Valuation Multiples in Enterprise Software

My guest today is Robert Smith, the founder, Chairman, and CEO of Vista Equity Partners. An engineer by training, Robert started Vista at the turn of the millennium and built it into one of the world's most successful software-focused investment firms. We discuss the white space left in enterprise software investing, the importance of capital cycles, and what he’s learned building an iconic investing franchise. Please enjoy my discussion with Robert Smith.

For the full show notes, transcript, and links to mentioned content, check out the episode page here.

-----

This episode is brought to you by Tegus. Tegus streamlines the investment research process so you can get up to speed and find answers to critical questions on companies faster and more efficiently. The Tegus platform surfaces the hard-to-get qualitative insights, gives instant access to critical public financial data through BamSEC, and helps you set up customized expert calls. It’s all done on a single, modern SaaS platform that offers 360-degree insight into any public or private company. As a listener, you can take Tegus for a free test drive by visiting tegus.co/patrick. And until 2023 every Tegus license comes with complimentary access to BamSec by Tegus.

-----

Today's episode is brought to you by Brex. Brex is the integrated financial platform trusted by the world's most innovative entrepreneurs and fastest-growing companies. With Brex, you can move money fast for instant impact with high-limit corporate cards, payments, venture debt, and spend management software all in one place. Ready to accelerate your business? Learn more at brex.com/best.

-----

Invest Like the Best is a property of Colossus, LLC. For more episodes of Invest Like the Best, visit joincolossus.com/episodes. 

Past guests include Tobi Lutke, Kevin Systrom, Mike Krieger, John Collison, Kat Cole, Marc Andreessen, Matthew Ball, Bill Gurley, Anu Hariharan, Ben Thompson, and many more.

Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here.

Follow us on Twitter: @patrick_oshag | @JoinColossus

Show Notes

[00:02:34] - [First question] - What the enterprise software market looks and feels like to him

[00:05:52] - Whether or not software is becoming a saturated market and what will drive demand over the coming decades

[00:09:42] - Bringing an engineering mindset to enterprise software investing and culture

[00:12:36] - A single change he made to a business that stands out most in memory

[00:14:33] - Qualities that are most critical in defining a good enterprise software company

[00:18:07] - How the profile of companies he’s bought has changed over the years

[00:20:33] - Categories of software he tends to gravitate towards 

[00:23:56] - Evolving his model for considering what multiple to pay for a business and thinking about p/e growth multiples 

[00:27:17] - Lessons learned about customer churn over his twenty two year career

[00:29:44] - Capital cycles and how much they truly impact the software world 

[00:31:53] - What elements of building Vista have most appealed to him over the years  

[00:38:06] - The war for talent and what his senior team would debate most 

[00:40:01] - Biggest mistakes Vista has made and what they taught him

[00:41:09] - What has him most insecure or paranoid about the platform he’s built

[00:43:10] - The advice he’d give on having good relationships with LPs

[00:44:57] - The largest risk he or Vista has ever intentionally taken 

[00:46:15] - What he’s learned about having a winning negotiations and sales approach

[00:49:27] - Who he’d give all of his capital to outside of Vista

[00:53:08] - The work he does in the foster world

[00:54:49] - The kindest thing anyone has ever done for him