Bloomberg Audio Studios, podcasts, radio news, private market deal maker is Gantherine.
At the annual Super Return conference over in Germany, Danny Berger focused on many of these issues.
She joined us now from Berlin.
Hey Danny, Hey, John, that's correct. And there's one issue I want to focus in on particular, and it is the state of software and private equity. And we have the leading voice to talk about that. It is Orlando Bravo, the co founder of Toma. Bravo, Orlando. Always a pleasure to see you here.
Danny, So good to see you. This is our yearly tradition.
It is our yearly I would be gutted if we didn't meet, same place, same time.
Every one of the reasons I come here to do this.
Okay, hopefully among the top. And I know this year you have a particular message. I remember earlier this year you were talking at Soon and saying the SaaS apocalypse, the worst is over. Does it go further in your mind just the worst being over?
But is this thing over? Orlando? Where are we in the world of the SaaS pocalyptse?
Danny saspocalypse for whatever term, and that's a terrible term, by the way, I really don't like that term. It is finished no more, and it's pretty simple. You know, people are realizing that these are unbelievable companies, and you look at the numbers coming out even after the first quarter. And secondly, and more importantly, people are realizing that SaaS companies just don't stay still.
They're not static.
They evolve with infrastructure, they evolve with opportunity. And SaaS and agentic are going to merge very very very quickly. And these companies are the future of agents in the enterprise. And the market is realizing that as well.
So the freak out is over.
Essentially, is that what you're saying in private markets is this stuff's starting to be realized your portfolio, maybe some of your peers at the valuations that you think they should have. Where is there still some frozen assets, some stickiness that has yet to come unglued.
In private equity, the environment is pretty stuck right now now. I do think that private equity is the voice of raising in a lot of this because it makes sense that the electivity is a lot slower, because if you're going to buy a technology company or a software company, a solution provider to the enterprise, now you really want to see that they're making a lot of progress around their AI offerings. Enough time has passed that you should see that in the business because.
That's where the whole world is going to evolve to.
So why not wait a little longer before you pull the trigger and have a little bit more clarity?
Doesn't that make sense to me?
It doesn't sound like the worst is overall Lando. It seems like there's still things that need to be tested and figured out.
So what is the aspect.
Is it just where you're saying our companies are healthy or is there something else that the worst of the freakout is truly over?
Well, the freakout really happened in the public.
Markets, true, right, and you've seen since April software stocks have rebounded really really strongly. But the other thing that you notice, and this is really about public investors sentiment, is that whenever there's an announcement about one of the great llm's coming out with an amazing model like today, the whole software industry doesn't collapse or react to it. A big place where you saw the freak out, as you call them, be completely over is where we invest
fifty percent of our dollars in cyber. This is a huge tailwind to cyber and that's one of the sectors that has rebounded really strongly over the past month.
What about in lending, what are conversations with your lenders like is I remember we had out of conversation saying the constant capital has gone a little bit higher because the concerns. Has that come back down or are there still difficult conversations to be had.
Lending is very difficult because, and I'm going to be completely upfront about this, there are many large asset managers that need to raise so much money monthly and from retail, and it's not the most popular thing right now to pile the money into software. So it is a much tighter environment now. On the buy side. Of course, that help hurts you with financing, but it means you pay a lot less.
And funds like ours we do a.
Lot better in down markets than markets because we're value investors. So we're really enjoying this opportunity. But once again, we're treading carefully because we want to buy companies that are part of the future now, companies that are stuck in the past.
By the way, Tom Abravo more than most companies has been very successful with exits. You've also had some really successful IPOs too. We're going to get SpaceX. This week we learned that open ai is going to be coming to market. Anthropic also filed for an IPO.
Is this good or bad for the.
IPO environment and prospect of exits because for one thing, it starts the capital flowing. But there's also this question is at all just being funneled? Are these just black holes of capital if you're competing for the same institutional money exactly?
Some both points are so true. I was talking to my partner, Seth Borro about this. He's in charge of a lot of companies along with Holden Space that looked like they're great IPO candidates in the twenty five billion thirty billion dollar valuation range based on about a billion dollars for free cash flow and their growth rates. And both of them told me last year, we won't be able to do anything this year because all the attention and all the time, let alone the dollars are going
to be focused on these massive historic IPOs. So these smaller caps which we are now, I guess, are much more difficult to get the attention in the short term now medium term. I really hope they do well because are really important moments for capital markets and their depth, and if they do well, you'll get more confidence in the IPO market.
Well, what is a typical period for that?
I know SpaceX is you don't really have a historical corollary because it's just so large in size. But what would be your estimation of when you can enter back into the IPO market after these come.
In hopefully nine months a year after Now that's a guess, right. So many things are up in the air. What happens with interest rates, what happens with valuations? Is there a slow down in the infrastructure build There's so many questions right, It's a wild investing environment. People are saying a lot of strange things in investing right now. And the toughest thing for people that have a core competency in something
is to stay the course. And of course, once again you have to be part of the future, but you have to stick with what you.
Know really well.
Remember you and I last year and had this discussion that this industry had lost its way. Do you think people have had that come to Jesus moment? Have they kind of come around or are there's still lessons to be learned.
You think they're having it now.
Look if you see some of the software troubled credits, which there are, it's out there.
It's not yet a product of.
AI having impacted those companies or those companies failing to transition to the new platform, which, by the way, is the biggest.
Opportunity in the software industry. It really, really, really is.
It's an issue of how those companies were run. People thought ten years ago, after they saw all this money being made in private equiting software, that.
It was really easy.
I buy subscription revenue, ninety percent gross margin, I cut some cost, and I'm good to go. They forgot to innovate, and they forget to invest in R and D, and they forgot the domain much of existing management by replacing them. And that's coming back to create some flatness in the environment, which is very difficult for those businesses.
By the way, any huge calls of how many people are going to be losing their.
Jobs, look at this conference.
As you know, I'm an optimist, but what we're seeing in development, the great use case for AI is we're hiring a lot more developers.
Alander is so great to see you. Thank you so much for joining, always the pleasure