for about five years, and then I had this idea of going to law school. I really didn't know any lawyers, but I thought being a lawyer is a better job than being a juice salesman. So I went to law school and really just completely fell in love with studying law. Started practicing law in Detroit at a firm named Honigman Miller as a corporate lawyer. And just felt like this is what I'm supposed to do. I had some aptitud…

AI assessment note: “Well, I was actually born in a suburb of Toronto, Canada.”

Q So software has been this great place to be. Why does it continue to be?

A It continues to be the most productive tool that a company can implement. Our average company has about a 625% ROI to its customer. So if you're going to spend money in your company, there's almost no more effective way to spend money than to consume software that enhances the productivity of your firm. Today's market is a super interesting market, Ted. If you look at what's gone on over the last few years, we had a really interesting moment in software. So as we went into the pandemic and the COVID shutdown, very quickly after you saw a real acceleration of the consumption of software and technology, people had to digitize their supply chains, their customer relationships, their employee relationships, and you saw in the public markets a major spike in valuations. Historically, software was trading six to eight, nine times forward revenue multiples. At the height of 20, 21, you saw it peak at a little over 17 times forward revenue multiples. So just dramatic valuations. And during that time period, we really avoided doing anything in the public markets because we just don't know how to buy companies at 17 times and have it be a good outcome because we did not believe that that was sustainable. Then in 22, you saw the tech wreck. You saw a pullback in spending, in particular in the technology space, and then you saw multiples crash. That created a really interesting opportunity…

AI assessment note: “It continues to be the most productive tool that a company can implement.”

Q You don't often think of sales and then going to law. Also love to ask you a similar question of the various things you learned over your career in the law. What have been the most impactful in what you're doing now?

A Two big components of it. In private equity, you fundamentally are buying, operating, and selling companies. So having a very deep background in transactions and how transactions happen, how parties act, how you run processes, those are all very valuable lessons. And when I joined Kirkland, I did literally hundreds and hundreds of transactions. I would do 60, 70 transactions a year in one form or fashion. So when I joined Vista, I had a deep transactional background that was very helpful. While I thought I was more of a business lawyer than the typical lawyer, I was certainly not an investor. So as I joined Vista, that was an area that I knew I needed to develop my knowledge base and really understand how we think about investing in software and why we like certain companies more than others, where we see opportunities to create value. The second part of it is a law firm is a professional services firm. An alternatives firm is a professional services firm where you are working with very high aptitude, highly motivated, ambitious people, and learning how to build teams, learning how to drive culture, learning how to spot talent and cultivate talent and opportunity. Some of my building out a fairly large legal practice, there were lessons I learned in that that certainly applied as we were trying to grow Vista. Some management lessons were transferable, and certainly just being a…

AI assessment note: “So when I joined Vista, I had a deep transactional background that was very helpful.”

Q Let's turn to Vista. That's a tremendous amount of growth from thirteen billion to a hundred in the 10 years since you've been around. What's changed in the business to allow that growth to happen?

A If you think about the different components, one element is what market have we been in? And enterprise software has become the largest part of the global economy. Even though it's so large, it's continuing to grow in mid to upper teens compounded annual growth rates as far as you can accurately predict things. So one element of the growth is that we've been in a segment of the world that has grown Quite rapidly. And that has allowed us to raise larger pools of capital because we have a larger opportunity to pursue without having to compromise our underwriting and our investment approach. The second element of it is because we are sector focused. If you want to view software as a sector, we own today, 90 companies with a little over thirty billion of revenue. They all have a lot of the same attributes, a lot of the same challenges, a lot of the same organizational structures. So things that we learn from one company are oftentimes transferable to 89 other companies. One of the things that I think we have done very well as the business has grown is we've really thought about how does the scale of what we do, how do we harness it for every one of our companies? As an example, we do a bunch of best practice sharing summits and CXO summits where we bring together all of the product heads in every one of our companies, all of the sales leaders of every one of our companies, all of t…

AI assessment note: “one element is what market have we been in... The second element of it is”

Q and more. In the AI era, asset and wealth management firms moving to Ridgeline gain a decided advantage. That's why customers call it miraculous, game-changing, and an awakening. If that's not how you would describe your investment management tech, request a demo at ridgeline.ai. And now, back to the show. How do you think about the risk alongside the opportunity of AI and Gen AI in a software-dominated investment thesis?

A We're looking at AI through three major lenses that I think some are more opportunity, and then there's elements where there's risk. Most of our companies have sovereignty and control over important and unique data sets and workflows. So that, if done correctly, should be your moat to both allow you to take advantage of the gen AI opportunity, but to also defend yourself Against the risk of Gen AI. There are some companies out there that do not have proprietary data. They don't have rights to the data. They don't have dominion over the workflows. There are going to be companies that you'd say five years from now, do they have a right to exist? And they might very well not have a right to exist. So as we look at new investments, we're really looking at it through that lens of what are their data motes? What are their workflow motes that we think as we enable them with Gen AI, they should be the winner. So then you say, what's the opportunity? Operational efficiency. If you look at the different components of a software company, every one of those functions has an opportunity to be much, much more efficient with the use of generative AI. We're seeing productivity gains of 10 to 30% on code writing. That's going to grow. We talk about a company in the rule of 40. When we look at a software business and say, is it being run effectively? We look at the EBITDA margin, and then the to…

AI assessment note: “We're looking at AI through three major lenses that I think some are more opportunity”

Q You have to tell me how does what you learned in food sales apply to what you've done since?

