Private Equity vs. Venture in the Age of AI

Welcome back to the Alt Goes Mainstream podcast.

Today’s episode is about mining for investment success in enterprise software by going “an inch wide and a mile deep” with someone who is one of the industry’s most prolific private equity technology investors.

We sat down with Nic Humphries in Hg’s London office. Nic is the Senior Partner and Executive Chairman of Hg and Head of the firm’s Saturn fund.

Hg, one of the top 10 largest PE firms globally based on the PEI300 ranking, has built an impressive investment engine focused on mission-critical enterprise software. The firm has built a portfolio that is a “transatlantic ecosystem of software and services businesses” — representing over $180B in collective enterprise value across its 55 portfolio companies.

Nic is responsible for Hg’s strategy, management, and governance. On the investing side, Nic focuses on larger software investments that provide daily-use mission critical applications for accountants, tax / compliance professionals, and designers / engineers / scientists. He has brought his electrical engineering background to bear to go a “mile deep” into a category where Hg has become an unquestioned market leader.

Nic balances being both a detail-oriented specialist with a vision for both the enterprise software industry and Hg as a firm. We had a fascinating discussion about enterprise software investing, how to create European software giants, applying AI to make companies more efficient, and much more.

We covered:

• The origin story of Hg.
• How Hg grew into one of the industry’s leading software focused private equity firms.
• How an engineering mindset has helped Nic become a leading investor.
• Why Hg focuses on mission-critical enterprise software and why it’s a compelling investment thesis.
• Why enterprise software investing can be considered a low volatility investment strategy and how Hg has delivered consistent returns to investors.
• How to effectively manage exits and DPI.
• Why Europe, why now?
• How AI could impact technology and services businesses.

Thanks Nic for coming on the show to share your wisdom and expertise about enterprise software and private markets.

A word from AGM podcast sponsor, Juniper Square

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Show Notes
00:00 Introduction to our Sponsor, Juniper Square

01:40 Introducing Nic Humphries

01:56 Hg's Investment Strategy

04:03 Nic's Background and Career Journey

04:46 Engineering Mindset in Investing

05:14 Long-Term Business Thinking

05:58 Hg's Focus on Accounting Software

06:45 Growth Drivers in SMB Market

09:05 Impact of AI on Enterprise Software

09:34 Platform Shifts in Technology

11:10 Adapting to AI in Business

12:15 Mission Critical Software

14:02 Challenges of AI Integration

14:58 Embedding Products and Services

17:13 Organic Growth vs. Acquisitions

20:51 Geographical Expansion Strategies

21:59 European vs. North American Markets

23:30 Management Teams and Expansion

24:32 Jurisdictional Challenges in Europe

25:05 Hg's Investment Philosophy

25:50 Mission Critical Software in Europe

36:22 Hg's Consistent Investment Returns

38:00 Conclusion and Final Thoughts

40:13 Understanding Recurring Revenues

40:59 The Importance of Discipline in Investing

41:48 Learning from Past Experiences

43:30 Maintaining Excitement and Focus

45:26 The Role of Realization Committees

46:44 Continuous Improvement Culture

47:42 The Importance of Cash Returns

48:51 Exit Strategies and Realization Committees

50:32 Re-underwriting Investments

52:40 AI's Impact on Software Development

54:17 The Rule of 40 and AI

54:38 Investing in AI: Startups vs. Established Businesses

55:59 Hg's Growth Strategy

58:56 Specialization in B2B Back Office Software

01:01:35 Fund Structure and Management

01:03:27 Expanding into the Wealth Channel

01:03:48 Hg Capital Trust and Fusion Fund

01:05:27 Communicating with a Broader Audience

01:06:39 The Importance of Brand in Wealth Management

01:07:32 Connecting Private Markets to Everyday Life

01:09:36 The Prevalence of Private Companies

01:11:09 Aligning Interests with Investors

01:12:19 Investment Decisions and Long-term Growth

01:14:21 Future Growth Opportunities for Hg

01:16:38 The Role of AI in Future Investments

Editing and post-production work for this episode was provided by The Podcast Consultant.

Disclaimer

The views and opinions expressed in this episode are those of the speaker and do not necessarily reflect the official policy or position of any affiliated organization.

Any references to past performance, including IRR or MOIC figures, are presented on a gross basis and do not reflect the deduction of fees, expenses, or carried interest. These figures are illustrative and not necessarily indicative of future results. 

Statements regarding industry rankings, success rates, or performance consistency are based on internal analysis and may not be indepe...