A Two interesting things. I think anyone getting some time in sales is going to benefit you throughout your career. In any job that anyone's going to have, you're selling in some form or fashion. Learning how to listen and ask questions and understand the needs of your customer, and then thinking about what product you have or what solution you have that can fill that need. A lot of people just don't know how to listen. They don't know how to ask questions. They don't know how to understand the other person's perspective. So that's probably one of the biggest things that I took out of my sales career. The other thing is in sales, you get told no a lot and learning how to be told no and get up the next day and go do it again and accept that you're going to get rejected nine times to get the 10th yes is something that a lot of people don't learn that in life. When you've been in sales, you learn how to handle rejection. That's a valuable lesson.

AI assessment note: “anyone getting some time in sales is going to benefit you throughout your career.”

Q You bring those two things together. I'd love to ask you about the people aspect of getting deals done. What are the most important things, just as it relates to the people on the two sides of a transaction that you saw where things worked and where things derailed?

A One of the most important things, the people that I've dealt with over my career that I thought were the most effective and that I tried to emulate as I was learning my craft is you need to have different approaches for the people you're dealing with. The best practitioners, they just have different speeds, different gears, different styles, and part of what you have to do is really understand and assess the person that you're dealing with What are their needs? What are their goals? What are their issues that they might have internally or they might have with your transaction? And it goes back to that sales thing. Listening and understanding what's their motivations and how do you persuade them? Because you really have to be able to persuade people. In most transactions, you're in fairly level playing fields. You want to buy, they want to sell, but no one has to do a deal. So being able to figure out where's the common ground that works for both of you, and how do you get there? Being able to understand people is a very important element. The best transactional folks, whether business or lawyers that I've ever worked with or across from were people that really sought to understand what your needs were, what your motivations were, and then how can we package something It's a cliche about a win-win, but you ultimately do have to find a solution that is going to work for you and i…

AI assessment note: “you need to have different approaches for the people you're dealing with”

Q You mentioned that you want to be in the space to be part of your growth in the future. How do you moderate what could happen?

A There's two approaches to this market. I want to get every dollar people will give me, or I want to get the dollars that I think enable my strategy. We are in the second group. How we think about it is what's the right amount of capital to raise that's going to augment what we're doing institutionally, and that's what we're going to raise. Assuming that we have more interest than what our target is, we're going to meter what we take on because it's really important to give a good experience to the investors that you do take on. It's critically important that we honor our obligations to our institutional investors as well. So you just have to balance it. And again, we're not trying to grab every dollar that we can grab. We want to enable our strategy.

AI assessment note: “we're going to meter what we take on because it's really important”

Q As you did your research, what did you find you were going to need internally to pursue the opportunity and wealth?

A You definitely need to bolster your operations. There's just more operational lift to the wealth market versus the institutional market. So we brought in folks that are focused on that. How you approach the market is different. So we brought in some marketing people that understand the wealth channel. And then Dan has built out a coverage team to really cover the different sectors of the wealth market, whether it's the Private banks, Whether it's the wire houses, whether it's the RIA channel, we've added, I think, 20 to 23 folks in the go to market side of the wealth space. Do I think we need some really good people to manage the most critical relationships and to provide the support that this channel needs? For sure, we want to be thought leaders with the channel on why we think you should be investing in software and why we think you should think about the different ways to play The generative AI opportunity, whether it's chips and hardware, whether it's infrastructure, whether it's energy, we think the long tail of opportunity is going to be in the application side, which is what it's historically been. As you look at the evolution of technology, then we want to be the preferred partner.

AI assessment note: “You definitely need to bolster your operations. There's just more operational lift”

Q What have been some of the biggest unexpected challenges on this journey the last three years and moving into the space?

A I'd say structuring the product and thinking about what do you want your product to be, and what do you think the right amount of capital is. We spent a lot of time focused on that. There are a lot of fantastic firms in the RIA community, and really making sure that you're resourced to meet with them, explain what you're doing. I'm on the road an awful lot meeting with folks, and I was warned up front that I travel quite a bit for my day job to begin with, and Robert and some other partners do, and that's going up. I love the meetings, and it's a lot of fun. I love talking about Vista, and I love meeting with smart folks that are interested in hearing about us. It's not quite a hand-to-hand combat game, but you really do have to make yourself available and really spread out and get your message out.

AI assessment note: “I'd say structuring the product and thinking about what do you want your product to be”

Q What does success look like for you in the Wealth Channel over the next few years?

A Raising the capital that we think we need to raise with partners that view us as partners and with our institutional investors, we really want to be viewed as a partner. We've got to really listen to the voice of our investors and deliver what solutions they need. I think success for us is that we have deep partnerships in the wealth space where people know what we're trying to do for them. We actually deliver on what we say. We stick to the strategy as we've articulated it, and they view us as a reliable and consistent partner. We believe that we're one of the premier investors in our space, and if three or four years from now, if I've got clients that I want them to have exposure in this part of the economy, these are the guys and gals to do it with, then I'd say we've been successful, and I think it's important to be disciplined and to be consistent to who you are.

AI assessment note: “success for us is that we have deep partnerships in the wealth space”